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Item 7. Management’s Discussion and Analysis

2022-03-18 compared with 2021-03-19 · 459 added, 379 removed, 734 unchanged (53% of the section changed)

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on a consolidated basis during the year ended December 31, 2021 and selected prior periods.

This discussion and analysis should be read in conjunction with information presented elsewhere in this report, including "Item 6.

Selected Financial Data" and our audited consolidated financial statements and notes thereto included in "Item 8.

This discussion and analysis should be read in conjunction with information presented elsewhere in this Report, including our audited consolidated financial statements and notes thereto included in “Item 8.

Financial Statements and Supplementary Data.”

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We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material.

See “Cautionary Note Regarding Forward-Looking Statements.” Also, see risk factors and other cautionary statements described in "Item 1A.

Risk Factors” in this Annual Report on Form 10-K.

See the risk factors and other cautionary statements described in “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A.

Risk Factors” in this Report.

We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

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is the bank holding company for Red River Bank, a Louisiana state-chartered bank established in 1999 that provides a fully integrated suite of banking products and services tailored to the needs of our commercial and retail customers.

Red River Bank operates from a network of 25 banking centers throughout Louisiana and one combined loan and deposit production office in Lafayette, Louisiana.

Red River Bank operates from a network of 27 banking centers throughout Louisiana and two combined LDPOs, one each in Lafayette, Louisiana and New Orleans, Louisiana.

Banking centers are located in the following Louisiana markets:

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Southwest, which includes the Lake Charles MSA;

and the Northshore, which includes Covington.

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

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

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

The year ended December 31, 2020, had many challenges and successes.

We were impacted by the global outbreak of the COVID-19 pandemic, the passage of the CARES Act, changing government orders, economic shutdowns, a low interest rate environment, and two hurricanes that impacted our markets.

Despite these challenges, we participated in the SBA PPP program, welcomed many new customers, implemented a stock buyback program, opened a new banking center, purchased two banking center locations, and had record high levels of mortgage activity, balance sheet growth, and earnings.

the Northshore, which includes Covington;

and Acadiana, which includes the Lafayette MSA.

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

We provide services through relationship-oriented bankers who are committed to their customers and the communities where we offer our products and services.

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.

COVID-19 UPDATE

Due to the COVID-19 pandemic and executive orders by the governor of Louisiana, the residents, businesses, and non-profit organizations of Louisiana have been subject to the following limitations during 2021:

• Louisiana began 2021 in modified Phase Two restrictions.

During this phase, which lasted until March 2, 2021, most non-essential businesses, including restaurants, were limited to 50% occupancy, although places of worship were allowed to continue to operate at 75% occupancy.

Other businesses remained closed.

• Effective March 3, 2021, Louisiana moved to modified Phase Three restriction status.

Most non-essential businesses, including restaurants, were permitted to operate at 75% occupancy.

Other businesses were permitted to operate at 50% occupancy, with certain other restrictions.

• Effective March 31, 2021, certain Phase Three restrictions were lifted.

Most non-essential businesses, including restaurants, were allowed to operate at 100% capacity.

The statewide mask mandate remained in place.

• Effective April 28, 2021, the statewide mask mandate was lifted.

• On May 26, 2021, remaining limits on occupancy restrictions for businesses were lifted.

• In the first quarter of 2021, COVID-19 vaccinations became widely available.

As of December 31, 2021, approximately 50.3% of Louisiana’s population was fully vaccinated.

• During the third quarter of 2021, Louisiana experienced a significant increase in COVID-19 pandemic cases and hospitalizations, resulting in the reinstatement of some pandemic-related restrictions such as mask mandates and vaccination requirements for certain activities.

Capacity restrictions were not reinstated.

Effective August 4, 2021, a temporary statewide indoor mask mandate was instated and later extended until October 27, 2021, when it was lifted in all settings except for K-12 schools.

Schools are permitted to opt out of the mask mandate as long as they comply with existing quarantine guidelines recommended by the U.S.

Department of Health and Human Services, Centers for Disease Control and Prevention.

• The fourth quarter of 2021 began with a declining trend of COVID-19 cases and hospitalizations in the Louisiana markets served by Red River Bank.

However, as a result of the emergence of the Omicron variant in December 2021, the number of cases and hospitalizations increased toward the end of the quarter.

• Economic activity in Louisiana improved during 2021, although the economy is still impacted by supply chain disruptions and labor shortages.

As an essential business and to support our customers, Red River Bank has provided full banking services throughout the pandemic.

2021 was a year of continued organic expansion, operational improvements, and solid financial results.

During 2021, we participated in the SBA PPP program, coordinated the forgiveness of most PPP loans, opened a new banking center, entered the New Orleans market, improved our digital banking systems, had executive management changes, repurchased stock, and had strong balance sheet growth and earnings.

2021 Financial and Operational Highlights

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This increase was driven by a $570.0 million, or 24.4%, increase in deposits for the same period.

The deposit growth in 2020 was due to customers receiving funds from various government stimulus programs, customers depositing the proceeds from their PPP loans, strong deposit account opening activity, and customers maintaining larger deposit balances.

• Loans HFI increased $149.5 million, or 10.4%, to $1.59 billion as of December 31, 2020, compared to $1.44 billion as of December 31, 2019.

The increase in loans was mainly due to PPP loans originated during the year.

• Red River Bank participated in the SBA PPP, supporting Louisiana businesses with PPP loans.

In the second quarter of 2020, Red River Bank originated 1,384 PPP loans totaling $199.0 million, with an average loan size of $144,000.

In the fourth quarter of 2020, the SBA began approving our initial PPP loan forgiveness applications.

As of December 31, 2020, PPP loans, net of deferred income, were $118.4 million.

The deposit growth in 2021 was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining higher deposit balances.

• Non-PPP loans HFI (non-GAAP) increased $196.3 million, or 13.4%, to $1.67 billion as of December 31, 2021, compared to $1.47 billion as of December 31, 2020.

The increase in loans was mainly due to increased loan activity across all of our markets with our newer markets experiencing the most growth.

For additional information on non-GAAP financial measures, see “ -Non-GAAP Financial Measures” in this Report.

• Red River Bank is participating in the SBA PPP.

During 2021, forgiveness payments on PPP loans exceeded the origination of PPP2 loans which resulted in a $100.9 million, or 85.2%, decrease in PPP loans.

As of December 31, 2021, PPP loans were $17.6 million, net of $626,000 of deferred income, or 1.0% of loans HFI.

PPP loan income for 2021 was $5.8 million, compared to $5.6 million for 2020.

• The Company had a high level of liquidity in 2021.

Average short-term liquid assets totaled $619.4 million, or 22.2% of average earning assets for 2021.

• The net interest margin FTE for 2021 was 2.60%, compared to 3.14% for the prior year.

The net interest margin FTE for 2021 was negatively impacted by the higher level of low-yielding short-term liquid assets, combined with the impact of a full year of low interest rates.

The high level of low-yielding short-term liquid assets, on a standalone basis, had a 70 bp dilutive impact to the net interest margin FTE in 2021.

• Mortgage loan production and income in 2021 were at record high levels for the Company.

• During 2020, our investment group successfully converted our registered broker-dealer relationship to LPL Financial LLC.

This conversion allows us to support future brokerage services growth, as well as provide better technology and benefits to our customers and investment group.

• We expanded organically throughout Louisiana with the following:

◦ Late in 2019, we purchased a banking center building in Sulphur, Louisiana, located in our Southwest Louisiana market.

This property was remodeled and opened as a Red River Bank banking center late in the first quarter of 2020.

◦ In the third quarter of 2020, we began operations in our newest market, Acadiana, which includes the Lafayette, Louisiana MSA.

We hired an Acadiana market president and opened a combined loan and deposit production office in Lafayette.

◦ In the fourth quarter of 2020, we purchased a banking center building in Lake Charles, Louisiana.

This location allows us to continue to expand banking services in our Southwest Louisiana market.

This property is being remodeled and is expected to open as a full-service banking center in the second quarter of 2021, pending all necessary regulatory approvals.

◦ In the fourth quarter of 2020, we purchased a banking center building in Lafayette, Louisiana.

This property is being remodeled and is expected to open as our Acadiana market's first, full-service banking center in the summer of 2021, pending all necessary regulatory approvals.

• Beginning in the first quarter of 2020, we began paying cash dividends on a quarterly basis.

Quarterly cash dividends of $0.06 per common share were paid in 2020, resulting in cash dividends of $0.24 per common share for 2020, compared to $0.20 per common share for 2019.

• In August 2020, our board approved a stock repurchase program that authorizes us to purchase up to $3.0 million of our outstanding shares through August 27, 2021.

In 2020, we repurchased 2,824 shares.

• Our Southwest and Central Louisiana markets were impacted by Hurricane Laura in August 2020 and Hurricane Delta in October 2020.

Banking center locations in the impacted areas were temporarily closed prior to and after the hurricane;

however, banking services quickly resumed.

Red River Bank did not sustain any significant damage to its locations from these hurricanes.

Mortgage loan income was $8.7 million for 2021, compared to $8.4 million for 2020.

• NPAs decreased $3.2 million in 2021 and were $979,000, or 0.03% of assets as of December 31, 2021.

As of December 31, 2021, the allowance for loan losses was $19.2 million, or 1.14% of loans HFI and 1.15% of non-PPP loans HFI (non-GAAP).

Due to improved economic activity in Louisiana and the Bank’s favorable asset quality metrics, the provision for loan losses for 2021 was $1.9 million, compared to $6.3 million for 2020.

For additional information on non-GAAP financial measures, see “ -Non-GAAP Financial Measures” in this Report.

• We expanded organically throughout Louisiana with the following events:

◦ In our Southwest market, renovations were completed on a new banking center location that we purchased in 2020.

This property was remodeled and opened as a full-service banking center in Lake Charles, Louisiana in the third quarter of 2021.

Red River Bank has three banking center locations in the Southwest market.

◦ We began operations in our newest market, New Orleans, Louisiana.

In the third quarter of 2021, we hired a New Orleans market president.

In the fourth quarter, we hired seven additional bankers and opened a combined LDPO in downtown New Orleans.

◦ In the fourth quarter of 2021, we hired an experienced commercial lender in the Northshore market.

◦ In our Acadiana market, renovations were completed on a new banking center location that we purchased in 2020.

This location opened as the first Red River Bank full-service banking center in Lafayette, Louisiana on January 26, 2022.

Red River Bank also has an LDPO in the Acadiana market.

• In 2021, we paid a quarterly cash dividend of $0.07 per share, resulting in cash dividends of $0.28 per share for 2021, compared to $0.24 per share for 2020.

• In accordance with the Company’s stock repurchase programs, during 2021, the Company repurchased 153,553 shares of its common stock at an aggregate cost of $7.9 million.

• Various management changes occurred in 2021.

Bridges Hall was appointed Chief Credit Policy Officer of the Bank, and Tammi Salazar was appointed Chief Operating Officer of the Bank.

• During 2021, the Company invested in the JAM FINTOP Banktech, L.P.

fund to strategically develop technology partnerships as we expand the Bank’s digital offerings.

Also, we selected and implemented various new, digital banking systems that are expected to improve efficiency, minimize costs, and provide our customers with up-to-date digital banking services and products.

• In August 2021, Hurricane Ida made landfall in southeast Louisiana between New Orleans and Baton Rouge.

Red River Bank did not sustain any damage to its locations, and our employees and customers had no significant issues.

The following tables set forth selected historical consolidated financial information for each of the periods indicated.

The historical financial information as of and for the years ended December 31, 2021 and 2020, except for the selected ratios, is derived from our audited consolidated financial statements included elsewhere in this Report.

The historical financial information as of and for the year ended December 31, 2019, except for the selected ratios, is derived from our audited consolidated financial statements that are not included in this Report.

Our historical results may not be indicative of our future performance.

As of December 31,

(in thousands) 2021 2020 2019

Selected Period End Balance Sheet Data:

Total assets $ 3,224,710 $ 2,642,634 $ 1,988,225

Interest-bearing deposits in other banks 761,721 417,664 107,355

Securities available-for-sale 659,178 498,206 335,573

Loans held for investment 1,683,832 1,588,446 1,438,924

Total deposits 2,910,348 2,340,360 1,721,120

Total stockholders’ equity 298,150 285,478 251,898

As of and for the Years Ended December 31,

(dollars in thousands, except per share data) 2021 2020 2019

Net Income $ 32,952 $ 28,145 $ 24,824

Per Common Share Data:

Earnings per share, basic

$ 4.53 $ 3.84 $ 3.51

Earnings per share, diluted

$ 4.51 $ 3.83 $ 3.49

Book value per share

$ 41.52 $ 38.97 $ 34.48

Tangible book value per share (1,2)

$ 41.31 $ 38.76 $ 34.27

Cash dividends per share

$ 0.28 $ 0.24 $ 0.20

Shares outstanding 7,180,155 7,325,333 7,306,221

Weighted average shares outstanding, basic

7,281,136 7,322,158 7,072,689

Weighted average shares outstanding, diluted

7,299,720 7,345,045 7,115,514

Summary Performance Ratios:

Return on average assets

1.13 % 1.22 % 1.30 %

Return on average equity

11.21 % 10.39 % 10.86 %

Net interest margin

2.54 % 3.09 % 3.47 %

Net interest margin FTE (3)

2.60 % 3.14 % 3.52 %

Efficiency ratio (4)

56.39 % 55.77 % 59.46 %

Loans HFI to deposits ratio

57.86 % 67.87 % 83.60 %

Noninterest-bearing deposits to deposits ratio

39.50 % 40.32 % 33.98 %

Noninterest income to average assets

0.84 % 1.00 % 0.84 %

Operating expense to average assets

1.87 % 2.22 % 2.49 %

Summary Credit Quality Ratios:

NPAs to total assets

0.03 % 0.16 % 0.33 %

Nonperforming loans to loans HFI

0.02 % 0.21 % 0.37 %

Allowance for loan losses to loans HFI

1.14 % 1.13 % 0.97 %

Net charge-offs to average loans

0.04 % 0.14 % 0.03 %

Capital Ratios:

Total stockholders’ equity to total assets

9.25 % 10.80 % 12.67 %

Tangible common equity to tangible assets (1,5)

9.20 % 10.75 % 12.60 %

Total risk-based capital to risk-weighted assets

17.83 % 18.68 % 18.02 %

Tier I risk-based capital to risk-weighted assets

16.76 % 17.55 % 17.07 %

Common equity Tier I capital to risk-weighted assets

16.76 % 17.55 % 17.07 %

Tier I risk-based capital to average assets

9.67 % 10.92 % 12.82 %

(1) Non-GAAP financial measure.

For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

(2) We calculate tangible book value per common share as total stockholders’ equity, less intangible assets, divided by the outstanding number of shares of our common stock at the end of the relevant period.

(3) Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.

(4) Efficiency ratio represents operating expenses divided by the sum of net interest income and noninterest income.

(5) We calculate tangible common equity as total stockholders’ equity, less intangible assets, net of accumulated amortization, and we calculate tangible assets as total assets, less intangible assets, net of accumulated amortization.

RESULTS OF OPERATIONS

Net income for the year ended December 31, 2021, was $33.0 million, or $4.51 diluted EPS, an increase of $4.8 million, or 17.1%, compared to $28.1 million, or $3.83 diluted EPS, for the year ended December 31, 2020.

The increase in net income was primarily due to a $7.2 million increase in noninterest income and a $5.4 million increase in net interest income, partially offset by a $4.5 million increase in provision for loan losses and a $4.1 million increase in operating expenses.

The increase in net income was primarily due to a $4.4 million decrease in provision expense, a $2.7 million increase in net interest income, and a $1.3 million increase in noninterest income, partially offset by a $2.8 million increase in operating expenses.

The return on average assets for the year ended December 31, 2021, was 1.13%, compared to 1.22% for the prior year.

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Fluctuations in market interest rates impact the yield on interest-earning assets and the rate paid on interest-bearing liabilities.

Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income.

Changes in the amount and type of interest-earning assets and interest-bearing liabilities impact our net interest income.

To evaluate net interest income, we measure and monitor:

(1) yields on loans and other interest-earning assets;

(2) the costs of deposits and other funding sources;

(2) the cost of deposits and other funding sources;

(3) net interest spread;

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Our net interest income and net interest margin are directly affected by these rates and their changes.

During 2019, the target federal funds rate remained consistent between January and July, decreased 75 bps in the second half of the year, and was 1.75% as of December 31, 2019.

During 2020, the target federal funds rate decreased 150 bps in March, remained consistent the rest of the year, and was 0.25% as of December 31, 2020.

Due to these fluctuations, the average effective federal funds rate was 2.16% for 2019 and 0.38% for 2020.

In 2020, the lower interest rate environment impacted yields on new, renewing, and floating rate loans, short-term liquid assets, and taxable securities.

For the year ended December 31, 2020, net interest income and net interest margin FTE were impacted by the lower interest rate environment.

Since March 2020, we have been in a low interest rate environment that has impacted both the net interest income and net interest margin FTE.

In March 2020, the target federal funds rate decreased 150 bps to 0.25% and has remained at this rate through December 31, 2021.

The average effective federal funds rate was 0.08% for 2021 and 0.38% for 2020.

Net interest income for the year ended December 31, 2021, totaled $71.7 million, a $2.7 million, or 3.9%, increase from the year ended December 31, 2020.

Net interest income increased due to a $3.7 million, or 5.0%, increase in interest and dividend income, combined with a $1.7 million, or 16.9%, decrease in interest expense.

The increase in interest and dividend income was due to $5.6 million of PPP loan income recorded during 2020 and a $360,000 increase in interest

income for total securities, partially offset by a $1.4 million decrease in interest income on short-term liquid assets and a $904,000 decrease in non-PPP loan income.

In 2020, deposit growth exceeded loan growth which created excess liquidity.

During 2020, this excess liquidity was deployed into interest-bearing deposits in other banks, as well as securities.

For the year ended December 31, 2020, compared to the year ended December 31, 2019, average short-term liquid assets increased $110.1 million, while the interest income for these liquid assets decreased $1.4 million because of the lower interest rate environment.

For the same period, average total securities increased $83.5 million resulting in an increase in interest income for total securities that was partially offset by a decrease in yield.

For the year ended December 31, 2020, average non-interest bearing deposits increased $229.8 million, or 39.8%, and average interest-bearing transaction deposits increased $138.3 million, or 18.7%, compared to the prior year.

Interest expense decreased as a result of our decision to reduce interest rates on deposits during the year ended December 31, 2020, combined with redeeming the junior subordinated debentures mid-2019 and eliminating the related interest expense.

Net interest margin FTE decreased 38 bps to 3.14% for the year ended December 31, 2020, from 3.52% for the year ended December 31, 2019, mainly due to the Federal Reserve lowering interest rates 225 bps since August 2019.

The yield on loans decreased 29 bps to 4.30% for the year ended December 31, 2020, compared to 4.59% for the prior year, due to the impact of the low interest rate environment on new, renewed, and floating rate loans.

Net interest income increased due to a $2.8 million decrease in interest expense, partially offset by a $39,000 decrease in interest and dividend income.

Interest expense decreased as deposits continued to price downward as we adjusted rates on interest-bearing deposits since the start of the COVID-19 pandemic.

This decrease was partially offset by higher interest-bearing deposit balances.

For the year ended December 31, 2021, average interest-bearing deposits increased $341.4 million, or 28.2%, compared to the year ended December 31, 2020.

Interest and dividend income decreased primarily due to a $1.5 million decrease in non-PPP loan income, partially offset by a $1.2 million increase in tax-exempt securities income and a $211,000 increase in PPP loan income.

The decrease in non-PPP loan income was driven mainly by the lower rate environment.

Tax-exempt securities income increased due to a $73.8 million, or 57.5%, growth in average tax-exempt securities compared to 2020, partially offset by the impact of lower yields compared to the prior year.

PPP loan income increased primarily due to the forgiveness of PPP loans by the SBA and the resulting acceleration of loan origination fees.

Net interest margin FTE decreased 54 bps to 2.60% for the year ended December 31, 2021, compared to 3.14% for the year ended December 31, 2020, mainly due to a higher level of low-yielding short-term liquid assets maintained during 2021 and the Federal Reserve lowering interest rates 150 bps in March 2020.

Because deposit growth exceeded loan growth during 2021, excess liquidity was deployed into short-term liquid assets and securities.

For the year ended December 31, 2021, average short-term liquid assets totaled $619.4 million, which was 215.4% higher than the prior year and were 22.2% of average earning assets.

For the year ended December 31, 2021, on a stand-alone basis, this level of liquidity had a 70 bp dilutive impact to the net interest margin FTE.

The yield on interest-bearing balances due from banks and the yield on federal funds sold decreased 13 bps and 17 bps, respectively, due to the Federal Reserve lowering interest rates in March 2020.

For the year ended December 31, 2021, the yield on taxable securities decreased 30 bps to 1.30%, compared to 1.60% for the year ended December 31, 2020.

The yield on tax-exempt securities decreased 28 bps to 2.06%, compared to 2.34% for the prior year.

The decrease in yield, for both taxable and tax-exempt securities, was due to the securities purchased during 2021 having lower yields than the portfolio yield as of December 31, 2020, as a result of the low rate environment.

The yield on loans decreased 16 bps to 4.14% for the year ended December 31, 2021, compared to the prior year, due to the impact of the lower interest rate environment on new, renewed, and floating rate non-PPP loans, partially offset by a higher yield on PPP loans.

As of December 31, 2021, floating rate loans were 15.0% of loans HFI.

For the year ended December 31, 2020, the yield on taxable securities decreased 53 bps to 1.60%, compared to 2.13% for the prior year.

The yield decreased as securities purchased throughout 2020 were at lower yields than the portfolio yield for taxable securities as of December 31, 2019, combined with an increase in amortization expense on mortage-backed securities.

For the year ended December 31, 2020, compared to the prior year, the yield on federal funds sold decreased 184 bps, and the yield on interest-bearing balances due from banks decreased 190 bps, due to the lower interest rate environment.

The resulting yield on interest-earning assets was 3.47% for the year ended December 31, 2020, a 56 bp decrease, compared to 4.03% for the prior year.

The cost of deposits was 0.41% for the year ended December 31, 2020, an 18 bp decrease, compared to 0.59% for the prior year.

The cost of deposits was lower for the year ended December 31, 2020, due to average noninterest-bearing deposits increasing $229.8 million, or 39.8%, combined with a 21 bp decrease in the rate on interest-bearing deposits for the same period as a result of our adjustments to deposit rates.

The resulting yield on interest-earning assets was 2.74% for the year ended December 31, 2021, a decrease of 73 bps, compared to 3.47%, for the year ended December 31, 2020.

The cost of deposits was 0.22% for the year ended December 31, 2021, a decrease of 19 bps, compared to 0.41% for the year ended December 31, 2020.

The cost of deposits was lower for 2021 due to a 33 bp decrease in the rate on interest-bearing deposits when compared to 2020 as a

result of our adjustments to deposit rates, combined with average noninterest-bearing deposits increasing $233.7 million, or 28.9%.

The following table presents average balance sheet information, interest income, interest expense, and the corresponding average yields earned and rates paid for the years presented:

For the Years Ended December 31,

2020 2019 2018

(dollars in thousands) Average

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Outstanding Interest

Interest-earning assets:

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Interest-bearing balances due from banks 552,501 658 0.12 % 129,090 322 0.25 %

129,090 322 0.25 % 51,694 1,127 2.15 % 40,768 798 1.93 %

Nonmarketable equity securities 3,448 10 0.28 % 2,842 20 0.71 %

2,842 20 0.71 % 1,330 23 1.69 % 1,286 18 1.36 %

Investment in trusts — — — % 181 11 6.34 % 341 16 4.83 %

Total interest-earning assets 2,791,657 $ 77,339 2.74 % 2,202,618 $ 77,378 3.47 %

2,202,618 $ 77,378 3.47 % 1,809,019 $ 73,725 4.03 % 1,707,376 $ 66,886 3.86 %

Allowance for loan losses (19,155) (15,192)

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Interest-bearing transaction deposits $ 1,210,796 $ 1,648 0.14 % $ 877,836 $ 2,824 0.32 %

$ 877,836 $ 2,824 0.32 % $ 739,554 $ 3,898 0.53 % $ 708,818 $ 2,735 0.39 %

Time deposits 341,746 3,969 1.16 % 333,260 5,538 1.66 %

Total interest-bearing deposits 1,552,542 5,617 0.36 % 1,211,096 8,362 0.69 %

1,211,096 8,362 0.69 % 1,074,578 9,701 0.90 % 1,029,517 7,084 0.69 %

Junior subordinated debentures

— — — % 6,017 385 6.39 % 11,341 558 4.92 %

Other borrowings — — — % 4,664 16 0.35 %

4,664 16 0.35 % 5 — 2.80 % 191 7 3.66 %

Total interest-bearing liabilities 1,552,542 $ 5,617 0.36 % 1,215,760 $ 8,378 0.69 %

1,215,760 $ 8,378 0.69 % 1,080,600 $ 10,086 0.93 % 1,041,049 $ 7,649 0.73 %

Noninterest-bearing liabilities:

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Accrued interest and other liabilities 17,507 18,192

18,192 16,118 13,124

Total noninterest-bearing liabilities 1,058,745 825,720

825,720 593,819 558,671

Stockholders’ equity 293,826 270,974

Total liabilities and stockholders’ equity $ 2,905,113 $ 2,312,454

$ 2,312,454 $ 1,902,965 $ 1,784,818

Net interest income $ 71,722 $ 69,000

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Cost of funds 0.20 % 0.38 %

(1) Includes average outstanding balances of loans HFS of $14.2 million, $4.1 million, and $2.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.

(1) Includes average outstanding balances of loans HFS of $8.6 million and $14.2 million for the years ended December 31, 2021 and 2020, respectively.

(2) Nonaccrual loans are included as loans carrying a zero yield.

(3) Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.

In 2020, Red River Bank participated in the SBA PPP and originated 1,384 PPP loans totaling $199.0 million.

For the year ended December 31, 2020, average PPP loans, net of deferred income, totaled $127.4 million at an interest rate of 1.0%.

Under the terms of the PPP, we received loan origination fees from the SBA ranging from 1.0% to 5.0% of the initial principal amount of the loans.

PPP origination fees were $7.0 million, or 3.52%, of originated PPP loans and are being recorded to interest income over the 24-month loan term or until the loans are forgiven by the SBA.

As PPP loan forgiveness payments are received, the remaining portion of origination fees are recorded to income.

In the fourth quarter of 2020, 39.4% of our PPP loans originated were forgiven by the SBA, and $77.7 million of PPP loan payments were received from the SBA and our borrowers.

For the year ended December 31, 2020, PPP loan income totaled $5.6 million, resulting in a 4.35% yield.

Excluding PPP loan income, net interest income (non-GAAP) for the year ended December 31, 2020, was $63.4 million, which was $201,000, or 0.30%, lower than the prior year.

In 2020 and 2021, Red River Bank participated in the SBA PPP and originated 1,888 PPP loans totaling $260.8 million.

Under the terms of the PPP, we receive loan origination fees from the SBA ranging from 1.0% to 5.0% of the initial principal amount of the loans, and PPP loans have a 1.0% interest rate.

PPP origination fees totaled $9.8 million, or 3.76%, of originated PPP loans and are recorded to interest income over the 24- or 60-month loan term or until the loans are forgiven by the SBA or repaid by the borrower.

As PPP loan forgiveness or borrower payments are received, the remaining portion of origination fees are recorded to income.

For 2021, PPP loan income totaled $5.8 million, resulting in a 7.46% yield, compared to PPP loan income of $5.6 million, resulting in a 4.35% yield for 2020.

Excluding PPP loan income, net interest income (non-GAAP) for the year ended December 31, 2021, was $65.9 million, which was $2.5 million, or 4.0%, higher than the prior year.

Also, with PPP loans excluded for the year ended December 31, 2021, the yield on non-PPP loans (non-GAAP) was 3.97%, and the net interest margin FTE (non-GAAP) was 2.46%.

For the year ended December 31, 2020, PPP loans had a one bp accretive impact to the yield on loans and a seven bp accretive impact to the net interest margin FTE.

For further information on non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

The following table presents interest income for total loans, PPP loans, total non-PPP loans (non-GAAP), and net interest ratios excluding PPP loans (non-GAAP) for the years ended December 31, 2020, 2019 and 2018.

For the year ended December 31, 2021, PPP loans had a 17 bp accretive impact to the yield on loans and a

14 bp accretive impact to the net interest margin FTE.

For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

The following table presents interest income for total loans, PPP loans, total non-PPP loans (non-GAAP), as well as net interest income and net interest ratios excluding PPP loans (non-GAAP) for the years ended December 31, 2021 and 2020.

For the Years Ended December 31,

2020 2019 2018

(dollars in thousands) Average

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Earned Average

Yield Average

Outstanding Interest/Fee

Earned Average

$ 1,621,606 $ 67,923 4.14 % $ 1,587,351 $ 69,228 4.30 %

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$ 1,544,384 $ 62,150 3.97 % $ 1,459,941 $ 63,666 4.29 %

Net interest income, excluding PPP loan income (non-GAAP)

Net interest income $ 71,722 $ 69,000

PPP loan income (5,773) (5,562)

Net interest income, excluding PPP loan income (non-GAAP) (3)

$ 65,949 $ 63,438

Ratios excluding PPP loans, net (non-GAAP) (3)

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2.46 % 3.07 %

(1) Includes average outstanding balances of loans HFS of $14.2 million, $4.1 million, and $2.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.

(1) Includes average outstanding balances of loans HFS of $8.6 million and $14.2 million for the years ended December 31, 2021 and 2020, respectively.

(2) Nonaccrual loans are included as loans carrying a zero yield.

(3) Net interest margin FTE includes an FTE adjustment using a 21% federal income tax rate on tax-exempt securities and tax-exempt loans.

(3) Non-GAAP financial measure.

See also " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

See also “ - Non-GAAP Financial Measures” in this Report.

(4) Net interest margin FTE includes an FTE adjustment using a 21% federal income tax rate on tax-exempt securities and tax-exempt loans.

The Federal Reserve is expected to raise the target federal funds rate several times in 2022.

Our balance sheet is asset sensitive, and historically, our deposit interest rates have adjusted more slowly than the change in the federal funds rate.

Dependent upon balance sheet activity and excluding PPP loans, we expect an increasing rate environment to have a positive effect on our net interest income and net interest margin FTE in 2022.

Rate/Volume Analysis

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For the Years Ended December 31,

2020 vs 2019 For the Years Ended December 31,

Increase (Decrease)

Due to Change in

Increase (Decrease)

Due to Change in

(in thousands) Volume Rate (Decrease) Volume Rate (Decrease)

(in thousands) Volume Rate (Decrease)

Interest-earning assets:

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Nonmarketable equity securities

26 (29) (3) 1 4 5

Investment in trusts

(11) — (11) (8) 3 (5)

Total interest-earning assets

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1,254 (3,999) (2,745)

Junior subordinated debentures

(385) — (385) (262) 89 (173)

Other borrowings

16 — 16 (7) — (7)

Total interest-bearing liabilities

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Factors impacting the provision include loan portfolio growth, changes in the quality and composition of the loan portfolio, the level of nonperforming loans, delinquency and charge-off trends, and current economic conditions.

The provision expense for the year ended December 31, 2020, was $6.3 million, an increase of $4.5 million from $1.8 million for the year ended December 31, 2019.

The increase in provision for loan losses was due to expected economic pressures relating to the COVID-19 pandemic.

Due to economic uncertainties related to the pandemic shutdowns and future risks associated with the continuing COVID-19 pandemic, we are closely monitoring asset quality and will adjust provision for loan losses as needed in 2021.

The provision expense for the year ended December 31, 2021, was $1.9 million, a decrease of $4.4 million from $6.3 million for the year ended December 31, 2020.

The provision for loan losses was lower in 2021 since the economic activity in Louisiana and our asset quality metrics improved during the year.

The provision for loan losses was higher in 2020 due to economic pressures relating to the COVID-19 pandemic.

Noninterest Income

Our primary sources of noninterest income are fees related to the sale of mortgage loans, service charges on deposit accounts, debit card fees, brokerage income from advisory services, and other loan and deposit fees.

Noninterest income increased $7.2 million to $23.2 million for the year ended December 31, 2020, compared to the prior year.

The increase in noninterest income was mainly due to higher mortgage loan income, a larger gain on the sale of securities, higher debit card income, and higher brokerage income.

These increases were partially offset by a decrease in service charges on deposits accounts.

Noninterest income increased $1.3 million to $24.5 million for the year ended December 31, 2021, compared to $23.2 million for the prior year.

The increase in noninterest income was mainly due to higher brokerage income, net debit card income, service charges on deposit accounts, mortgage loan income, and gains on sales of properties.

These increases were partially offset by a lower gain on sale and call of securities, a loss on equity securities, and reduced income from an SBIC limited partnership of which Red River Bank is a member.

The table below presents, for the periods indicated, the major categories of noninterest income:

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$ 24,493 $ 23,167 $ 1,326 5.7 %

Due to the lower mortgage interest rate environment in 2020, mortgage loan production and income have been at record high levels.

For 2020, mortgage loan production increased 140.2% from 2019, resulting in $8.4 million of mortgage loan income, an increase of $5.4 million from $3.0 million for the prior year.

The gain on the sale of securities was $1.4 million for 2020, compared to $18,000 for 2019.

The 2020 gain was primarily a result of proactive portfolio restructuring transactions that occurred in the first and second quarters of 2020 in response to the lower interest rate environment.

We obtained favorable pricing on the securities sold, which resulted in the gain.

Debit card income, net, increased $546,000 to $3.6 million for 2020, compared to $3.1 million for 2019.

The increase was due to increases in the number of deposit accounts, debit cards issued, and debit card transactions.

Brokerage income increased $199,000 to $2.3 million for 2020, compared to $2.1 million for 2019.

This increase is primarily due to the addition of new brokerage clients and accounts in 2020, as well as additional funds invested by existing clients.

These increases were partially offset by a temporary reduction in revenue in the second quarter of 2020 resulting from an investment group broker-dealer partner conversion.

Brokerage income increased $973,000 to $3.3 million for 2021, when compared to 2020.

This increase was primarily due to the growth in assets under management combined with beneficial changes resulting from the investment broker-dealer partner conversion in the second quarter of 2020.

Assets under management were $787.1 million and $647.8 million as of December 31, 2021 and 2020, respectively.

Service charges on deposit accounts decreased $465,000 to $4.1 million for 2020, compared to $4.6 million for 2019.

This decrease was partially due to fewer customer deposit non-sufficient fund transactions.

Debit card income, net, increased $774,000 to $4.4 million for 2021, when compared to 2020 due to an increase in the number of debit card transactions.

Service charges on deposit accounts increased $667,000 to $4.8 million for 2021, when compared to 2020.

This increase was due to higher customer transaction activity in 2021 as the economy reopened and customer spending habits returned to pre-COVID-19 levels.

In addition, 2020 was impacted by approximately $168,000 in reduced deposit fees due to temporary fee reductions in the second quarter of 2020 in response to the COVID-19 pandemic.

Mortgage loan income increased $278,000 to $8.7 million for 2021, compared to $8.4 million for 2020.

In 2021, mortgage loan activity and income benefited from a continued low mortgage interest rate environment and adjusted mortgage loan fees.

Other income was $271,000 for 2021, when compared to $126,000 for 2020.

In 2021, OREO properties and a bank property were sold, resulting in a nonrecurring $219,000 net gain on sale.

The gain on the sale and call of securities was $194,000 for 2021 as a result of portfolio restructuring transactions to improve the structure and yield of the portfolio.

In 2020, the gain on the sale and call of securities was $1.4 million, a result of proactive portfolio restructuring transactions in response to the changed and lower interest rate environment.

The gain or loss on equity securities is a mark-to-market adjustment primarily driven by changes in the interest rate environment.

Due to fluctuations in market rates between periods, equity securities had a mark-to-market loss of $175,000 in 2021, compared to an $85,000 gain in 2020.

An additional $4.0 million investment into equity securities in the third quarter of 2021 also affected the amount of mark-to-market adjustment in 2021.

SBIC income decreased $121,000 to $654,000 for 2021, compared to $775,000 for 2020.

This decrease was a result of lower operating income being distributed by the SBIC in 2021, partially offset by a dividend received in the second quarter of 2021.

Operating Expenses

Operating expenses are composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships, and providing services.

For the year ended December 31, 2020, operating expenses totaled $51.4 million, an increase of $4.1 million, compared to $47.3 million for the year ended December 31, 2019.

The increase in operating expenses was mainly due to higher personnel expenses, legal and professional expenses, technology expenses, regulatory assessment expense, other taxes, and occupancy and equipment expenses, partially offset by lower other operating expenses.

Operating expenses increased $2.8 million to $54.3 million for the year ended December 31, 2021, compared to $51.4 million for the year ended December 31, 2020.

The increase in operating expenses was mainly due to higher personnel expenses, other operating expenses, regulatory assessment expense, other taxes, occupancy and equipment expenses, and technology expenses.

These increases were partially offset by lower legal and professional expenses.

The following table presents, for the periods indicated, the major categories of operating expenses:

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Personnel expenses were $32.4 million for 2021, an increase of $1.3 million compared to 2020.

As of December 31, 2020 and 2019, we had 336 and 325 full-time equivalent employees, respectively.

The increase in personnel expenses was related to additional staff resulting from our expansion in the Northshore, Southwest, and Acadiana markets, as well as an increase in staff to support operational growth.

In addition, commission compensation increased for 2020, primarily due to significantly higher mortgage loan activity.

Legal and professional expenses increased $600,000 to $2.1 million for 2020 compared to 2019.

This increase was a result of higher attorney, audit, and compliance expenses, combined with having a full year of expenses related to operating as a public company.

Technology expenses increased $249,000 to $2.5 million for 2020 compared to the prior year.

This increase was a result of higher mortgage software expense due to increased mortgage loan activity;

additional software to enhance operational efficiency, cybersecurity, and information security infrastructure;

and COVID-19 pandemic preparation and response efforts.

Regulatory assessment expense increased $187,000 in 2020 compared to 2019.

This increase was primarily due to an increase of $159,000 in FDIC insurance assessment expense.

The Bank was notified by the FDIC that it did not have an FDIC insurance assessment for the second half of 2019 and first quarter of 2020.

Therefore, no FDIC insurance assessment expense was incurred for these periods.

The FDIC insurance assessment expense for 2020 was $409,000 compared to $250,000 in 2019.

As of December 31, 2021 and 2020, we had 358 and 335 employees, respectively.

The increase in personnel expenses was primarily related to additional staff resulting from our expansion in the New Orleans, Southwest, and Acadiana markets.

Other operating expenses increased $491,000 to $3.8 million for 2021 compared to the prior year.

This increase was primarily the result of a $311,000 nonrecurring expense reduction related to the dissolution of an acquired subsidiary in the first quarter of 2020.

Regulatory assessment expense increased $395,000 to $933,000 for 2021 compared to 2020.

The Bank was notified by the FDIC that it did not have an FDIC insurance assessment for the first quarter of 2020;

however, it would have an assessment starting in the second quarter of 2020.

Since the second quarter of 2020, the FDIC insurance assessment has increased as a result of increasing deposit account balances.

Therefore, the FDIC insurance assessment expense increased $361,000 for 2021 compared to the prior year.

Other taxes increased $349,000 to $2.1 million for 2021 compared to 2020.

The increase was due to a $157,000 increase in State of Louisiana bank stock tax resulting from higher deposit account balances and higher net income for the applicable tax years.

This increase was due to an increase in State of Louisiana bank stock tax resulting from higher deposit account balances and higher net income for the applicable tax years.

Occupancy and equipment expenses increased $337,000 to $5.4 million for 2021 compared to 2020.

This increase was mainly due to the recent expansion in our Northshore, Southwest, and Acadiana markets, as well as increased supplies and services needed in all banking centers as a result of the COVID-19 pandemic.

Other operating expenses decreased $357,000 to $3.3 million for 2020 compared to 2019.

This decrease was primarily a result of a $311,000 nonrecurring expense reduction related to the dissolution of an acquired subsidiary in the first quarter of 2020, combined with reduced travel and event expenses due to the COVID-19 pandemic.

This increase was primarily a result of our expansion in our newer markets throughout 2020 and the second half of 2021, partially offset by a reduction in COVID-19 pandemic occupancy-related expenses in 2021.

Technology expenses increased $268,000 to $2.8 million for 2021 compared to the prior year.

This increase was attributed to new computer hardware and communication systems to support the expansion in our newer markets and for business continuity planning purposes.

The increase was also due to the implementation of a new loan processing system and additional technology support services.

Legal and professional expenses decreased $458,000 to $1.7 million for 2021 compared to 2020.

This decrease was due to lower attorney fees as a result of the completion of various legal matters in late 2020.

Income Tax Expense

The amount of income tax expense is influenced by the amounts of our pre-tax income, tax-exempt income, and other nondeductible expenses.

Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for

the period in which the deferred tax assets and liabilities are expected to be realized or settled.

Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled.

As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

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statutory rate due to the effect of tax-exempt income from loans, securities, life insurance policies, and the income tax effects associated with stock-based compensation.

The CARES Act and Families First Coronavirus Response Act passed in March of 2020 did not have a material impact on our income tax expense or our effective tax rate for the year ended December 31, 2020.

The CARES Act and Families First Coronavirus Response Act passed in March of 2020 did not have a material impact on our income tax expense or our effective tax rate for the years ended December 31, 2021 and 2020.

For the years ended December 31, 2021 and 2020, income tax expense totaled $7.1 million and $6.3 million, respectively.

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Within total assets, compared to December 31, 2020, interest-bearing deposits in other banks increased by $344.1 million, securities AFS increased by $161.0 million, and loans HFI increased by $95.4 million.

For liabilities, compared to December 31, 2019, noninterest-bearing deposits increased $358.7 million, and interest-bearing deposits increased $260.5.

For liabilities, compared to December 31, 2020, interest-bearing deposits increased by $363.9 million, and noninterest-bearing deposits increased by $206.1 million.

As of December 31, 2021, the loans HFI to deposits ratio was 57.86%, compared to 67.87% as of December 31, 2020, and the noninterest-bearing deposits to total deposits ratio was 39.50%, compared to 40.32% as of December 31, 2020.

Stockholders' equity increased $33.6 million from $251.9 million as of December 31, 2019, to $285.5 million as of December 31, 2020.

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue.

Stockholders’ equity increased $12.7 million during 2021 to $298.2 million as of December 31, 2021.

Interest-Bearing Deposits in Other Banks

Interest-bearing deposits in other banks are the second largest component of earning assets.

As of December 31, 2021, interest-bearing deposits in other banks were 23.6% of total assets.

Historically, interest-bearing deposits in other banks were a much smaller portion of our total assets.

Excess liquidity that is not being deployed into loans or securities is placed in these accounts.

Interest-bearing deposits in other banks increased $344.1 million, or 82.4%, in 2021 to $761.7 million as of December 31, 2021.

This increase was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining higher deposit balances.

Our securities portfolio is the third largest component of earning assets and provides a significant source of revenue.

As of December 31, 2021, our securities portfolio was 20.7% of total assets.

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government agency obligations, certificates of deposit of insured domestic banks, mortgage-backed and mortgage-related securities, corporate notes having an investment rating of “A” or better, municipal bonds, and certain equity securities.

Securities AFS

Securities AFS were $659.2 million as of December 31, 2021, an increase of $161.0 million, or 32.3%, from $498.2 million as of December 31, 2020.

Investment activity for the twelve months ended December 31, 2020, included $419.4 million of securities purchased, partially offset by $151.3 million in sales and $112.6 million in maturities, principal repayments, and calls.

The net unrealized gain of the securities AFS portfolio increased $8.8 million for the year ended December 31, 2020.

Equity securities were $4.0 million and $3.9 million as of December 31, 2020 and 2019, respectively.

There were no purchases or sales of equity securities for the twelve months ended December 31, 2020.

In 2020, we sold $151.3 million of securities, consisting of a mix across various sectors that had lower yields and short average lives, along with a strategic group of higher yielding municipal securities which also had short average lives.

A large portion of the securities sold were mortgage-backed securities which had faster prepayment speeds or were owned at higher book prices, and due to higher amortization expense from accelerated prepayment speeds, the yields had declined.

We were able to obtain a gain of $1.4 million on these transactions due to timing and favorable pricing within the market.

We reinvested the proceeds into securities with improved structure for the current rate environment.

These transactions reduced the amount of securities repricing in the short-term, rebalanced cash flows for the portfolio, partially mitigated higher amortization expense for the mortgage-backed sector, and are expected to partially offset our exposure to a lower net interest margin and the low rate environment.

During the twelve months ended December 31, 2020, due to the low interest rate environment, we reallocated $259.9 million from federal funds sold yielding 0.30% to securities AFS yielding 1.55%.

Although this reallocation has negatively impacted the overall securities portfolio yield, we expect it to improve future interest income by moving these funds from federal funds sold to a higher yielding investment.

The securities portfolio tax-equivalent yield was 2.02% for the year ended December 31, 2020, compared to 2.32% for the year ended December 31, 2019.

This decrease was due to accelerated prepayment speeds which increased amortization expense on our mortgage-backed securities, combined with the $259.9 million in funds reallocated from federal funds sold to securities with lower yields than the portfolio yield as of December 31, 2019.

Investment activity for the year ended December 31, 2021, included $389.5 million of securities purchased, partially offset by $113.5 million in sales and $99.2 million in maturities, principal repayments, and calls.

The unrealized gain/loss of the securities AFS portfolio decreased $13.5 million for the year ended December 31, 2021.

In 2021, we sold $113.5 million of securities AFS as part of restructuring transactions.

A large portion of the securities sold were mortgage-backed securities that had accelerated prepayment speeds and were owned at higher book prices.

Due to these accelerated prepayment speeds, the yields had declined.

We reinvested the proceeds into securities with improved structure, which rebalanced the cash flows for the portfolio, reduced amortization expense for the mortgage-backed sector, reduced extension risk, and improved the portfolio yield.

In 2021, due to the low interest rate environment, we also reallocated $222.9 million from overnight funds yielding 0.12% to securities AFS yielding 1.15%.

Although this reallocation negatively impacted the overall securities portfolio yield, we expect it to improve future interest income by moving these funds from overnight funds to a higher yielding investment.

The securities AFS portfolio tax-equivalent yield was 1.79% for the year ended December 31, 2021, compared to 2.02% for the year ended December 31, 2020.

The decrease in yield for 2021, compared to 2020, was due to purchasing a significant amount of securities during 2021 with lower yields than the portfolio yield as of December 31, 2020, as a result of the low rate environment.

The contractual maturity of mortgage-backed securities and collateralized mortgage obligations is not a reliable indicator of their expected lives because borrowers have the right to prepay their obligations at any time.

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As of December 31, 2021, the average life of our securities portfolio was 4.9 years with an estimated modified duration of 4.5 years.

The carrying values of our securities AFS are adjusted for unrealized gain or loss, and any unrealized gain or loss is reported on an after-tax basis as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

As of December 31, 2020, the unrealized gain of the securities AFS portfolio was $8.8 million, compared to an unrealized loss of $30,000 as of December 31, 2019.

The $4.0 million in equity securities as of December 31, 2020, is an investment in the CRA Qualified Investment Fund which is managed by Community Capital Management, Inc.

We invested in the CRA Qualified Investment Fund as part of our strategy to meet our obligations described within the Community Reinvestment Act, which encourages financial institutions to help meet the credit needs of their entire market area, including low and moderate income neighborhoods, consistent with safe and sound banking principles.

Through this fund, mortgage-backed securities are purchased according to our allocations, with their underlying collateral located in our market areas, which strengthens our efforts to meet our CRA obligations.

Equity securities, consisting of a mutual fund, are carried at fair value on the consolidated balance sheets with periodic changes in value recorded through the consolidated statements of income.

The fair value of our equity securities was $4.0 million as of December 31, 2020, with a recognized gain of $85,000 for the year ended December 31, 2020, compared to a fair value of $3.9 million as of December 31, 2019, with a recognized gain of $115,000 for the year ended December 31, 2019.

The following tables summarize the amortized cost and estimated fair value of our securities by type as of the dates indicated.

The carrying values of our securities AFS are adjusted for unrealized gain or loss, and any unrealized gain or loss is reported on an after-tax basis as a component of AOCI in stockholders’ equity.

As of December 31, 2021, the unrealized loss of the securities AFS portfolio was $4.8 million, a decrease of $13.5 million, compared to an unrealized gain of $8.8 million as of December 31, 2020.

This change is attributed to an increase in market rates, which resulted in lower prices on securities and, therefore, an overall lower market value of the portfolio.

The following tables summarize the amortized cost and estimated fair value of our securities AFS by type as of the dates indicated.

As of December 31, 2021, other than securities issued by U.S.

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227,248 3,665 (942) 229,971

agency securities

9,902 200 (4) 10,098

Total Securities AFS

$ 489,445 $ 9,148 $ (387) $ 498,206

December 31, 2019

(in thousands) Amortized

Securities AFS:

Mortgage-backed securities

$ 236,572 $ 299 $ (1,200) $ 235,671

Municipal bonds

Treasury securities

41,770 — (154) 41,616

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207,834 5,498 (51) 213,281

agency securities

23,170 6 (261) 22,915

Treasury securities

agency securities

9,902 200 (4) 10,098

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The following table shows the fair value of securities AFS, which mature during each of the periods indicated.

The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.

The contractual maturity of a mortgage-backed security is the date the last underlying mortgage matures.

Yields are weighted-average tax equivalent yields that are calculated by dividing projected annual income by the average amortized cost of the applicable securities while using a 21.0% federal income tax rate, when applicable.

Contractual Maturity as of December 31, 2021

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Municipal bonds 9,807 2.04 % 25,032 1.89 % 15,996 2.73 % 179,136 2.58 % 229,971 2.49 %

Treasury securities

— — % 41,616 0.66 % — — % — — % 41,616 0.66 %

agency securities — — % 3,614 1.47 % 4,451 1.73 % — — % 8,065 1.61 %

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(1) Tax equivalent projected book yield as of December 31, 2021.

Equity Securities

Equity securities are an investment in a CRA mutual fund.

We invest in the mutual fund as part of our strategy to meet our obligations described within the CRA, which encourages financial institutions to help meet the credit needs of their entire market area, including low and moderate income neighborhoods, consistent with safe and sound banking principles.

Equity securities are carried at fair value on the consolidated balance sheets with periodic changes in value recorded through the consolidated statements of income.

The fair value of our equity securities was $7.8 million as of December 31, 2021, with a recognized loss of $175,000 for the year ended December 31, 2021, compared to a fair value of $4.0 million as of December 31, 2020, with a recognized gain of $85,000 for the year ended December 31, 2020.

In the third quarter of 2021, we invested an additional $4.0 million into the CRA mutual fund.

This additional investment was allocated to the assessment areas in our markets, including our newer markets, and other areas of Louisiana to further strengthen our efforts to meet our CRA obligations.

There were no sales of equity securities for the year ended December 31, 2021.

Loan Portfolio

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As of December 31, 2021, loans HFI were $1.68 billion, an increase of $95.4 million, or 6.0%, compared to $1.59 billion as of December 31, 2020.

The increase in loans HFI was primarily due to the issuance of SBA PPP loans in 2020.

In the second quarter of 2020, Red River Bank originated 1,384 PPP loans totaling $199.0 million, with an average PPP loan size of $144,000.

We began accepting PPP loan forgiveness applications on September 14, 2020, and in the fourth quarter of 2020, the SBA began approving PPP loan forgiveness applications.

As of December 31, 2020, 48.0% of the 1,384 PPP loans and 39.4% of the $199.0 million originated were forgiven by the SBA, and we received SBA forgiveness and borrower payments of $77.8 million.

As of December 31, 2020, PPP loans were $118.4 million, net of $2.8 million of deferred income, or 7.5% of loans HFI.

Through February 28, 2021, 70.1% of the 1,384 PPP loans and 59.8% of the $199.0 million originated were forgiven by the SBA, and we received $118.9 million in SBA forgiveness and borrower payments.

On December 27, 2020, the SBA and U.S.

Treasury, through the Economic Aid Act, authorized a streamlined PPP loan forgiveness application process for PPP loans of $150,000 or less.

As of February 28, 2021, approximately 76.9% of the 414 remaining PPP loans and 17.5% of the $80.1 million remaining PPP loan balance may be eligible for the streamlined process.

Additionally, the Economic Aid Act allows for certain businesses, who previously received a PPP loan, to apply for a PPP Second Draw loan.

Red River Bank is participating in the PPP Second Draw program, and as of February 28, 2021, 339 borrower applications totaling $40.3 million have been approved by the SBA.

As of December 31, 2020, loans HFI excluding $118.4 million of PPP loans (non-GAAP), net of deferred income, were $1.47 billion, an increase of $31.1 million, or 2.2%, from December 31, 2019.

The increase in non-PPP loans was attributable to new loan activity in our newer markets.

For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

Loans HFI by Category

Red River Bank began participating in the SBA PPP in the second quarter of 2020.

Through December 31, 2021, we had received $198.6 million in SBA forgiveness and borrower payments on 99.9% of the PPP1 loans originated.

In 2021, we originated 488 PPP2 loans totaling $58.3 million with an average size of $119,000.

PPP2 loan origination fees totaled $2.7 million, or 4.65% of PPP2 loans.

Through December 31, 2021, we had received $40.6 million in SBA forgiveness and borrower payments on 78.7% of the PPP2 loans originated.

As of December 31, 2021, PPP loans totaled $17.6 million, net of $626,000 of deferred income, or 1.0% of loans HFI.

As of December 31, 2020, PPP loans totaled $118.4 million, net of $2.8 million of deferred income, or 7.5% of loans HFI.

As of December 31, 2021, non-PPP loans HFI (non-GAAP) were $1.67 billion, an increase of $196.3 million, or 13.4%, from December 31, 2020.

The increase in non-PPP loans HFI (non-GAAP) was due to increased loan activity across all of our markets with our newer markets experiencing the most growth.

For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Loans by Category

Loans HFI by category, non-PPP loans HFI (non-GAAP), and loans HFS are summarized below as of the dates indicated:

2020 2019 2018 2017 2016

(dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

(dollars in thousands) Amount Percent Amount Percent

Commercial real estate

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$ 1,683,832 100.0 % $ 1,588,446 100.0 %

Total non-PPP loans HFI (1)

Total non-PPP loans HFI (non-GAAP) (1)

$ 1,666,282 $ 1,469,999

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(1) Non-GAAP financial measure.

For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Commercial Real Estate Loans.

Commercial real estate loans are primarily made for commercial property that is owner occupied as well as commercial property owned by real estate investors.

Real estate securing these loans includes many property types, such as retail centers, nursing homes, offices and office buildings, medical facilities, warehouses, churches and related facilities, production facilities, and multifamily properties.

Real estate securing these loans includes many

property types, such as retail centers, nursing homes, offices and office buildings, medical facilities, warehouses, churches and related facilities, production facilities, and multifamily properties.

Commercial real estate loans increased $113.5 million, or 20.4%, to $670.3 million as of December 31, 2021, from $556.8 million as of December 31, 2020.

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The owner occupied and non-owner occupied components of the commercial real estate portfolio are summarized below.

(dollars in thousands) Amount Percent of Loans HFI Amount Percent of Loans HFI

Commercial real estate

(dollars in thousands) Owner Occupied Non-Owner Occupied Total

December 31, Amount Percent of Loans HFI Amount Percent of Loans HFI Amount Percent of Loans HFI

2020 $ 319,790 20.1 % $ 236,979 14.9 % $ 556,769 35.0 %

2019 $ 300,880 20.9 % $ 231,110 16.1 % $ 531,990 37.0 %

2018 $ 270,083 20.3 % $ 184,606 13.9 % $ 454,689 34.2 %

2017 $ 241,153 19.3 % $ 171,202 13.7 % $ 412,355 33.0 %

2016 $ 223,280 19.5 % $ 170,071 14.8 % $ 393,351 34.3 %

Owner occupied $ 331,152 19.7 % $ 319,790 20.1 %

Non-owner occupied 339,141 20.1 % 236,979 14.9 %

Total commercial real estate $ 670,293 39.8 % $ 556,769 35.0 %

One-to-Four Family Residential Loans.

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A personal guaranty is generally obtained from the borrower or principal.

Commercial and industrial loans decreased $17.5 million, or 6.5%, to $250.4 million as of December 31, 2020, from $267.9 million as of December 31, 2019.

Commercial and industrial loans increased $60.9 million, or 24.3%, to $311.4 million as of December 31, 2021, from $250.4 million as of December 31, 2020.

SBA PPP, Net of Deferred Income.

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

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

These loans are guaranteed by the SBA, have a 24- or 60-month term at an interest rate of 1.0%, and are subject to forgiveness by the SBA dependent upon meeting eligibility requirements.

Tax-Exempt Loans.

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Consumer loans are offered as an accommodation to existing customers and are not marketed to persons without a pre-existing relationship with us.

Loan Payment Deferments

During 2020, we granted loan payment deferments for requesting borrowers impacted by pandemic-related economic shutdowns.

As of December 31, 2020, $12.5 million, or 0.8% of non-PPP loans HFI (non-GAAP), remained on active deferral and were deferrals of principal payments only.

For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

In accordance with interagency regulatory guidance issued in March 2020 and revised in April 2020, these short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance.

Industry Concentrations

As of December 31, 2020, the health care sector was the only concentration of loans within any single industry in excess of 10.0% of non-PPP loans HFI (non-GAAP) as segregated by the North American Industry Classification System

NAICS is an industry classification system used to categorize loans by the borrower’s type of business.

The North American Industry Classification System (“NAICS”) is an industry classification system used to categorize loans by the borrower’s type of business.

Industry concentrations stated as a percentage of non-PPP loans HFI (non-GAAP) are presented below:

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Construction 4.6 %

Retail trade 3.8 %

Investor one-to-four family and multifamily 4.2 %

Hospitality services 4.1 %

Religious and other nonprofit 2.4 %

Retail trade 4.0 %

Public administration 3.4 %

Finance and insurance 1.6 %

Religious and other nonprofit 1.9 %

Manufacturing 1.6 %

Finance and insurance 1.6 %

All other 65.1 %

Total non-PPP loans HFI (non-GAAP) by industry concentration 100.0 %

Our health care loans are made up of a diversified portfolio of health care providers.

As of December 31, 2020, health care credits were $149.4 million, or 10.2% of non-PPP loans HFI (non-GAAP), compared to $133.4 million, or 9.3% of non-PPP loans HFI as of December 31, 2019.

Health care loans are our largest loan industry concentration and are made up of a diversified portfolio of health care providers.

As of December 31, 2021, health care loans were $138.1 million, or 8.3% of non-PPP loans HFI (non-GAAP), compared to $149.4 million, or 10.2% of non-PPP loans HFI (non-GAAP) as of December 31, 2020.

The average health care loan size was $295,000 as of December 31, 2021, and $305,000 as of December 31, 2020.

Within the health care sector, nursing and residential care loans were 4.4% of non-PPP loans HFI (non-GAAP) as of December 31, 2020, and 5.3% as of December 31, 2019.

Loans to physician and dental practices were 5.7% of non-PPP loans HFI (non-GAAP) as of December 31, 2020, and 3.9% as of December 31, 2019.

As of December 31, 2020, the health care sector had no active deferrals.

We have identified certain sectors within our loan portfolio that we believe have a heightened overall level of risk due to pandemic-related macro-economic conditions.

The following table shows non-PPP loans HFI (non-GAAP) in these sectors as of the date indicated:

December 31, 2020 December 31, 2019

(dollars in thousands) Amount Percent of Non-PPP Loans HFI (non-GAAP) Amount Percent of Non-PPP Loans HFI (non-GAAP)

Hospitality services:

Hotels and other overnight lodging $ 26,722 1.9 % $ 24,297 1.7 %

Restaurants - full service 11,901 0.8 % 11,444 0.8 %

Restaurants - limited service 12,467 0.8 % 8,123 0.6 %

Other 7,194 0.5 % 3,340 0.2 %

Total hospitality services $ 58,284 4.0 % $ 47,204 3.3 %

Retail trade:

Automobile dealers $ 35,460 2.4 % $ 39,069 2.7 %

Other retail 21,120 1.4 % 24,772 1.7 %

Total retail trade $ 56,580 3.8 % $ 63,841 4.4 %

Energy $ 20,351 1.4 % $ 31,777 2.2 %

Loan payment deferments in the hospitality services sector represents 65.0% of our active deferrals.

As of December 31, 2020, active deferrals in the hospitality services were $8.1 million, or 0.6% of non-PPP loans HFI (non-GAAP).

As of December 31, 2020, there were no active deferrals in the retail trade or energy sectors.

For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

Other Portfolio Sectors

The following table shows non-PPP loans HFI (non-GAAP) in other non-industry specific areas that we believe may be affected by the pandemic:

December 31, 2020

(dollars in thousands) Amount Percent of Non-PPP Loans HFI (non-GAAP)

Loans collateralized by non-owner occupied properties leased to retail establishments $ 38,923 2.6 %

Credit card loans:

Commercial $ 1,499 0.1 %

Consumer 958 0.1 %

Total credit card loans $ 2,457 0.2 %

None of the markets in which we directly operate are characterized by a high degree of tourism-driven hospitality services.

Likewise, our geographic footprint is not closely aligned with the bulk of Louisiana’s energy-concentrated local economies.

We believe this provides our portfolio with some degree of insulation against the current stress in both of those segments.

Within the health care sector, loans to physician and dental practices were 4.6% of non-PPP loans HFI (non-GAAP) as of December 31, 2021, and 5.7% as of December 31, 2020.

Nursing and residential care loans were 3.6% of non-PPP loans HFI (non-GAAP) as of December 31, 2021, and 4.4% as of December 31, 2020.

For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Geographic Markets

As of December 31, 2021, Red River Bank currently operates in seven geographic markets throughout the state of Louisiana.

We entered the Acadiana market in the fourth quarter of 2020 and the New Orleans market in the fourth quarter of 2021.

The following table summarizes non-PPP loans HFI (non-GAAP) by market of origin:

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Acadiana 28,629 1.7 %

New Orleans 19,996 1.2 %

Total non-PPP loans HFI (non-GAAP) $ 1,666,282 100.0 %

For further information on non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Loan Portfolio Maturity Analysis

The maturity distribution for non-PPP loans HFI (non-GAAP) and the amount of such loans with fixed and floating interest rates are summarized below:

The maturity distribution for non-PPP loans HFI (non-GAAP) are summarized below:

December 31, 2021

(dollars in thousands) One Year

(dollars in thousands) Within One Year

After One Year but Within Five Years

After Five Years but Within 15 Years

After 15 Years Total

Commercial real estate $ 64,546 $ 325,266 $ 280,093 $ 388 $ 670,293

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Total non-PPP loans HFI (non-GAAP) $ 289,239 $ 616,735 $ 673,615 $ 86,693 $ 1,666,282

Fixed rate amount $ 146,824 $ 567,641 $ 522,926 $ 1,237,391

Fixed rate percent 10.0 % 38.6 % 35.6 % 84.2 %

Variable rate amount $ 135,772 $ 58,180 $ 38,656 $ 232,608

Variable rate percent 9.2 % 4.0 % 2.6 % 15.8 %

For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Fixed and Floating Rate Loans

The dollar amount, as of December 31, 2021, of fixed and floating rate non-PPP loans HFI (non-GAAP) that mature after December 31, 2022, are presented in the following table:

December 31, 2021

(dollars in thousands) Fixed Rate Loans Floating Rate Loans Total

Commercial real estate $ 573,570 $ 32,177 $ 605,747

One-to-four family residential 437,871 8,742 446,613

Construction and development 25,731 10,381 36,112

Commercial and industrial 143,893 51,700 195,593

Tax-exempt 75,619 — 75,619

Consumer 15,478 1,881 17,359

Total $ 1,272,162 $ 104,881 $ 1,377,043

For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

In July 2017, the United Kingdom Financial Conduct Authority, the authority that regulates LIBOR, announced its intent to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

Subsequently, on March 5, 2021, it was announced that certain U.S.

Dollar LIBOR rates would cease to be published after June 30, 2023.

As of December 31, 2021, 3.6% of our non-PPP loans HFI (non-GAAP) were LIBOR-based with a setting that expires June 30, 2023.

Alternative rate language is present in each credit agreement with a LIBOR-based rate.

We do not anticipate any issue with transitioning each loan to a non-LIBOR-based rate.

For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Nonperforming Assets

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There can be no assurance, however, that the loan portfolio will not become subject to losses due to declines in economic conditions, deterioration in the financial condition of our borrowers, or a decline in the value of collateral.

NPAs totaled $4.2 million as of December 31, 2020, down $2.3 million, or 34.9%, from $6.5 million as of December 31, 2019.

NPAs totaled $979,000 as of December 31, 2021, down $3.2 million, or 76.7%, from $4.2 million as of December 31, 2020.

Our ratio of NPAs to total assets was 0.03% as of December 31, 2021, compared to 0.16% as of December 31, 2020.

The change was largely due to the charge-off of nonaccrual loans and the sale of foreclosed assets.

These improvements were primarily due to the payoff and charge-off of nonaccrual loans and the sale of OREO during 2021.

Nonperforming loan and asset information is summarized below:

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Real estate 660 896

Other — 18 — — —

Total foreclosed assets 660 896

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Nonaccrual loans $ — $ 1,217

Accruing loans 90 or more days past due — — — 792 —

Performing loans

1,454 1,695 1,572 2,002 3,932

Total TDRs $ 3,944 $ 2,671

Nonaccrual loans to loans HFI 0.02 % 0.21 %

Nonperforming loans to loans HFI (1)

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Nonperforming loans to non-PPP loans HFI (non-GAAP) (1,3)

0.23% 0.37% 0.49% 0.83% 0.49%

NPAs to total assets 0.03 % 0.16 %

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(3) Non-GAAP financial measure.

For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Nonaccrual loans are summarized below by category:

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Commercial real estate

$ 1,846 $ 1,278 $ 1,362 $ 1,171 $ 920

One-to-four family residential

574 607 424 1,821 752

Construction and development

— 38 55 1,143 204

Commercial and industrial 13 882

SBA PPP — — — — —

Tax-exempt — —

Consumer 5 26 44 21 34

Total nonaccrual loans $ 280 $ 3,307

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However, the loss potential does not warrant substandard classification.

Loans classified as substandard have well defined weaknesses which jeopardize normal repayment of principal and interest.

Loans classified as substandard have well defined weaknesses that jeopardize normal repayment of principal and interest.

Prompt corrective action is required to reduce exposure and to assure adequate remedial actions are taken by the borrower.

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and the financial resources of the guarantor(s), if any.

As an SEC registrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for us on January 1, 2023.

When effective, the CECL allowance model, prescribed by ASU No.

2016-13 , will require measurement of expected credit losses based on historical experience, current conditions, and reasonable supportable forecasts.

2016-13 , will require measurement of expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts.

This model will replace the existing incurred loss model.

As an SEC registrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for us on January 1, 2023.

Refer to “Item 8.

Financial Statements and Supplementary Data - Note 1 - Business and Summary of Significant Accounting Policies - Issued but Not Adopted Accounting Standards" for more information on ASU No.

As of December 31, 2020, t he allowance for loan losses totaled $18.0 million, or 1.13%, of loans HFI, and 1.22% of non-PPP loans HFI (non-GAAP).

Financial Statements and

Supplementary Data - Note 1 - Business and Summary of Significant Accounting Policies - Issued but Not Adopted Accounting Standards” for more information on ASU No.

As of December 31, 2021, the allowance for loan losses totaled $19.2 million, or 1.14%, of loans HFI, and 1.15% of non-PPP loans HFI (non-GAAP).

As of December 31, 2020, the allowance for loan losses totaled $18.0 million, or 1.13%, of loans HFI.

The $4.0 million increase in the allowance for loan losses for the twelve months ended December 31, 2020, was due to $6.3 million from the provision for loan losses, partially offset by $2.3 million of net charge-offs on loans.

The provision for loan losses for the year ended December 31, 2020, was $6.3 million, an increase of $4.5 million from $1.8 million for the year ended December 31, 2019.

The increase in provision for loan losses was due to expected economic pressures relating to the continuing COVID-19 pandemic.

Net charge-offs for the year ended December 31, 2020, were $2.3 million, an increase of $1.9 million from $397,000 for the year ended December 31, 2019.

The increase in charge-offs resulted from the charge-off of $1.7 million in energy related loans in 2020.

The $1.2 million increase in the allowance for loan losses for the year ended December 31, 2021, was due to $1.9 million from the provision for loan losses, partially offset by $675,000 of net charge-offs.

For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

The provision for loan losses for the year ended December 31, 2021, was $1.9 million, a decrease of $4.4 million from $6.3 million for the year ended December 31, 2020.

The provision for loan losses was lower in 2021 since the economic activity in Louisiana and our asset quality metrics improved during the year.

The provision for loan losses was higher in 2020 due to economic pressures relating to the COVID-19 pandemic.

Net charge-offs for the year ended December 31, 2021, were $675,000, a decrease of $1.6 million from $2.3 million for the year ended December 31, 2020.

The ratio of net charge-offs to average loans was 0.04% and 0.14% for the years ended December 31, 2021 and December 31, 2020, respectively.

The 2021 results were primarily due to the charge-off of $515,000 of nonaccrual loans.

The 2020 results were primarily due to the charge-off of $1.7 million in energy related loans.

The following table displays activity in the allowance for loan losses for the periods shown:

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$ 1,666,282 $ 1,469,999

Nonaccrual loans $ 280 $ 3,307

Average loans $ 1,621,606 $ 1,587,351

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1.15 % 1.22 %

Net charge-offs to average loans

0.14 % 0.03 % 0.03 % 0.10 % 0.06 %

Allowance for loan losses to nonaccrual loans 6,848.57 % 542.82%

(1) Non-GAAP financial measure.

For calculations and reconciliations to GAAP and non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

For calculations and reconciliations to GAAP and non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

We believe the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above.

Future provisions for loan losses are subject to ongoing evaluations of the factors and loan portfolio risks described above, including economic pressures related to the COVID-19 pandemic affecting the state of Louisiana.

A decline in market area economic conditions, deterioration of asset quality, or growth in portfolio size could cause the

allowance to become inadequate and material additional provisions for loan losses could be required.

A decline in market area economic conditions, deterioration of asset quality, or growth in portfolio size could cause the allowance to become inadequate, and material additional provisions for loan losses could be required.

The following table displays the allocation of the allowance for loan losses among the loan classifications for the dates indicated.

The allocations shown below should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in the future will necessarily occur in these amounts or in the indicated proportions.

The total allowance is available to absorb losses from any loan classification.

2020 2019 2018 2017 2016

(dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

The total allowance for loan losses is available to absorb losses from any loan classification.

(dollars in thousands) Amount Percent Amount Percent

Commercial real estate

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$ 19,176 100.0 % $ 17,951 100.0 %

The following table displays the ratio of net charge-offs to average loans outstanding for loans HFI by category for the periods shown:

As of December 31,

Commercial real estate 0.03% —%

One-to-four family residential —% —%

Construction and development —% —%

Commercial and industrial —% 0.13%

SBA PPP —% —%

Tax-exempt —% —%

Consumer 0.01% 0.01%

Total 0.04% 0.14%

Deposits are the primary funding source for loans and investments.

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Total deposits increased $570.0 million, or 24.4%, to $2.91 billion as of December 31, 2021, from $2.34 billion as of December 31, 2020.

Noninterest-bearing deposits increased $358.7 million, or 61.3%, during 2020 to $943.6 million as of December 31, 2020.

Noninterest-bearing deposits increased $206.1 million, or 21.8%, during 2021 to $1.15 billion as of December 31, 2021.

Noninterest-bearing deposits as a percentage of total deposits were 39.50% as of December 31, 2021, compared to 40.32% as of December 31, 2020.

Interest-bearing deposits increased $363.9 million, or 26.1%, during 2021 to $1.76 billion as of December 31, 2021, with the largest increase in money market accounts.

The increase in deposits was a result of customers receiving funds from various government stimulus programs, customers depositing the proceeds from their PPP loans, strong deposit account opening activity, and customers maintaining larger deposit balances.

The increase in deposits was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining higher deposit balances.

The following table presents our deposits by account type as of the dates indicated:

December 31, 2020 December 31, 2019 December 31, 2018

(dollars in thousands) Balance % of Total Balance % of Total Balance % of Total

December 31, 2021 December 31, 2020

(dollars in thousands) Balance % of Total Balance % of Total

Noninterest-bearing demand deposits $ 1,149,672 39.5 % $ 943,615 40.3 %

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Savings accounts 191,076 6.5 % 146,264 6.2 %

Time deposits < $100,000 108,982 4.7 % 110,636 6.4 % 119,637 7.3 %

Time deposits $100,000 to $250,000 138,683 5.9 % 131,957 7.7 % 128,637 7.8 %

Time deposits > $250,000 93,342 4.0 % 90,565 5.3 % 81,954 5.0 %

Time deposits less than or equal to $250,000 243,596 8.4 % 247,665 10.6 %

Time deposits greater than $250,000 89,577 3.1 % 93,342 4.0 %

Total interest-bearing deposits $ 1,760,676 60.5 % $ 1,396,745 59.7 %

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The following table presents deposits by customer type as of the dates indicated:

December 31, 2020 December 31, 2019 December 31, 2018

(dollars in thousands) Balance % of Total Balance % of Total Balance % of Total

December 31, 2021 December 31, 2020

(dollars in thousands) Balance % of Total Balance % of Total

Consumer $ 1,400,369 48.1 % $ 1,091,268 46.6 %

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The decrease in the average cost of interest-bearing deposits and total deposits in 2021 as compared to 2020 was a result of lowering deposit rates in 2021 due to the low interest rate environment and our liquidity position.

Also, 5.5% of interest-bearing transaction deposits have floating rates which adjust with market rates.

The following schedule presents our average deposits by account type and the average rate paid for the periods indicated:

Also, as of December 31, 2021, 4.4% of interest-bearing transaction deposits had floating rates which adjust with market rates.

The following table presents our average deposits by account type and the average rate paid for the periods indicated:

For the Years Ended December 31,

2020 2019 2018

(dollars in thousands) Average

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Total average deposits $ 2,593,780 0.22 % $ 2,018,624 0.41 %

The maturity distribution of our time deposits of $100,000 or more are summarized below:

Our uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), were approximately $1.22 billion and $855.6 million at December 31, 2021 and 2020, respectively.

These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.

The following table presents the amount of time deposits, by account, that are in excess of the FDIC insurance limit (currently $250,000) by time remaining until maturity for the period indicated:

(in thousands) December 31, 2021

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Over six months through 12 months 13,947

Over 12 months through three years 51,139

Over three years 20,183

Over 12 months 9,461

Although deposits are our primary source of funds, we may, from time to time, utilize borrowings as a cost-effective source of funds when such borrowings can then be invested at a positive interest rate spread for additional capacity to fund loan demand or to meet our liquidity needs.

The following table presents the outstanding balance of borrowings as of the dates indicated:

(in thousands) 2020 2019 2018

Short-term borrowings $ — $ — $ —

Long-term borrowings:

FHLB long-term advances

Junior subordinated debentures

Total borrowings $ — $ — $ 11,341

Hancock Whitney Bank Line of Credit.

We maintain a revolving line of credit at Hancock Whitney Bank collateralized by 100.0% of the stock of Red River Bank.

As of December 31, 2020 and 2019, total borrowing capacity was $6.0 million under this arrangement.

The Company had no outstanding balances on this line during 2020 and 2019.

We had no outstanding borrowings as of December 31, 2021 and 2020.

Federal Home Loan Bank Advances.

We utilize the FHLB as needed as a funding source.

As of December 31, 2020 and 2019, our total FHLB line availability was $680.5 million and $647.6 million, respectively.

This line is secured by a blanket floating lien on selected Red River Bank loans which meet FHLB collateral requirements.

At various times, we may obtain letters of credit from the FHLB as collateral for our public entity deposits.

As of December 31, 2020 and 2019, we held unfunded letters of credit from the FHLB in the amount of $169.7 million and $109.5 million, respectively.

We utilize the FHLB of Dallas as needed as a funding source.

As of December 31, 2021 and 2020, our total FHLB of Dallas line availability was $748.6 million and $680.5 million, respectively.

This line is secured by a blanket floating lien on selected Red River Bank loans that meet FHLB of Dallas collateral requirements.

At various times, we may obtain letters of credit from the FHLB of Dallas as collateral for our public entity deposits.

As of December 31, 2021 and 2020, we held unfunded letters of credit from the FHLB of Dallas in the amount of $143.8 million and $169.7 million, respectively.

As of December 31, 2021 and 2020, we had net borrowing capacity of $604.8 million and $510.8 million, respectively, under this arrangement.

On April 15, 2020, in order to fund PPP loans, the Company borrowed $50.0 million from the FHLB for 90 days at a rate of 0.35% under its existing line of credit.

Due to having adequate liquidity, the $50.0 million was paid off on May 19, 2020.

Other Borrowings.

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As of December 31, 2021 and 2020, we had $95.0 million in federal funds lines available from these funding sources.

We had no outstanding balances on these lines as of December 31, 2020 and 2019.

We had no outstanding balances on these lines during 2021 and 2020.

Hancock Whitney Bank Line of Credit.

We maintain a revolving line of credit at Hancock Whitney Bank collateralized by 100.0% of the stock of Red River Bank.

As of December 31, 2021 and 2020, total borrowing capacity was $6.0 million under this arrangement.

The Company had no outstanding balances on this line during 2021 and 2020.

Stockholders’ Equity

Total stockholders’ equity as of December 31, 2021, was $298.2 million, compared to $285.5 million as of December 31, 2020, an increase of $12.7 million, or 4.4%.

This increase was attributable to $28.1 million of net income, a $6.9 million, net of tax, market adjustment to accumulated other comprehensive income related to securities AFS, and $371,000 of stock compensation, partially offset by $1.8 million in cash dividends and $122,000 for the repurchase of shares.

Our common stock began trading on May 3, 2019, on the Nasdaq Global Select Market under the symbol "RRBI." On May 7, 2019, we completed an IPO of our common stock at a public offering price of $45.00 per share.

A total of 690,000 shares of our common stock was sold in the IPO, of which we sold 663,320 shares (including 90,000 shares sold pursuant to the exercise of the underwriters' option to purchase additional shares) and certain shareholders sold 26,680 shares.

We received net proceeds of $26.8 million in the offering.

This increase was attributable to $33.0 million of net income and $325,000 of stock compensation, partially offset by a $10.7 million, net of tax, market adjustment to AOCI related to securities AFS, $7.9 million for the repurchase of shares, and $2.0 million in cash dividends.

Taking into consideration our performance and capital levels, dividends were paid in both 2021 and 2020.

In February 2019, the Company paid our second annual cash dividend of $0.20 per share.

During 2021, a quarterly cash dividend of $0.07 per share was paid, resulting in $0.28 per share in cash dividends for the year ended December 31, 2021.

On August 27, 2020, the Company's Board of Directors approved a stock repurchase program.

The repurchase program authorizes the Company to purchase up to $3.0 million of our outstanding shares of common stock through August 27, 2021.

During 2020, a quarterly cash dividend of $0.06 per share was paid, resulting in $0.24 per share in cash dividends for the year ended December 31, 2020.

In the third quarter of 2021, the $3.0 million stock repurchase program that was approved in August 2020 was completed after reaching the purchase limit.

Also in the third quarter of 2021, our Board of Directors approved the renewal of the stock repurchase program.

The renewed repurchase program authorized us to purchase up to $5.0 million of our outstanding shares of common stock between September 1, 2021 and August 31, 2022, from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions.

In the fourth quarter of 2021, we entered into a privately negotiated stock repurchase agreement and repurchased 96,245 shares of common stock for $4.9 million, resulting in the purchase of the full amount authorized by that repurchase program.

For the year ended December 31, 2021, we repurchased 153,553 shares of our common stock at an aggregate cost of $7.9 million.

On February 4, 2022, our Board of Directors approved the renewal of the stock repurchase program.

The renewed repurchase program authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from February 4, 2022 through December 31, 2022.

Repurchases may be made from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions.

For the year ended December 31, 2020, the Company repurchased 2,824 shares at an aggregate cost of $122,000.

Regulatory Capital Requirements

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In May 2018, the Economic Growth Act increased the asset threshold for “small bank holding companies” from $1.0 billion to $3.0 billion.

Because we have less than $3.0 billion in assets, we are not subject to capital adequacy guidelines on a consolidated basis.

Because we had less than $3.0 billion in assets as of June 30, 2020, the last applicable measurement date, we were not subject to capital adequacy guidelines on a consolidated basis as of December 31, 2021.

However, we calculate capital ratios for planning and monitoring purposes.

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

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

Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier I leverage ratio of greater than 9.00% (subsequently temporarily reduced to 8.00% for 2020 and 8.50% for 2021 as a COVID-19 relief measure), are considered qualifying community banking organizations and are eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements.

As of December 31, 2021, the Company and the Bank qualify for the CBLR framework.

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For the years ended December 31, 2021 and December 31, 2020, liquidity needs were primarily met by core deposits, security and loan maturities, and cash flows from amortizing security and loan portfolios.

While maturities and scheduled amortization of loans are predictable sources of funds, deposit outflows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and the competitive environment in which we operate, and therefore, these cash flows are monitored regularly.

Management continually monitors our liquidity and non-core dependency ratios to ensure compliance with targets established by the Bank’s Asset-Liability Management Committee.

While maturities and scheduled amortization of loans are predictable sources of funds, deposit outflows, mortgage prepayments, and prepayments on amortizing securities are greatly influenced by market interest rates, economic conditions, and the competitive environment in which we operate, and therefore, these cash flows are monitored regularly.

Our most liquid assets are cash and short-term investments that include both interest-earning demand deposits and securities AFS.

The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Access to purchased funds from correspondent banks and overnight advances from the FHLB and the Federal Reserve Bank of Atlanta are also available.

Access to purchased funds from correspondent banks and overnight advances from the FHLB of

Dallas and the Federal Reserve Bank of Atlanta are also available.

Purchased funds from correspondent banks and overnight advances have been utilized on occasion to meet funding obligations, although we do not generally rely on these external funding sources.

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We invest excess deposits in interest-earning deposits at other banks or at the Federal Reserve, federal funds sold, securities, or other short-term liquid investments until the deposits are needed to fund loan growth or other obligations.

In 2020, deposit growth exceeded loan growth which created excess liquidity.

During 2020, this excess liquidity was deployed into interest-bearing deposits in other banks, as well as securities.

Our average total loans, including average loans held for sale, increased $198.6 million, or 14.3%, for the year ended December 31, 2020 , compared to the year ended December 31, 2019.

The increase in average total loans is primarily due to $199.0 million of PPP loans originated during the second quarter of 2020.

Our average deposits increased $366.3 million, or 22.2%, for the year ended December 31, 2020, compared to the year ended December 31, 2019.

This increase was a result of customers receiving funds from various government stimulus programs, customers depositing the proceeds from their PPP loans, strong deposit account opening activity, and customers maintaining larger deposit balances.

Our average deposits increased $575.2 million, or 28.5%, for the year ended December 31, 2021, compared to the average deposits for the year ended December 31, 2020.

The increase in average total deposits was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining higher deposit balances.

Our average total loans increased $34.3 million, or 2.2%, for the year ended December 31, 2021, compared to the average total loans for the year ended December 31, 2020.

As of December 31, 2021, our cash and cash equivalents were our second largest component of earning assets.

Cash and cash equivalents were $784.9 million as of December 31, 2021, compared to $447.2 million as of December 31, 2020.

The increase of $337.7 million, or 75.5%, was a result of deposit growth exceeding loan growth that created additional liquidity, which was primarily deployed into interest-bearing deposits in other banks.

Core deposits, which are total deposits excluding time deposits greater than $250,000, are a major source of funds used to meet cash flow needs.

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This increase of $13.5 million, or 12.8%, was primarily due to several large public entity deposit accounts having higher balances as of December 31, 2021 compared to December 31, 2020.

Other sources available for meeting liquidity needs include federal funds lines, FHLB advances, repurchase agreements, and other lines of credit.

Public entity account balances generally fluctuate throughout the year.

We also utilize the FHLB of Dallas as needed as a viable funding source.

FHLB of Dallas advances may be used to meet short-term liquidity needs, particularly if the prevailing interest rate on an FHLB of Dallas advance compares favorably to the rates that would be required to attract the necessary deposits.

As of December 31, 2021 and 2020, our total borrowing availability from the FHLB of Dallas was $748.6 million and $680.5 million, respectively.

At various times, we may obtain letters of credit from the FHLB of Dallas as collateral for our public entity deposits.

As of December 31, 2021 and 2020, we held unfunded letters of credit from the FHLB of Dallas in the amount of $143.8 million and $169.7 million, respectively.

As of December 31, 2021 and 2020, our net borrowing capacity from the FHLB of Dallas was $604.8 million and $510.8 million, respectively.

Other sources available for meeting liquidity needs include federal funds lines, repurchase agreements, and other lines of credit.

We maintain four federal funds lines of credit with commercial banks that provided for the availability to borrow up to an aggregate of $95.0 million in federal funds as of December 31, 2021 and 2020.

FHLB advances may also be used to meet short-term liquidity needs, particularly if the prevailing interest rate on an FHLB advance compares favorably to the rates that would be required to attract the necessary deposits.

As of December 31, 2020 and 2019, our net borrowing capacity from the FHLB was $510.8 million and $538.1 million, respectively.

We also maintain an additional $6.0 million revolving line of credit at one of our correspondent banks.

As of December 31, 2020 and 2019, we had total borrowing capacity of $611.8 and $639.1 million, respectively, through these combined funding sources.

We had no outstanding balances from any of these funding sources as of December 31, 2020 and 2019.

For the years ended December 31, 2020 and 2019, we had no exposure to known future cash requirements or capital expenditures of a material nature.

As of December 31, 2020, we had cash and cash equivalents of $447.2 million compared to $133.3 million as of December 31, 2019.

The increase of $313.9 million was a result of deposit growth exceeding loan growth.

As of December 31, 2021 and 2020, we had total borrowing capacity of $101.0 million through these combined funding sources.

We had no outstanding balances from either of these funding sources as of December 31, 2021 and 2020.

Off-Balance Sheet Items

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Financial Statements and Supplementary Data - Note 3.

Loans and Asset Quality - Commitments to Extend Credit.” For more information about our financial commitments with time deposits, operating lease obligations, and limited partnership investments, see "Item 8.

Loans and Asset Quality - Commitments to Extend Credit.” For more information about our financial commitments with time deposits;

operating lease obligations;

and limited partnership investments, purchase commitments, and construction commitments, see “Item 8.

Financial Statements and Supplementary Data - Note 5.

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We have historically managed our rate sensitivity position within our established policy guidelines.

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity.

Interest rate risk is the potential of economic losses due to future interest rate changes.

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This assumption is incorporated into the simulation model and is generally not reflected in a gap analysis, which is the process by which we measure the repricing gap between interest rate-sensitive assets versus interest rate-sensitive liabilities.

As of December 31, 2020, the net interest income changes in the down 100 and down 200 rate scenarios remained constant.

This was primarily because as of December 30, 2020, loan yields, most securities yields, and most deposit rates were at their effective floors within the model's down 100 rate scenario, which resulted in interest income remaining relatively stable with rates down 200 basis points.

The percentage of change in the fair value of equity exceeds the policy threshold in the down 200 bp scenario as of December 31, 2021, due to the very low interest rate environment and current yield curve shapes.

These values will be reported at the next quarterly Asset-Liability Committee meeting, and these metrics will continue to be monitored.

The impact of our floating rate loans and floating rate transaction deposits are also reflected in the results shown in the above table.

As of December 31, 2020, floating rate loans were 14.6% of the loan's HFI and floating rate transaction deposits were 5.5% of the interest-bearing transaction deposits.

As of December 31, 2021, floating rate loans were 15.0% of the loans HFI and floating rate transaction deposits were 4.4% of the interest-bearing transaction deposits.

The assumptions incorporated into the model are inherently uncertain, and as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income.

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Our consolidated financial statements and related notes included in “Item 8.

Financial Statements and Supplementary Data" of this Annual Report on Form 10-K have been prepared in accordance with GAAP.

Financial Statements and Supplementary Data” of this Report have been prepared in accordance with GAAP.

GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.

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Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry.

Certain financial measures used by management to evaluate our operating performance are discussed in this Annual Report on Form 10-K as supplemental non-GAAP performance measures.

Certain financial measures used by management to evaluate our operating performance are discussed in this Report as supplemental non-GAAP performance measures.

In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the U.S.

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However, these non-GAAP financial measures that we discuss in this Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.

Moreover, the manner in which we calculate the non-GAAP financial measures that are discussed in this Annual Report on Form 10-K may differ from that of other companies reporting measures with similar names.

It is important to understand how such other banking organizations calculate and

name their financial measures similar to the non-GAAP financial measures discussed in this Annual Report on Form 10-K when comparing such non-GAAP financial measures.

Moreover, the manner in which we calculate the non-GAAP financial measures that are discussed in this Report may differ from that of other companies reporting measures with similar names.

It is important to understand how such other banking organizations calculate and name their financial

measures similar to the non-GAAP financial measures discussed in this Report when comparing such non-GAAP financial measures.

Tangible Assets, Tangible Equity, and Tangible Book Value

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Intangible assets have the effect of increasing both total stockholders’ equity and assets while not increasing our tangible common equity or tangible assets.

We calculate tangible common equity as total stockholders’ equity, less intangible assets, net of accumulated amortization and we calculate tangible assets as total assets less, intangible assets, net of accumulated amortization.

We calculate tangible common equity as total stockholders’ equity, less intangible assets, and we calculate tangible assets as total assets less, intangible assets.

The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common stockholders’ equity to total assets.

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Tangible common equity to tangible assets (non-GAAP) 9.20 % 10.75 % 12.60 %

(1) Share amounts have been adjusted to give effect to the 2018 2-for-1 stock split.

PPP-Adjusted Metrics

In the second quarter of 2020, Red River Bank originated 1,384 PPP loans totaling $199.0 million.

As of December 31, 2020, unamortized PPP origination fees were $2.8 million, resulting in $118.4 million of PPP loans, net of deferred income, or 7.5% of loans HFI.

PPP loans were implemented as a response to the COVID-19 pandemic and have characteristics that are different than the rest of our loan portfolio, including being short-term in nature (24 months or less depending on loan forgiveness) and having a lower than market interest rate.

Because of these factors, management believes that PPP-adjusted metrics provide a more accurate portrayal of certain aspects of the Company's financial condition and performance.

In 2020 and 2021, Red River Bank participated in the SBA PPP and originated 1,888 PPP loans totaling $260.8 million.

PPP loan originations were concluded in the second quarter of 2021.

Through December 31, 2021, we had received $242.7 million in SBA forgiveness and borrower payments on 94.4% of the PPP loans originated.

As of December 31, 2021, PPP loans totaled $17.6 million, net of $626,000 of deferred income, and were 1.0% of loans HFI.

PPP loans were implemented as a response to the COVID-19 pandemic and have characteristics that are different than the rest of our loan portfolio, including being short-term in nature (24 or 60 months or less depending on loan forgiveness timing), having a lower than market interest rate, and only being originated during specified time periods during the COVID-19 pandemic.

Because of these factors, management believes that PPP-adjusted metrics provide a more accurate

portrayal of certain aspects of the Company’s financial condition and performance.

Accordingly, we believe it is important to investors to see certain of our metrics with PPP loans excluded.

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It is maintained at a level estimated to be adequate to absorb potential losses through periodic changes to loan losses.

Red River Bank currently utilizes the incurred loss methodology to estimate the allowance for loan losses.

The CECL model is not effective for Red River Bank until January 1, 2023.

Red River Bank currently utilizes the

incurred loss methodology to estimate the allowance for loan losses.

The CECL model is effective for Red River Bank on January 1, 2023.

The allowance for loan losses consists of specific and general reserves.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis