RED RIVER BANCSHARES INC 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Red River Bancshares, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Red River Bancshares, Inc. and its subsidiaries (the Company) as of December 31, 2023, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in note 1 to the financial statements, the Company has changed its method of accounting for credit losses in 2023 due to the adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. We have served as the Company’s auditors since 2023 (Note: Partners of Postlethwaite & Netterville, APAC joined EisnerAmper LLP in 2023. Postlethwaite & Netterville, APAC had served as the Company’s auditor since 1998). /s/ EISNERAMPER LLP Baton Rouge, Louisiana March 15, 2024 65 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Red River Bancshares, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Red River Bancshares, Inc. and its subsidiaries (the Company) as of December 31, 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Postlethwaite & Netterville We have served as the Company’s auditor since 1998. Baton Rouge, Louisiana March 16, 2023 66 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December 31, 2023 2022 ASSETS Cash and due from banks $ 53,062 $ 37,824 Interest-bearing deposits in other banks 252,364 240,568 Total Cash and Cash Equivalents 305,426 278,392 Securities available-for-sale, at fair value (amortized cost of $ 632,258 and $ 688,539 , respectively) 570,092 614,407 Securities held-to-maturity, at amortized cost (fair value of $ 119,029 and $ 132,407 , respectively) 141,236 151,683 Equity securities, at fair value 2,965 9,979 Nonmarketable equity securities 2,239 3,478 Loans held for sale 1,306 518 Loans held for investment 1,992,858 1,916,267 Allowance for credit losses ( 21,336 ) ( 20,628 ) Premises and equipment, net 57,088 54,383 Accrued interest receivable 9,945 8,830 Bank-owned life insurance 29,529 28,775 Intangible assets 1,546 1,546 Right-of-use assets 3,629 4,137 Other assets 32,287 30,919 Total Assets $ 3,128,810 $ 3,082,686 LIABILITIES Noninterest-bearing deposits $ 916,456 $ 1,090,539 Interest-bearing deposits 1,885,432 1,708,397 Total Deposits 2,801,888 2,798,936 Accrued interest payable 8,000 1,563 Lease liabilities 3,767 4,258 Accrued expenses and other liabilities 11,304 12,176 Total Liabilities 2,824,959 2,816,933 COMMITMENTS AND CONTINGENCIES — — STOCKHOLDERS’ EQUITY Preferred stock, no par value: Authorized - 1,000,000 shares; None Issued and Outstanding — — Common stock, no par value: Authorized - 30,000,000 shares; Issued and Outstanding - 7,091,637 and 7,183,915 shares, respectively 55,136 60,050 Additional paid-in capital 2,407 2,088 Retained earnings 306,802 274,781 Accumulated other comprehensive income (loss) ( 60,494 ) ( 71,166 ) Total Stockholders’ Equity 303,851 265,753 Total Liabilities and Stockholders’ Equity $ 3,128,810 $ 3,082,686 The accompanying notes are an integral part of these consolidated financial statements. 67 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Years Ended December 31, 2023 2022 2021 INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 93,439 $ 75,827 $ 67,923 Interest on securities 14,291 13,735 8,660 Interest on federal funds sold 886 1,091 88 Interest on deposits in other banks 9,797 3,682 658 Dividends on stock 155 40 10 Total Interest and Dividend Income 118,568 94,375 77,339 INTEREST EXPENSE Interest on deposits 32,066 7,736 5,617 Interest on other borrowed funds 64 — — Total Interest Expense 32,130 7,736 5,617 Net Interest Income 86,438 86,639 71,722 Provision for credit losses 735 1,750 1,900 Net Interest Income After Provision for Credit Losses 85,703 84,889 69,822 NONINTEREST INCOME Service charges on deposit accounts 5,776 5,565 4,775 Debit card income, net 3,563 3,897 4,415 Mortgage loan income 1,965 3,096 8,676 Brokerage income 3,798 3,549 3,297 Loan and deposit income 2,140 1,723 1,738 Bank-owned life insurance income 754 713 648 Gain (Loss) on equity securities ( 14 ) ( 468 ) ( 175 ) Gain (Loss) on sale and call of securities — ( 59 ) 194 SBIC income 2,873 563 654 Other income (loss) 259 168 271 Total Noninterest Income 21,114 18,747 24,493 OPERATING EXPENSES Personnel expenses 37,241 34,560 32,449 Occupancy and equipment expenses 6,581 6,109 5,443 Technology expenses 2,759 2,763 2,810 Advertising 1,302 1,134 921 Other business development expenses 1,987 1,645 1,169 Data processing expense 2,320 2,093 1,982 Other taxes 2,721 2,714 2,082 Loan and deposit expenses 984 659 1,016 Legal and professional expenses 2,378 1,997 1,683 Regulatory assessment expenses 1,645 1,058 933 Other operating expenses 3,955 3,923 3,767 Total Operating Expenses 63,873 58,655 54,255 Income Before Income Tax Expense 42,944 44,981 40,060 Income tax expense 8,065 8,065 7,108 Net Income $ 34,879 $ 36,916 $ 32,952 EARNINGS PER SHARE Basic $ 4.87 $ 5.14 $ 4.53 Diluted $ 4.86 $ 5.13 $ 4.51 The accompanying notes are an integral part of these consolidated financial statements. 68 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Years Ended December 31, 2023 2022 2021 Net income $ 34,879 $ 36,916 $ 32,952 Other comprehensive income (loss): Unrealized net gain (loss) on securities arising during period 11,966 ( 87,342 ) ( 13,343 ) Tax effect ( 2,512 ) 18,342 2,802 (Gain) Loss on sale and call of securities included in net income — 59 ( 194 ) Tax effect — ( 13 ) 41 Change in unrealized net loss on securities transferred to held-to-maturity 1,542 1,975 — Tax effect ( 324 ) ( 414 ) — Total other comprehensive income (loss) 10,672 ( 67,393 ) ( 10,694 ) Comprehensive Income (Loss) $ 45,551 $ ( 30,477 ) $ 22,258 The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (dollars in thousands, except per share amounts) Common Shares Issued Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance as of December 31, 2020 7,325,333 $ 68,055 $ 1,545 $ 208,957 $ 6,921 $ 285,478 Net income — — — 32,952 — 32,952 Stock incentive plan — — 269 — — 269 Issuance of restricted shares of common stock through stock incentive plan 7,400 — — — — — Forfeiture of restricted shares of common stock ( 100 ) — — — — — Issuance of shares of common stock as board compensation 1,075 56 — — — 56 Repurchase of common stock under stock repurchase program ( 153,553 ) ( 7,878 ) — — — ( 7,878 ) Cash dividend - $ 0.28 per share — — — ( 2,033 ) — ( 2,033 ) Other comprehensive income (loss) — — — — ( 10,694 ) ( 10,694 ) Balance as of December 31, 2021 7,180,155 $ 60,233 $ 1,814 $ 239,876 $ ( 3,773 ) $ 298,150 Net income — — — 36,916 — 36,916 Stock incentive plan — — 274 — — 274 Issuance of restricted shares of common stock through stock incentive plan 7,550 — — — — — Issuance of shares of common stock as board compensation 675 35 — — — 35 Repurchase of common stock under stock repurchase program ( 4,465 ) ( 218 ) — — — ( 218 ) Cash dividend - $ 0.28 per share — — — ( 2,011 ) — ( 2,011 ) Other comprehensive income (loss) — — — — ( 67,393 ) ( 67,393 ) Balance as of December 31, 2022 7,183,915 $ 60,050 $ 2,088 $ 274,781 $ ( 71,166 ) $ 265,753 Net income — — — 34,879 — 34,879 Stock incentive plan — — 319 — — 319 Issuance of restricted shares of common stock through stock incentive plan 9,300 — — — — — Forfeiture of restricted shares of common stock ( 1,940 ) — — — — Issuance of shares of common stock as board compensation 1,660 85 — — — 85 Repurchase of common stock under stock repurchase program ( 101,298 ) ( 4,999 ) — — — ( 4,999 ) Cash dividend - $ 0.32 per share — — — ( 2,289 ) — ( 2,289 ) Cumulative effect of change in accounting principle — — — ( 569 ) — ( 569 ) Other comprehensive income (loss) — — — — 10,672 10,672 Balance as of December 31, 2023 7,091,637 $ 55,136 $ 2,407 $ 306,802 $ ( 60,494 ) $ 303,851 The accompanying notes are an integral part of these consolidated financial statements. 70 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 34,879 $ 36,916 $ 32,952 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,198 2,076 1,906 Amortization 548 533 646 Share-based compensation earned 319 274 269 Share-based board compensation earned 42 85 50 (Gain) Loss on other assets owned 60 60 ( 184 ) Net (accretion) amortization on securities AFS 1,610 2,339 2,479 Net (accretion) amortization on securities HTM ( 1,502 ) ( 1,953 ) — (Gain) Loss on sale and call of securities — 59 ( 194 ) (Gain) Loss on equity securities 14 468 175 Provision for credit losses 735 1,750 1,900 Deferred income tax (benefit) expense ( 330 ) 313 ( 773 ) Net (increase) decrease in loans HFS ( 788 ) 3,772 24,826 Net (increase) decrease in accrued interest receivable ( 1,115 ) ( 2,585 ) 635 Net (increase) decrease in BOLI ( 754 ) ( 714 ) ( 648 ) Net increase (decrease) in accrued interest payable 6,437 253 ( 464 ) Net increase (decrease) in accrued income taxes payable ( 527 ) 374 ( 70 ) Other operating activities, net ( 1,715 ) 1,847 ( 1,241 ) Net cash provided by (used in) operating activities 40,111 45,867 62,264 CASH FLOWS FROM INVESTING ACTIVITIES Activity in securities AFS: Sales — 31,762 113,524 Maturities, principal repayments, and calls 151,110 70,531 99,175 Purchases ( 96,439 ) ( 313,514 ) ( 389,493 ) Activity in securities HTM: Maturities, principal repayments, and calls 11,949 16,580 — Sale of equity securities 7,000 7,399 — Purchase of equity securities — ( 10,000 ) ( 4,000 ) Sale of nonmarketable equity securities 2,178 — — Purchase of nonmarketable equity securities ( 792 ) ( 28 ) ( 3 ) Capital contribution in partnerships ( 1,819 ) ( 892 ) ( 173 ) Net (increase) decrease in loans HFI ( 77,042 ) ( 232,733 ) ( 96,327 ) Purchase of bank owned life insurance — — ( 5,000 ) Proceeds from sales of foreclosed assets 15 641 563 Proceeds from sales of premises and equipment 15 — 483 Purchases of premises and equipment ( 4,916 ) ( 8,444 ) ( 3,427 ) Net cash provided by (used in) investing activities ( 8,741 ) ( 438,698 ) ( 284,678 ) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 2,952 ( 111,412 ) 569,988 Proceeds from other borrowed funds 60,000 — — Repayments of other borrowed funds ( 60,000 ) — — Repurchase of common stock ( 4,999 ) ( 218 ) ( 7,878 ) Cash dividends ( 2,289 ) ( 2,011 ) ( 2,033 ) Net cash provided by (used in) financing activities ( 4,336 ) ( 113,641 ) 560,077 Net change in cash and cash equivalents 27,034 ( 506,472 ) 337,663 Cash and cash equivalents - beginning of year 278,392 784,864 447,201 Cash and cash equivalents - end of year $ 305,426 $ 278,392 $ 784,864 The accompanying notes are an integral part of these consolidated financial statements. 71 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (in thousands) Years Ended December 31, 2023 2022 2021 SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest $ 25,693 $ 7,483 $ 6,080 Income taxes $ 8,999 $ 7,351 $ 7,989 SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES Assets acquired in settlement of loans $ 146 $ — $ 266 Transfers of investment securities from AFS to HTM, prior to market value adjustment $ — $ 184,238 $ — The accompanying notes are an integral part of these consolidated financial statements. 72 Table of Contents RED RIVER BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Significant Accounting Policies Nature of Operations The Company is a bank holding company headquartered in Alexandria, Louisiana. The Company’s wholly owned bank subsidiary, Red River Bank, is a Louisiana state-chartered bank that provides a fully integrated suite of banking products and services tailored to the needs of commercial and retail customers. As of December 31, 2023, Red River Bank operated from a network of 27 banking centers throughout Louisiana and one combined LDPO in New Orleans, Louisiana. Banking centers are located in the following Louisiana markets: Central, which includes the Alexandria MSA; Northwest, which includes the Shreveport-Bossier City MSA; Capital, which includes the Baton Rouge MSA; Southwest, which includes the Lake Charles MSA; the Northshore, which includes Covington; Acadiana, which includes the Lafayette MSA; and New Orleans. Basis of Presentation The consolidated financial statements include the accounts of the Company and all other entities in which the Company has controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to GAAP and the prevailing practices within the banking industry. Operating Segments While the chief operating decision-maker monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment. Use of Estimates The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. These estimates also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On January 1, 2023, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which significantly changed the impairment model for most financial assets that are measured at amortized cost, including loans HFI, securities, and unfunded commitments, from an incurred loss model to an expected loss model. Accounting policies related to the ACL are considered critical as these policies involve considerable subjective judgment and estimation by management. Changes in factors and forecasts used in evaluating the overall loan portfolio may result in significant changes in the ACL and related provision expense in future periods. The allowance level is influenced by loan portfolio growth, changes in the quality and composition of the loan portfolio, the level of nonperforming loans, delinquency and charge-off trends, current economic conditions, forecasted information, and other conditions influencing loss expectations. Changes to the assumptions in the model in future periods could have a material impact on the Company’s Consolidated Financial Statements. Refer to “- Securities” and “- Loans Held for Investment” for a detailed discussion on the Company’s methodologies for estimating expected credit losses. Acquisition Accounting The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. Purchased assets, including loans, and assumed liabilities are recorded at their respective acquisition date fair values. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Cash and Cash Equivalents Cash and cash equivalents consist of cash and due from banks and interest-bearing deposits in other banks. Interest-bearing deposits in other banks consist of money market, certificate of deposit, and checking accounts and are carried at cost. Securities All debt securities of the Company as of December 31, 2023 and 2022, were classified either as AFS or HTM. Securities AFS are held for indefinite periods of time and are carried at estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss), net of tax. Securities HTM, which the Company has the intent and ability to hold until maturity, are carried at amortized cost. Realized gains and losses on the sale and call of securities are determined using the specific-identification method. Purchased premiums and discounts are recognized in interest income using the interest method over the term of the securities. 73 Table of Contents Equity securities include a CRA mutual fund owned by the Company, which is carried at fair value with any periodic changes in value recorded through the statements of income. Prior to the adoption of ASC 326 on January 1, 2023, declines in the fair value of HTM and AFS debt securities below their cost that were deemed to be other-than-temporary were reflected in earnings as realized losses to the extent the losses were credit related. FASB issued accounting guidance related to the recognition and presentation of OTTI. The accounting guidance specified that if (1) a company did not have the intent to sell a debt security prior to recovery; and (2) it was more likely than not that it would not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there was a credit loss. When an entity did not intend to sell the security, and it was more likely than not that the entity would not have to sell the security before recovery of its cost basis, the entity would recognize the credit component of an OTTI of a debt security in earnings and the remaining portion in other comprehensive income (loss). For HTM debt securities, the amount of OTTI recorded in other comprehensive income (loss) for the noncredit portion of an OTTI should be amortized over the remaining life of the security based on the timing of its future estimated cash flows. Securities AFS The Company adopted the provisions of ASC 326 on January 1, 2023. The Company is required to measure expected credit losses on securities AFS. Impairment is evaluated when there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. Management evaluates each security by considering the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, volatility of the security’s fair value, and historical loss information for financial assets secured with similar collateral, along with other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. If a decline in the fair value related to creditworthiness or other factors is determined, an ACL is calculated using a discounted cash flow method, whereby management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component is recognized through the provision for credit losses in the consolidated statements of income. Accrued interest receivable is excluded from the amortized cost basis in measuring expected credit losses on the investment securities, and no ACL is recorded on accrued interest receivable. The Company’s current securities AFS portfolio consists of U.S. Treasury securities, mortgage-backed securities, U.S. agency securities, and municipal bonds. The Company’s securities AFS, other than the municipal bonds, are considered treasuries, agencies, and instrumentalities of the U.S. government, which have a zero credit loss assumption. These securities have the full faith and credit backing of the U.S. government or one of its agencies. Municipal bonds AFS do not fall under the zero credit loss assumption and are evaluated quarterly using the considerations mentioned above to determine whether there is a credit loss associated with a decline in fair value. Securities HTM The Company is required to measure expected credit losses on securities HTM. Securities HTM are measured on a collective basis by major security type with those sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the securities HTM portfolio. Management monitors the HTM portfolio to determine whether an ACL should be recorded. The Company’s current securities HTM portfolio consists of mortgage-backed securities and U.S. agency securities. The Company’s securities HTM are considered agencies and instrumentalities of the U.S. government that have a zero credit loss assumption. These securities have the full faith and credit backing of the U.S. government or one of its agencies. Nonmarketable Equity Securities Nonmarketable equity securities, which include investments in the FHLB of Dallas and First National Banker’s Bank, are carried at cost. Loans Held for Sale Residential mortgage loans originated and intended for sale are carried at the lower of cost or estimated fair value on an individual basis. These mortgage loans are pre-sold prior to funding. Loans Held for Investment Loans that management has the intent and ability to hold, for the foreseeable future or until maturity or payoff, are reported at amortized cost. Amortized cost is the principal balance outstanding, net of deferred fees and costs. Accrued interest receivable is reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. 74 Table of Contents Interest income on loans is discontinued, and the loans are placed on nonaccrual status at the time the loan is 90 days past due unless the loan is well-secured and in process of collection. When a loan is placed on nonaccrual status, uncollected accrued interest is reversed, reducing interest income, and future income accrual is discontinued. Subsequent payments, if any, of interest and fees are applied as reductions to the loan’s outstanding principal balance. Once the principal balance of a loan placed on nonaccrual status has been fully recovered, subsequent payments received are recognized as interest income on a cash basis. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans, excluding credit cards, are charged-off to the ACL to the extent management is relatively certain that principal and interest will be uncollectible. Management may elect to partially charge-off a loan to adjust the principal balance to the net realizable value of the collateral that secures the loan. When a partial charge-off is made, the remaining balance of the loan is placed on nonaccrual. Recoveries of amounts previously charged-off, if any, are credited to the ACL until the principal balance of the loan is fully recovered. Any subsequent payments are recognized as income. Credit card loans continue to accrue interest until they are charged-off to the ACL no later than 120 days past due unless the loan is in the process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Allowance for Credit Losses - Loans The ACL is a valuation account calculated in accordance with ASC 326 and is deducted from the amortized cost basis of loans HFI to present management’s best estimate of the expected credit losses to be recognized over the lifetime of the loans. The amount of the ACL should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. Loans are charged-off against the allowance when management is relatively certain that principal and interest will be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. This reasonable and supportable forecast period is currently one year and incorporates the Company’s and its peer’s historical losses. After the forecast period, the Company reverts to an average historical loss rate over a two-year period. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in economic conditions, such as changes in unemployment rates, property values, or other relevant factors. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in the Company’s historic loss factors. The determination of the amount of allowance involves a high degree of judgement and subjectivity. The ACL is measured on a collective pool basis when similar risk characteristics and risk profiles exist. The Company utilizes cohort loss rate (static pool analysis) and remaining life loss rate methodologies to estimate the quantitative portion of the ACL for loan pools. The cohort loss rate methodology tracks a closed pool of loans over their remaining lives to determine their loss behavior. The remaining life loss rate methodology takes the calculated loss rate and applies that rate to a pool of loans on a periodic basis based on the remaining life expectation of that pool. 75 Table of Contents The portfolio pools are based primarily on regulatory call report codes. These pools and certain of the inherent risks in the Company’s loan portfolio are summarized in the following table. Loan Pool Risk Characteristics Residential construction This category consists of loans to residential developers and to individual clients for construction of single-family homes. Risks inherent in this portfolio pool include fluctuations in the value of real estate, project completion risk, and change in market trends. Commercial construction This category consists of loans to small and medium-sized businesses to construct owner occupied facilities and developers of commercial real estate investment properties. Risks inherent in this portfolio pool include fluctuations in the value of real estate, project completion risk, change in market trends, and the ability to sell the property upon completion. Farmland This category consists of loans secured by real estate that is used or usable for agricultural purposes, including land used for crops, livestock production, grazing/pastureland, and timberland. Risks inherent in this portfolio pool include adverse changes in climate, fluctuations in feed and livestock prices, and changes in property values. Home equity loans and lines This category consists of home equity loans and lines of credit. Risks inherent in this portfolio pool include local unemployment rates, local residential real estate market conditions, and the interest rate environment. Secured closed-liens This category consists of loans secured by primary and secondary liens on residential real estate. Risks inherent in this portfolio pool include local unemployment rates, local residential real estate market conditions, and the interest rate environment. Generally, these loans are for longer terms than home equity loans and lines of credit. Multifamily This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on a temporary or permanent basis. Risks inherent in this portfolio pool include local unemployment rates, changes in the local economy, and factors that would impact property values. Owner occupied commercial real estate This category consists of loans to established operating companies and secured by owner occupied offices and industrial real estate properties. Risks inherent in this portfolio pool include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, environmental contamination, and the quality of the borrower’s management. Non-owner occupied commercial real estate This category consists of loans to developers and other persons or entities and secured by non-owner occupied commercial real estate properties. Risks inherent in this portfolio pool include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, tenant vacancy rates, environmental contamination, and the quality of the borrower’s management. Commercial and industrial This category consists of secured and unsecured loans to purchase capital equipment, agriculture operating loans, and other business loans for working capital and operating purposes. Secured loans are primarily secured by accounts receivable, inventory, and other business assets. The performance of commercial and industrial loans may be adversely affected by, among other factors, conditions specific to the relevant industry, fluctuations in the value of the collateral, and individual performance factors related to the borrower such as the quality of the borrower’s management. Consumer This category consists of loans to individuals for household, family, and other personal use. Risks inherent in this portfolio pool include the borrower’s financial condition, local unemployment rates, local economic conditions, and the interest rate environment. Tax-exempt This category consists of loans to political subdivisions primarily of the State of Louisiana including parishes, municipalities, utility districts, school districts, and development authorities. These loans undergo the same underwriting as any of the Company’s other loans and are typically paid for by ad valorem taxes or specific revenue sources. Other loans This category consists of loans not included in any other category. Risks inherent in this portfolio pool include local unemployment rates, local economic conditions, and the interest rate environment. 76 Table of Contents Loans that do not share similar risk characteristics are evaluated on an individual basis and excluded from the collective evaluation. For loans evaluated on an individual basis that are collateral dependent, the specific allowance is estimated by calculating the difference between the fair value of the underlying collateral less estimated selling costs and the Bank’s exposure. If the loan is not collateral dependent, the discounted cash flow methodology is used. Either of these determinations are highly subjective and based on information available at the time of valuation. Reserve for Unfunded Commitments Commitments to extend credit are agreements to lend to a customer if all conditions of the commitment have been met. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The reserve for unfunded commitments is recorded within accrued interest payable on the consolidated balance sheets, and the related provision is recorded in other operating expenses on the consolidated statements of income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The loss rates computed for each pool and expected pool-level funding rates are applied to the related unfunded commitment balance to obtain the reserve amount. Allowance for Loan Losses For reporting periods prior to January 1, 2023, the ALL was established for known and inherent losses in the loan portfolio based upon management’s best assessment of the loan portfolio at each balance sheet date. It was maintained at a level estimated to be adequate to absorb potential losses through periodic changes to loan losses. The ALL consisted of specific and general reserves. Specific reserves related to loans classified as impaired. Loans were considered impaired when, based on current information and events, it was probable that the Bank would be unable to collect all amounts due in accordance with the contractual terms of the loan. Impaired loans included TDRs and performing and nonperforming loans. Impaired loans were reviewed individually, and a specific allowance was allocated, if necessary, based on evaluation of either the fair value of the collateral underlying the loan or the present value of future cash flows calculated using the loan’s existing interest rate. General reserves were related to the remainder of the loan portfolio, including overdrawn deposit accounts, and were based on an evaluation of a number of factors, such as current economic conditions, the quality and composition of the loan portfolio, loss history, and other relevant factors. Acquired Loans Acquired loans, for which all contractual cash flows are expected to be received, are accounted for under the accounting guidance found in ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs. With the adoption of ASC 326 on January 1, 2023, loans acquired as part of a business combination that have evidence of credit deterioration since their origination date are to be recorded at amortized cost with an associated allowance for the expected credit loss at the date of the acquisition. Prior to January 1, 2023, acquired loans, with evidence of credit deterioration, were accounted for under the accounting guidance found in ASC Topic 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. Foreclosed Assets Assets acquired through, or in lieu of, loan foreclosure are HFS and are initially recorded at fair value less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Foreclosed assets are included in other assets on the consolidated balance sheets. As of December 31, 2023, the Company had $ 69,000 of foreclosed assets. As of December 31, 2022, the Company had no foreclosed assets. Credit Related Financial Information In the ordinary course of business, the Bank has entered into commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded. Premises and Equipment, Net Premises and equipment are stated at cost less accumulated depreciation, which is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 40 years. Bank-Owned Life Insurance The Bank has purchased life insurance policies on certain key employees. The Bank is the beneficiary of the BOLI policies, which may be on past or present employees. BOLI policies have death benefits as well as a cash surrender value component, which is carried as an asset on the consolidated balance sheets. 77 Table of Contents Intangible Assets Intangible assets consist of goodwill. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. Goodwill is not amortized but rather evaluated for impairment annually. The Company performed its annual impairment test of goodwill for 2023 and 2022 as required by ASC 350, Intangibles - Goodwill and Other. The evaluation indicated no impairment of the Company’s goodwill. Treasury Stock On January 1, 2015, the LBCA became effective. Under provisions of the LBCA, there is no concept of “Treasury Shares.” Rather, shares purchased by the Company constitute authorized but unissued shares. Accordingly, the Company’s consolidated balance sheets reflect the cost of shares purchased by the Company within common stock. Comprehensive Income Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes the after tax effect of unrealized net gains and losses on securities AFS and the amortization of the unrealized net loss on securities transferred to HTM. Stock-Based Compensation Plans The Company has adopted stock incentive plans that provide for the granting of stock-based awards to key employees, directors, and consultants. The Company accounts for the stock incentive plans in accordance with applicable accounting guidance. Under the fair value recognition provisions of this guidance, stock-based compensation cost is measured at the grant date based on the fair value of the award and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. The restricted stock granted under these plans provides common stock to recipients at the grant date. The restrictions vest in twenty percent increments on the first through fifth anniversaries of the grant date. The Company recognizes forfeitures as they occur. The Company has a Director Compensation Program, which allows directors the option of receiving their board attendance fees in Company stock in lieu of cash. Board compensation expense is recorded when board service is rendered. Advertising Cost Advertising costs are expensed as incurred. Income Tax The provision for income tax is based on taxes payable or receivable for the current year and deferred taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company has adopted the provisions of accounting guidance related to accounting for uncertainty in income taxes. This interpretation clarifies that the benefit of a position taken or expected to be taken in a tax return should be recognized in a company’s financial statements when it is more likely than not that the position will be sustained based on technical merits. The Company recognizes interest and penalties on income taxes as a component of income tax expense. The effect on deferred tax assets of a change in tax rate is recognized in income as part of income tax expense for the period that includes the enactment date. Deferred tax assets and liabilities have been measured as of December 31, 2023 and 2022, using the 21.0 % corporate tax rate. For more information, see “Note 8. Income Tax Expense.” Earnings per Common Share Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock splits. Diluted EPS includes accrued but unissued shares relating to the Director Compensation Program, stock options, and restricted stock determined using the treasury stock method. A reconciliation of the weighted-average shares used in calculating basic EPS and diluted EPS for the reported periods is provided in “Note 17. Earnings Per Common Share.” Revenue Recognition The Company has identified certain recurring revenue streams related to noninterest income, which are within the scope of Topic 606, Revenue from Contracts with Customers . In-scope revenue streams are summarized based on the timing of revenue recognition as follows: • Revenue earned at a point in time - Fee income (including wire transfer, check ordering, and other transactional fees), NSF/OD charges, ATM/Card fee income (including ATM transaction fees and credit and debit card interchange income), and brokerage transaction income. Revenue is recorded as transactions occur or services are provided to customers. The Company is the principal in each of these contracts with 78 Table of Contents the exception of credit and debit card interchange fees, online transaction interchange fees, sweep income, and brokerage services income, in which case the Company is acting as the agent and records revenue net of expenses paid. • Revenue earned over time (generally under a monthly contract) - Debit card agreement, safe deposit box fees, and brokerage agreement income. Revenue is recorded in the period transactions occur or services are rendered to the customer. The Company is the principal in each of these contracts. There are no significant judgments relating to the amount and timing of revenue recognition for revenue streams within the scope of Topic 606, Revenue from Contracts with Customers . Due to the nature of the services the Company provides to its customers, it does not incur costs to obtain contracts, and there are no material incremental costs to fulfill these contracts that should be capitalized. Additionally, there are no material contract assets or receivables as the Company does not typically enter into long-term revenue contracts with customers. Accounting Standards Adopted in 2023 ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. On January 1, 2023 , the Company adopted ASC 326 , as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans HFI, securities HTM, and unfunded commitments. In addition, ASC 326 made changes to the accounting for securities AFS, which requires credit losses to be presented as an allowance rather than as a write-down on securities AFS that management does not intend to sell or believes that it is more likely than not that the Company will have the ability to hold until each security has recovered its cost basis. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and unfunded commitments. Results for reporting periods beginning after January 1, 2023, are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a $ 569,000 , net of tax, decrease to stockholders’ equity as of January 1, 2023, for the cumulative effect of adopting ASC 326 . The transition adjustment included a $ 278,000 increase to the December 31, 2022 ALL and established a $ 442,000 reserve for unfunded commitments as presented in the following table. (in thousands) December 31, 2022 ALL Impact of ASC 326 Adoption January 1, 2023 ACL Real estate: Commercial real estate $ 7,720 $ 876 $ 8,596 One-to-four family residential 5,682 1,231 6,913 Construction and development 1,654 ( 444 ) 1,210 Commercial and industrial 4,350 ( 822 ) 3,528 Tax-exempt 751 ( 427 ) 324 Consumer 471 ( 136 ) 335 Total $ 20,628 $ 278 $ 20,906 Reserve for unfunded commitments $ — $ 442 $ 442 Due to the zero credit loss assumption on securities AFS and HTM and the considerations applied to the securities AFS, no ACL was recorded on January 1, 2023 for securities AFS or HTM. ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update address how to determine whether a contract liability is recognized by the acquirer in a business combination. The amendment also resolves the inconsistency of post-acquisition revenue recognition by providing specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. On January 1, 2023, the Company adopted ASU No. 2021-08. Adoption of this ASU did not have an impact on the Company’s consolidated financial statements. ASU No. 2022-02 Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The guidance issued in this update eliminates the accounting guidance for TDRs by creditors in Subtopic 3 10-40, Receivables – Troubled Debt Restructurings by Creditors , but also enhances the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The guidance requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments – Credit Losses – Measured at 79 Table of Contents Amortized Cost . On January 1, 2023, the Company adopted ASU No. 2022-02 on a prospective basis . Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements. The guidance issued in this update addresses two issues. First, the standard requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is a lease, the accounting for the lease is treated the same as an arrangement with an unrelated party. This is a change in the requirement under Topic 840, Leases, which used the basis of economic substance. Secondly, the standard requires leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset. If the lessor obtained control of the use of the underlying asset through a lease with another entity not within the common control group, the amortization period may not exceed the amortization period of the common control group. If the lessee no longer controls the use of the underlying asset, the improvement is accounted for as a transfer between entities under common control through an adjustment to equity. These leasehold improvements are subject to the impairment guidance in Topic 360 Property, Plant and Equipment . Both items of this amendment are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted for both interim periods and annual financial statements that have not been issued. On January 1, 2023, the Company early adopted ASU No. 2023-01, and it did not have an impact on the Company’s consolidated financial statements. ASU No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718). The guidance in this update amends various SEC paragraphs relating to financial disclosures. This update is an alignment of SEC and GAAP reporting. This update was issued in the third quarter of 2023 and was effective upon issuance. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. ASU No. 2023-06, Disclosure Improvements. The guidance in this update amends various SEC paragraphs relating to financial disclosures. This update is an alignment of SEC and GAAP reporting. This update was issued in the fourth quarter of 2023 and was effective upon issuance. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. Recent Accounting Pronouncements ASU No. 2023-07, Segment Reporting (Topic 280). The guidance issued in this update requires improvement to the disclosures about a public entity’s reportable segments and more detailed information about a reportable segment’s expenses. Even though the Company has a single reportable segment, all the disclosures required by this update are required. The goal of these disclosures is to enable investors to develop more decision-useful financial analyses. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements. ASU 2023-09 Income Taxes (Topic 740). The guidance in this update provides enhanced transparency and decision usefulness of income tax disclosures. The amendment addresses investor requests for income tax information through improvements to income tax disclosures related to the rate reconciliation and income taxes paid information. Investors anticipate theses disclosures will provide an understanding of an entity’s exposures to changes in tax legislation and allow investors to better assess income tax information that affects cash flow forecasts and capital allocation decisions, as well as identify opportunities to increase future cash flows. This update is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis. Retrospective application is permitted. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements. Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation. These changes in presentation did not have a material impact on the Company’s financial condition or results of operations. 2. Securities Securities are classified as AFS, HTM, and equity securities. Total securities were $ 714.3 million as of December 31, 2023. Securities AFS and Securities HTM Securities AFS and securities HTM are debt securities. Securities AFS are held for indefinite periods of time and are carried at estimated fair value. As of December 31, 2023, the estimated fair value of securities AFS was $ 570.1 million. The net unrealized loss on securities AFS decreased $ 12.0 million for the year ended December 31, 2023, resulting in a net unrealized loss of $ 62.2 million as of December 31, 2023. 80 Table of Contents Securities HTM, which the Company has the intent and ability to hold until maturity, are carried at amortized cost. As of December 31, 2023, the amortized cost of securities HTM was $ 141.2 million. Investment activity for the year ended December 31, 2023, included $ 163.1 million in maturities, principal repayments, and calls, partially offset by $ 96.4 million of securities purchased. There were no sales of securities AFS, and there were no purchases or sales of securities HTM for the same period. The amortized cost and estimated fair value of securities AFS and securities HTM are summarized in the following tables: December 31, 2023 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities AFS: Mortgage-backed securities $ 288,793 $ 395 $ ( 31,228 ) $ 257,960 Municipal bonds 211,848 13 ( 27,732 ) 184,129 U.S. Treasury securities 92,054 — ( 1,912 ) 90,142 U.S. agency securities 39,563 5 ( 1,707 ) 37,861 Total Securities AFS $ 632,258 $ 413 $ ( 62,579 ) $ 570,092 Securities HTM: Mortgage-backed securities $ 140,314 $ — $ ( 22,098 ) $ 118,216 U.S. agency securities 922 — ( 109 ) 813 Total Securities HTM $ 141,236 $ — $ ( 22,207 ) $ 119,029 December 31, 2022 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities AFS: Mortgage-backed securities $ 272,253 $ — $ ( 31,272 ) $ 240,981 Municipal bonds 219,305 6 ( 35,219 ) 184,092 U.S. Treasury securities 176,380 — ( 5,902 ) 170,478 U.S. agency securities 20,601 — ( 1,745 ) 18,856 Total Securities AFS $ 688,539 $ 6 $ ( 74,138 ) $ 614,407 Securities HTM: Mortgage-backed securities $ 150,771 $ — $ ( 19,142 ) $ 131,629 U.S. agency securities 912 — ( 134 ) 778 Total Securities HTM $ 151,683 $ — $ ( 19,276 ) $ 132,407 81 Table of Contents The amortized cost and estimated fair value of securities AFS and securities HTM as of December 31, 2023, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers have the right to call or repay obligations with or without call or prepayment penalties. December 31, 2023 (in thousands) Amortized Cost Fair Value Securities AFS: Within one year $ 82,041 $ 80,724 After one year but within five years 52,531 50,789 After five years but within ten years 95,362 89,073 After ten years 402,324 349,506 Total Securities AFS $ 632,258 $ 570,092 Securities HTM: Within one year $ — $ — After one year but within five years — — After five years but within ten years 922 813 After ten years 140,314 118,216 Total Securities HTM $ 141,236 $ 119,029 Accounting for Credit Losses – Securities AFS and Securities HTM The Company evaluates securities AFS for impairment when there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Due to the zero credit loss assumption and the considerations applied to the securities AFS, no ACL was recorded on January 1, 2023, and there was no ACL for securities AFS as of December 31, 2023. Also, as part of the Company’s evaluation of its intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, the Company considers its investment strategy, cash flow needs, liquidity position, capital adequacy, and interest rate risk position. Management does not intend to sell these securities prior to recovery, and it is more likely than not that the Company will have the ability to hold them, primarily due to adequate liquidity, until each security has recovered its cost basis. Due to the zero credit loss assumption on the securities HTM portfolio, no ACL was recorded on January 1, 2023, and there was no ACL for securities HTM as of December 31, 2023. Accrued interest receivable totaled $ 3.0 million as of December 31, 2023 and December 31, 2022, for securities AFS and securities HTM and was reported in accrued interest receivable on the consolidated balance sheets. 82 Table of Contents Information pertaining to securities AFS and securities HTM with gross unrealized losses as of December 31, 2023 and 2022, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is described as follows: December 31, 2023 Less than twelve months Twelve months or more (in thousands) Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Securities AFS: Mortgage-backed securities $ ( 35 ) $ 19,383 $ ( 31,193 ) $ 206,518 Municipal bonds ( 83 ) 4,815 ( 27,649 ) 176,098 U.S. Treasury securities — — ( 1,912 ) 90,142 U.S. agency securities ( 82 ) 19,301 ( 1,625 ) 14,475 Total Securities AFS $ ( 200 ) $ 43,499 $ ( 62,379 ) $ 487,233 Securities HTM: Mortgage-backed securities $ — $ — $ ( 22,098 ) $ 118,216 U.S. agency securities — — ( 109 ) 813 Total Securities HTM $ — $ — $ ( 22,207 ) $ 119,029 December 31, 2022 Less than twelve months Twelve months or more Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Securities AFS: Mortgage-backed securities $ ( 10,214 ) $ 105,030 $ ( 21,058 ) $ 135,607 Municipal bonds ( 11,340 ) 84,691 ( 23,879 ) 98,607 U.S. Treasury securities ( 3,852 ) 131,107 ( 2,050 ) 39,371 U.S. agency securities ( 608 ) 10,289 ( 1,137 ) 8,564 Total Securities AFS $ ( 26,014 ) $ 331,117 $ ( 48,124 ) $ 282,149 Securities HTM: Mortgage-backed securities $ ( 19,142 ) $ 131,629 $ — $ — U.S. agency securities ( 134 ) 778 — — Total Securities HTM $ ( 19,276 ) $ 132,407 $ — $ — As of December 31, 2023, the Company held 545 securities AFS and securities HTM that were in unrealized loss positions. The aggregate unrealized loss of these securities as of December 31, 2023, was 10.96 % of the amortized cost basis of total debt securities. The proceeds from sales and calls of debt securities and their gross gain (loss) for the years ended December 31, 2023, 2022, and 2021, are shown below: Years Ended December 31, (in thousands) 2023 2022 2021 Proceeds (1) $ — $ 41,234 $ 120,374 Gross gain — 64 859 Gross loss — ( 123 ) ( 665 ) (1) The proceeds include the gross gain and loss. Equity Securities Equity securities are an investment in a CRA mutual fund, consisting primarily of bonds. Equity securities are carried at fair value on the consolidated balance sheets with periodic changes in value recorded through the consolidated statements of income. As of December 31, 2022, equity securities had a fair value of $ 10.0 million with a recognized loss 83 Table of Contents of $ 468,000 for the year ended December 31, 2022. The loss on equity securities during 2022 was due to a significant increase in interest rates. During 2023, the Company sold $ 7.0 million of the mutual fund. As of December 31, 2023, equity securities had a fair value of $ 3.0 million with a recognized loss of $ 14,000 for the year ended December 31, 2023. Pledged Securities Securities with carrying values of approximately $ 230.9 million and $ 168.2 million were used as collateral as of December 31, 2023 and 2022, respectively. 3. Loans and Asset Quality Loans Loans HFI by category and loans HFS are summarized below: December 31, (in thousands) 2023 2022 Real estate: Commercial real estate $ 851,582 $ 794,723 One-to-four family residential 599,487 543,511 Construction and development 125,238 157,364 Commercial and industrial 315,327 310,067 Tax-exempt 72,913 83,166 Consumer 28,311 27,436 Total loans HFI $ 1,992,858 $ 1,916,267 Total loans HFS $ 1,306 $ 518 Deferred loan origination fees, net of certain direct costs, were $ 1.4 million as of December 31, 2023 and 2022. Accrued interest receivable on loans HFI totaled $ 6.8 million and $ 5.8 million as of December 31, 2023 and 2022, respectively, and was reported in accrued interest receivable on the accompanying consolidated balance sheets. Concentrations of Credit Risk The majority of the lending activity occurs within the Bank’s Louisiana markets. The Bank maintains a diversified loan portfolio with a focus on commercial real estate, one-to-four family residential real estate, and commercial and industrial loans. Substantially all of the Bank’s real estate loans are secured by properties located within Louisiana. Allowance for Credit Losses Effective January 1, 2023, the Company adopted the provisions of ASC 326 using the modified retrospective method. For reporting periods beginning on and after January 1, 2023, the Company maintains an ACL on all loans that reflects management’s estimate of expected credit losses for the full life of the loan portfolio. The following table summarizes the activity in the ACL by category for the year ended December 31, 2023: (in thousands) Beginning Balance Impact of ASC 326 Adoption Provision for Credit Losses Charge-offs Recoveries Ending Balance Real estate: Commercial real estate $ 7,720 $ 876 $ 522 $ — $ — $ 9,118 One-to-four family residential 5,682 1,231 584 ( 23 ) 10 7,484 Construction and development 1,654 ( 444 ) 108 ( 9 ) — 1,309 Commercial and industrial 4,350 ( 822 ) ( 947 ) ( 58 ) 30 2,553 Tax-exempt 751 ( 427 ) 251 — — 575 Consumer 471 ( 136 ) 217 ( 383 ) 128 297 Total allowance for credit losses $ 20,628 $ 278 $ 735 $ ( 473 ) $ 168 $ 21,336 84 Table of Contents Allowance for Loan Losses For reporting periods prior to January 1, 2023, the Company maintained an ALL on loans that represented management’s estimate of probable losses incurred in the portfolio category. The following table summarizes the activity in the ALL by category for the year ended December 31, 2022: (in thousands) Beginning Balance Provision for Loan Losses Charge-offs Recoveries Ending Balance Real estate: Commercial real estate $ 6,749 $ 970 $ — $ 1 $ 7,720 One-to-four family residential 5,375 296 — 11 5,682 Construction and development 1,326 328 ( 18 ) 18 1,654 Commercial and industrial 4,465 ( 162 ) ( 39 ) 86 4,350 Tax-exempt 749 2 — — 751 Consumer 512 316 ( 490 ) 133 471 Total allowance for loan losses $ 19,176 $ 1,750 $ ( 547 ) $ 249 $ 20,628 The following table summarizes the activity in the ALL by category for the year ended December 31, 2021: (in thousands) Beginning Balance Provision for Loan Losses Charge-offs Recoveries Ending Balance Real estate: Commercial real estate $ 5,798 $ 1,401 $ ( 450 ) $ — $ 6,749 One-to-four family residential 5,390 ( 23 ) ( 10 ) 18 5,375 Construction and development 1,699 ( 375 ) — 2 1,326 Commercial and industrial 3,949 563 ( 74 ) 27 4,465 Tax-exempt 680 69 — — 749 Consumer 435 265 ( 351 ) 163 512 Total allowance for loan losses $ 17,951 $ 1,900 $ ( 885 ) $ 210 $ 19,176 85 Table of Contents The balance in the ACL and the related recorded investment in loans by category as of December 31, 2023, are as follows: (in thousands) Individually Evaluated for Impairment Collectively Evaluated for Impairment Total Allowance for credit losses: Real estate: Commercial real estate $ 342 $ 8,776 $ 9,118 One-to-four family residential 57 7,427 7,484 Construction and development — 1,309 1,309 Commercial and industrial 226 2,327 2,553 Tax-exempt — 575 575 Consumer 104 193 297 Total allowance for credit losses $ 729 $ 20,607 $ 21,336 Loans: Real estate: Commercial real estate $ 1,379 $ 850,203 $ 851,582 One-to-four family residential 751 598,736 599,487 Construction and development — 125,238 125,238 Commercial and industrial 972 314,355 315,327 Tax-exempt — 72,913 72,913 Consumer 140 28,171 28,311 Total loans HFI $ 3,242 $ 1,989,616 $ 1,992,858 The balance in the ALL and the related recorded investment in loans by category as of December 31, 2022, are as follows: (in thousands) Individually Evaluated for Impairment Collectively Evaluated for Impairment Total Allowance for loan losses: Real estate: Commercial real estate $ 15 $ 7,705 $ 7,720 One-to-four family residential 16 5,666 5,682 Construction and development — 1,654 1,654 Commercial and industrial 172 4,178 4,350 Tax-exempt — 751 751 Consumer 111 360 471 Total allowance for loan losses $ 314 $ 20,314 $ 20,628 Loans: Real estate: Commercial real estate $ 4,513 $ 790,210 $ 794,723 One-to-four family residential 1,507 542,004 543,511 Construction and development 9 157,355 157,364 Commercial and industrial 1,402 308,665 310,067 Tax-exempt — 83,166 83,166 Consumer 137 27,299 27,436 Total loans HFI $ 7,568 $ 1,908,699 $ 1,916,267 86 Table of Contents Nonaccrual and Past Due Loans The following table presents nonaccrual loans as of December 31, 2023: (in thousands) Nonaccrual with No ACL Nonaccrual with ACL Total Nonaccrual Real estate: Commercial real estate $ — $ 714 $ 714 One-to-four family residential — 269 269 Construction and development — — — Commercial and industrial 709 135 844 Tax-exempt — — — Consumer — 132 132 Total loans HFI $ 709 $ 1,250 $ 1,959 No material interest income was recognized in the consolidated statements of income on nonaccrual loans for the years ended December 31, 2023, 2022, or 2021. The following table presents the aging analysis of the past due loans and loans 90 days or more past due and still accruing interest by loan category as of December 31, 2023: Past Due (in thousands) 30-59 Days 60-89 Days Past Due 90 Days or More Current Total Loans HFI 90 Days or More Past Due and Accruing Real estate: Commercial real estate $ 36 $ — $ 678 $ 850,868 $ 851,582 $ — One-to-four family residential 392 251 409 598,435 599,487 260 Construction and development — — 265 124,973 125,238 265 Commercial and industrial 132 60 847 314,288 315,327 45 Tax-exempt — — — 72,913 72,913 — Consumer 27 16 46 28,222 28,311 4 Total loans HFI $ 587 $ 327 $ 2,245 $ 1,989,699 $ 1,992,858 $ 574 The following table presents the current, past due, and nonaccrual loans by category as of December 31, 2022: Accruing (in thousands) Current 30-89 Days Past Due 90 Days or More Past Due Nonaccrual Total Loans Real estate: Commercial real estate $ 793,540 $ 463 $ — $ 720 $ 794,723 One-to-four family residential 542,666 602 — 243 543,511 Construction and development 157,355 — — 9 157,364 Commercial and industrial 308,611 165 — 1,291 310,067 Tax-exempt 83,166 — — — 83,166 Consumer 27,291 42 2 101 27,436 Total loans HFI $ 1,912,629 $ 1,272 $ 2 $ 2,364 $ 1,916,267 87 Table of Contents Impaired Loans For reporting periods prior to January 1, 2023, when ASC 326 was adopted, the Company individually evaluated impaired loans, including TDRs and performing and nonperforming loans. Once a loan was deemed to be impaired, the difference between the loan value and the Bank’s exposure was charged-off or a specific reserve was established. Information pertaining to impaired loans as of and for the year ended December 31, 2022, is as follows: (in thousands) Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded: Real estate: Commercial real estate $ 3,804 $ 3,796 $ — $ 3,194 $ 135 One-to-four family residential 1,458 1,387 — 797 68 Construction and development 9 9 — 104 — Commercial and industrial 51 51 — 58 4 Tax-exempt — — — — — Consumer 26 26 — 9 1 Total with no related allowance 5,348 5,269 — 4,162 208 With allowance recorded: Real estate: Commercial real estate 717 717 15 1,264 33 One-to-four family residential 120 120 16 48 6 Construction and development — — — — — Commercial and industrial 1,360 1,351 172 623 4 Tax-exempt — — — — — Consumer 113 111 111 122 1 Total with related allowance 2,310 2,299 314 2,057 44 Total impaired loans $ 7,658 $ 7,568 $ 314 $ 6,219 $ 252 Information pertaining to impaired loans as of and for the year ended December 31, 2021, is as follows: (in thousands) Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded: Real estate: Commercial real estate $ 1,599 $ 1,595 $ — $ 1,969 $ 78 One-to-four family residential 483 434 — 539 19 Construction and development 501 501 — 400 32 Commercial and industrial — — — 355 — Tax-exempt — — — — — Consumer 8 8 — 4 1 Total with no related allowance 2,591 2,538 — 3,267 130 With allowance recorded: Real estate: Commercial real estate 3,416 3,416 68 2,111 64 One-to-four family residential — — — 145 — Construction and development — — — — — Commercial and industrial 85 77 40 1,570 5 Tax-exempt — — — — — Consumer 118 118 118 112 5 Total with related allowance 3,619 3,611 226 3,938 74 Total impaired loans $ 6,210 $ 6,149 $ 226 $ 7,205 $ 204 88 Table of Contents Loan Modifications The Company adopted ASU No. 2022-02 Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023, using the prospective method. This ASU eliminates the TDR recognition and measurement guidance and requires all loan modifications to be evaluated based on whether the modification represents a new loan or a continuation of an existing loan. Modifications are made to a borrower experiencing financial difficulty, and the modified terms are in the form of principal forgiveness, interest rate reduction, other-than-insignificant payment delay, or a term extension in the current reporting period. As of December 31, 2023, the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty during the year ended December 31, 2023 is as follows: December 31, 2023 (dollars in thousands) Term Extension Total Class of Loans Receivable Financial Effect Real estate: Commercial real estate $ — — % One-to-four family residential 300 0.1 % Amortization period was extended by a weighted-average of 2.34 years. Construction and development — — % Commercial and industrial — — % Tax-exempt — — % Consumer — — % Total $ 300 0.1 % Troubled Debt Restructurings For reporting periods prior to January 1, 2023, when ASC 326 was adopted, the restructuring of a loan was considered a TDR if the borrower was experiencing financial difficulties and the Bank had granted a concession. A summary of current, past due, and nonaccrual TDR loans as of December 31, 2022, is as follows: (dollars in thousands) Current 30-89 Days Past Due 90 Days or More Past Due Nonaccrual Total TDRs Real estate: Commercial real estate $ 3,197 $ — $ — $ 42 $ 3,239 One-to-four family residential 797 151 — 22 970 Construction and development — — — — — Commercial and industrial — — — — — SBA PPP, net of deferred income — — — — — Tax-exempt — — — — — Consumer 10 — — 101 111 Total $ 4,004 $ 151 $ — $ 165 $ 4,320 Number of TDR loans 11 2 — 3 16 89 Table of Contents A summary of loans modified as TDRs that occurred during the years ended December 31, 2022 and 2021, is as follows: December 31, 2022 December 31, 2021 Recorded Investment Recorded Investment (dollars in thousands) Loan Count Pre Modification Post Modification Loan Count Pre Modification Post Modification Real estate: Commercial real estate 1 $ 50 $ 50 1 $ 2,174 $ 2,184 One-to-four family residential 5 696 699 — — — Construction and development — — — — — — Commercial and industrial — — — — — — Tax-exempt — — — — — — Consumer 1 104 104 1 20 27 Total 7 $ 850 $ 853 2 $ 2,194 $ 2,211 The TDRs described above increased the ALL by $ 101,000 and $ 14,000 during the years ended December 31, 2022 and 2021, respectively. Additionally, there were no charge-offs of TDRs in 2022 or 2021, and there were no TDRs that subsequently defaulted in 2022 or 2021. Credit Quality Indicators Loans are categorized based on the degree of risk inherent in the credit and the ability of the borrower to service the debt. A description of the general characteristics of the Bank’s risk rating grades follows: Pass - These loans are of satisfactory quality and do not require a more severe classification. Special Mention - This category includes loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan. However, the loss potential does not warrant substandard classification. Substandard - Loans in this category 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. If these weaknesses do not improve, loss is possible. Doubtful - Loans in this category have well-defined weaknesses that make full collection improbable. Loss - Loans classified in this category are considered uncollectible and charged-off to the ACL. 90 Table of Contents As of December 31, 2023, the Company had no loans classified as doubtful or loss. The following table summarizes loans by risk rating and year of origination as of December 31, 2023: Year of Origination (in thousands) 2023 2022 2021 2020 2019 Prior Years Revolving Lines Total Real estate: Commercial real estate Pass $ 124,134 $ 256,707 $ 239,364 $ 76,754 $ 63,475 $ 61,957 $ 18,467 $ 840,858 Special mention 73 — 3,186 — 1,031 4,082 — 8,372 Substandard 184 779 675 — — 714 — 2,352 Total $ 124,391 $ 257,486 $ 243,225 $ 76,754 $ 64,506 $ 66,753 $ 18,467 $ 851,582 One-to-four family residential Pass $ 122,004 $ 134,583 $ 129,388 $ 90,190 $ 31,110 $ 74,077 $ 16,472 $ 597,824 Special mention — — — — — 261 — 261 Substandard — 79 — 37 385 827 74 1,402 Total $ 122,004 $ 134,662 $ 129,388 $ 90,227 $ 31,495 $ 75,165 $ 16,546 $ 599,487 Construction and development Pass $ 54,189 $ 55,515 $ 10,333 $ 1,742 $ 2,158 $ 1,015 $ 286 $ 125,238 Special mention — — — — — — — — Substandard — — — — — — — — Total $ 54,189 $ 55,515 $ 10,333 $ 1,742 $ 2,158 $ 1,015 $ 286 $ 125,238 Commercial and industrial Pass $ 73,653 $ 49,637 $ 51,012 $ 13,863 $ 7,409 $ 813 $ 107,171 $ 303,558 Special mention 1,208 937 4,659 — 310 509 3,173 10,796 Substandard 4 — 59 5 54 51 800 973 Total $ 74,865 $ 50,574 $ 55,730 $ 13,868 $ 7,773 $ 1,373 $ 111,144 $ 315,327 Tax-exempt Pass $ 959 $ 15,679 $ 8,174 $ 13,919 $ 4,250 $ 29,932 $ — $ 72,913 Special mention — — — — — — — — Substandard — — — — — — — — Total $ 959 $ 15,679 $ 8,174 $ 13,919 $ 4,250 $ 29,932 $ — $ 72,913 Consumer Pass $ 16,947 $ 6,385 $ 2,325 $ 858 $ 363 $ 133 $ 1,173 $ 28,184 Special mention — — — — — — — — Substandard — 29 — — — 90 8 127 Total $ 16,947 $ 6,414 $ 2,325 $ 858 $ 363 $ 223 $ 1,181 $ 28,311 Total loans HFI $ 393,355 $ 520,330 $ 449,175 $ 197,368 $ 110,545 $ 174,461 $ 147,624 $ 1,992,858 Current period gross charge-offs $ 12 $ 20 $ 1 $ — $ 10 $ 25 $ 405 $ 473 91 Table of Contents The following table summarizes loans by risk rating as of December 31, 2022: (in thousands) Pass Special Mention Substandard Doubtful Loss Total Real estate: Commercial real estate $ 786,394 $ 5,759 $ 2,570 $ — $ — $ 794,723 One-to-four family residential 542,112 62 1,337 — — 543,511 Construction and development 157,355 — 9 — — 157,364 Commercial and industrial 297,166 11,428 1,473 — — 310,067 Tax-exempt 83,166 — — — — 83,166 Consumer 27,298 — 138 — — 27,436 Total loans HFI $ 1,893,491 $ 17,249 $ 5,527 $ — $ — $ 1,916,267 Commitments to Extend Credit Commitments to extend credit are agreements to lend to a customer if all conditions of the commitment have been met. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s evaluation of the customer’s ability to repay. Unfunded loan commitments totaled approximately $ 372.0 million and $ 377.6 million as of December 31, 2023 and 2022, respectively. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Commitments under standby letters of credit totaled approximately $ 15.4 million and $ 14.6 million as of December 31, 2023 and 2022, respectively. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Effective January 1, 2023, the Company adopted the provision of ASC 326 using the modified retrospective method and established a reserve for unfunded commitments based on estimates of expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. As of December 31, 2023, the reserve on unfunded commitments was $ 442,000 . 4. Premises and Equipment, Net Components of premises and equipment were as follows: December 31, (in thousands) 2023 2022 Land $ 20,354 $ 20,190 Buildings 41,763 33,049 Leasehold improvements 2,815 2,815 Furniture and equipment 14,765 13,729 Vehicles 380 380 Computer equipment 3,623 3,564 Projects in process 927 6,424 Total premises and equipment 84,627 80,151 Less: Accumulated depreciation ( 27,539 ) ( 25,768 ) Premises and equipment, net $ 57,088 $ 54,383 Depreciation expense amounted to approximately $ 2.2 million, $ 2.1 million, and $ 1.9 million for the years ended December 31, 2023, 2022, and 2021, respectively. 92 Table of Contents 5. Deposits Deposits were consistent at $ 2.80 billion as of December 31, 2023 and 2022. In 2023, there was a deposit mix shift between deposit categories as customers moved funds from noninterest-bearing and lower yielding categories to higher yielding categories. D eposits are summarized below: December 31, (in thousands) 2023 2022 Noninterest-bearing demand deposits $ 916,456 $ 1,090,539 Interest-bearing deposits: Interest-bearing demand deposits 138,380 89,144 NOW accounts 468,483 503,308 Money market accounts 541,607 578,161 Savings accounts 173,741 195,479 Time deposits less than or equal to $250,000 392,094 250,875 Time deposits greater than $250,000 171,127 91,430 Total interest-bearing deposits 1,885,432 1,708,397 Total deposits $ 2,801,888 $ 2,798,936 As of December 31, 2023, the scheduled maturities of all outstanding time deposits were as follows: Years ending December 31, Amount (in thousands) 2024 $ 478,589 2025 56,727 2026 10,823 2027 8,924 2028 4,647 Thereafter 3,511 $ 563,221 Collateral for Deposits As of December 31, 2023 and 2022, securities and FHLB of Dallas letters of credit with values of approximately $ 287.4 million and $ 268.6 million, respectively, were pledged as collateral to secure public entity deposits. 6. Other Borrowed Funds The Company has established borrowing capacity with the FHLB of Dallas, the Federal Reserve Bank’s Discount Window facility, and other correspondent banks to provide additional sources of operating funds. As of June 30, 2023, the Company had $ 60.0 million in short-term advances at an interest rate of 5.49 % from the FHLB of Dallas under the existing line of credit. The $ 60.0 million advance matured and was repaid in July 2023. As of December 31, 2023, total borrowing capacity from these sources was $ 975.7 million. As of December 31, 2023 and 2022, the Company had no outstanding borrowings under these agreements. 7. Leases The Company determines if an arrangement is a lease at inception of the contract and assesses the appropriate classification as operating or financing. Operating leases with terms greater than one year are included in right-of-use assets and lease liabilities on the Company’s consolidated balance sheets. Agreements with both lease and non-lease components are accounted for separately, with only the lease component capitalized. Operating right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the term using the interest rate implicit in the contract, when available, or the Company’s incremental collateralized borrowing rate with similar terms. As of December 31, 2023, the Company maintained seven operating leases on land and buildings for banking center facilities under long-term leases. These operating leases contain renewal options for periods ranging from one to five years that expire at various dates through October 31, 2033, with no residual value guarantees. Future obligations relating to the exercise of renewal options are included in the measurement if, based on the judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to 93 Table of Contents market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating lease liabilities. The Company elects to recognize the lease payments on leases with terms of one year or less in its consolidated statements of income on a straight-line basis over the lease term. For the years ended December 31, 2023, 2022, and 2021, operating lease expenses were $ 643,000 , $ 628,000 , and $ 549,000 , respectively. Operating lease expenses are included as a component of occupancy and equipment expenses within the accompanying consolidated statements of income. Cash paid for amounts included in the measurement of lease liabilities for operating leases totaled $ 625,000 , $ 606,000 , and $ 530,000 for the years ended December 31, 2023, 2022, and 2021, respectively. The table below summarizes other information related to the Company’s operating leases as of and for the year ended December 31, 2023: As of and for the Year Ended December 31, 2023 Weighted average remaining operating lease term 6.70 years Weighted average operating lease discount rate 3.3 % Future obligations over the primary and renewal option terms of the Company’s long-term operating leases as of December 31, 2023, were as follows: Years Ending December 31, Amount (in thousands) 2024 $ 631 2025 657 2026 603 2027 547 2028 549 Thereafter 1,300 Total lease payments 4,287 Less: Imputed interest ( 520 ) Present value of lease liabilities $ 3,767 The Company’s obligations under financing leases are not material and have not been included in assets and liabilities in the financial statements. 8. Income Tax Expense The components of income tax expense for the years ended December 31, 2023, 2022, and 2021, were as follows: Years Ended December 31, (in thousands) 2023 2022 2021 Current tax expense $ 8,395 $ 7,752 $ 7,881 Deferred tax expense (benefit) ( 330 ) 313 ( 773 ) Income tax expense $ 8,065 $ 8,065 $ 7,108 94 Table of Contents The source and tax effect of items reconciling income tax expense to the amount computed by applying the federal income tax rates in effect to income before income tax expense for the years ended December 31, 2023, 2022, and 2021, are as follows: December 31, 2023 2022 2021 (dollars in thousands) Amount Percent Amount Percent Amount Percent Income before income tax expense $ 42,944 100.0 % $ 44,981 100.0 % $ 40,060 100.0 % U.S. federal income tax expense 9,018 21.0 % 9,446 21.0 % 8,413 21.0 % Nontaxable income ( 1,073 ) ( 2.5 %) ( 1,338 ) ( 3.0 %) ( 1,347 ) ( 3.4 %) Nondeductible expenses 67 0.2 % 50 0.1 % 38 0.1 % Other 53 0.1 % ( 93 ) ( 0.2 %) 4 — % Income tax expense $ 8,065 18.8 % $ 8,065 17.9 % $ 7,108 17.7 % The Company records deferred income taxes on the tax effect of changes in temporary differences. Deferred tax assets (liabilities) are subject to a valuation allowance unless their realization is more likely than not. The deferred tax assets (liabilities) were comprised of the following as of December 31, 2023 and 2022: December 31, (in thousands) 2023 2022 Depreciation $ ( 2,542 ) $ ( 2,435 ) FHLB of Dallas stock dividends ( 20 ) ( 22 ) Gross deferred tax liability ( 2,562 ) ( 2,457 ) Allowance for credit losses 4,541 4,190 Allowance for operational losses 54 34 Health insurance self fund 221 52 Deferred compensation 708 620 Net unrealized loss on securities 16,081 18,917 Equity security valuation 35 4 Advance payment 197 325 Accrued bonus 502 448 Other 72 40 Gross deferred tax asset 22,411 24,630 Net deferred tax asset (liability) $ 19,849 $ 22,173 9. Employee Benefits The Company adopted a contributory retirement plan for employees of Red River Bank effective March 1, 1999, and amended effective January 1, 2022. Beginning April 1, 2022, employees have the opportunity to invest a portion of their plan funds in the Company’s common stock through a unitized fund. The contributory retirement plan covers all employees who meet the length of service and the number of hours worked requirements and elect to participate. Discretionary employer contributions during the years ended December 31, 2023, 2022, and 2021, totaled approximately $ 780,000 , $ 742,000 , and 721,000 , respectively. The Bank has purchased life insurance policies on certain key employees. The Bank is the beneficiary of the BOLI policies, which have cash surrender value and death benefit components. The Bank uses a portion of the income generated from the BOLI policies to fund the expenses for nonqualified, noncontributory supplemental executive retirement agreements with certain employees. The supplemental executive retirement agreements provide post-retirement benefit payments to those employees. The liability related to these agreements was $ 3.4 million and $ 3.0 million as of December 31, 2023 and 2022, respectively, and is recorded in accrued expenses and other liabilities on the consolidated balance sheets. 10. Stock-Based Compensation Plans Equity Incentive Plans On April 17, 2008, the Company adopted its 2008 Plan, which provided for the grant of stock-based awards for key employees and non-employee members of the Company’s board of directors. The 2008 Plan expired on December 31, 95 Table of Contents 2018, and no new awards were granted under this plan after that date. As of December 31, 2020, all granted stock options under the 2008 Plan had been exercised. Effective July 1, 2023, all restricted stock awards had vested or been forfeited and the 2008 Plan was completed. On October 25, 2018, the Company adopted its 2018 Plan, which was approved by the Company’s shareholders in April of 2019. The 2018 Plan provides for the granting of stock-based awards to key employees, directors, and consultants. The Compensation Committee administers the 2018 Plan, makes determinations with respect to participation, and authorizes stock-based awards under the plan. The maximum number of shares of the Company’s common stock available for issuance under the 2018 Plan was 200,000 shares . The status of the Company’s 2018 Plan is presented below: 2018 Plan Number of Shares Awards available for issuance - December 31, 2021 181,100 Awards granted ( 7,550 ) Awards available for issuance - December 31, 2022 173,550 Awards granted ( 9,300 ) Awards forfeited 1,850 Awards available for issuance - December 31, 2023 166,100 All disclosures for restricted stock shown below relate to outstanding awards under the 2008 and 2018 Plans. Restricted Stock Awards The restricted stock awards issued under the 2008 and 2018 Plans provide common stock to recipients at the grant date. The restrictions vest in twenty percent increments on the first through fifth anniversaries of the grant date. Compensation expense for these grants is recognized ratably over the vesting period of the awards based on the fair value of the stock at the grant date. During 2023, the Compensation Committee granted 9,300 restricted stock awards with a weighted average fair value of $ 48.11 , and 1,940 restricted stock awards with a weighted average fair value of $ 49.51 were forfeited. For the year ended December 31, 2023, the compensation expense for the vested restricted stock was $ 319,000 . As of December 31, 2023, there was approximately $ 880,000 of total unrecognized compensation cost related to restricted stock awards. That cost is expected to be recognized over a weighted average period of 4.3 years. During 2022, the Compensation Committee granted 7,550 restricted stock awards with a weighted average fair value of $ 53.40 . For the year ended December 31, 2022, the compensation expense for the vested restricted stock was $ 274,000 . As of December 31, 2022, there was approximately $ 835,000 of total unrecognized compensation cost related to restricted stock awards. That cost was expected to be recognized over a weighted average period of 4.5 years. For the year ended December 31, 2021, the compensation expense for the vested restricted stock was $ 269,000 . The Company funds the restricted stock from authorized, but unissued, shares. 96 Table of Contents The status of the Company’s nonvested restricted stock is presented below: Nonvested Restricted Stock Number of Shares Weighted Average Grant Date Fair Value Nonvested - December 31, 2020 17,655 $ 40.73 Granted 7,400 $ 50.55 Vested ( 6,820 ) $ 38.40 Forfeited ( 100 ) $ 42.35 Nonvested - December 31, 2021 18,135 $ 45.61 Granted 7,550 $ 53.40 Vested ( 5,830 ) $ 43.03 Nonvested - December 31, 2022 19,855 $ 49.33 Granted 9,300 $ 48.11 Vested ( 5,870 ) $ 47.18 Forfeited ( 1,940 ) $ 49.51 Nonvested - December 31, 2023 21,345 $ 49.40 Director Compensation Program The Company has a Director Compensation Program. This program allows directors the option of receiving their board attendance fees in Company stock in lieu of cash. Under the program, director fees are earned and expensed in the year board services are rendered, and the related stock is issued the following year. The Director Compensation Program stock earned and the issuance of shares as board compensation for the years ended December 31, 2023, 2022, and 2021 were as follows: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Share-based board compensation earned $ 42 $ 85 $ 50 Issuance of shares of common stock as board compensation: Number of shares issued 1,660 675 1,075 Equity impact of shares issued $ 85 $ 35 $ 56 11. Self-Insurance The Company is self-insured for group health insurance. The Company’s liability is limited to the aggregate policy deductible of $ 135,000 per individual with a maximum of approximately $ 4.5 million for the group. The Company has reflected its estimated liability for known and incurred but not reported claims in the accompanying financial statements. 12. Off-Balance Sheet Contractual Obligations and Contingencies The Company is a party to financial instruments with off-balance sheet risk in the normal course of business. The contract or notional amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments. The Company’s exposure is represented by the contractual amount of these commitments. Investment Commitments In 2014, the Company committed to an investment into an SBIC limited partnership. As of December 31, 2023, there was a $ 226,000 outstanding commitment to this partnership. In 2020, the Company committed to an additional investment into an SBIC limited partnership. As of December 31, 2023, there was a $ 2.6 million outstanding commitment to this partnership. In 2021, the Company committed to an investment into a bank technology limited partnership. As of December 31, 2023, there was a $ 492,000 outstanding commitment to this partnership. 97 Table of Contents Construction Commitment The Company has one committed construction agreement to construct a banking center, and there was approximately $ 1.6 million remaining on this commitment as of December 31, 2023. Contingencies The Company and the Bank are involved, from time to time, in various legal matters arising in the ordinary course of business. While the outcome of these claims or litigation cannot be determined at this time, in the opinion of management, neither the Company nor the Bank are involved in such legal proceedings that the resolution is expected to have a material adverse effect on the consolidated results of operations, financial condition, or cash flows. 13. Related Party Transactions In the ordinary course of business, certain officers, directors, and principal shareholders, as well as their immediate family members and their affiliates, maintain a variety of banking relationships with the Company. An analysis of loan activity to these related parties is as follows: Years Ended December 31, (in thousands) 2023 2022 Loan balance - beginning of period $ 32,648 $ 23,792 New loans 3,773 4,408 Changes in relationships, net 690 10,886 Repayments ( 7,053 ) ( 6,438 ) Loan balance - end of period $ 30,058 $ 32,648 As of December 31, 2023 and 2022, deposits from directors, executive officers, their immediate family members, and their affiliates totaled approximately $ 74.6 million and $ 67.3 million, respectively. 14. Fair Value The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair Value Disclosure Securities AFS, loans HFS, and equity securities are recorded at fair value on a recurring basis. Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, foreclosed assets, and other certain assets. The nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. ASC 820, Fair Value Measurements and Disclosures indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels: • Level 1 pricing represents quotes on the exact financial instrument that is traded in active markets. Quoted prices on actively traded equities, for example, are in this category. • Level 2 pricing is derived from observable data including market spreads, current and projected rates, prepayment data, and credit quality. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3 pricing is derived without the use of observable data. In such cases, mark-to-model strategies are typically employed. Often, these types of instruments have no active market, possess unique characteristics, and are thinly traded. The Company used the following methods and significant assumptions to estimate fair value: Securities AFS and Equity Securities: The fair values for securities AFS are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Loans HFS: Residential mortgage loans originated and held for sale are carried at the lower of cost or estimated fair value on an individual basis. The fair values of mortgage loans HFS are based on commitments on hand from investors within 98 Table of Contents the secondary market for loans with similar characteristics. As such, the fair value adjustments for mortgage loans HFS are recurring Level 2. Loans HFI: The Company does not record loans HFI at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an allowance may be established. Loans for which it was probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using estimated fair value methodologies. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company considers the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company considers the impaired loan as nonrecurring Level 3. Foreclosed Assets: Foreclosed assets, consisting of properties obtained through foreclosure or in satisfaction of loans, are reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2). However, foreclosed assets are considered Level 3 in the fair value hierarchy because management has qualitatively applied a discount due to the size, supply of inventory, and the incremental discounts applied to the appraisals. Management also considers other factors, including changes in absorption rates, length of time the property has been on the market, and anticipated sales values, which have resulted in adjustments to the collateral value estimates indicated in certain appraisals. Fair Value of Assets Measured on a Recurring Basis The table below presents the recorded amount of assets measured at fair value on a recurring basis: (in thousands) Fair Value Level 1 Level 2 Level 3 December 31, 2023 Loans HFS $ 1,306 $ — $ 1,306 $ — Securities AFS: Mortgage-backed securities $ 257,960 $ — $ 257,960 $ — Municipal bonds $ 184,129 $ — $ 184,129 $ — U.S. Treasury securities $ 90,142 $ — $ 90,142 $ — U.S. agency securities $ 37,861 $ — $ 37,861 $ — Equity securities $ 2,965 $ 2,965 $ — $ — December 31, 2022 Loans HFS $ 518 $ — $ 518 $ — Securities AFS: Mortgage-backed securities $ 240,981 $ — $ 240,981 $ — Municipal bonds $ 184,092 $ — $ 184,092 $ — U.S. Treasury securities $ 170,478 $ — $ 170,478 $ — U.S. agency securities $ 18,856 $ — $ 18,856 $ — Equity securities $ 9,979 $ 9,979 $ — $ — There were no transfers between Level 1, 2, or 3 during the years ended December 31, 2023 or 2022. Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis Financial Assets and Financial Liabilities : Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances. Financial assets measured at fair value on a nonrecurring basis include certain impaired collateral dependent loans reported at fair value of the underlying collateral if repayment is expected solely from the collateral. Prior to foreclosure of these loans, fair value of the collateral is estimated using Level 3 inputs based on customized discounting criteria. 99 Table of Contents The table below presents certain impaired loans that were remeasured and reported at fair value through the ALL or ACL based upon the fair value of the underlying collateral during the reported periods: Years Ended December 31, (in thousands) 2023 2022 2021 Carrying value of impaired loans before allowance $ 633 $ 3,149 $ 4,114 Specific allowance ( 100 ) ( 306 ) ( 79 ) Fair value of impaired loans $ 533 $ 2,843 $ 4,035 The Company had no financial liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2023, 2022, and 2021. Nonfinancial Assets and Liabilities : Certain nonfinancial assets and nonfinancial liabilities are measured at fair value on a nonrecurring basis. These include certain foreclosed assets, which are remeasured and reported at fair value through a charge-off to the ACL upon initial recognition as a foreclosed asset. Subsequent to their initial recognition, certain foreclosed assets are remeasured at fair value through an adjustment included in other noninterest income. The fair value of foreclosed assets is estimated using Level 3 inputs based on customized discounting criteria less estimated selling costs. The following table presents foreclosed assets that were remeasured and reported at fair value during the reported periods: Years Ended December 31, (in thousands) 2023 2022 2021 Foreclosed assets remeasured at initial recognition: Carrying value of foreclosed assets prior to remeasurement $ 69 $ — $ 266 Charge-offs — — — Fair value of foreclosed assets $ 69 $ — $ 266 The following table presents foreclosed assets that were remeasured subsequent to initial recognition and reported at fair value during the reported periods: Years Ended December 31, (in thousands) 2023 2022 2021 Foreclosed assets remeasured subsequent to initial recognition: Carrying value of foreclosed assets prior to remeasurement $ — $ — $ 133 Write-downs — — ( 34 ) Fair value of foreclosed assets $ — $ — $ 99 The Company had no nonfinancial liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2023, 2022, and 2021. The unobservable inputs used for the Level 3 fair value measurements on a nonrecurring basis were as follows: (dollars in thousands) Fair Value Valuation Technique Unobservable Input Discount Ranges Weighted Average Discount December 31, 2023 Impaired loans $ 1,754 Discounted appraisals Collateral discounts and costs to sell 0 % - 100 % 24.05 % Foreclosed assets $ 69 Discounted appraisals Collateral discounts and costs to sell N/A N/A December 31, 2022 Impaired loans $ 7,254 Discounted appraisals Collateral discounts and costs to sell 0 % - 100 % 4.16 % Foreclosed assets $ — Discounted appraisals Collateral discounts and costs to sell N/A N/A 100 Table of Contents Fair Value of Financial Instruments The carrying amounts and estimated fair values of financial instruments as of December 31, 2023 and 2022, were as follows: (in thousands) Carrying Amount Fair Value Level 1 Level 2 Level 3 December 31, 2023 Financial assets: Cash and due from banks $ 53,062 $ 53,062 $ 53,062 $ — $ — Interest-bearing deposits in other banks $ 252,364 $ 252,364 $ 252,364 $ — $ — Securities AFS $ 570,092 $ 570,092 $ — $ 570,092 $ — Securities HTM $ 141,236 $ 119,029 $ — $ 119,029 $ — Equity securities $ 2,965 $ 2,965 $ 2,965 $ — $ — Nonmarketable equity securities $ 2,239 $ 2,239 $ — $ 2,239 $ — Loans HFS $ 1,306 $ 1,306 $ — $ 1,306 $ — Loans HFI, net of allowance $ 1,971,522 $ 1,820,573 $ — $ — $ 1,820,573 Accrued interest receivable $ 9,945 $ 9,945 $ — $ — $ 9,945 Financial liabilities: Deposits $ 2,801,888 $ 2,796,303 $ — $ 2,796,303 $ — Accrued interest payable $ 8,000 $ 8,000 $ — $ 8,000 $ — December 31, 2022 Financial assets: Cash and due from banks $ 37,824 $ 37,824 $ 37,824 $ — $ — Interest-bearing deposits in other banks $ 240,568 $ 240,568 $ 240,568 $ — $ — Securities AFS $ 614,407 $ 614,407 $ — $ 614,407 $ — Securities HTM $ 151,683 $ 132,407 $ — $ 132,407 $ — Equity securities $ 9,979 $ 9,979 $ 9,979 $ — $ — Nonmarketable equity securities $ 3,478 $ 3,478 $ — $ 3,478 $ — Loans HFS $ 518 $ 518 $ — $ 518 $ — Loans HFI, net of allowance $ 1,895,639 $ 1,807,772 $ — $ — $ 1,807,772 Accrued interest receivable $ 8,830 $ 8,830 $ — $ — $ 8,830 Financial liabilities: Deposits $ 2,798,936 $ 2,787,198 $ — $ 2,787,198 $ — Accrued interest payable $ 1,563 $ 1,563 $ — $ 1,563 $ — 15. Regulatory Capital Requirements The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Basel III Capital Requirements The Company and the Bank are subject to Basel III capital guidelines. Basel III requires the Company and the Bank to maintain certain minimum ratios to meet capital adequacy requirements. It is management’s belief that, as of December 31, 2023, both the Company and the Bank met all capital adequacy requirements under Basel III. Management expects that the capital ratios for the Company and the Bank under Basel III will continue to exceed capital adequacy requirements. Management believes that, as of December 31, 2023, the Bank is well-capitalized under the regulatory framework for prompt corrective action. 101 Table of Contents Bank holding companies that qualify as “small bank holding companies” under the Policy Statement are exempt from the Federal Reserve’s consolidated capital adequacy ratios at the holding company level and instead are evaluated at the bank level. In May 2018, the Economic Growth Act was enacted. One of the Economic Growth Act’s highlights, with implications for us, was the asset threshold under the Policy Statement being increased from $1.0 billion to $3.0 billion, which benefits bank holding companies by, among various other items, allowing for an 18-month safety and soundness examination cycle as opposed to a 12-month examination cycle, changing to scaled biannual regulatory reporting requirements as opposed to quarterly regulatory reporting requirements, and not subjecting bank holding companies to capital adequacy guidelines on a consolidated basis. Because the Company had less than $3.0 billion in assets as of each of the June 30 th measurement dates starting with the Economic Growth Act’s enactment and going through June 30, 2021, the Company has received benefits under the Policy Statement through 2022, except with regard to the timing of the Red River Bank safety and soundness exam by the FDIC and the OFI. Due to the timing of the asset balance determination for the Red River Bank safety and soundness examination, a 12-month examination cycle began in the second half of 2022. As of June 30, 2022 and 2023, the last applicable measurement dates, the Company had more than $3.0 billion in assets. Therefore, effective January 1, 2023, the Company no longer receives any benefits under the Policy Statement and became subject to consolidated capital requirements. Capital amounts and ratios for the Company as of December 31, 2023 and 2022, are presented in the following table: Regulatory Requirement Actual Minimum (1) (dollars in thousands) Amount Ratio Amount Ratio December 31, 2023 Total Risk-Based Capital $ 384,577 18.28 % $ 220,905 10.50 % Tier I Risk-Based Capital $ 362,799 17.24 % $ 178,828 8.50 % Common Equity Tier I Capital $ 362,799 17.24 % $ 147,270 7.00 % Tier I Leverage Capital $ 362,799 11.56 % $ 125,575 4.00 % December 31, 2022 Total Risk-Based Capital $ 356,001 17.39 % N/A N/A Tier I Risk-Based Capital $ 335,373 16.38 % N/A N/A Common Equity Tier I Capital $ 335,373 16.38 % N/A N/A Tier I Leverage Capital $ 335,373 10.71 % N/A N/A (1) Due to the full phase-in of the CCB, these are the Basel III regulatory minimum amounts and ratios. These amounts and ratios were labeled as “Minimum Plus CCB” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and prior filings. Capital amounts and ratios for the Bank as of December 31, 2023 and 2022, are presented in the following table: Regulatory Requirements Actual Minimum (1) Well-Capitalized (2) (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio December 31, 2023 Total Risk-Based Capital $ 378,582 18.00 % $ 220,850 10.50 % $ 210,333 10.00 % Tier I Risk-Based Capital $ 356,804 16.96 % $ 178,783 8.50 % $ 168,266 8.00 % Common Equity Tier I Capital $ 356,804 16.96 % $ 147,233 7.00 % $ 136,716 6.50 % Tier I Leverage Capital $ 356,804 11.37 % $ 125,538 4.00 % $ 156,923 5.00 % December 31, 2022 Total Risk-Based Capital $ 344,867 16.85 % $ 214,915 10.50 % $ 204,681 10.00 % Tier I Risk-Based Capital $ 324,239 15.84 % $ 173,979 8.50 % $ 163,745 8.00 % Common Equity Tier I Capital $ 324,239 15.84 % $ 143,277 7.00 % $ 133,043 6.50 % Tier I Leverage Capital $ 324,239 10.35 % $ 125,252 4.00 % $ 156,565 5.00 % (1) Due to the full phase-in of the CCB, these are the Basel III regulatory minimum amounts and ratios. These amounts and ratios were labeled as “Minimum Plus CCB” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and prior filings. (2) This column refers to the prompt corrective action requirements applicable to banks. 102 Table of Contents Community Bank Leverage Ratio Framework As part of the directive under the Economic Growth Act, in September 2019, the FDIC and other federal bank regulatory agencies approved the CBLR framework. This optional framework became effective January 1, 2020, and is available to the Company and the Bank as an alternative to the Basel III risk-based capital framework. The CBLR framework provides for a simple measure of capital adequacy for certain community banking organizations. Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier I leverage ratio of greater than 9.00%, are considered qualifying community banking organizations eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements. As of December 31, 2023, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework. 16. Equity Events Cash Dividends As a Louisiana corporation, the Company is subject to certain restrictions on dividends under the Louisiana Business Corporation Act. Generally, a Louisiana corporation may pay dividends to its shareholders unless, after giving effect to the dividend, either: (1) the corporation would not be able to pay its debts as they come due in the usual course of business; or (2) the corporation’s total assets would be less than the sum of its total liabilities and the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights of shareholders whose preferential rights are superior to those receiving the dividend. The Company’s status as a bank holding company also affects its ability to pay dividends in two additional ways. First, since the Company is a holding company with no material business activities of its own, its ability to pay dividends could become dependent upon the ability of Red River Bank to transfer funds to it in the form of dividends, loans, and advances. The Bank’s ability to pay dividends and make other distributions and payments to the Company is itself subject to various legal, regulatory, and other restrictions, and the present and future dividend policy of Red River Bank is subject to the discretion of its board of directors. Second, as a bank holding company, the Company’s payment of dividends must comply with the laws, regulations, and policies of the Federal Reserve. The Federal Reserve has issued a supervisory letter on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that: (1) the holding company’s net income for the past four quarters, net of any dividends previously paid during that period, is sufficient to fully fund the dividends; (2) the prospective rate of earnings retention is consistent with the bank holding company’s capital needs, asset quality, and overall financial condition; and (3) the bank holding company will continue to meet, and is not in danger of failing to meet, minimum regulatory capital adequacy ratios. The ability of Red River Bank to pay dividends on its common stock is restricted by Louisiana Banking Law, the FDIA, and FDIC regulations. In general, the board of directors of a Louisiana state bank may, quarterly, semiannually, or annually, declare or pay dividends on its outstanding capital stock, provided that the bank has surplus at least equal to 50.0% of its capital stock and such surplus will not be reduced below 50.0% following payment of the dividend. Prior approval of the OFI is required for a Louisiana state bank to pay any dividend that would exceed its net profits earned during the current year combined with its retained net profits of the immediately preceding year. In general terms, the FDIA and FDIC regulations restrict the payment of dividends when a bank is undercapitalized, when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns regarding a bank. The Bank and the Company have internal policies regarding dividends. Neither entity would ordinarily pay dividends if following the payment, the entity would not meet minimum capital adequacy plus the CCB requirements. The exception to this policy is in situations where the payment of a dividend from the Bank to the Company is necessary for the Company to be able to meet its obligations, and as long as, after such payment the Bank would still meet minimum capital adequacy requirements. Also, the Company’s internal policy requires that the Company maintain a common stockholders’ equity to total assets ratio of greater than 7.0 % and that trust preferred securities are less than 25.0 % of capital. Taking into consideration the Company’s performance and capital levels, cash dividends were paid in 2023, 2022, and 2021. Stock Repurchase Programs On November 4, 2022, the Company’s board of directors approved the renewal of the 2022 stock repurchase program that expired on December 31, 2022. The 2023 stock repurchase program authorized the Company to purchase up to $ 5.0 million of its outstanding shares of common stock from January 1, 2023 through December 31, 2023. For the year ended December 31, 2023, the Company repurchased 101,298 shares of its common stock at an aggregate cost of $ 5.0 million, and reached the 2023 stock repurchase program purchase limit. Repurchases were made from time to time in the open market at prevailing prices and based on market conditions. As of December 31, 2023, there were no available funds remaining under the 2023 stock repurchase program. On December 14, 2023, the Company’s board of directors approved the renewal of the 2023 stock repurchase program that was completed in the fourth quarter of 2023 after reaching its purchase limit. The 2024 stock repurchase program has 103 Table of Contents similar terms to the 2023 stock repurchase program and authorizes the Company to purchase up to $ 5.0 million of its outstanding shares of common stock from January 1, 2024 through December 31, 2024. 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. AOCI - Transfer of Unrealized Gain (Loss) of Securities AFS and HTM During the second quarter of 2022, the Company reclassified $ 166.3 million, net of $ 17.9 million of unrealized loss, from AFS to HTM. The securities were transferred at fair value, which became the cost basis for the securities HTM. At the date of transfer, the net unrealized loss of $ 17.9 million, of which $ 14.2 million, net of tax, was included in AOCI and is being amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. There were no gains or losses recognized as a result of the transfer. As of December 31, 2023, the net unamortized, unrealized loss remaining on the transferred securities included in the consolidated balance sheets totaled $ 14.4 million, of which $ 11.4 million, net of tax, was included in AOCI. CECL Adjustment - Implementation of Current Expected Credit Losses Methodology related to ASU No. 2016-13 On January 1, 2023, the Company adopted the CECL methodology for estimating credit losses. In the first quarter of 2023, the implementation of CECL resulted in a $ 720,000 adjustment to the ACL and reserve for unfunded commitments, and a $ 569,000 , net of tax, adjustment to retained earnings. 17. Earnings Per Common Share Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock splits. Diluted EPS includes accrued but unissued shares relating to the Director Compensation Program, stock options, and restricted stock determined using the treasury stock method. The dilutive EPS calculation assumes all outstanding stock options to purchase common stock have been exercised at the beginning of the year, and the pro forma proceeds from the exercised options and restricted stock are used to purchase common stock at the average fair market valuation price. The computations of basic and diluted earnings per common share for the Company were as follows: Years Ended December 31, (in thousands, except share amounts) 2023 2022 2021 Numerator: Net income - basic $ 34,879 $ 36,916 $ 32,952 Net income - diluted $ 34,879 $ 36,916 $ 32,952 Denominator: Weighted average shares outstanding - basic 7,164,314 7,180,975 7,281,136 Plus: Effect of Director Compensation Program 741 1,655 923 Plus: Effect of restricted stock 16,673 14,823 17,661 Weighted average shares outstanding - diluted 7,181,728 7,197,453 7,299,720 Earnings per common share: Basic $ 4.87 $ 5.14 $ 4.53 Diluted $ 4.86 $ 5.13 $ 4.51 104 Table of Contents 18. Quarterly Results of Operations (Unaudited) The following tables present certain unaudited consolidated quarterly financial information regarding the Company’s results of operations for each of the eight consecutive quarters in the fiscal years of 2023 and 2022. This information is derived from unaudited consolidated financial statements that include, in the Company’s opinion, all adjustments necessary for a fair presentation when read in conjunction with the Company’s consolidated financial statements and notes thereto as of and for the years ended December 31, 2023 and 2022. 2023 (in thousands, except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Interest and dividend income $ 32,041 $ 30,324 $ 28,471 $ 27,732 Interest expense 10,747 9,599 6,961 4,823 Net interest income 21,294 20,725 21,510 22,909 Provision for credit losses 250 185 300 — Net interest income after provision for credit losses 21,044 20,540 21,210 22,909 Noninterest income 5,187 5,581 6,007 4,340 Operating expenses 16,023 16,230 16,132 15,488 Income tax expense 1,916 1,870 2,117 2,163 Net income $ 8,292 $ 8,021 $ 8,968 $ 9,598 Earnings per share Basic $ 1.16 $ 1.12 $ 1.25 $ 1.34 Diluted $ 1.16 $ 1.12 $ 1.25 $ 1.33 2022 (in thousands, except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Interest and dividend income $ 26,982 $ 24,886 $ 22,498 $ 20,009 Interest expense 3,308 1,798 1,349 1,281 Net interest income 23,674 23,088 21,149 18,728 Provision for loan losses 750 600 250 150 Net interest income after provision for loan losses 22,924 22,488 20,899 18,578 Noninterest income 4,619 4,867 4,860 4,402 Operating expenses 15,082 15,041 14,471 14,062 Income tax expense 2,270 2,128 2,141 1,526 Net income $ 10,191 $ 10,186 $ 9,147 $ 7,392 Earnings per share Basic $ 1.42 $ 1.42 $ 1.27 $ 1.03 Diluted $ 1.42 $ 1.42 $ 1.27 $ 1.03 19. Subsequent Events Management has evaluated subsequent events and transactions through March 15, 2024, the date that the financial statements were available to be issued. On March 13, 2024, the Company entered into a privately negotiated stock repurchase agreement for the purchase of 200,000 shares of the Company’s common stock, no par value per share for a total purchase price of approximately $ 10.0 million. The repurchase was supplemental to the Company’s $ 5.0 million stock repurchase program and did not impact the amount of permitted repurchases thereunder. 105 Table of Contents 20. Parent Company Financial Statements PARENT COMPANY BALANCE SHEETS (dollars in thousands, except share amounts) December 31, 2023 2022 ASSETS Cash and cash equivalents $ 5,516 $ 10,795 Investment in subsidiary bank 297,856 254,619 Other assets 524 370 Total Assets $ 303,896 $ 265,784 LIABILITIES Accrued expenses and other liabilities 45 31 Total Liabilities 45 31 STOCKHOLDERS’ EQUITY Preferred stock, no par value: Authorized - 1,000,000 shares; None Issued and Outstanding — — Common stock, no par value: Authorized - 30,000,000 shares; Issued and Outstanding - 7,091,637 and 7,183,915 shares, respectively 55,136 60,050 Additional paid-in capital 2,407 2,088 Retained earnings 306,802 274,781 Accumulated other comprehensive income (loss) ( 60,494 ) ( 71,166 ) Total Stockholders’ Equity 303,851 265,753 Total Liabilities and Stockholders’ Equity $ 303,896 $ 265,784 106 Table of Contents PARENT COMPANY STATEMENTS OF INCOME (in thousands) Years ended December 31, 2023 2022 2021 INTEREST AND DIVIDEND INCOME Dividend income from subsidiaries $ 2,500 $ — $ — Total Interest and Dividend Income 2,500 — — NONINTEREST INCOME Other income 2 1 — Total Noninterest Income 2 1 — OPERATING EXPENSES Technology expenses 105 52 88 Legal and professional expenses 764 837 571 Advertising — 2 2 Other operating expenses 89 32 15 Total Operating Expenses 958 923 676 Income (Loss) Before Income Tax Expense (Benefit) 1,544 ( 922 ) ( 676 ) Income tax expense (benefit) ( 201 ) ( 194 ) ( 143 ) Income (Loss) Before Equity in Undistributed Earnings of Subsidiaries 1,745 ( 728 ) ( 533 ) Equity in undistributed earnings of subsidiaries 33,134 37,644 33,485 Net Income $ 34,879 $ 36,916 $ 32,952 107 Table of Contents PARENT COMPANY STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 34,879 $ 36,916 $ 32,952 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Undistributed earnings of subsidiaries ( 33,134 ) ( 37,644 ) ( 33,485 ) Other operating activities, net 424 322 354 Net cash provided by (used in) operating activities 2,169 ( 406 ) ( 179 ) CASH FLOWS FROM INVESTING ACTIVITIES Capital contribution in partnerships ( 160 ) ( 175 ) ( 173 ) Net cash provided by (used in) investing activities ( 160 ) ( 175 ) ( 173 ) CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of common stock ( 4,999 ) ( 218 ) ( 7,878 ) Cash dividends ( 2,289 ) ( 2,011 ) ( 2,033 ) Net cash provided by (used in) financing activities ( 7,288 ) ( 2,229 ) ( 9,911 ) Net change in cash and cash equivalents ( 5,279 ) ( 2,810 ) ( 10,263 ) Cash and cash equivalents - beginning of year 10,795 13,605 23,868 Cash and cash equivalents - end of year $ 5,516 $ 10,795 $ 13,605 108 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.