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Item 7. Management’s Discussion and Analysis

2025-03-14 compared with 2024-03-15 · 199 added, 240 removed, 905 unchanged (33% of the section changed)

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2024 FINANCIAL AND OPERATIONAL HIGHLIGHTS

2023 was a challenging year due to the failure of a few financial institutions in the first half of the year.

These issues and the changing interest rate environment impacted most financial institutions.

However, we navigated these challenges and had steady and solid financial results for 2023.

We also implemented the CECL methodology, completed the 2023 stock repurchase program, increased the cash dividend, and improved our banking center network.

• Net income for the year ended December 31, 2023, was $34.9 million, or $4.86 diluted EPS, a decrease of $2.0 million, or 5.5%, compared to $36.9 million, or $5.13 diluted EPS, for the year ended December 31, 2022.

These decreases were mainly due to higher operating expenses, partially offset by higher noninterest income and lower provision for credit losses.

Net interest income was consistent between the years with offsetting increases in interest income and interest expense.

In 2024, we had steady improvement in the net interest margin and EPS, along with solid loan activity and growth.

We also increased our cash dividend, had significant stock buyback activity, and expanded our banking center network.

• Net income for the year ended December 31, 2024, was $34.2 million, or $4.95 diluted EPS, a decrease of $644,000, or 1.8%, compared to $34.9 million, or $4.86 diluted EPS, for the year ended December 31, 2023.

The decrease in net income was mainly due to higher operating expenses, lower noninterest income, and higher provision for credit losses, partially offset by higher net interest income.

• The return on assets was 1.11% for 2024 and 1.15% for 2023.

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• Loans HFI increased $82.2 million, or 4.1%, to $2.08 billion as of December 31, 2024, compared to $1.99 billion as of December 31, 2023.

The increase in loans was due to improved loan activity in various markets across Louisiana.

The increase in loans was due to new loan activity in various markets across Louisiana.

• Deposits totaled $2.81 billion as of December 31, 2024, consistent with December 31, 2023.

During 2023, there was a deposit mix shift as customers moved funds from lower yielding categories to higher yielding categories.

In 2024, customer deposit balances were consistent, with normal activity.

• As of December 31, 2024, total securities were $684.9 million, or 21.7% of assets, compared to $714.3 million, or 22.8% of assets, as of December 31, 2023.

Securities decreased $61.8 million mainly due to maturities and principal repayments exceeding purchases, partially offset by a smaller net unrealized loss on securities AFS.

• For 2023, average liquid assets, which are cash and cash equivalents, decreased $186.8 million to $237.9 million, compared to $424.8 million for 2022.

Securities decreased $29.4 million mainly due to maturities and principal repayments exceeding purchases.

• For 2024, liquid assets, which are cash and cash equivalents, decreased $36.5 million to $269.0 million, compared to $305.4 million for 2023.

The liquid assets to assets ratio was 8.54% as of December 31, 2024 and 9.76% as of December 31, 2023.

• Net interest income was fairly consistent for 2023 and 2022, with offsetting increases in interest income and interest expense.

The net interest margin FTE increased slightly to 2.91% for 2023 compared to 2.86% for the prior year.

The 2023 net interest income and net interest margin FTE were impacted by the higher interest rate environment in 2023, an improved asset mix, and increased deposit costs.

• The CECL methodology became effective for us on January 1, 2023.

The adoption of CECL resulted in a $720,000 adjustment to the ACL and reserve for unfunded commitments.

This adjustment was 3.5% of the December 31, 2022 ALL.

Provision expense was $735,000 for 2023 compared to $1.8 million for 2022.

• Net interest income increased between 2024 and 2023 with higher interest income being partially offset by higher interest expense.

The net interest margin FTE increased 5 bps to 2.96% for 2024 compared to 2.91% for the prior year.

The 2024 net interest income and net interest margin FTE were impacted by the changing interest rate environment, combined with repricing activity in loans, securities, and deposits.

• Provision expense was $1.2 million for 2024 compared to $735,000 for 2023.

• NPAs were $3.3 million, or 0.10% of assets, as of December 31, 2024.

As of December 31, 2024, the ACL was $21.7 million, or 1.05% of loans HFI.

• We expanded organically throughout Louisiana with the following events:

◦ In our Southwest market, we closed one of our banking centers in the first quarter of 2023 and relocated the staff and services to an existing, expanded banking center.

◦ In the third quarter of 2023, Red River Bank held a groundbreaking ceremony for a banking center in Metairie, Louisiana, which is our third banking location in our New Orleans market.

Construction on this new banking center is in process, and it is projected to open for business in the third quarter of 2024.

• In 2024, we paid a quarterly cash dividend of $0.09 per share, resulting in annual cash dividends of $0.36 per share.

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• The 2024 stock repurchase program authorized us to purchase up to $5.0 million of our outstanding common stock from January 1, 2024 through December 31, 2024.

In 2023, we repurchased 101,298 shares of our common stock at an aggregate cost of $5.0 million and completed the program.

In 2024, under this plan, on the open market, we repurchased 17,085 shares of our common stock at an aggregate cost of $809,000.

We also completed a privately negotiated stock repurchase of 60,000 shares of our common stock for $3.0 million, which reduced the availability under the 2024 stock repurchase program.

The 2024 stock repurchase program expired on December 31, 2024, with $1.1 million of remaining availability.

• Also in 2024, we completed two other privately negotiated stock repurchases of an aggregate of 250,000 shares of our common stock for a total purchase price of approximately $12.5 million.

These repurchases were supplemental to our 2024 stock repurchase program and did not impact the amount of permitted repurchases under the program.

• In 2024, we repurchased a total of 327,085 shares of our common stock, or 4.6% of the December 31, 2023 outstanding shares.

For 2024, these repurchases benefited earnings per share by $0.14.

• On December 19, 2024, our Board of Directors approved the renewal of our stock repurchase program for 2025.

The 2025 stock repurchase program authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2025 through December 31, 2025.

• In mid-2023, S&P Market Intelligence ranked Red River Bank 45th of the top 50 best-performing community banks in 2022 with assets between $3.0 and $10.0 billion.

• In the fourth quarter of 2023, the American Banker publication included Red River Bank in its “2023 Best Banks to Work For” ranking.

• On January 25, 2024, Michael J.

Brown, CFA was appointed to the boards of the Company and the Bank.

• We expanded organically throughout Louisiana with the following events:

◦ In the second quarter of 2024, we opened a second Red River Bank full-service banking center in the New Orleans, Louisiana market.

◦ In the fourth quarter of 2024, Red River Bank purchased property in Lafayette, Louisiana and plans to build a new banking center at that location, which would be our second banking center in the Acadiana market.

• In 2024, the Company and Red River Bank, were included in various financial industry ranking reports:

◦ S&P Global Market Intelligence ranked Red River Bank 15th of the top 50 best-performing community banks in 2023 with assets between $3.0 and $10.0 billion.

◦ Bank Director Magazine ranked the Company 9th in the top 30 best-performing publicly traded financial institutions with assets less than $5.0 billion.

◦ The American Banker publication included Red River Bank in its “2024 Best Banks to Work For” ranking.

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

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RESULTS OF OPERATIONS

Net income for the year ended December 31, 2023, was $34.9 million, or $4.86 diluted EPS, a decrease of $2.0 million, or 5.5%, compared to $36.9 million, or $5.13 diluted EPS, for the year ended December 31, 2022.

The decrease in net income was mainly due to a $5.2 million increase in operating expenses, partially offset by a $2.4 million increase in noninterest income and a $1.0 million decrease in the provision for credit losses.

The following is a discussion of results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023.

A discussion regarding our results of operations for the year ended December 31, 2023, compared to the year ended December 31, 2022, can be found in “Part II - Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.

Net income for the year ended December 31, 2024, was $34.2 million, or $4.95 diluted EPS, a decrease of $644,000, or 1.8%, compared to $34.9 million, or $4.86 diluted EPS, for the year ended December 31, 2023.

The decrease in net income was mainly due to a $2.3 million increase in operating expenses, a $673,000 decrease in noninterest income, and a $465,000 increase in the provision for credit losses, partially offset by a $2.9 million increase in net interest income.

The return on assets for the year ended December 31, 2024, was 1.11%, compared to 1.15% for the prior year.

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These market rates impact pricing of certain assets and liabilities used by financial institutions.

Between March 2020 and September 2023, the interest rate environment changed significantly.

In March 2020, the target federal funds range decreased 150 bps to a range of 0.00% to 0.25% and remained at that level until March 2022, when the FOMC began increasing the target federal funds range.

The FOMC increased the federal funds rate by 425 bps in 2022, by 50 bps in the first quarter of 2023, by 25 bps in the second quarter of 2023, by 25 bps in the third quarter of 2023, and kept the rate consistent during the fourth quarter of 2023, ending 2023 with a target range of 5.25% to 5.50%.

In 2023, the interest rate environment trended upward.

The FOMC increased the federal funds rate by 50 bps in the first quarter of 2023, by 25 bps in the second and third quarters of 2023, then kept the rate consistent through the second quarter of 2024.

Late in the third quarter of 2024, the FOMC decreased the federal funds rate by 50 bps, and by an additional 50 bps during the fourth quarter of 2024, reducing the target federal funds range to 4.25%-4.50%.

The average effective federal funds rate was 5.14% for 2024 compared to 5.03% for 2023.

The net interest income and net interest margin FTE for the twelve months ended December 31, 2023, were both impacted by the federal funds rate increases by the FOMC in 2023.

Net interest income for the year ended December 31, 2023, was $86.4 million, which was fairly consistent with the year ended December 31, 2022.

Net interest income was impacted by a $24.4 million increase in interest expense, mostly offset by a $24.2 million increase in interest and dividend income.

Interest expense increased during 2023 primarily due to increased deposit rates as a result of deposit rate pressures, combined with larger balances in higher cost deposit accounts.

We also experienced a change in the deposit mix due to customers moving deposits from lower yielding categories to higher yielding categories.

The increase in interest and dividend income for the year ended December 31, 2023, when compared to the year ended December 31, 2022, was primarily due to higher interest income on loans and short-term liquid assets.

Loan income increased $17.6 million due to higher rates on new, renewed, and floating rate loans and a $126.8 million increase in the average balance of loans, when compared to the year ended December 31, 2022.

Interest income on short-term liquid assets increased $5.9 million due to the FOMC’s increases to the target federal funds range, partially offset by a $179.3 million decrease in the average balance of these short-term liquid assets.

Net interest margin FTE increased five bps to 2.91% for the year ended December 31, 2023, from 2.86% for the year ended December 31, 2022, primarily due to the higher interest rate environment and an improved asset mix.

The yield on loans increased 62 bps due to higher rates on new, renewed, and floating rate loans resulting from the higher interest rate environment.

The average rate on new and renewed loans was 7.19% for the year ended December 31, 2023.

Our deployment of lower-yielding short-term liquid assets into these higher-yielding loans further benefited the net interest margin FTE.

Also, the yield on securities increased 15 bps for the same period, primarily due to reinvesting securities cash flows received during 2023 into new securities at higher yields.

In addition, the yield on short-term liquid assets was 388 bps higher for the year ended December 31, 2023, compared to the prior year.

The net interest margin FTE was negatively impacted by an increase in the cost of deposits.

The cost of deposits increased 91 bps to 1.18% for the year ended December 31, 2023, from 0.27% for the year ended December 31, 2022, due to a 140 bp increase in the rate on interest-bearing deposits, combined with customers moving deposits from lower yielding categories to higher yielding categories in 2023.

Within total interest-bearing deposits, the rate on time deposits and interest-bearing transaction deposits increased 197 and 111 bps, respectively.

These rates increased as we responded to deposit rate pressure that began in the second half of 2022 and continued into 2023.

In the fourth quarter of 2023, the target range for the federal funds rate was 5.25% to 5.50%.

The expectation is that the FOMC will lower the federal funds rate in 2024.

During 2024, we anticipate receiving approximately $145.0 million in securities cash flows.

We expect to redeploy these cash flows into higher yielding assets, which should benefit both net interest income and net interest margin FTE.

The net interest income and net interest margin FTE increased for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Net interest income for the year ended December 31, 2024, was $89.3 million, which was $2.9 million, or 3.3%, higher than the year ended December 31, 2023.

Net interest income increased due to an $18.7 million increase in interest and dividend income, partially offset by a $15.8 million increase in interest expense.

The increase in interest and dividend income for the year ended December 31, 2024, when compared to the year ended December 31, 2023, was primarily due to higher interest income on loans and securities.

Loan income increased $15.5 million primarily due to higher rates on new and renewed loans, combined with higher balances in loans HFI.

Securities income increased $2.8 million due to reinvesting lower yielding securities cash flows into higher yielding securities.

The increase in interest expense for the year ended December 31, 2024, when compared to the year ended December 31, 2023, was due to high deposit rates through the third quarter of 2024, as we responded to deposit rate pressure, combined with larger balances in higher cost deposit accounts.

However, in the fourth quarter of 2024, deposit rates were reduced in conjunction with the federal funds rate decreases by the FOMC.

Net interest margin FTE increased 5 bps to 2.96% for the year ended December 31, 2024, from 2.91% for the year ended December 31, 2023, as a result of interest rate environment fluctuations along with our balance sheet repricing structure.

The net interest margin FTE improved each quarter in 2024.

This improvement was due to having increased yields on loans and securities throughout the year, combined with the lower cost of deposits in the fourth quarter of 2024.

The yield on securities increased 52 bps due to reinvesting lower yielding securities cash flows into higher yielding securities.

The yield on loans increased 50 bps due to higher rates on new and renewed loans as a result of the higher interest rate environment through the third quarter of 2024.

The average rate on new and renewed loans was 7.62% for the year ended December 31, 2024, compared to 7.19% for the prior year.

The net interest margin FTE for the year ended December 31, 2024, when compared to the year ended December 31, 2023, was impacted by an increase in the cost of deposits.

The cost of deposits increased 56 bps to 1.74% for the year ended December 31, 2024, from 1.18% for the year ended December 31, 2023.

For the same time periods, the rates on time deposits and interest-bearing transaction deposits increased 111 and 44 bps, respectively.

The cost of deposits increased through the third quarter of 2024, due to deposit rate pressure and customers moving deposits from lower yielding categories to higher yielding categories.

However, in conjunction with the federal funds rate decreases by the

FOMC that began late in the third quarter of 2024, we lowered selected deposit rates in the third and fourth quarters, which reduced deposit costs at the end of 2024.

As of December 31, 2024, the target federal funds range was 4.25%-4.50%.

The market’s expectation is that the FOMC may lower the target range of the federal funds rate by at least 25 bps in 2025.

In 2025, we anticipate receiving approximately $101.0 million in securities cash flows with an average yield of 3.01%, and we project approximately $194.0 million of fixed rate loans will mature with an average yield of 6.04%.

We expect to redeploy these balances into higher yielding assets.

Additionally, in 2025, we expect $541.9 million of time deposits to mature with an average rate of 4.10%, which we anticipate repricing into lower cost deposits.

As of December 31, 2024, floating rate loans were 16.0% of loans HFI, and floating rate transaction deposits were 8.1% of interest-bearing transaction deposits.

Depending on balance sheet activity and the movement of interest rates, we expect the net interest margin FTE to improve slightly in the first half of 2024.

Depending on balance sheet activity and the movement in interest rates, we expect the net interest income and net interest margin to improve slightly during the first half of 2025.

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

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Nonmarketable equity securities

(50) (10) (60)

Total interest-earning assets

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Provision for Credit Losses

Effective January 1, 2023, we adopted ASC 326 , the CECL methodology for estimating credit losses.

The guidance for CECL replaces our previous incurred loss methodology with a methodology that reflects the current expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit losses.

The provision for credit losses is the amount necessary to maintain the ACL at a level considered appropriate by management.

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

The provision for credit losses is the amount necessary to maintain the ACL and the reserve for unfunded commitments at a level considered appropriate by management.

The table below presents, for the periods indicated, the provision for credit losses:

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Provision for credit losses $ 1,200 $ 735 $ 465 63.3 %

The provision for credit losses for the year ended December 31, 2023, was $735,000, a decrease of $1.0 million from $1.8 million for the year ended December 31, 2022.

The primary drivers of the decrease were the current inflationary environment, changing monetary policy, current economic forecasts, and lower loan growth.

The provision for credit losses for the year ended December 31, 2024, totaled $1.2 million, an increase of $465,000 from $735,000 for the year ended December 31, 2023.

The provision for credit losses for 2024 included $1.0 million for loans and $200,000 for unfunded commitments.

The primary drivers of the increase were the potential economic challenges resulting from the recent inflationary environment, changing monetary policy, current economic forecasts, and loan growth.

In the second half of 2024, we had an increase in unfunded loan commitments, which also contributed to the increase in provision for credit losses.

We will continue to evaluate future provision needs in relation to current economic situations, loan growth, trends in asset quality, forecasted information, and other conditions influencing loss expectations.

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

Noninterest income increased $2.4 million to $21.1 million for the year ended December 31, 2023, compared to $18.7 million for the prior year.

The increase in noninterest income was due to higher income from an SBIC limited partnership of which Red River Bank is a member, a decreased loss on equity securities, and higher loan and deposit and brokerage income.

These increases were partially offset by lower mortgage and net debit card income.

Noninterest income decreased $673,000 to $20.4 million for the year ended December 31, 2024, compared to $21.1 million for the prior year.

The decrease in noninterest income was due to lower income from SBIC limited partnerships of which the Bank is a member and lower loan and deposit fee income, partially offset by higher mortgage loan income and net debit card income.

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

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Debit card income, net 3,836 3,563 273 7.7 %

3,563 3,897 (334) (8.6 %)

Mortgage loan income 2,490 1,965 525 26.7 %

1,965 3,096 (1,131) (36.5 %)

Brokerage income 3,791 3,798 (7) (0.2 %)

3,798 3,549 249 7.0 %

Loan and deposit income 2,034 2,140 (106) (5.0 %)

2,140 1,723 417 24.2 %

Bank-owned life insurance income 851 754 97 12.9 %

754 713 41 5.8 %

Gain (Loss) on equity securities (28) (14) (14) (100.0 %)

(14) (468) 454 97.0 %

Gain (Loss) on sale and call of securities

— (59) 59 100.0 %

2,873 563 2,310 410.3 %

SBIC income 1,453 2,873 (1,420) (49.4 %)

340 259 81 31.3 %

Total noninterest income $ 20,441 $ 21,114 $ (673) (3.2 %)

$ 21,114 $ 18,747 $ 2,367 12.6 %

SBIC income increased $2.3 million to $2.9 million for 2023, compared to $563,000 for 2022.

The increase was primarily due to the sale of an investment by the SBIC in the second quarter of 2023, which resulted in higher income being distributed by the SBIC.

Equity securities are an investment in a CRA mutual fund consisting primarily of bonds.

The gain or loss on equity securities is a fair value adjustment primarily driven by changes in the interest rate environment.

In 2023, we sold $7.0 million of the CRA mutual fund.

The mutual fund had a loss of $14,000 in 2023, compared to a $468,000 loss in 2022.

Loan and deposit income increased $417,000 to $2.1 million for 2023, compared to $1.7 million for 2022.

The increase was primarily associated with fees related to customers moving funds from lower yielding deposit accounts to higher yielding deposit accounts.

Brokerage income increased $249,000 to $3.8 million for 2023, compared to $3.5 million for 2022.

The increase was primarily due to investing activities of new clients.

Assets under management were $1.04 billion and $915.1 million as of December 31, 2023 and 2022, respectively.

Mortgage loan income decreased $1.1 million to $2.0 million for 2023, compared to $3.1 million for 2022 due to higher mortgage interest rates and reduced purchase activity.

Debit card income, net, decreased $334,000 to $3.6 million for 2023, compared to $3.9 million for 2022.

The decrease was primarily related to higher debit card processing expenses.

SBIC income decreased $1.4 million to $1.5 million for 2024, compared to $2.9 million for 2023.

In 2024, we received $114,000 of distribution payments, in addition to normal income.

In 2023, we received income from the sale of an investment, in addition to normal income.

Loan and deposit income decreased $106,000 to $2.0 million for 2024, compared to $2.1 million for 2023.

The decrease was primarily related to lower deposit fees due to changing customer deposit activity, partially offset by higher nonrecurring loan related fees.

Mortgage loan income increased $525,000 to $2.5 million for 2024, compared to $2.0 million for 2023, mainly due to an increase in the average loan amount, which generated higher mortgage loan fee income.

Debit card income, net, increased $273,000 to $3.8 million for 2024, compared to $3.6 million for 2023.

In the first quarter of 2024, we terminated our previous debit card provider contract, which resulted in $145,000 of nonrecurring income.

In January 2024, a newly negotiated debit card provider contract became effective, which resulted in an increase in debit card income.

These increases were partially offset by higher debit card processing expenses.

Operating Expenses

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Operating expenses increased $2.3 million to $66.2 million for the year ended December 31, 2024 , compared to $63.9 million for the year ended December 31, 2023 .

The increase in operating expenses was mainly due to higher personnel expenses, regulatory assessment expenses, occupancy and equipment expenses, legal and professional expenses, other business development expenses, and loan and deposit expenses.

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

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

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Personnel expenses are the largest component of operating expenses and include payroll expenses, incentive compensation, benefit plans, health insurance, and payroll taxes.

Personnel expenses increased $2.7 million to $37.2 million for 2023 compared to $34.6 million for 2022.

This increase was primarily due to higher personnel health insurance expenses and additional staff added during the year.

Personnel expenses increased $1.4 million to $38.6 million for 2024 compared to $37.2 million in 2023 .

This increase was primarily due to higher compensation expense as a result of net staff changes, partially offset by a decrease in medical insurance expense.

As of December 31, 2024 and 2023 , we had 369 and 362 total employees, respectively.

Regulatory assessment expenses increased $587,000 to $1.6 million for 2023 compared to $1.1 million for 2022.

This increase was primarily due to the FDIC raising the deposit insurance assessment rate by two bps, effective January 1, 2023, for all insured depository institutions.

Occupancy and equipment expenses increased $472,000 to $6.6 million for 2023 compared to $6.1 million for 2022.

This increase was mainly due to opening the new operations center building in the first quarter of 2023, the expansion of a banking center in the Southwest market in the second quarter of 2023, and renovations of the main office building in Alexandria, Louisiana, in the second half of 2023.

Technology expenses increased $423,000 to $3.2 million for 2024 compared to $2.8 million for 2023.

This increase was primarily due to implementing new software and $51,000 of nonrecurring expenses related to our new banking center location and new administrative office, both in the New Orleans market.

Legal and professional expenses increased $279,000 to $2.7 million for 2024 compared to $2.4 million for 2023.

This increase was primarily due to higher audit and compliance fees.

Other business development expenses increased $342,000 to $2.0 million for 2023 compared to $1.6 million for 2022.

This increase was mainly the result of an increase in community sponsorships and CRA related contributions, as well as expenses associated with an SBIC limited partnership.

Loan and deposit expenses increased $325,000 to $984,000 for 2023 compared to $659,000 for 2022.

Deposit expenses in 2022 benefited from the receipt of a $122,000 negotiated, variable rebate from a vendor, resulting in lower loan and deposit expenses during that period.

This increase was due to higher contracted services, higher public company expenses, and higher professional and advisory services mainly related to a newly negotiated debit card provider contract effective January 2024.

Occupancy and equipment expenses increased $110,000 to $6.7 million for 2024 compared to $6.6 million for 2023.

This increase was primarily due to $111,000 of nonrecurring expenses related to our new banking center location and new administrative office, both in the New Orleans market, and other 2024 property renovations.

The same period prior year had $255,000 of nonrecurring expenses related to opening our new operations center building, the expansion of a banking center in the Southwest market, and renovations of the main office building in Alexandria, Louisiana.

Other taxes decreased $314,000 to $2.4 million for 2024 compared to $2.7 million for 2023.

This decrease was primarily due to a decrease in State of Louisiana bank stock tax resulting from lower deposit account balances and lower net income for the applicable tax years.

Loan and deposit expenses decreased $89,000 to $895,000 for 2024 compared to $984,000 for 2023.

2024 benefited from the receipt of a $262,000 negotiated, variable rebate from a vendor.

This decrease was partially offset by an increase in collection and loan expenses.

Income Tax Expense

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As of December 31, 2024, assets were $3.15 billion, which was $20.8 million, or 0.7%, higher than $3.13 billion as of December 31, 2023.

During 2023, loans HFI increased $76.6 million, or 4.0%, during the year to $1.99 billion as of December 31, 2023.

During 2024, loans HFI increased $82.2 million, or 4.1%, to $2.08 billion as of December 31, 2024.

The increase in loans was due to improved loan activity in various markets across Louisiana.

Cash and cash equivalents increased $27.0 million, or 9.7%, to $305.4 million and were 9.8% of assets as of December 31, 2023.

Cash and cash equivalents decreased $36.5 million, or 11.9%, to $269.0 million and were 8.5% of assets as of December 31, 2024.

Cash and cash equivalents decreased due to loan growth exceeding deposit growth.

Total securities decreased $29.4 million, or 4.1%, to $684.9 million and were 21.7% of assets as of December 31, 2024.

The decrease in securities was due to maturities and principal repayments exceeding purchases, partially offset by a smaller net unrealized loss on securities AFS.

Deposits were consistent at $2.80 billion as of December 31, 2023 and 2022.

During 2023, there was a deposit mix shift as customers moved funds from lower yielding categories to higher yielding categories.

The decrease in securities was due to maturities and principal repayments exceeding purchases.

Deposits were fairly consistent at $2.81 billion as of December 31, 2024 and $2.80 billion as of December 31, 2023.

We had no outstanding borrowings as of December 31, 2024 and 2023.

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Interest-bearing deposits in other banks were the third-largest component of earning assets as of December 31, 2024.

As of December 31, 2023, interest-bearing deposits in other banks were $252.4 million and were 8.1% of assets, an increase of $11.8 million, or 4.9%, compared to $240.6 million and 7.8% of assets as of December 31, 2022.

As of December 31, 2024, interest-bearing deposits in other banks were $238.4 million and were 7.6% of assets, a decrease of $13.9 million, or 5.5%, compared to $252.4 million and 8.1% of assets as of December 31, 2023.

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

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Securities AFS and securities HTM are debt securities.

Total debt securities were $711.3 million as of December 31, 2023, a decrease of $54.8 million, or 7.1%, from $766.1 million as of December 31, 2022.

Total debt securities on the consolidated balance sheets were $681.9 million as of December 31, 2024, a decrease of $29.4 million, or 4.1%, from $711.3 million as of December 31, 2023.

Securities AFS are held for indefinite periods of time and are carried at estimated fair value.

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

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, compared to a net unrealized loss of $74.1 million as of December 31, 2022.

The net unrealized loss on securities AFS increased $1.0 million for the year ended December 31, 2024, resulting in a net unrealized loss of $63.2 million as of December 31, 2024, compared to a net unrealized loss of $62.2 million as of December 31, 2023.

Securities HTM, which we have the intent and ability to hold until maturity, are carried at amortized cost.

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There were no sales of securities AFS, and there were no purchases or sales of securities HTM for the same period.

Securities AFS purchased for the year ended December 31, 2023, consisted of $53.0 million in mortgage-backed securities, $23.7 million in U.S.

agency securities, and $19.8 million in U.S.

Treasury securities.

securities purchased had a yield of 5.78% and an average life of 5.22 years.

Securities AFS purchased for the year ended December 31, 2024, consisted of $94.6 million in mortgage-backed securities and $34.2 million in U.S.

agency securities.

The mortgage-backed securities purchased had a yield of 5.26% and an average life of 3.99 years.

Treasury securities purchased had a yield of 5.30% and an average life of 0.15 years.

The securities AFS portfolio tax-equivalent yield was 1.90% for the year ended December 31, 2023, compared to 1.75% for the year ended December 31, 2022.

The increase in yield for the year ended December 31, 2023, was primarily due to reinvesting securities cash flows received during 2023 into new securities at higher yields.

agency securities purchased had a yield of 5.71% and an average life of 4.08 years.

The securities portfolio tax-equivalent yield was 2.43% for the year ended December 31, 2024, compared to 1.90% for the year ended December 31, 2023.

The increase in yield for the year ended December 31, 2024, was primarily due to reinvesting lower yielding securities cash flows received during 2024 into higher yielding securities.

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

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Mortgage-backed securities $ 370 2.39 % $ 8,271 4.94 % $ 46,764 1.76 % $ 251,695 3.11 % $ 307,100 2.95 %

$ 123 4.97 % $ 13,215 4.66 % $ 51,809 1.63 % $ 192,813 2.29 % $ 257,960 2.28 %

Municipal bonds 5,627 1.70 % 11,652 2.06 % 29,194 2.19 % 122,370 2.09 % 168,843 2.09 %

Treasury securities 10,932 1.27 % — — % — — % — — % 10,932 1.27 %

72,785 1.39 % 17,357 1.45 % — — % — — % 90,142 1.40 %

agency securities 916 4.34 % 4,355 2.75 % 42,142 5.16 % 15,860 3.90 % 63,273 4.64 %

Total Securities AFS $ 17,845 1.59 % $ 24,278 3.13 % $ 118,100 3.01 % $ 389,925 2.79 % $ 550,148 2.81 %

$ 80,724 1.49 % $ 50,789 2.48 % $ 89,073 2.43 % $ 349,506 2.27 % $ 570,092 2.21 %

(1) Tax equivalent projected book yield as of December 31, 2024.

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Mortgage-backed securities $ — — % $ — — % $ — — % $ 130,864 2.45 % $ 130,864 2.45 %

$ — — % $ — — % $ — — % $ 140,314 2.37 % $ 140,314 2.37 %

agency securities — — % — — % 932 2.61 % — — % 932 2.61 %

Total Securities HTM $ — — % $ — — % $ 932 2.61 % $ 130,864 2.45 % $ 131,796 2.45 %

$ — — % $ — — % $ 922 2.61 % $ 140,314 2.37 % $ 141,236 2.37 %

Equity Securities

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As of December 31, 2024, equity securities had a fair value of $2.9 million with a recognized loss of $28,000 for the year ended December 31, 2024.

The loss on equity securities during 2022 was due to a significant increase in interest rates.

During 2023, we 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.

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Our loan portfolio is our largest category of earning assets, and interest income earned on our loan portfolio is our primary source of income.

We maintain a diversified loan portfolio with a focus on commercial real estate, one-to-four family residential, and commercial and industrial loans.

We maintain a diversified loan portfolio with a focus on CRE, one-to-four family residential, and commercial and industrial loans.

As of December 31, 2024, loans HFI were $2.08 billion, an increase of $82.2 million, or 4.1%, compared to $1.99 billion as of December 31, 2023.

Loans HFI increased primarily due to improved loan activity in various markets across Louisiana.

Loans HFI increased primarily due to new loan activity in various markets across Louisiana.

Loans by Category

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Commercial real estate $ 884,641 42.6 % $ 851,582 42.7 % $ 33,059 3.9 %

$ 851,582 42.7 % $ 794,723 41.5 % $ 56,859 7.2 %

One-to-four family residential 614,551 29.6 % 599,487 30.1 % 15,064 2.5 %

599,487 30.1 % 543,511 28.4 % 55,976 10.3 %

Construction and development 155,229 7.5 % 125,238 6.3 % 29,991 23.9 %

125,238 6.3 % 157,364 8.2 % (32,126) (20.4 %)

Commercial and industrial 327,086 15.8 % 315,327 15.8 % 11,759 3.7 %

315,327 15.8 % 310,067 16.2 % 5,260 1.7 %

Tax-exempt 64,930 3.1 % 72,913 3.7 % (7,983) (10.9 %)

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Total loans HFI $ 2,075,013 100.0 % $ 1,992,858 100.0 % $ 82,155 4.1 %

$ 1,992,858 100.0 % $ 1,916,267 100.0 % $ 76,591 4.0 %

Total loans HFS $ 2,547 $ 1,306 $ 1,241 95.0 %

$ 1,306 $ 518 $ 788 152.1 %

Average loan HFI size, excluding credit cards $ 250 $ 239 $ 11 4.6 %

Commercial Real Estate Loans.

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

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

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

Commercial real estate loans increased $56.9 million, or 7.2%, to $851.6 million as of December 31, 2023, from $794.7 million as of December 31, 2022.

CRE loans increased $33.1 million, or 3.9%, to $884.6 million as of December 31, 2024, from $851.6 million as of December 31, 2023.

The average CRE loan size was $953,000 as of December 31, 2024 and $938,000 as of December 31, 2023.

Non-owner occupied commercial real estate loans were $438.8 million, or 22.0% of loans HFI, and represented 115.9% of the Bank’s total risk-based capital as of December 31, 2023.

Investor-owned office properties were $62.3 million, or 3.1% of loans HFI, as of December 31, 2023, and are primarily centered in low-rise suburban areas.

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

Non-owner occupied CRE loans were $458.9 million, or 22.1% of loans HFI, and represented 116.6% of the Bank’s total risk-based capital as of December 31, 2024.

Non-owner occupied office loans were $56.4 million, or 2.7% of loans HFI, as of December 31, 2024, and are primarily centered in low-rise suburban areas.

The owner occupied and non-owner occupied components of the CRE portfolio are summarized below:

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

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Total commercial real estate $ 884,641 42.6 % $ 851,582 42.7 %

Industry concentrations, based on NAICS, within the commercial real estate loan portfolio are presented below:

Industry concentrations, based on NAICS, within the CRE loan portfolio are presented below:

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

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Repair and maintenance 16,524 0.8 % 16,810 0.8 %

Investor one-to-four family and multifamily 14,532 0.7 % 10,445 0.5 %

Hospitality services 13,812 0.7 % 14,362 0.7 %

Investor one-to-four family and multifamily 13,805 0.7 % 14,532 0.7 %

Energy 12,608 0.6 % 13,118 0.7 %

Professions, scientific, and technical services 11,535 0.5 % 11,543 0.6 %

Transportation and warehousing 11,371 0.5 % 12,103 0.6 %

Professional, scientific, and technical services 11,543 0.6 % 9,626 0.5 %

Arts, entertainment, and recreation 9,685 0.5 % 9,894 0.5 %

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Hospitality services 31,273 1.5 % 31,766 1.6 %

Finance and insurance 7,888 0.4 % 3,199 0.1 %

Wholesale trade 7,863 0.4 % 7,880 0.4 %

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Energy 5,792 0.3 % 6,132 0.3 %

Management of companies and enterprises 4,187 0.2 % 3,742 0.2 %

Educational services 3,384 0.1 % 3,876 0.2 %

Management of company and enterprises 3,742 0.2 % 2,525 0.1 %

Retail trade 2,841 0.1 % 3,582 0.2 %

Information 2,448 0.1 % 3,200 0.2 %

Finance and insurance 3,199 0.2 % 3,343 0.2 %

All other 269,087 13.0 % 268,975 13.5 %

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Construction and Development Loans.

The construction and development portfolio includes loans to small and medium-sized businesses to construct owner occupied facilities, loans to developers of commercial real estate investment properties and residential developments, and, to a lesser extent, loans to individual clients for construction of single-family homes.

Construction and development loans decreased $32.1 million, or 20.4%, to $125.2 million as of December 31, 2023, compared to $157.4 million as of December 31, 2022.

The construction and development portfolio includes loans to small and medium-sized businesses to construct owner occupied facilities, loans to developers of CRE investment properties and residential developments, and, to a lesser extent, loans to individual clients for construction of single-family homes.

Construction and development loans increased $30.0 million, or 23.9%, to $155.2 million as of December 31, 2024, compared to $125.2 million as of December 31, 2023.

Commercial and Industrial Loans.

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Geographic Markets

As of December 31, 2023, Red River Bank operated in seven geographic markets throughout the state of Louisiana.

As of December 31, 2024, the Bank operated in seven geographic markets throughout the state of Louisiana.

The following table summarizes loans HFI by market of origin:

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Total $ 1,539,725 $ 201,741 $ 1,741,466

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

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

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

As of December 31, 2023, there were no loans HFI tied to a LIBOR-based rate.

Nonperforming Assets

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NPAs totaled $3.3 million as of December 31, 2024, an increase of $670,000, or 25.7%, from $2.6 million as of December 31, 2023.

The increase was primarily due to an increase in accruing loans 90 days or more past due.

The ratio of NPAs to assets was 0.08% as of December 31, 2023 and 2022.

The increase was primarily due to an increase in nonaccrual loans, partially offset by a decrease in past due loans.

The ratio of NPAs to assets was 0.10% as of December 31, 2024 and 0.08% as of December 31, 2023.

Nonperforming loan and asset information is summarized below:

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Allowance for Credit Losses

On January 1, 2023, we adopted ASC 326 , as amended, using the modified retrospective method.

For reporting periods beginning on or after January 1, 2023, we maintain an ACL on all loans that reflects management’s best estimate of expected credit losses to be recognized over the lifetime of the loans.

The determination of the amount of allowance involves a high degree of judgement and subjectivity.

Refer to “Item 8.

Financial Statements and Supplementary Data - Note 1.

Significant Accounting Policies - Securities” and “- Loans Held for Investment” in this Report for more information regarding our ACL methodologies.

In determining the ACL for loans HFI, we estimate losses on a collective pool basis when similar risk characteristics and risk profiles exist.

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The ACL is determined using the CECL model, which considers relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

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.

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

As of December 31, 2024, the ACL was $21.7 million, or 1.05%, of loans HFI.

As of December 31, 2022, the ALL was $20.6 million, or 1.08% of loans HFI.

The $708,000 increase in the ACL for the year ended December 31, 2023, was due to the $278,000 increase in ACL from the adoption of ASC 326 and $735,000 from the provision for credit losses, partially offset by $305,000 of net charge-offs.

The provision for credit losses for the year ended December 31, 2023, was $735,000, a decrease of $1.0 million from $1.8 million for the year ended December 31, 2022.

The primary drivers of the decrease were the current inflationary environment, changing monetary policy, current economic forecasts, and lower loan growth.

As of December 31, 2023, the ACL was $21.3 million, or 1.07%, of loans HFI.

The $395,000 increase in the ACL for the year ended December 31, 2024, was due $1.0 million from the provision for credit losses on loans, partially offset by $605,000 of net charge-offs.

The provision for credit losses for the year ended December 31, 2024, was $1.2 million, an increase of $465,000 from $735,000 for the year ended December 31, 2023.

The provision for credit losses for 2024 included $1.0 million for loans and $200,000 for unfunded commitments.

The primary drivers of the increase were the potential economic challenges resulting from the recent inflationary environment, changing monetary policy, current economic forecasts, and loan growth.

In the second half of 2024, we had an increase in unfunded loan commitments, which contributed to the increase in provision for credit losses.

Net charge-offs for the year ended December 31, 2024, were $605,000, an increase of $300,000 from $305,000 for the year ended December 31, 2023.

The ratio of net charge-offs to average loans HFI was 0.02% for the years ended December 31, 2023 and 2022.

The following table displays activity in the ACL for December 31, 2023, and the ALL for December 31, 2022:

The ratio of net charge-offs to average loans HFI was 0.03% and 0.02% for the years ended December 31, 2024 and 2023, respectively.

The following table displays activity in the ACL for December 31, 2024 and 2023:

As of and for the Years Ended December 31,

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Total charge-offs (803) (473)

Commercial real estate — 1

One-to-four family residential 10 10

Construction and development — 18

Commercial and industrial 63 30

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ACL to loans HFI 1.05 % 1.07 %

1.07 % 1.08 %

ACL to nonaccrual loans 732.18 % 1,089.13%

Net charge-offs to average loans 0.03% 0.02%

(1) The $1.2 million provision for credit losses on the consolidated statements of income for the year ended December 31, 2024, includes $1.0 million for loans and $200,000 for unfunded loan commitments.

We believe that we have established our ACL in accordance with GAAP and that the ACL was adequate to provide for known and inherent losses in the portfolio at all times shown above.

Future provisions for credit losses are subject to ongoing evaluations of the factors and loan portfolio risks, including economic pressures related to inflation, labor market and supply chain constraints, and natural disasters affecting the state of Louisiana.

Future provisions for credit losses on loans are subject to ongoing evaluations of the factors and loan portfolio risks, including economic pressures related to inflation, labor market and supply chain constraints, and natural disasters affecting the state of Louisiana.

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

The following table displays the allocation of the ACL and ALL among the loan classifications as of the dates indicated.

The following table displays the allocation of the ACL among the loan classifications as of the dates indicated.

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

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Commercial real estate $ 9,047 41.6 % $ 9,118 42.7 %

$ 9,118 42.7 % $ 7,720 37.4 %

One-to-four family residential 6,452 29.7 % 7,484 35.1 %

7,484 35.1 % 5,682 27.6 %

Construction and development 1,653 7.6 % 1,309 6.1 %

1,309 6.1 % 1,654 8.0 %

Commercial and industrial 4,123 19.0 % 2,553 12.0 %

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Total allowance for credit losses $ 21,731 100.0 % $ 21,336 100.0 %

$ 21,336 100.0 % $ 20,628 100.0 %

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

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We do not have any internet-sourced or brokered deposits.

Total 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.

Total deposits were $2.81 billion as of December 31, 2024, which remained consistent with $2.80 billion as of December 31, 2023.

In 2024, customer deposit balances were consistent with normal activity.

Noninterest-bearing deposits decreased $50.0 million, or 5.5%, during 2024 to $866.5 million as of December 31, 2024.

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Interest-bearing deposits increased $53.2 million, or 2.8%, during 2024 to $1.94 billion as of December 31, 2024, with the largest increase in time deposits.

Red River Bank has a granular, diverse deposit portfolio with customers in a variety of industries throughout Louisiana.

As of December 31, 2023, the average deposit account size was approximately $28,000, compared to $30,000 as of December 31, 2022.

In 2022, we implemented the IntraFi Network Insured Cash Sweep and related reciprocal balance programs for qualified commercial customers.

The IntraFi Network Insured Cash Sweep program provides our customers a demand deposit sweep account that has a competitive interest rate as well as full FDIC insurance coverage.

As of December 31, 2023, we had $129.1 million swept off our balance sheet.

The related reciprocal program brings deposit balances back on to our balance sheet as interest-bearing demand deposit accounts.

As of December 31, 2023, we had $138.4 million of interest-bearing demand deposit accounts.

The Bank has a granular, diverse deposit portfolio with customers in a variety of industries throughout Louisiana.

The average deposit account size was approximately $28,000 as of December 31, 2024 and December 31, 2023.

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

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We also consider the potential interest rate risk caused by extended maturities of time deposits when adjusting deposit rates.

Our average deposit balance was $2.72 billion for the year ended December 31, 2023, a decrease of $128.2 million, or 4.5%, from $2.85 billion for the year ended December 31, 2022.

Our average deposit balance was $2.75 billion for the year ended December 31, 2024, an increase of $27.0 million, or 1.0%, from $2.72 billion for the year ended December 31, 2023.

For 2024, average public entity deposits were 8.1% of average total deposits.

The average cost of interest-bearing deposits and total deposits for 2024 was 2.60% and 1.74%, respectively, compared to 1.86% and 1.18% for 2023, respectively.

The increase in the average cost of interest-bearing deposits and total deposits in 2023 as compared to 2022 was due to rate competition for deposits that began in the second half of 2022 and continued into 2023.

The increase in the average cost of interest-bearing deposits and total deposits in 2024 as compared to 2023 was due to a higher rate environment that began in the second half of 2022 and continued until the FOMC decreased rates in the third and fourth quarters of 2024.

Also, as of December 31, 2024, 8.1% of interest-bearing transaction deposits had floating rates, which adjust with market rates.

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Over 12 months 4,063

Total $ 91,513

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

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

As of December 31, 2023 and 2022, our total FHLB of Dallas line availability was $934.1 million and $875.8 million, respectively.

As of December 31, 2024 and 2023, availability under our FHLB of Dallas line was $1.04 billion and $934.1 million, respectively.

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

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As of December 31, 2024 and 2023, we had net borrowing capacity of $931.6 million and $829.2 million, respectively, under this arrangement.

As of June 30, 2023, we 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, 2024 and 2023, we had no outstanding borrowings under these agreements.

Federal Reserve Bank’s Discount Window .

In the third quarter of 2023, we pledged securities to have borrowing access to the Federal Reserve Bank’s Discount Window facility.

As of December 31, 2023, our borrowing capacity through this facility was $45.5 million;

however, we had no outstanding borrowings under this facility.

As of December 31, 2022, we had no borrowing capacity through this facility as collateral had not been pledged.

In 2023, we pledged securities to have borrowing access to the Federal Reserve Bank’s Discount Window facility.

In addition, effective March 2024, the Bank was approved for the Discount Window’s Borrower-In-Custody “BIC” program, which provides borrowing capacity through the pledging of eligible Red River Bank loans that are not pledged to the FHLB.

As of December 31, 2024, we had a total borrowing capacity of $157.8 million, including $118.7 million through the BIC program, compared to a total borrowing capacity of $45.5 million as of December 31, 2023.

Other Borrowings.

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Hancock Whitney Bank Line of Credit.

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

As of December 31, 2023 and 2022, total borrowing capacity was $6.0 million under this arrangement.

We maintained a revolving line of credit of $6.0 million at Hancock Whitney Bank collateralized by 100.0% of the stock of the Bank until July 1, 2024.

We had no outstanding balances on this line during 2024 or 2023.

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Total stockholders’ equity as of December 31, 2024, was $319.7 million, compared to $303.9 million as of December 31, 2023, an increase of $15.9 million, or 5.2%.

This increase was attributable to $34.9 million of net income for the year ended December 31, 2023, a $10.7 million, net of tax, market adjustment to AOCI related to securities, and $404,000 of stock compensation, partially offset by the repurchase of 101,298 shares of common stock for $5.0 million, $2.3 million in cash dividends, and a $569,000, net of tax, adjustment to retained earnings related to the adoption of CECL.

During the second quarter of 2022, we reclassified $166.3 million, net of $17.9 million of unrealized loss, from AFS to HTM.

This increase was attributable to $34.2 million of net income for the year ended December 31, 2024, $411,000 of stock compensation, and a $247,000, net of tax, market adjustment to AOCI related to securities, partially offset by the repurchase of 327,085 shares of common stock for $16.5 million and $2.5 million in cash dividends.

The $16.5 million of common stock repurchases includes $213,000 of stock repurchase excise tax related to our 2023 and 2024 stock repurchases, which regulations require to be recorded as a reduction to stockholders’ equity.

During the second quarter of 2022, we reclassified $166.3 million, net of $17.9 million of unrealized loss, from securities AFS to securities 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.

There were no gains or

losses recognized as a result of the transfer.

As of December 31, 2024, the net unamortized, unrealized loss remaining on the transferred securities included in the consolidated balance sheets totaled $13.0 million, of which $10.3 million, net of tax, was included in AOCI.

On November 4, 2022, our board of directors approved the renewal of the 2022 stock repurchase program that expired on December 31, 2022.

The 2023 stock repurchase program authorized us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2023 through December 31, 2023.

For the year ended December 31, 2023, we repurchased 101,298 shares of our 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, our 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 similar terms to the 2023 stock repurchase program and authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2024 through December 31, 2024.

The 2024 stock repurchase program authorized us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2024 through December 31, 2024.

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

On March 13, 2024, we entered into a privately negotiated stock repurchase agreement for the purchase of 200,000 shares of our common stock for a total purchase price of approximately $10.0 million.

This repurchase was supplemental to our 2024 stock repurchase program and did not impact the amount of permitted repurchases thereunder.

On August 8, 2024, we entered into a privately negotiated stock repurchase agreement for the purchase of 60,000 shares of our common stock for a total purchase price of approximately $3.0 million.

This repurchase was supplemental to our 2024 stock repurchase program.

However, in connection with the repurchase, we reduced the availability under our 2024 stock repurchase program by $3.0 million.

On November 5, 2024, we entered into a privately negotiated stock repurchase agreement for the purchase of 50,000 shares of our common stock for a total purchase price of approximately $2.5 million.

This repurchase was supplemental to our 2024 stock repurchase program and did not impact the amount of permitted repurchases thereunder.

For the year ended December 31, 2024, we repurchased 17,085 shares of our common stock on the open market at an aggregate cost of $809,000 under the stock repurchase program.

The 2024 stock repurchase program expired on December 31, 2024, with $1.1 million of remaining availability.

Effective January 1, 2023, stock repurchases are subject to a nondeductible excise tax under the Inflation Reduction Act of 2022 equal to 1.0% of the fair market value of the shares repurchased, subject to certain limitations.

In the fourth quarter of 2024, $213,000 of stock repurchase excise tax was recorded.

This tax relates to our 2023 and 2024 stock repurchases, which regulations require to be recorded as a reduction to stockholders’ equity.

On December 19, 2024, our board of directors approved the renewal of the 2024 stock repurchase program that expired on December 31, 2024.

The renewed program authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2025 through December 31, 2025.

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.

Effective January 1, 2023, repurchases are subject to a nondeductible excise tax under the Inflation Reduction Act of 2022 equal to 1.0% of the fair market value of the shares repurchased, subject to certain limitations.

We did not have a material impact to our financial condition or results of operations in 2023 as a result of the excise tax.

On January 1, 2023, we 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.

Regulatory Capital Requirements

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However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.

For additional information on regulatory capital guidelines and limits for Red River Bank and Red River Bancshares, Inc., see “Item 8.

For additional information on regulatory capital guidelines and limits for the Bank and the Company, see “Item 8.

Financial Statements and Supplementary Data - Note 15.

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Liquidity levels are dependent on our operating, financing, lending, and investing activities during any given period.

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

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

Reserve Bank of Atlanta are also available.

Purchased funds from correspondent banks and overnight advances can be utilized to meet funding obligations.

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

Our average deposits decreased $128.2 million, or 4.5%, for the year ended December 31, 2023, compared to the average deposits for the year ended December 31, 2022.

The decrease in average total deposits was primarily the result of the changing interest rate environment impacting customer deposit movement and activity.

Our average deposits increased $27.0 million, or 1.0%, for the year ended December 31, 2024, compared to the average deposits for the year ended December 31, 2023.

The increase in average total deposits was primarily due to new time deposit activity.

Our average total loans increased $103.0 million, or 5.3%, for the year ended December 31, 2024, compared to average total loans for the year ended December 31, 2023.

The increase in average total loans was primarily due to the increase in real estate and commercial and industrial activity.

As of December 31, 2024, liquid assets were $269.0 million compared to $305.4 million as of December 31, 2023.

The increase of $27.0 million, or 9.7%, was due to lower securities balances as a result of maturities and receiving principal repayments during the year, partially offset by the outflow of deposits during the first nine months of 2023.

The decrease of $36.5 million, or 11.9%, was due to the funding of loans, partially offset by the inflow of deposits and net securities cash flows received during the year.

The liquid assets to assets ratio was 8.54% as of December 31, 2024, compared to 9.76% as of December 31, 2023.

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As of December 31, 2024, we project receipt of approximately $101.0 million of principal repayments and maturities through December 31, 2025.

As of December 31, 2023, approximately $480.4 million, or 67.3%, of the securities portfolio was available to be sold or used as collateral in borrowings as a liquidity source.

Interest-bearing deposits in other banks are our main source of meeting daily liquidity needs and were our third-largest component of assets as of December 31, 2023.

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

As of December 31, 2024, approximately $434.8 million, or 65.7%, of the fair value of the securities portfolio was available to be sold or used as collateral in borrowings as a liquidity source.

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

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As of December 31, 2024 and 2023, our net borrowing capacity from the FHLB of Dallas was $931.6 million and $829.2 million, respectively.

In addition, effective the third quarter of 2023, we pledged securities to have borrowing access to the Federal Reserve Bank’s Discount Window facility.

As of December 31, 2023, our borrowing capacity through this facility was $45.5 million;

however, we had no borrowings under this facility.

As of December 31, 2022, we had no borrowing capacity through this facility as collateral had not been pledged.

There were no outstanding borrowings from the FHLB as of December 31, 2024 and 2023.

Another borrowing source is the Federal Reserve Bank’s Discount Window.

Effective the third quarter of 2023, the Bank pledged securities to have borrowing access to the Federal Reserve Bank’s Discount Window.

There were no outstanding borrowings from the Federal Reserve Bank’s Discount Window as of December 31, 2024 and 2023.

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

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The rates for the federal funds lines are determined by the applicable commercial bank at the time of borrowing.

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

As of December 31, 2023 and 2022, we had total borrowing capacity of $101.0 million through these combined funding sources.

We had no outstanding balances from either of these funding sources as of December 31, 2023 or 2022.

The Federal Reserve’s Bank Term Funding Program was available from March 12, 2023 through March 11, 2024, as an additional liquidity source.

The Bank Term Funding Program gave us the option to use eligible securities as collateral for a loan of up to one year from the Federal Reserve.

We did not participate in the Bank Term Funding Program.

We also maintained an additional $6.0 million revolving line of credit at one of our correspondent banks until July 1, 2024.

As of December 31, 2024 and 2023, we had total borrowing capacity of $95.0 million and $101.0 million, respectively, through these combined funding sources.

We had no outstanding balances from either of these sources as of December 31, 2024 and 2023.

The Federal Reserve’s Bank Term Funding Program was available from March 12, 2023 through March 11, 2024.

The Bank did not utilize this program while it was being offered.

Off-Balance Sheet Items

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We manage exposure to interest rates by structuring the balance sheet appropriately during the ordinary course of business.

We have the ability to enter into interest rate swaps to mitigate interest rate risk in limited circumstances, but it

is not our policy to enter into such transactions on a regular basis.

We have the ability to enter into interest rate swaps to mitigate interest rate risk in limited circumstances, but it is not our policy to enter into such transactions on a regular basis.

We do not enter into instruments such as financial options, financial futures contracts, or forward delivery contracts for the purpose of reducing interest rate risk.

We are not subject to foreign exchange risk, and our commodity price risk is immaterial, as the percentage of our agricultural loans to loans HFI was only 0.35% as of December 31, 2024.

Our exposure to interest rate risk is managed by Red River Bank’s Asset-Liability Management Committee.

Our exposure to interest rate risk is managed by the Bank’s Asset-Liability Management Committee.

The committee formulates strategies based on appropriate levels of interest rate risk and monitors the results of those strategies.

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The average life of non-maturity deposit accounts are based on assumptions developed from non-maturity deposit decay studies, which calculate average lives using historic closure rates.

Bank policy regarding interest rate risk simulations performed by our risk model currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 10.0% for a 100 bp shift and 15.0% for a 200 bp shift.

In accordance with Bank policy that was approved in September 2023, regarding economic value at risk simulations performed by our risk model for instantaneous parallel shifts of the yield curve, estimated fair value of equity for the subsequent one-year period should not decline by more than 10.0% for a 100 bp shift and 20.0% for a 200 bp shift.

In accordance with Bank policy regarding economic value at risk simulations performed by our risk model for instantaneous parallel shifts of the yield curve, estimated fair value of equity for the subsequent one-year period should not decline by more than 10.0% for a 100 bp shift, 20.0% for a 200 bp shift, and 30.0% for a 300 bp shift.

The following table shows the impact of an instantaneous and parallel change in rates, at the levels indicated, and summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated.

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-200 (4.4 %) (4.1 %) (3.5 %) (1.4 %)

-300 (7.2 %) (11.1 %) (7.6 %) (5.2 %)

The results above, as of December 31, 2024 and 2023, demonstrate that our balance sheet is asset sensitive, which means our assets have the opportunity to reprice at a faster pace than our liabilities, over the 12-month horizon.

However, due to the deposit rate pressure we experienced in 2023, our deposit interest rates adjusted more quickly than the change in the federal funds rate.

Our repricing opportunity is captured in a gap analysis, which is the process by which we measure the repricing gap between interest rate-sensitive assets versus interest rate-sensitive liabilities.

As of December 31, 2024, the reported percentage of changes in net interest income and fair value of equity remained within the policy thresholds.

These values are reported at each quarterly Asset-Liability Committee meeting.

These values are reported at each quarterly Asset-Liability Management Committee meeting.

The net interest income at risk and the fair value of equity will continue to be monitored, and appropriate mitigating action will be taken if needed.

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

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

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

It is important to understand how such other banking organizations calculate and name their financial measures similar to the non-GAAP financial measures discussed in this Report when comparing such non-GAAP financial measures.

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Allowance for Credit Losses

On January 1, 2023, the Company adopted ASC 326 , which created changes to the ALL critical accounting policy that existed as of December 31, 2022.

The ALL critical accounting policy was replaced with the ACL critical accounting policy.

The ACL is a valuation account that 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.

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After the forecast period, the Company reverts to an average historical loss rate over a two-year period.

The determination of the amount of allowance involves a high degree of judgement and subjectivity.

The ACL is available to absorb losses on loans HFI, and the reserve for unfunded commitments is a liability established to absorb credit losses for the expected life of the contractual term of off-balance sheet exposures as of the date of the

determination.

The determination of the amount of allowance involves a high degree of judgment and subjectivity.

The ACL is available to absorb losses on loans HFI.

The process and methodology employed to establish an ACL consist of two components:

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The delay period defines the most recent cohort that will be used in the historical average and varies by pool due to the differing terms and remaining lives that may exist in different pools.

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 and further adjusts for current conditions and for reasonable and supportable forecast periods.

Additionally, for loans that share similar risk characteristics, the ACL considers factors for each loan pool to adjust for differences between the historical period and expected conditions over the remaining lives of the loans in the portfolio related to:

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 and is further adjusted for current conditions and reasonable and supportable economic forecast periods.

Additionally, for loans that share similar risk characteristics, the ACL considers qualitative factors for each loan pool to adjust for differences between the historical period and expected conditions over the remaining lives of the loans in the portfolio related to:

• Lending policies and procedures;

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These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in the historical loss experience for these expectations.

Management considers the appropriateness of these critical assumptions as part of its allowance review and believes the ACL level is appropriate based on information available through the financial statement date.

Management considers the appropriateness of these qualitative assumptions as part of its allowance review and believes the ACL level is appropriate based on information available through the financial statement date.

RECENT ACCOUNTING PRONOUNCEMENTS

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

What changed 10-K

Item 7. Management’s Discussion and Analysis