UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| ☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: March 31, 2019September 30, 2022
or
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| ☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 001-38888
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| Red River Bancshares, Inc. | |
| (Exact name of registrant as specified in its charter) | |
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Louisiana | | 72-1412058 |
| (State or Other Jurisdiction of Incorporation or Organization) | | 72-1412058
(I.R.S. Employer Identification Number) |
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1412 Centre Court Drive, Suite 402,501, Alexandria, Louisiana | | 71301 |
| (Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (318) 561-5028
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if changed since last report)Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, no par value | RRBI | The NASDAQNasdaq Stock Market, LLC |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES ☐ NOYes ☒ No ☒☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YESYes ☒ NO No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES Yes ☐ NO No ☒
At MayAs of October 31, 2019,2022, the registrant had 7,300,2467,183,915 shares of common stock, no par value, issued and outstanding.
TABLE OF CONTENTS
TABLE OF CONTENTS
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| PART I | Financial Information | |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| PART II | Other Information | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | | |
| Item 6. | | |
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GLOSSARY OF TERMS
Unless the context indicates otherwise, references in this filing to “we,” “our,” “us,” “the Company,” and “our company” refer to Red River Bancshares, Inc., a Louisiana corporation and bank holding company, and its consolidated subsidiaries. All references in this filing to “Red River Bank,” the “bank,“the bank,” and the “Bank”“the Bank” refer to Red River Bank, our wholly owned bank subsidiary.
Other abbreviations or acronyms used in this filing are defined below.
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| ABBREVIATION OR ACRONYM | | DEFINITION |
2018 2-for-1 stock splitAFS | | A stock split that was accomplished by a stock dividend with a record date of October 1, 2018, whereby each holder of the Company's common stock received one additional share of common stock for each share owned as of such date.Available-for-sale |
AFSAOCI | | Available-for-sale |
AOCI | | Accumulated other comprehensive income or loss |
| ASC | | Accounting Standards Codification |
| ASU | | Accounting Standards Update |
| Basel III | | Basel Committee'sCommittee’s 2010 Regulatory Capital Framework (Third Accord) |
| BOLI | | Bank-owned life insurance |
CECLbp(s) | | Basis point(s) |
| CARES Act | | Coronavirus Aid, Relief, and Economic Security Act, as amended |
| CBLR | | Community bank leverage ratio |
| CCB | | Capital conservation buffer |
| CECL | | Current Expected Credit Losses, related to ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments |
| COVID-19 | | Coronavirus Disease 2019 |
| CRA | | Community Reinvestment Act |
| Director Compensation Program | | Amended and Restated Director Compensation program, which allows directors of the Company and the Bank an opportunity to select how to receive their annual director fees. |
| Economic Aid Act | | Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act |
| Economic Growth Act | | Economic Growth, Regulatory Relief, and Consumer Protection Act |
| EPS | | Earnings per share |
| Exchange Act | | Securities Exchange Act of 1934, as amended |
FDIAFDIC | | Federal Deposit Insurance Act |
FDIC | | Federal Deposit Insurance Corporation |
FBT CT IFederal Reserve | | FBT Capital Trust IBoard of Governors of the Federal Reserve System |
FHLBFOMC | | Federal Open Market Committee |
| FHLB | | Federal Home Loan Bank of Dallas |
| FTE | | Fully taxable equivalent basis |
| GAAP | | Generally Accepted Accounting Principles in the United States of America |
HTMHFI | | Held-to-maturityHeld for investment |
IPOHFS | | Initial public offeringHeld for sale |
LPOHTM | | Held-to-maturity |
| LDPO | | Loan and deposit production office |
MSALIBOR | | London Interbank Offered Rate |
| MSA | | Metropolitan statistical area |
| NOW | | Negotiable order of withdrawal |
OTTINPA(s) | | Other-than-temporary impairmentNonperforming asset(s) |
SECOFI | | Office of Financial Institutions |
| OTTI | | Other-than-temporary impairment |
| Policy Statement | | Federal Reserve’s Small Bank Holding Company Policy Statement |
| PPP | | Paycheck Protection Program |
| Report | | Quarterly Report on Form 10-Q |
| SBA | | Small Business Administration |
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| ABBREVIATION OR ACRONYM | | DEFINITION |
| SBIC | | Small Business Investment Company |
| Securities Act | | Securities Act of 1933, as amended |
| SEC | | Securities and Exchange Commission |
| TDR(s) | | Troubled debt restructuring(s) |
Trust II | | Red River Statutory Trust II |
Trust III | | Red River Statutory Trust III |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-QReport contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” and “outlook,” or the negative version of those words, or such other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
•business and economic conditions generally and in the financial services industry, nationally and within our local market areas;
•the impact of COVID-19 (including the emergence of multiple COVID-19 variants) on our business, the communities where we have our banking centers, the state of Louisiana, and the United States, related to the economy and overall financial stability;
•government and regulatory responses to the COVID-19 pandemic;
•government intervention in the U.S. financial system;system, including the effects of recent and future legislative, tax, accounting, and regulatory actions and reforms, including the CARES Act, the American Rescue Plan Act of 2021, and the Economic Aid Act, which established the SBA PPP, the Inflation Reduction Act of 2022, and other stimulus legislation or changes in banking, securities, accounting, and tax laws and regulations, and their application by our regulators;
•changes in management personnel;
•increased competition in the financial services industry, particularly from regional and national institutions;
•volatility and direction of market interest rates;
•our ability to maintain important deposit customer relationships and our reputation, orand to otherwise avoid liquidity risks;
•factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers, and the success of construction projects that we finance, including any loans acquired in acquisition transactions;
•changes in the value of collateral securing our loans;
•risks associated with system failures or failures to protect against cybersecurity threats, such as breaches of our network security;
•deterioration of our asset quality;
•the adequacy of our reserves, including our allowance for loan losses;
•operational risks associated with our business;
•natural disasters and adverse weather, acts of terrorism, pandemics, an outbreak of hostilities, including the ongoing military conflict between Russia and Ukraine, or other international or domestic calamities, and other matters beyond our control;
•our ability to prudently manage our growth and execute our strategy;
•compliance with the extensive regulatory framework that applies to us;
•the cessation of LIBOR effective June 30, 2023, and the impact of any replacement alternatives on our business;
•changes in the laws, rules, regulations, interpretations, or policies relating to financial institution, accounting, tax, trade, monetary, and fiscal matters; and
•the impact of recent and future legislative and regulatory changes, including the Tax Cuts and Jobs Act of 2017, the Economic Growth Act, and other changesrisk factors found in banking, securities, accounting, and tax laws and regulations, and their application by our regulators; and
other factors that are discussed in the section titled “Risk“Part I - Item 1A. Risk Factors” in our Prospectus that was filedAnnual Report on Form 10-K for the year ended December 31, 2021, as well as in “Part II - Item 1A. Risk Factors” of this Report and other reports and documents we file from time to time with the SEC on May 3, 2019, relating to our IPO.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this quarterly reportReport. Additional information on these and other risk factors can be found in “Part II - Item 1A. Risk Factors” of this Report and in “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-Q.10-K for the year ended December 31, 2021. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise.otherwise, except as required by applicable law. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot
assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RED RIVER BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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| (in thousands, except share amounts) | September 30,
2022 | | December 31,
2021 | | |
| ASSETS | | | | | |
| Cash and due from banks | $ | 39,465 | | | $ | 23,143 | | | |
| Interest-bearing deposits in other banks | 261,608 | | | 761,721 | | | |
| Total Cash and Cash Equivalents | 301,073 | | | 784,864 | | | |
| Securities available-for-sale, at fair value | 609,748 | | | 659,178 | | | |
| Securities held-to-maturity, at amortized cost | 154,736 | | | — | | | |
| Equity securities, at fair value | — | | | 7,846 | | | |
| Nonmarketable equity securities | 3,460 | | | 3,450 | | | |
| Loans held for sale | 1,536 | | | 4,290 | | | |
| Loans held for investment | 1,879,669 | | | 1,683,832 | | | |
| Allowance for loan losses | (19,953) | | | (19,176) | | | |
| Premises and equipment, net | 52,820 | | | 48,056 | | | |
| Accrued interest receivable | 7,782 | | | 6,245 | | | |
| Bank-owned life insurance | 28,594 | | | 28,061 | | | |
| Intangible assets | 1,546 | | | 1,546 | | | |
| Right-of-use assets | 4,262 | | | 3,743 | | | |
| Other assets | 34,405 | | | 12,775 | | | |
| Total Assets | $ | 3,059,678 | | | $ | 3,224,710 | | | |
| LIABILITIES | | | | | |
| Noninterest-bearing deposits | $ | 1,172,157 | | | $ | 1,149,672 | | | |
| Interest-bearing deposits | 1,624,337 | | | 1,760,676 | | | |
| Total Deposits | 2,796,494 | | | 2,910,348 | | | |
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| Accrued interest payable | 1,194 | | | 1,310 | | | |
| Lease liabilities | 4,377 | | | 3,842 | | | |
| Accrued expenses and other liabilities | 14,200 | | | 11,060 | | | |
| Total Liabilities | 2,816,265 | | | 2,926,560 | | | |
| 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 - 7,183,915 and 7,180,155 shares, respectively | 60,050 | | | 60,233 | | | |
| Additional paid-in capital | 2,014 | | | 1,814 | | | |
| Retained earnings | 265,093 | | | 239,876 | | | |
| Accumulated other comprehensive income (loss) | (83,744) | | | (3,773) | | | |
| Total Stockholders’ Equity | 243,413 | | | 298,150 | | | |
| Total Liabilities and Stockholders’ Equity | $ | 3,059,678 | | | $ | 3,224,710 | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
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| (in thousands, except share amounts) | (Unaudited)
March 31,
2019 | | (Audited)
December 31,
2018 |
| ASSETS | | | |
| Cash and due from banks | $ | 32,371 |
| | $ | 34,070 |
|
| Interest-bearing deposits in other banks | 145,593 |
| | 117,836 |
|
| Securities available-for-sale | 319,353 |
| | 307,877 |
|
| Equity securities | 3,869 |
| | 3,821 |
|
| Nonmarketable equity securities | 1,303 |
| | 1,299 |
|
| Loans held for sale | 2,210 |
| | 2,904 |
|
| Loans held for investment | 1,349,181 |
| | 1,328,438 |
|
| Allowance for loan losses | (13,101 | ) | | (12,524 | ) |
| Premises and equipment, net | 40,033 |
| | 39,690 |
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| Accrued interest receivable | 4,988 |
| | 5,013 |
|
| Bank-owned life insurance | 21,434 |
| | 21,301 |
|
| Intangible assets | 1,546 |
| | 1,546 |
|
| Right-of-use assets | 4,844 |
| | — |
|
| Other assets | 8,494 |
| | 9,317 |
|
| Total Assets | $ | 1,922,118 |
| | $ | 1,860,588 |
|
| LIABILITIES | | | |
| Noninterest-bearing deposits | $ | 565,757 |
| | $ | 547,880 |
|
| Interest-bearing deposits | 1,125,377 |
| | 1,097,703 |
|
| Total Deposits | 1,691,134 |
| | 1,645,583 |
|
| Other borrowed funds | — |
| | — |
|
| Junior subordinated debentures | 11,341 |
| | 11,341 |
|
| Accrued interest payable | 1,967 |
| | 1,757 |
|
| Lease liabilities | 4,856 |
| | — |
|
| Accrued expenses and other liabilities | 10,636 |
| | 8,204 |
|
| Total Liabilities | 1,719,934 |
| | 1,666,885 |
|
| 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 - 6,636,926 and 6,627,358 shares | 41,271 |
| | 41,094 |
|
| Retained earnings | 164,534 |
| | 160,115 |
|
| Accumulated other comprehensive income (loss) | (3,621 | ) | | (7,506 | ) |
| Total Stockholders' Equity | 202,184 |
| | 193,703 |
|
| Total Liabilities and Stockholders' Equity | $ | 1,922,118 |
| | $ | 1,860,588 |
|
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| (in thousands, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
| INTEREST AND DIVIDEND INCOME | | | | | | | |
| Interest and fees on loans | $ | 19,740 | | | $ | 16,993 | | | $ | 54,543 | | | $ | 50,509 | |
| Interest on securities | 3,572 | | | 2,220 | | | 10,210 | | | 6,247 | |
| Interest on federal funds sold | 317 | | | 20 | | | 458 | | | 67 | |
| Interest on deposits in other banks | 1,238 | | | 202 | | | 2,160 | | | 432 | |
| Dividends on stock | 19 | | | 7 | | | 22 | | | 9 | |
| Total Interest and Dividend Income | 24,886 | | | 19,442 | | | 67,393 | | | 57,264 | |
| INTEREST EXPENSE | | | | | | | |
| Interest on deposits | 1,798 | | | 1,333 | | | 4,428 | | | 4,317 | |
| | | | | | | |
| Total Interest Expense | 1,798 | | | 1,333 | | | 4,428 | | | 4,317 | |
| Net Interest Income | 23,088 | | | 18,109 | | | 62,965 | | | 52,947 | |
| Provision for loan losses | 600 | | | 150 | | | 1,000 | | | 1,750 | |
| Net Interest Income After Provision for Loan Losses | 22,488 | | | 17,959 | | | 61,965 | | | 51,197 | |
| NONINTEREST INCOME | | | | | | | |
| Service charges on deposit accounts | 1,488 | | | 1,258 | | | 4,205 | | | 3,457 | |
| Debit card income, net | 934 | | | 1,094 | | | 2,926 | | | 3,344 | |
| Mortgage loan income | 624 | | | 1,770 | | | 2,643 | | | 7,009 | |
| Brokerage income | 870 | | | 851 | | | 2,536 | | | 2,491 | |
| Loan and deposit income | 502 | | | 413 | | | 1,283 | | | 1,281 | |
| Bank-owned life insurance income | 181 | | | 176 | | | 533 | | | 473 | |
| Gain (Loss) on equity securities | — | | | (41) | | | (447) | | | (100) | |
| Gain (Loss) on sale and call of securities | 16 | | | — | | | (59) | | | 193 | |
| SBIC income | 231 | | | 136 | | | 401 | | | 616 | |
| Other income (loss) | 21 | | | (14) | | | 107 | | | 57 | |
| Total Noninterest Income | 4,867 | | | 5,643 | | | 14,128 | | | 18,821 | |
| OPERATING EXPENSES | | | | | | | |
| Personnel expenses | 8,853 | | | 7,956 | | | 25,879 | | | 24,087 | |
| Occupancy and equipment expenses | 1,531 | | | 1,412 | | | 4,496 | | | 4,019 | |
| Technology expenses | 653 | | | 734 | | | 2,118 | | | 2,144 | |
| Advertising | 316 | | | 282 | | | 841 | | | 691 | |
| Other business development expenses | 436 | | | 283 | | | 1,079 | | | 889 | |
| Data processing expense | 604 | | | 528 | | | 1,484 | | | 1,445 | |
| Other taxes | 650 | | | 527 | | | 1,933 | | | 1,584 | |
| Loan and deposit expenses | 164 | | | 325 | | | 479 | | | 773 | |
| Legal and professional expenses | 553 | | | 453 | | | 1,446 | | | 1,189 | |
| Regulatory assessment expenses | 280 | | | 251 | | | 781 | | | 665 | |
| Other operating expenses | 1,001 | | | 933 | | | 3,037 | | | 2,753 | |
| Total Operating Expenses | 15,041 | | | 13,684 | | | 43,573 | | | 40,239 | |
| Income Before Income Tax Expense | 12,314 | | | 9,918 | | | 32,520 | | | 29,779 | |
| Income tax expense | 2,128 | | | 1,780 | | | 5,795 | | | 5,337 | |
| Net Income | $ | 10,186 | | | $ | 8,138 | | | $ | 26,725 | | | $ | 24,442 | |
| EARNINGS PER SHARE | | | | | | | |
| Basic | $ | 1.42 | | | $ | 1.12 | | | $ | 3.72 | | | $ | 3.35 | |
| Diluted | $ | 1.42 | | | $ | 1.12 | | | $ | 3.71 | | | $ | 3.34 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
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| | | | | | | |
| (in thousands, except per share data) | For the Three Months Ended March 31, |
| | 2019 | | 2018 |
| INTEREST AND DIVIDEND INCOME | | | |
| Interest and fees on loans | $ | 15,504 |
| | $ | 13,586 |
|
| Interest on securities | 1,763 |
| | 1,822 |
|
| Interest on federal funds sold | 212 |
| | 51 |
|
| Interest on deposits in other banks | 416 |
| | 107 |
|
| Dividends on stock | 9 |
| | 6 |
|
| Total Interest and Dividend Income | 17,904 |
| | 15,572 |
|
| INTEREST EXPENSE | | | |
| Interest on deposits | 2,296 |
| | 1,535 |
|
| Interest on other borrowed funds | — |
| | 3 |
|
| Interest on junior subordinated debentures | 156 |
| | 124 |
|
| Total Interest Expense | 2,452 |
| | 1,662 |
|
| NET INTEREST INCOME | 15,452 |
| | 13,910 |
|
| Provision for loan losses | 526 |
| | 411 |
|
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 14,926 |
| | 13,499 |
|
| NONINTEREST INCOME | | | |
| Service charges on deposit accounts | 1,026 |
| | 1,200 |
|
| Debit card income, net | 695 |
| | 704 |
|
| Mortgage loan income | 514 |
| | 346 |
|
| Brokerage income | 365 |
| | 335 |
|
| Loan and deposit income | 346 |
| | 268 |
|
| Bank-owned life insurance income | 133 |
| | 137 |
|
| Gain on sale of investments | — |
| | 41 |
|
| Other income | 217 |
| | 126 |
|
| Total Noninterest Income | 3,296 |
| | 3,157 |
|
| OPERATING EXPENSES | | | |
| Personnel expenses | 6,640 |
| | 6,142 |
|
| Occupancy and equipment expenses | 1,175 |
| | 1,079 |
|
| Technology expenses | 544 |
| | 506 |
|
| Advertising | 209 |
| | 175 |
|
| Other business development expenses | 282 |
| | 307 |
|
| Data processing expense | 459 |
| | 392 |
|
| Other taxes | 353 |
| | 342 |
|
| Loan and deposit expenses | 223 |
| | 180 |
|
| Legal and professional expenses | 319 |
| | 324 |
|
| Other operating expenses | 954 |
| | 860 |
|
| Total Operating Expenses | 11,158 |
| | 10,307 |
|
| INCOME BEFORE INCOME TAX EXPENSE | 7,064 |
| | 6,349 |
|
| Income tax expense | 1,368 |
| | 1,118 |
|
| NET INCOME | $ | 5,696 |
| | $ | 5,231 |
|
EARNINGS PER SHARE(1) | | | |
| Basic | $ | 0.86 |
| | $ | 0.78 |
|
| Diluted | $ | 0.85 |
| | $ | 0.77 |
|
| |
(1)
| 2018 amounts adjusted to give effect to the 2018 2-for-1 stock split |
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | $ | 10,186 | | | $ | 8,138 | | | $ | 26,725 | | | $ | 24,442 | |
| Other comprehensive income (loss): | | | | | | | |
| Unrealized net gain (loss) on securities arising during period | (25,847) | | | (1,416) | | | (102,802) | | | (8,645) | |
| Tax effect | 5,428 | | | 297 | | | 21,589 | | | 1,815 | |
| (Gain) Loss on sale and call of securities included in net income | (16) | | | — | | | 59 | | | (193) | |
| Tax effect | 3 | | | — | | | (13) | | | 41 | |
| Amortization of unrealized net gain (loss) on securities transferred to held-to-maturity | 623 | | | — | | | 1,513 | | | — | |
| Tax effect | (131) | | | — | | | (317) | | | — | |
| Total other comprehensive income (loss) | (19,940) | | | (1,119) | | | (79,971) | | | (6,982) | |
| Comprehensive Income (Loss) | $ | (9,754) | | | $ | 7,019 | | | $ | (53,246) | | | $ | 17,460 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
9
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| | | | | | | |
| (in thousands) | For the Three Months Ended March 31, |
| | 2019 | | 2018 |
| Net income | $ | 5,696 |
| | $ | 5,231 |
|
| Other comprehensive income (loss): | | | |
| Unrealized net gains (loss) on securities arising during period | 4,918 |
| | (4,245 | ) |
| Tax effect | (1,033 | ) | | 907 |
|
| Less: Gains included in net income | — |
| | (41 | ) |
| Tax effect | — |
| | 9 |
|
| Total other comprehensive income (loss) | 3,885 |
| | (3,370 | ) |
| Comprehensive income | $ | 9,581 |
| | $ | 1,861 |
|
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'STOCKHOLDERS’ EQUITY (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| (in thousands, except share amounts) | Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| Balance at December 31, 2017 | $ | 45,539 |
| | $ | 137,949 |
| | $ | (5,385 | ) | | $ | 178,103 |
|
| Net income | — |
| | 5,231 |
| | — |
| | 5,231 |
|
| Stock incentive plan expense | — |
| | 47 |
| | — |
| | 47 |
|
Issuance of 1,226 shares of
common stock as board compensation(1) | 92 |
| | — |
| | — |
| | 92 |
|
Cash dividend - $0.15 per share(1) | — |
| | (1,009 | ) | | — |
| | (1,009 | ) |
| Other comprehensive income (loss) | — |
| | — |
| | (3,370 | ) | | (3,370 | ) |
| Balance at March 31, 2018 | $ | 45,631 |
| | $ | 142,218 |
| | $ | (8,755 | ) | | $ | 179,094 |
|
| | | | | | | | |
| Balance at December 31, 2018 | $ | 41,094 |
| | $ | 160,115 |
| | $ | (7,506 | ) | | $ | 193,703 |
|
| Net income | — |
| | 5,696 |
| | — |
| | 5,696 |
|
| Stock incentive plan expense | — |
| | 49 |
| | — |
| | 49 |
|
Issuance of 7,200 shares of
common stock through exercise of stock options | 80 |
| | — |
| | — |
| | 80 |
|
Issuance of 2,368 shares of
common stock as board compensation | 97 |
| | — |
| | — |
| | 97 |
|
| Cash dividend - $0.20 per share | — |
| | (1,326 | ) | | — |
| | (1,326 | ) |
| Other comprehensive income (loss) | — |
| | — |
| | 3,885 |
| | 3,885 |
|
| Balance at March 31, 2019 | $ | 41,271 |
| | $ | 164,534 |
| | $ | (3,621 | ) | | $ | 202,184 |
|
| |
(1)
| Adjusted to give effect to the 2018 2-for-1 stock split |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | — | | | — | | | — | | | 8,065 | | | — | | | 8,065 | |
| Stock incentive plan | — | | | — | | | 93 | | | — | | | — | | | 93 | |
| | | | | | | | | | | |
| Issuance of shares of common stock as board compensation | 1,075 | | | 56 | | | — | | | — | | | — | | | 56 | |
| Repurchase of common stock under stock repurchase program | (19,661) | | | (1,018) | | | — | | | — | | | — | | | (1,018) | |
| Cash dividend - $0.07 per share | — | | | — | | | — | | | (511) | | | — | | | (511) | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (7,252) | | | (7,252) | |
| Balance as of March 31, 2021 | 7,306,747 | | | $ | 67,093 | | | $ | 1,638 | | | $ | 216,511 | | | $ | (331) | | | $ | 284,911 | |
| Net income | — | | | — | | | — | | | 8,239 | | | — | | | 8,239 | |
| Stock incentive plan | — | | | — | | | 54 | | | — | | | — | | | 54 | |
| Forfeiture of restricted shares of common stock | (100) | | | — | | | — | | | — | | | — | | | — | |
| Repurchase of common stock under stock repurchase program | (21,653) | | | (1,159) | | | — | | | — | | | — | | | (1,159) | |
| Cash dividend - $0.07 per share | — | | | — | | | — | | | (510) | | | — | | | (510) | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 1,389 | | | 1,389 | |
| Balance as of June 30, 2021 | 7,284,994 | | | $ | 65,934 | | | $ | 1,692 | | | $ | 224,240 | | | $ | 1,058 | | | $ | 292,924 | |
| Net income | — | | | — | | | — | | | 8,138 | | | — | | | 8,138 | |
| Stock incentive plan | — | | | — | | | 59 | | | — | | | — | | | 59 | |
| Issuance of restricted shares of common stock through stock incentive plan, net | 7,400 | | | — | | | — | | | — | | | — | | | — | |
| Repurchase of common stock under stock repurchase program | (15,994) | | | (804) | | | — | | | — | | | — | | | (804) | |
| Cash dividend - $0.07 per share | — | | | — | | | — | | | (510) | | | — | | | (510) | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (1,119) | | | (1,119) | |
| Balance as of September 30, 2021 | 7,276,400 | | | $ | 65,130 | | | $ | 1,751 | | | $ | 231,868 | | | $ | (61) | | | $ | 298,688 | |
| | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
10
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED) (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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, 2021 | 7,180,155 | | | $ | 60,233 | | | $ | 1,814 | | | $ | 239,876 | | | $ | (3,773) | | | $ | 298,150 | |
| Net income | — | | | — | | | — | | | 7,392 | | | — | | | 7,392 | |
| Stock incentive plan | — | | | — | | | 63 | | | — | | | — | | | 63 | |
| 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 - $0.07 per share | — | | | — | | | — | | | (502) | | | — | | | (502) | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (40,046) | | | (40,046) | |
| Balance as of March 31, 2022 | 7,176,365 | | | $ | 60,050 | | | $ | 1,877 | | | $ | 246,766 | | | $ | (43,819) | | | $ | 264,874 | |
| Net income | — | | | — | | | — | | | 9,147 | | | — | | | 9,147 | |
| Stock incentive plan | — | | | — | | | 63 | | | — | | | — | | | 63 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Cash dividend - $0.07 per share | — | | | — | | | — | | | (503) | | | — | | | (503) | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (19,985) | | | (19,985) | |
| Balance as of June 30, 2022 | 7,176,365 | | | $ | 60,050 | | | $ | 1,940 | | | $ | 255,410 | | | $ | (63,804) | | | $ | 253,596 | |
| Net income | — | | | — | | | — | | | 10,186 | | | — | | | 10,186 | |
| Stock incentive plan | — | | | — | | | 74 | | | — | | | — | | | 74 | |
| Issuance of restricted shares of common stock through stock incentive plan, net | 7,550 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Cash dividend - $0.07 per share | — | | | — | | | — | | | (503) | | | — | | | (503) | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (19,940) | | | (19,940) | |
| Balance as of September 30, 2022 | 7,183,915 | | | $ | 60,050 | | | $ | 2,014 | | | $ | 265,093 | | | $ | (83,744) | | | $ | 243,413 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
11
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| | | | | | | |
| (in thousands) | For the Three Months Ended March 31, |
| | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income | $ | 5,696 |
| | $ | 5,231 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation | 424 |
| | 417 |
|
| Amortization | 113 |
| | 112 |
|
| Share-based compensation earned | 49 |
| | 47 |
|
| Share-based board compensation earned | 97 |
| | 92 |
|
| (Gain) loss on sale of other assets owned | (20 | ) | | 6 |
|
| Net (accretion) amortization on AFS securities | 283 |
| | 350 |
|
| Net (accretion) amortization on HTM securities | — |
| | 4 |
|
| Gains on sales of AFS securities | — |
| | (41 | ) |
| Provision for loan losses | 526 |
| | 411 |
|
| Net (increase) decrease in loans held for sale | 694 |
| | (1,156 | ) |
| Net (increase) decrease in accrued interest receivable | 25 |
| | 451 |
|
| Net (increase) decrease in BOLI | (133 | ) | | (137 | ) |
| Net increase (decrease) in accrued interest payable | 210 |
| | (55 | ) |
| Other operating activities, net | 1,759 |
| | 1,791 |
|
| Net cash provided by operating activities | 9,723 |
| | 7,523 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Activity in AFS securities: | | | |
| Sales | — |
| | 3,168 |
|
| Maturities, prepayments and calls | 17,005 |
| | 13,208 |
|
| Purchases | (23,845 | ) | | — |
|
| Activity in HTM securities: | | | |
| Maturities, prepayments and calls | — |
| | 735 |
|
| Purchase of nonmarketable equity securities | (4 | ) | | (3 | ) |
| Net increase in loans | (20,692 | ) | | (28,526 | ) |
| Proceeds from sales of foreclosed assets | 333 |
| | 7 |
|
| Purchases of premises and equipment | (767 | ) | | (250 | ) |
| Net cash used in investing activities | (27,970 | ) | | (11,661 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Net increase in deposits | 45,551 |
| | 34,348 |
|
| Repayments of other borrowed funds | — |
| | (45 | ) |
| Proceeds from exercise of stock options | 80 |
| | — |
|
| Cash dividends | (1,326 | ) | | (1,009 | ) |
| Net cash provided by financing activities | 44,305 |
| | 33,294 |
|
| Net change in cash and cash equivalents | 26,058 |
| | 29,156 |
|
| Cash and cash equivalents - beginning of period | 151,906 |
| | 59,667 |
|
| Cash and cash equivalents - end of period | $ | 177,964 |
| | $ | 88,823 |
|
| CASH AND CASH EQUIVALENTS INCLUDE | | | |
| Cash and due from banks | $ | 32,371 |
| | $ | 16,049 |
|
| Interest-bearing deposits in other banks | 145,593 |
| | 72,774 |
|
| | $ | 177,964 |
| | $ | 88,823 |
|
| SUPPLEMENTAL DISCLOSURES | | | |
| Cash paid during the year for: | | | |
| Interest | $ | 2,242 |
| | $ | 1,717 |
|
| Income taxes | $ | — |
| | $ | — |
|
| Initial measurement and recognition of operating lease assets in exchange for lease liabilities | $ | 4,954 |
| | — |
|
| | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income | $ | 26,725 | | | $ | 24,442 | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
| Depreciation | 1,516 | | | 1,409 | |
| Amortization | 406 | | | 475 | |
| Share-based compensation earned | 200 | | | 206 | |
| Share-based board compensation earned | 59 | | | 34 | |
| (Gain) Loss on other assets owned | 60 | | | 12 | |
| Net (accretion) amortization on securities AFS | 278 | | | 1,888 | |
| (Gain) Loss on sale and call of securities | 59 | | | (193) | |
| (Gain) Loss on equity securities | 447 | | | 100 | |
| Provision for loan losses | 1,000 | | | 1,750 | |
| Deferred income tax (benefit) expense | 377 | | | (660) | |
| Net (increase) decrease in loans HFS | 2,754 | | | 20,334 | |
| Net (increase) decrease in accrued interest receivable | (1,537) | | | 953 | |
| Net (increase) decrease in BOLI | (533) | | | (473) | |
| Net increase (decrease) in accrued interest payable | (116) | | | (434) | |
| Net increase (decrease) in accrued income taxes payable | 621 | | | (96) | |
| Other operating activities, net | 3,027 | | | 323 | |
| Net cash provided by (used in) operating activities | 35,343 | | | 50,070 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Activity in securities AFS: | | | |
| Sales | 31,762 | | | 111,522 | |
| Maturities, principal repayments, and calls | 60,292 | | | 75,143 | |
| Purchases | (313,514) | | | (267,191) | |
| Activity in securities HTM: | | | |
| Maturities, principal repayments, and calls | 13,074 | | | — | |
| Sale of equity securities | 7,399 | | | — | |
| Purchase of equity securities | — | | | (4,000) | |
| Purchase of nonmarketable equity securities | (10) | | | (2) | |
| Capital contribution in partnerships | (817) | | | (123) | |
| Net (increase) decrease in loans HFI | (196,060) | | | (34,946) | |
| | | |
| Purchase of bank owned life insurance | — | | | (5,000) | |
| Proceeds from sales of foreclosed assets | 641 | | | 96 | |
| Purchases of premises and equipment | (6,321) | | | (1,917) | |
| Net cash provided by (used in) investing activities | (403,554) | | | (126,418) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Net increase (decrease) in deposits | (113,854) | | | 364,223 | |
| | | |
| | | |
| | | |
| Repurchase of common stock | (218) | | | (2,981) | |
| | | |
| | | |
| Cash dividends | (1,508) | | | (1,531) | |
| Net cash provided by (used in) financing activities | (115,580) | | | 359,711 | |
| Net change in cash and cash equivalents | (483,791) | | | 283,363 | |
| Cash and cash equivalents - beginning of period | 784,864 | | | 447,201 | |
| Cash and cash equivalents - end of period | $ | 301,073 | | | $ | 730,564 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
12
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
| | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 |
| SUPPLEMENTAL DISCLOSURES | | | |
| Cash paid during the year for: | | | |
| Interest | $ | 4,545 | | | $ | 4,751 | |
| Income taxes | $ | 4,766 | | | $ | 6,114 | |
| | | |
| SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES | | | |
| Assets acquired in settlement of loans | $ | — | | | $ | 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 unaudited consolidated financial statements.
13
RED RIVER BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| |
1. | Summary of Significant Accounting Policies |
1.Summary of Significant Accounting Policies Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with GAAP for interim financial information, general practices within the financial services industry, and with instructions for Form 10-Q and Regulation S-X. Accordingly, these interim financial statements do not include all of the information or footnotes required by GAAP for annual financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results whichthat may be expected for the entire fiscal year. These statements should be read in conjunction with the Consolidated Financial StatementsCompany’s audited consolidated financial statements and notes thereto for the year ended December 31, 2018,2021, included in the Company’s Prospectus filed withAnnual Report on Form 10-K for the SEC on May 3, 2019, relating to its IPO.year ended December 31, 2021.
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'sCompany’s financial condition or results of operations.
Critical Accounting Policies and Estimates
There were no material changes or developments during the reporting period with respect to methodologies the Company uses when applying critical accounting policies and developing critical accounting estimates as disclosed in Note 1 of the Notesnotes to the Consolidated Financial Statementsaudited consolidated financial statements for the year ended December 31, 2018,2021, that were included in the Company's Prospectus as filed withCompany’s Annual Report on Form 10-K for the SEC on May 3, 2019.year ended December 31, 2021. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in stockholders’ equity, and cash flows for the interim period presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.
Accounting Standards Adopted in 20192022
AsASU No. 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments. The guidance issued in this update addressed lessors’ concerns by amending the lease classification requirements. The amendments in this update address an issue related to a lessor’s accounting for certain leases with variable lease payments. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if two criteria are met. Those criteria are that the lease would have been classified as a sales-type lease or a direct financing lease in accordance with GAAP, and that the lessor would have otherwise recognized a day-one loss. ASU 2021-05 was adopted as of January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) and the related amendments using the modified retrospective approach. The primary purpose of this ASU was to increase the transparency and comparability among organizations by recognizing a lease liability related to the lessee's obligation to make lease payments based on a lease contract, and a right-of-use asset related to the lessee's right to use the leased asset for the term of the lease. The Company recorded right-of-use assets and corresponding lease liabilities of $4.9 million at the time of adoption. The required disclosures are included in Note 5 to these unaudited consolidated financial statements.
ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 permits hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk. It also changes the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk. In addition to the amendments to the designation and measurement guidance for qualifying hedging relationships, the amendments in this ASU also align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. ASU 2017-12 became effective for the Company on January 1, 20192022, and did not have a material impact on ourthe Company’s consolidated financial statements as the Company does not utilize derivatives as of March 31, 2019.statements.
Recent Accounting Pronouncements
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13sets forth the CECL model requiring the Company to measure all expected credit losses for financial instruments held as ofat the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicableASU 2016-13 requires enhanced disclosures related to the measurement ofsignificant estimates and judgments used in estimating credit losses. In addition, the update amends the accounting for credit losses on financial assets measured at amortized cost and appliesAFS securities. The Company does not expect a material impact due to some off-balance sheet credit exposures. For public business entities that arethis update. As an SEC registrants, the amendments in this update areregistrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.the Company on January 1, 2023. The Company continues to evaluate the impact of this ASU on the consolidated financial statements and disclosures. In that regard, the Company has formed a cross functionalcross-functional working group and is currently working through itsan implementation plan. The implementation plan which includes an assessment and documentation of processes, internal controls, and data, sources; model development and documentation;documentation, documentation of processes, and implementation of a third-party vendor solution to assist in the applicationadoption of ASU 2016-13. Based upon its preliminary CECL analysis as of September 30, 2022, the Company expects the adoption of ASU 2016-13 will result in a combined 1.0% to 5.0% increase in its allowance for credit losses and allowance for unfunded commitments. This increase is a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Also, ASU 2016-13 requires an allowance for expected credit losses for certain securities HTM. The Company currently does not hold any municipal securities HTM; therefore, it does not expect CECL to have a material impact related to securities HTM. Additionally, the adoption of ASU 2016-13 is not expected to have a significant impact on the Company’s regulatory capital ratios. The ultimate impact of adoption on January 1, 2023, could be significantly different than the Company’s current expectation as its modeling processes will be significantly influenced by the composition, characteristics, and quality of its loan and securities portfolios as well as the prevailing economic conditions and forecasts as of that date, notwithstanding any further refinements to its expected credit loss models.
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 310-40, 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 Amortized Cost. This standard is effective for the Company on January 1, 2023. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
2. Securities
Securities are classified as AFS, HTM, and equity securities. Total securities were $764.5 million as of September 30, 2022.
Securities AFS and Securities HTM
Securities AFS and securities HTM are debt securities. Securities AFS are held for indefinite periods of time and are classified as AFS and carried at estimated fair value. As of September 30, 2022, the estimated fair value of securities AFS was $609.7 million. The net unrealized loss on securities AFS increased $84.8 million for the nine months ended September 30, 2022, resulting in a net unrealized loss of $89.6 million as of September 30, 2022.
During the second quarter of 2022, the Company does notreclassified $166.3 million, net of $17.9 million of unrealized loss, or 20.5% of the securities portfolio from AFS to HTM. The securities were transferred at fair value, which became the cost basis for the securities HTM. The net unrealized loss will be 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. Securities HTM, which the Company has the intent and ability to hold until maturity, are carried at amortized cost. As of September 30, 2022, the amortized cost of securities HTM securities. was $154.7 million.
Investment activity for the nine months ended September 30, 2022, included $313.5 million of securities purchased, partially offset by $31.8 million in sales and $73.4 million in maturities, principal repayments, and calls. There were no purchases or sales of securities HTM for the same period.
The amortized cost and estimated fair values of securities AFS and securities HTM are summarized in the following tables (in thousands):tables: | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| (in thousands) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 295,166 | | | $ | — | | | $ | (37,623) | | | $ | 257,543 | |
| Municipal bonds | 220,078 | | | 1 | | | (44,780) | | | 175,299 | |
| U.S. Treasury securities | 176,500 | | | — | | | (6,631) | | | 169,869 | |
| U.S. agency securities | 7,596 | | | — | | | (559) | | | 7,037 | |
| Total Securities AFS | $ | 699,340 | | | $ | 1 | | | $ | (89,593) | | | $ | 609,748 | |
| | | | | | | |
| Securities HTM: | | | | | | | |
| Mortgage-backed securities | $ | 153,826 | | | $ | — | | | $ | (20,785) | | | $ | 133,041 | |
| U.S. agency securities | 910 | | | — | | | (114) | | | 796 | |
| Total Securities HTM | $ | 154,736 | | | $ | — | | | $ | (20,899) | | | $ | 133,837 | |
|
| | | | | | | | | | | | | | | |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| As of March 31, 2019 | | | | | | | |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 219,112 |
| | $ | 81 |
| | $ | (3,922 | ) | | $ | 215,271 |
|
| Municipal bonds | 82,302 |
| | 387 |
| | (1,120 | ) | | 81,569 |
|
| U.S. agency securities | 20,528 |
| | 47 |
| | (71 | ) | | 20,504 |
|
| U.S. Treasury securities | 1,995 |
| | 14 |
| | — |
| | 2,009 |
|
| Total Securities AFS | $ | 323,937 |
| | $ | 529 |
| | $ | (5,113 | ) | | $ | 319,353 |
|
|
| | | | | | | | | | | | | | | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| As of December 31, 2018 | | | | | | | |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 221,799 |
| | $ | 11 |
| | $ | (7,122 | ) | | $ | 214,688 |
|
| Municipal bonds | 70,416 |
| | 94 |
| | (2,235 | ) | | 68,275 |
|
| U.S. agency securities | 23,170 |
| | 6 |
| | (261 | ) | | 22,915 |
|
| U.S. Treasury securities | 1,994 |
| | 5 |
| | — |
| | 1,999 |
|
| Total Securities AFS | $ | 317,379 |
| | $ | 116 |
| | $ | (9,618 | ) | | $ | 307,877 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| (in thousands) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 386,874 | | | $ | 1,112 | | | $ | (8,460) | | | $ | 379,526 | |
| Municipal bonds | 227,248 | | | 3,665 | | | (942) | | | 229,971 | |
| U.S. Treasury securities | 41,770 | | | — | | | (154) | | | 41,616 | |
| U.S. agency securities | 8,062 | | | 61 | | | (58) | | | 8,065 | |
| Total Securities AFS | $ | 663,954 | | | $ | 4,838 | | | $ | (9,614) | | | $ | 659,178 | |
| | | | | | | |
| Securities HTM: | | | | | | | |
| Mortgage-backed securities | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| U.S. agency securities | — | | | — | | | — | | | — | |
| Total Securities HTM | $ | — | | | $ | — | | | $ | — | | | $ | — | |
The amortized costscost and estimated market valuesfair value of debt securities AFS and securities HTM as of March 31, 2019,September 30, 2022, by contractual maturity, are shown below (in thousands).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.
|
| | | | | | | |
| | Amortized Cost | | Fair Value |
| Within one year | $ | 10,636 |
| | $ | 10,591 |
|
| After one year but within five years | 50,140 |
| | 49,649 |
|
| After five years but within ten years | 89,701 |
| | 88,653 |
|
| After ten years | 173,460 |
| | 170,460 |
|
| Total | $ | 323,937 |
| | $ | 319,353 |
|
| | | | | | | | | | | |
| September 30, 2022 |
| (in thousands) | Amortized
Cost | | Fair
Value |
| Securities AFS: | | | |
| Within one year | $ | 59,393 | | | $ | 58,206 | |
| After one year but within five years | 150,456 | | | 143,313 | |
| After five years but within ten years | 84,773 | | | 76,233 | |
| After ten years | 404,718 | | | 331,996 | |
| Total Securities AFS | $ | 699,340 | | | $ | 609,748 | |
| | | |
| Securities HTM: | | | |
| Within one year | $ | — | | | $ | — | |
| After one year but within five years | — | | | — | |
| After five years but within ten years | 910 | | | 796 | |
| After ten years | 153,826 | | | 133,041 | |
| Total Securities HTM | $ | 154,736 | | | $ | 133,837 | |
Information pertaining to securities AFS and securities HTM with gross unrealized losses as of March 31, 2019September 30, 2022 and December 31, 2018,2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is described as follows (in thousands):follows:
|
| | | | | | | | | | | | | | | |
| | Less than twelve months | | Twelve months or more |
| | Gross Unrealized Losses | | Fair Value | | Gross
Unrealized
Losses | | Fair
Value |
| As of March 31, 2019: | | | | | | | |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | (26 | ) | | $ | 3,842 |
| | $ | (3,896 | ) | | $ | 195,240 |
|
| Municipal bonds | (10 | ) | | 3,557 |
| | (1,110 | ) | | 44,388 |
|
| U.S. agency securities | (5 | ) | | 951 |
| | (66 | ) | | 12,846 |
|
| Total Securities AFS | $ | (41 | ) | | $ | 8,350 |
| | $ | (5,072 | ) | | $ | 252,474 |
|
| | | | | | | | |
| As of December 31, 2018: | | | | | | | |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | (75 | ) | | $ | 8,845 |
| | $ | (7,047 | ) | | $ | 200,532 |
|
| Municipal bonds | (48 | ) | | 3,389 |
| | (2,187 | ) | | 52,879 |
|
| U.S. agency securities | (41 | ) | | 3,801 |
| | (220 | ) | | 14,123 |
|
| Total Securities AFS | $ | (164 | ) | | $ | 16,035 |
| | $ | (9,454 | ) | | $ | 267,534 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| 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 | $ | (23,966) | | | $ | 192,032 | | | $ | (13,657) | | | $ | 65,434 | |
| Municipal bonds | (33,939) | | | 144,266 | | | (10,841) | | | 30,248 | |
| U.S. Treasury securities | (6,631) | | | 169,870 | | | — | | | — | |
| U.S. agency securities | (269) | | | 5,343 | | | (290) | | | 1,694 | |
| Total Securities AFS | $ | (64,805) | | | $ | 511,511 | | | $ | (24,788) | | | $ | 97,376 | |
| | | | | | | |
| Securities HTM: | | | | | | | |
| Mortgage-backed securities | $ | (2,677) | | | $ | 20,391 | | | $ | (18,108) | | | $ | 112,650 | |
| U.S. agency securities | — | | | — | | | (114) | | | 796 | |
| Total Securities HTM | $ | (2,677) | | | $ | 20,391 | | | $ | (18,222) | | | $ | 113,446 | |
| | | | | | | |
| December 31, 2021 |
| 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 | $ | (6,627) | | | $ | 282,705 | | | $ | (1,833) | | | $ | 47,171 | |
| Municipal bonds | (918) | | | 51,333 | | | (24) | | | 2,577 | |
| U.S. Treasury securities | (154) | | | 41,616 | | | — | | | — | |
| U.S. agency securities | (58) | | | 4,913 | | | — | | | — | |
| Total Securities AFS | $ | (7,757) | | | $ | 380,567 | | | $ | (1,857) | | | $ | 49,748 | |
| | | | | | | |
| Securities HTM: | | | | | | | |
| Mortgage-backed securities | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| U.S. agency securities | — | | | — | | | — | | | — | |
| Total Securities HTM | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
| | | | | | | |
The numberAs of investment positionsSeptember 30, 2022, the Company held 577 securities AFS and securities HTM that were in an unrealized loss position totaled 260 as of March 31, 2019.positions. The aggregate unrealized loss of these securities as of March 31, 2019,September 30, 2022, was 1.58%12.94% of the amortized cost basis of the total AFS securities portfolio. debt securities.
Management and the Asset-Liability Management Committee continually monitor the securities portfolio and are able to effectively measure and monitor the unrealized loss positions on these securities. Management does not intend to sell these securities prior to recovery, and it is more likely than not that the Company will have the ability to hold them, primarily due to adequate liquidity, until each security has recovered its cost basis, as the Company's current liquidity position is more than adequate.basis. The unrealized losses ofon these securities hashave been determined by management to be a function of the movement of interest rates since the time of purchase. Based on a review of available information, including recent changes in interest rates and credit rating information, management believes the declinesdecline in fair value of these securities areis temporary. The Company does not consider these securities to have OTTI.
Management evaluates securities for OTTI on at least a quarterly basis and more frequently if economic or market concerns merit such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; and (3) whether the Company intends to, and it is more likely than not that it will be able to, retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Additionally, the Company annually performs a detailed credit review of the municipal securities owned to identify any potential credit concerns. There were no OTTI losses on debt
securities related to credit losses recognized during the threenine months ended March 31, 2019September 30, 2022, or the year ended December 31, 2018.2021.
The proceeds from sales and calls of debt securities and their gross gain (loss) for the three and nine months ended September 30, 2022 and 2021, are shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended September 30, | | |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | | | |
Proceeds (1) | $ | 731 | | | $ | 1,675 | | | $ | 41,234 | | | $ | 116,843 | | | | | |
| Gross gain | $ | 16 | | | $ | 1 | | | $ | 64 | | | $ | 851 | | | | | |
| Gross loss | $ | — | | | $ | (1) | | | $ | (123) | | | $ | (658) | | | | | |
(1)The proceeds include the gross gain and loss.
Equity Securities
Equity securities were an investment in a CRA mutual fund, consisting primarily of bonds. Equity securities were 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, 2021, equity securities had a fair value of $7.8 million with a recognized loss of $175,000 for the year ended December 31, 2021. Equity securities had a recognized loss of $447,000 for the nine months ended September 30, 2022. The loss on equity securities during 2022 was due to a significant increase in interest rates. In April 2022, the Company liquidated all shares invested in this fund.
Pledged Securities
Securities with carrying values of approximately $99.9$190.6 million and $93.5$118.6 million were pledged to secure public entity deposits as of March 31, 2019September 30, 2022 and December 31, 2018,2021, respectively.
| |
3. | Loans and Asset Quality |
Loans
Total loans held for investmentLoans HFI by category and loans held for saleHFS are summarized below (in thousands):below:
| | | | | | | | | | | |
| |
| (in thousands) | September 30, 2022 | | December 31, 2021 |
| Real estate: | | | |
| Commercial real estate | $ | 787,464 | | | $ | 670,293 | |
| One-to-four family residential | 532,034 | | | 474,420 | |
| Construction and development | 140,398 | | | 106,339 | |
| Commercial and industrial | 307,159 | | | 311,373 | |
| SBA PPP, net of deferred income | 1,350 | | | 17,550 | |
| Tax-exempt | 84,947 | | | 80,726 | |
| Consumer | 26,317 | | | 23,131 | |
| Total loans HFI | $ | 1,879,669 | | | $ | 1,683,832 | |
| Total loans HFS | $ | 1,536 | | | $ | 4,290 | |
|
| | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
| Real estate: | | | |
| Commercial real estate | $ | 475,269 |
| | $ | 454,689 |
|
| One-to-four family residential | 406,823 |
| | 406,963 |
|
| Construction and development | 111,344 |
| | 102,868 |
|
| Commercial and industrial | 269,987 |
| | 275,881 |
|
| Tax-exempt | 56,838 |
| | 60,104 |
|
| Consumer | 28,920 |
| | 27,933 |
|
| Total loans held for investment | $ | 1,349,181 |
| | $ | 1,328,438 |
|
| Total loans held for sale | $ | 2,210 |
| | $ | 2,904 |
|
18
Allowance for Loan Losses
The following table summarizes the activity in the allowance for loan losses by category for the threenine months ended March 31, 2019 (in thousands):September 30, 2022:
| | | | Beginning Balance December 31, 2018 | | Provision for Loan Losses | | Loans Charged-off | | Recoveries | | Ending Balance March 31, 2019 | |
| (in thousands) | | (in thousands) | Beginning
Balance December 31, 2021 | | Provision
for Loan
Losses | | Charge-offs | | Recoveries | | Ending
Balance
September 30, 2022 |
| Real estate: | | | | | | | | | | Real estate: | | | | | | | | | |
| Commercial real estate | $ | 3,081 |
| | $ | (201 | ) | | $ | — |
| | $ | — |
| | $ | 2,880 |
| Commercial real estate | $ | 6,749 | | | $ | 700 | | | $ | — | | | $ | — | | | $ | 7,449 | |
| One-to-four family residential | 3,146 |
| | (137 | ) | | — |
| | 1 |
| | 3,010 |
| One-to-four family residential | 5,375 | | | 46 | | | — | | | 8 | | | 5,429 | |
| Construction and development | 951 |
| | (57 | ) | | — |
| | 77 |
| | 971 |
| Construction and development | 1,326 | | | 120 | | | (18) | | | 18 | | | 1,446 | |
| Commercial and industrial | 4,604 |
| | 991 |
| | — |
| | 1 |
| | 5,596 |
| Commercial and industrial | 4,440 | | | (150) | | | (25) | | | 81 | | | 4,346 | |
| SBA PPP, net of deferred income | | SBA PPP, net of deferred income | 25 | | | (23) | | | — | | | — | | | 2 | |
| Tax-exempt | 372 |
| | (46 | ) | | — |
| | — |
| | 326 |
| Tax-exempt | 749 | | | (1) | | | — | | | — | | | 748 | |
| Consumer | 370 |
| | (24 | ) | | (81 | ) | | 53 |
| | 318 |
| Consumer | 512 | | | 308 | | | (384) | | | 97 | | | 533 | |
| Total allowance for loan losses | $ | 12,524 |
| | $ | 526 |
| | $ | (81 | ) | | $ | 132 |
| | $ | 13,101 |
| Total allowance for loan losses | $ | 19,176 | | | $ | 1,000 | | | $ | (427) | | | $ | 204 | | | $ | 19,953 | |
The following table summarizes the activity in the allowance for loan losses by category for the twelve months ended December 31, 2018 (in thousands):2021:
The balance in the allowance for loan losses and the related recorded investment in loans by category as of March 31, 2019,September 30, 2022, are as follows (in thousands):follows:
The balance in the allowance for loan losses and the related recorded investment in loans by category as of December 31, 2018,2021, are as follows (in thousands):follows:
Impaired loans include TDRs and performing and nonperforming loans. Information pertaining to impaired loans as of March 31, 2019,September 30, 2022, is as follows (in thousands):follows:
The restructuring of a loan is considered a TDR if the borrower is experiencing financial difficulties and the bank has granted a concession. Concessions grant terms to the borrower that would not be offered for new debt with similar risk characteristics. Concessions typically include interest rate reductions or below market interest rates, revising amortization schedules to defer principal and interest payments, and other changes necessary to provide payment relief to the borrower and minimize the risk of loss. There were no unfunded commitments to extend credit related to these loans.loans as of September 30, 2022 or December 31, 2021.
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:
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.
Loss - Loans classified in this category are considered uncollectible and charged-off to the allowance for loan losses.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total |
| Real estate: | | | | | | | | | | | |
| Commercial real estate | $ | 439,580 |
| | $ | 11,883 |
| | $ | 3,226 |
| | $ | — |
| | $ | — |
| | $ | 454,689 |
|
| One-to-four family residential | 402,864 |
| | 1,992 |
| | 2,107 |
| | — |
| | — |
| | 406,963 |
|
| Construction and development | 101,754 |
| | 375 |
| | 739 |
| | — |
| | — |
| | 102,868 |
|
| Commercial and industrial | 251,987 |
| | 8,311 |
| | 15,583 |
| | — |
| | — |
| | 275,881 |
|
| Tax-exempt | 60,104 |
| | — |
| | — |
| | — |
| | — |
| | 60,104 |
|
| Consumer | 27,729 |
| | 44 |
| | 160 |
| | — |
| | — |
| | 27,933 |
|
| Total loans held for investment | $ | 1,284,018 |
| | $ | 22,605 |
| | $ | 21,815 |
| | $ | — |
| | $ | — |
| | $ | 1,328,438 |
|
25
| |
4. | Junior Subordinated Debentures |
totaled approximately $12.5 million. The Company has issued $11.3 millioncredit risk involved in issuing letters of floating rate junior subordinated debenturescredit is essentially the same as that involved in extending loan facilities to customers.
4. Deposits
Deposits were $2.80 billion and is the sponsor$2.91 billion as of three wholly owned business trusts: Trust II, Trust III, and FBT CT I. On April 1, 2013, the Company assumed $5.0 million of floating rate junior subordinated debentures and FBT CT I in conjunction with its acquisition of Fidelity Bancorp, Inc. These trusts have issued a total of $11.0 million of floating rate capital securities (trust preferred securities) to investors and a total of $341,000 of common securities to the Company. As of March 31, 2019September 30, 2022 and December 31, 2018, junior subordinated debentures were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Trust II | | Trust III | | FBT CT I | | Total |
| Trust preferred securities | $ | 3,000 |
| | $ | 3,000 |
| | $ | 5,000 |
| | $ | 11,000 |
|
| Common securities | 93 |
| | 93 |
| | 155 |
| | 341 |
|
| Total junior subordinated debentures | $ | 3,093 |
| | $ | 3,093 |
| | $ | 5,155 |
| | $ | 11,341 |
|
| | | | | | | | |
| Issue date | May 28, 2003 |
| | April 20, 2005 |
| | September 4, 2003 |
| | |
| Call date | May 28, 2008 |
| | June 15, 2010 |
| | August 8, 2008 |
| | |
| Maturity date | May 28, 2033 |
| | June 15, 2035 |
| | August 8, 2033 |
| | |
| Interest rate as of March 31, 2019 | 6.05 | % | | 4.76 | % | | 5.54 | % | | |
| Interest rate as of December 31, 2018 | 5.65 | % | | 4.30 | % | | 5.34 | % | | |
The trust preferred securities represent an interest in the Company’s junior subordinated debentures, which were purchased by the business trusts2021, respectively. This decrease was primarily a result of expected customer deposit account activity and have substantially the same payment terms as the trust preferred securities. The junior subordinated debentures are the only assets of the trusts and interest payments from the debentures, payable quarterly, finance the distributions paid on the trust preferred securities. The junior subordinated debentures are redeemable priorcustomer response to the maturity date, at the option of the Company, in whole or in part, subject to the terms of the trust indentures.
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 thechanging interest rate implicit in the contract, when available, or the Company's incremental collateralized borrowing rate with similar terms.environment. Deposits are summarized below:
| | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 |
| Noninterest-bearing deposits | $ | 1,172,157 | | | $ | 1,149,672 | |
| Interest-bearing deposits: | | | |
| NOW accounts | 449,543 | | | 503,383 | |
| Money market accounts | 644,318 | | | 733,044 | |
| Savings accounts | 198,741 | | | 191,076 | |
| Time deposits less than or equal to $250,000 | 238,614 | | | 243,596 | |
| Time deposits greater than $250,000 | 93,121 | | | 89,577 | |
| Total interest-bearing deposits | 1,624,337 | | | 1,760,676 | |
| Total deposits | $ | 2,796,494 | | | $ | 2,910,348 | |
5. Contingencies
The Company maintains six operating leases on land and buildings for banking center facilities under long-term leases. These operating leases contain renewal options for periods rangingthe Bank are involved, from threetime to five years that expire attime, in various dates through October 31, 2031, with no residual value guarantees. Future obligations relating to the exercise of renewal options is includedlegal matters arising in the measurement if, based onordinary course of business. While the judgmentoutcome of these claims or litigation cannot be determined at this time, in the opinion 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 market rates, and the presence of factors that would cause a significant economic penalty toneither the Company ifnor the optionBank are involved in such legal proceedings that the resolution is not exercised. Management reasonably plansexpected 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. As of March 31, 2019, the Company had right-of-use assets of $4.8 million and lease liabilities of $4.9 million.
ASC 842, Leases provides several practical expedients available for use in transition. The Company elected to use the standard’s package of practical expedients, which allows the use of previous conclusions about lease identification, lease classification, and the accounting treatment for initial direct costs. The Company also elected the short-term lease recognition exemption for all leases with lease terms of one year or less. Therefore, the Company will not recognize right-of-use assets or lease liabilitieshave a material adverse effect on the consolidated balance sheets for such leases.results of operations, financial condition, or cash flows.
Operating lease expenses for operating leases accounted for under ASC 842, Leases for the three months ended March 31, 2019, were approximately $137,000, and are included as a component of occupancy and equipment expenses within the accompanying consolidated statements of income. Accounting for leases in accordance with ASC 842, Leases has not had a material impact on the consolidated statements of income, and is not expected to in future periods.
The table below summarizes other information related to the Company's operating leases as of and for the three months ended March 31, 2019 (dollars in thousands):
|
| | | |
| Cash paid for amounts included in measurement of lease liabilities for operating leases | $ | 125 |
|
| Weighted average remaining operating lease term | 10.9 years |
|
| Weighted average operating lease discount rate | 3.4 | % |
Future obligations over the primary and renewal option terms of the Company’s long-term operating leases as of March 31, 2019, are as follows (in thousands):
|
| | | | |
| | Amount |
| 9 months remaining in 2019 | | $ | 375 |
|
| 2020 | | 520 |
|
| 2021 | | 529 |
|
| 2022 | | 537 |
|
| 2023 | | 539 |
|
| Thereafter | | 3,354 |
|
| Total lease payments | | 5,854 |
|
| Less: Imputed interest | | (998 | ) |
| Present value of lease liabilities | | $ | 4,856 |
|
The Company's obligations under financing leases are not material and have not been included in assets and liabilities in the financial statements.
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, securitiesloans HFS, and loans held for saleequity securities are recorded at fair value on a recurring basis. Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, foreclosed assets, and other certain assets. The nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
ASC 820, Fair Value Measurements and Disclosures indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels:
•Level 1 pricing represents quotes on the exact financial instrument that is traded in active markets. Quoted prices on actively traded equities, for example, are in this category.
•Level 2 pricing is derived from observable data including market spreads, current and projected rates, prepayment data, and credit quality. The valuation may be based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 pricing is derived without the use of observable data. In such cases, mark-to-model strategies are typically employed. Often, these types of instruments have no active market, possess unique characteristics, and are thinly traded.
The Company used the following methods and significant assumptions to estimate fair value:
Investment Securities AFS and other Stocks:Equity Securities: The fair values for marketable 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 Held for Sale: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 held for saleHFS are based on commitments on hand from investors within
investors within the secondary market for loans with similar characteristics. As such, the fair value adjustments for mortgage loans held for saleHFS are recurring Level 2.
Loans Held for Investment:HFI: The Company does not record loans held for investmentHFI at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using estimated fair value methodologies. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company considers the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company considers the impaired loan as nonrecurring Level 3.
Foreclosed Assets: Foreclosed assets, consisting of properties obtained through foreclosure or in satisfaction of loans, are reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2). However, foreclosed assets are considered Level 3 in the fair value hierarchy because management has qualitatively applied a discount due to the size, supply of inventory, and the incremental discounts applied to the appraisals. Management also considers other factors, including changes in absorption rates, length of time the property has been on the market, and anticipated sales values, which have resulted in adjustments to the collateral value estimates indicated in certain appraisals.
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):basis:
|
| | | | | | | | | | | | | | | |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| March 31, 2019 | | | | | | | |
| Loans held for sale | $ | 2,210 |
| | $ | — |
| | $ | 2,210 |
| | $ | — |
|
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | 215,271 |
| | — |
| | 215,271 |
| | — |
|
| U.S. agency securities | 20,504 |
| | — |
| | 20,504 |
| | — |
|
| Municipal bonds | 81,569 |
| | — |
| | 81,569 |
| | — |
|
| U.S. Treasury securities | 2,009 |
| | — |
| | 2,009 |
| | — |
|
| Equity securities | 3,869 |
| | 3,869 |
| | — |
| | — |
|
| | | | | | | | |
| December 31, 2018 | | | | | | | |
| Loans held for sale | $ | 2,904 |
| | $ | — |
| | $ | 2,904 |
| | $ | — |
|
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | 214,688 |
| | — |
| | 214,688 |
| | — |
|
| U.S. agency securities | 22,915 |
| | — |
| | 22,915 |
| | — |
|
| Municipal bonds | 68,275 |
| | — |
| | 68,275 |
| | — |
|
| U.S. Treasury securities | 1,999 |
| | — |
| | 1,999 |
| | — |
|
| Equity securities | 3,821 |
| | 3,821 |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| September 30, 2022 | | | | | | | |
| Loans HFS | $ | 1,536 | | | $ | — | | | $ | 1,536 | | | $ | — | |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 257,543 | | | $ | — | | | $ | 257,543 | | | $ | — | |
| Municipal bonds | $ | 175,299 | | | $ | — | | | $ | 175,299 | | | $ | — | |
| U.S. Treasury securities | $ | 169,869 | | | $ | — | | | $ | 169,869 | | | $ | — | |
| U.S. agency securities | $ | 7,037 | | | $ | — | | | $ | 7,037 | | | $ | — | |
| | | | | | | |
| | | | | | | |
| December 31, 2021 | | | | | | | |
| Loans HFS | $ | 4,290 | | | $ | — | | | $ | 4,290 | | | $ | — | |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 379,526 | | | $ | — | | | $ | 379,526 | | | $ | — | |
| Municipal bonds | $ | 229,971 | | | $ | — | | | $ | 229,971 | | | $ | — | |
| U.S. Treasury securities | $ | 41,616 | | | $ | — | | | $ | 41,616 | | | $ | — | |
| U.S. agency securities | $ | 8,065 | | | $ | — | | | $ | 8,065 | | | $ | — | |
| Equity securities | $ | 7,846 | | | $ | 7,846 | | | $ | — | | | $ | — | |
There were no transfers between Level 1, 2, or 3 during the threenine months ended March 31, 2019 andSeptember 30, 2022 or the year ended December 31, 2018.2021.
The following table presents the recorded amountFair 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 (in thousands):
|
| | | | | | | | | | | | | | | |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| March 31, 2019 | | | | | | | |
| Impaired loans | $ | 12,936 |
| | $ | — |
| | $ | — |
| | $ | 12,936 |
|
| Foreclosed assets | 414 |
| | — |
| | — |
| | 414 |
|
| | | | | | | | |
| December 31, 2018 | | | | | | | |
| Impaired loans | $ | 19,235 |
| | $ | — |
| | $ | — |
| | $ | 19,235 |
|
| Foreclosed assets | 646 |
| | — |
| | — |
| | 646 |
|
| | | | | | | | | | | |
| For the Nine Months Ended |
| (in thousands) | September 30, 2022 | | September 30, 2021 |
| Carrying value of impaired loans before allowance for loan losses | $ | 3,141 | | | $ | 1,833 | |
| Specific allowance for loan losses | (299) | | | (27) | |
| Fair value of impaired loans | $ | 2,842 | | | $ | 1,806 | |
The Company had no financial liabilities measured at fair value on a nonrecurring basis for the nine months ended September 30, 2022 and September 30, 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 allowance for loan losses upon initial recognition as a foreclosed asset. Subsequent to their initial recognition, certain foreclosed assets are remeasured at fair value through an adjustment included in other noninterest income. The fair value of foreclosed assets is estimated using Level 3 inputs based on customized discounting criteria less estimated selling costs.
The following table presents foreclosed assets that were remeasured and reported at fair value during the reported periods:
| | | | | | | | | | | |
| For the Nine Months Ended |
| (in thousands) | September 30, 2022 | | September 30, 2021 |
| Foreclosed assets remeasured at initial recognition: | | | |
| Carrying value of foreclosed assets prior to remeasurement | $ | — | | | $ | 266 | |
| Charge-offs | — | | | — | |
| Fair value of foreclosed assets | $ | — | | | $ | 266 | |
The following table presents foreclosed assets that were remeasured subsequent to initial recognition and reported at fair value during the reported periods:
| | | | | | | | | | | |
| For the Nine Months Ended |
| (in thousands) | September 30, 2022 | | September 30, 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 for the nine months ended September 30, 2022 and September 30, 2021.
The unobservable inputs used for the Level 3 fair value measurements on a nonrecurring basis arewere as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | Fair Value | | Valuation Technique | | Unobservable Input | | Discount Ranges | | Weighted Average Discount |
| September 30, 2022 | | | | | | | | | |
| Impaired loans | $ | 7,268 | | | Discounted appraisals | | Collateral discounts and costs to sell | | 0% - 100% | | 5.96% |
| Foreclosed assets | $ | — | | | Discounted appraisals | | Collateral discounts and costs to sell | | N/A | | N/A |
| | | | | | | | | |
| December 31, 2021 | | | | | | | | | |
| Impaired loans | $ | 5,923 | | | Discounted appraisals | | Collateral discounts and costs to sell | | 0% - 100% | | 3.67% |
| Foreclosed assets | $ | 660 | | | Discounted appraisals | | Collateral discounts and costs to sell | | N/A | | N/A |
|
| | | | | | | |
| | | | | | Weighted Average Discount |
| | Valuation Technique | | Unobservable Input | | March 31, 2019 | | December 31, 2018 |
| Impaired loans | Discounted appraisals | | Collateral discounts and costs to sell | | 21.81% | | 11.97% |
| Foreclosed assets | Discounted appraisals | | Collateral discounts and costs to sell | | 10.02% | | 6.21% |
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments as of March 31, 2019September 30, 2022 and December 31, 20182021, were as follows (in thousands):follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| March 31, 2019 | | | | | | | | | |
| Financial assets: | | | | | | | | | |
| Cash and due from banks | $ | 32,371 |
| | $ | 32,371 |
| | $ | 32,371 |
| | $ | — |
| | $ | — |
|
| Interest-bearing deposits in other banks | 145,593 |
| | 145,593 |
| | 145,593 |
| | — |
| | — |
|
| Securities AFS | 319,353 |
| | 319,353 |
| | — |
| | 319,353 |
| | — |
|
| Equity securities | 3,869 |
| | 3,869 |
| | 3,869 |
| | — |
| | — |
|
| Nonmarketable equity securities | 1,303 |
| | 1,303 |
| | — |
| | 1,303 |
| | — |
|
| Loans held for sale | 2,210 |
| | 2,210 |
| | — |
| | 2,210 |
| | — |
|
| Loans held for investment, net of allowance | 1,336,080 |
| | 1,329,858 |
| | — |
| | — |
| | 1,329,858 |
|
| Accrued interest receivable | 4,988 |
| | 4,988 |
| | — |
| | — |
| | 4,988 |
|
| Financial liabilities: | | | | | | | | | |
| Deposits | 1,691,134 |
| | 1,688,215 |
| | — |
| | 1,688,215 |
| | — |
|
| Junior subordinated debentures | 11,341 |
| | 11,341 |
| | — |
| | 11,341 |
| | — |
|
| Accrued interest payable | 1,967 |
| | 1,967 |
| | — |
| | 1,967 |
| | — |
|
| | | | | | | | | | |
| December 31, 2018 | | | | | | | | | |
| Financial assets: | | | | | | | | | |
| Cash and due from banks | $ | 34,070 |
| | $ | 34,070 |
| | $ | 34,070 |
| | $ | — |
| | $ | — |
|
| Interest-bearing deposits in other banks | 117,836 |
| | 117,836 |
| | 117,836 |
| | — |
| | — |
|
| Securities AFS | 307,877 |
| | 307,877 |
| | — |
| | 307,877 |
| | — |
|
| Equity securities | 3,821 |
| | 3,821 |
| | 3,821 |
| | — |
| | — |
|
| Nonmarketable equity securities | 1,299 |
| | 1,299 |
| | — |
| | 1,299 |
| | — |
|
| Loans held for sale | 2,904 |
| | 2,904 |
| | — |
| | 2,904 |
| | — |
|
| Loans held for investment, net of allowance | 1,315,914 |
| | 1,301,960 |
| | — |
| | — |
| | 1,301,960 |
|
| Accrued interest receivable | 5,013 |
| | 5,013 |
| | — |
| | — |
| | 5,013 |
|
| Financial liabilities: | | | | | | | | | |
| Deposits | 1,645,583 |
| | 1,641,136 |
| | — |
| | 1,641,136 |
| | — |
|
| Junior subordinated debentures | 11,341 |
| | 11,341 |
| | — |
| | 11,341 |
| | — |
|
| Accrued interest payable | 1,757 |
| | 1,757 |
| | — |
| | 1,757 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Carrying
Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| September 30, 2022 | | | | | | | | | |
| Financial assets: | | | | | | | | | |
| Cash and due from banks | $ | 39,465 | | | $ | 39,465 | | | $ | 39,465 | | | $ | — | | | $ | — | |
| Interest-bearing deposits in other banks | 261,608 | | | 261,608 | | | 261,608 | | | — | | | — | |
| Securities AFS | 609,748 | | | 609,748 | | | — | | | 609,748 | | | — | |
| Securities HTM | 154,736 | | | 133,837 | | | — | | | 133,837 | | | — | |
| | | | | | | | | |
| Nonmarketable equity securities | 3,460 | | | 3,460 | | | — | | | 3,460 | | | — | |
| Loans HFS | 1,536 | | | 1,536 | | | — | | | 1,536 | | | — | |
| Loans HFI, net of allowance | 1,859,716 | | | 1,787,252 | | | — | | | — | | | 1,787,252 | |
| Accrued interest receivable | 7,782 | | | 7,782 | | | — | | | — | | | 7,782 | |
| Financial liabilities: | | | | | | | | | |
| Deposits | 2,796,494 | | | 2,784,940 | | | — | | | 2,784,940 | | | — | |
| Accrued interest payable | 1,194 | | | 1,194 | | | — | | | 1,194 | | | — | |
| | | | | | | | | |
| December 31, 2021 | | | | | | | | | |
| Financial assets: | | | | | | | | | |
| Cash and due from banks | $ | 23,143 | | | $ | 23,143 | | | $ | 23,143 | | | $ | — | | | $ | — | |
| Interest-bearing deposits in other banks | 761,721 | | | 761,721 | | | 761,721 | | | — | | | — | |
| Securities AFS | 659,178 | | | 659,178 | | | — | | | 659,178 | | | — | |
| | | | | | | | | |
| Equity securities | 7,846 | | | 7,846 | | | 7,846 | | | — | | | — | |
| Nonmarketable equity securities | 3,450 | | | 3,450 | | | — | | | 3,450 | | | — | |
| Loans HFS | 4,290 | | | 4,290 | | | — | | | 4,290 | | | — | |
| Loans HFI, net of allowance | 1,664,656 | | | 1,674,900 | | | — | | | — | | | 1,674,900 | |
| Accrued interest receivable | 6,245 | | | 6,245 | | | — | | | — | | | 6,245 | |
| Financial liabilities: | | | | | | | | | |
| Deposits | 2,910,348 | | | 2,911,118 | | | — | | | 2,911,118 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Accrued interest payable | 1,310 | | | 1,310 | | | — | | | 1,310 | | | — | |
| |
7. | Regulatory Capital Requirements |
7. Regulatory Capital Requirements
Red River Bank
The Bank is subject to various regulatory capital requirements administered by the FDIC. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’sBank’s and the Bank’sCompany’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The Bank is also subject to Basel III capital guidelines. Basel III requires the Bank to maintain certain minimum ratios in order to be considered adequately capitalized.meet capital adequacy requirements. In addition, a capital conservation buffer, comprised of common equity Tier 1 capital,CCB was established above the minimum regulatory capital requirements. This capital conservation bufferEffective January 1, 2019, the final CCB was fully phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increased each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the Basel III.2.50%. It is management’s belief that, as of March 31, 2019,September 30, 2022, the Bank met all capital adequacy requirements under Basel III.
The most recent notification from the FDIC (as of March 31, 2018) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be classified as well capitalized, the Bank must maintain minimum total risk-based capital, Tier I risk-based capital, common equity Tier I capital, and leverage ratios. Management expects that the capital ratios for the Bank under Basel III will continue to exceed capital adequacy requirements. The most recent notification from the adequately capitalized requirements.FDIC (as of June 30, 2021) categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.
Capital amounts and ratios for Red River Bank as of March 31, 2019September 30, 2022 and December 31, 2018 for the Bank2021, are presented in the following table, (in thousands):including the minimum Basel III requirements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Regulatory Requirements |
| Actual | | Minimum | | Minimum Plus CCB |
| (dollars in thousands) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| September 30, 2022 | | | | | | | | | | | |
| Total Risk-Based Capital | $ | 333,797 | | | 16.57 | % | | $ | 161,189 | | | 8.00 | % | | $ | 211,560 | | | 10.50 | % |
| Tier I Risk-Based Capital | $ | 313,844 | | | 15.58 | % | | $ | 120,892 | | | 6.00 | % | | $ | 171,263 | | | 8.50 | % |
| Common Equity Tier I Capital | $ | 313,844 | | | 15.58 | % | | $ | 90,669 | | | 4.50 | % | | $ | 141,040 | | | 7.00 | % |
| Tier I Leverage Capital | $ | 313,844 | | | 9.94 | % | | $ | 126,253 | | | 4.00 | % | | $ | 126,253 | | | 4.00 | % |
| | | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | | |
| Total Risk-Based Capital | $ | 305,771 | | | 17.06 | % | | $ | 143,372 | | | 8.00 | % | | $ | 188,176 | | | 10.50 | % |
| Tier I Risk-Based Capital | $ | 286,595 | | | 15.99 | % | | $ | 107,529 | | | 6.00 | % | | $ | 152,333 | | | 8.50 | % |
| Common Equity Tier I Capital | $ | 286,595 | | | 15.99 | % | | $ | 80,647 | | | 4.50 | % | | $ | 125,451 | | | 7.00 | % |
| Tier I Leverage Capital | $ | 286,595 | | | 9.23 | % | | $ | 124,241 | | | 4.00 | % | | $ | 124,241 | | | 4.00 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Regulatory Requirements |
| | Actual | | Minimum To Be
Adequately Capitalized | | Under Prompt
Corrective Action
Provisons |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| Red River Bank | | | | | | | | | | | |
| March 31, 2019: | | | | | | | | | | | |
| Total Risk-Based Capital | $ | 217,677 |
| | 15.75 | % | | $ | 110,573 |
| | 8.00 | % | | $ | 145,127 |
| | 10.50 | % |
| Tier I Risk-Based Capital | $ | 204,576 |
| | 14.80 | % | | $ | 82,930 |
| | 6.00 | % | | $ | 117,484 |
| | 8.50 | % |
| Common Equity Tier I Capital | $ | 204,576 |
| | 14.80 | % | | $ | 62,197 |
| | 4.50 | % | | $ | 96,751 |
| | 7.00 | % |
| Tier I Leverage Capital | $ | 204,576 |
| | 10.93 | % | | $ | 74,897 |
| | 4.00 | % | | $ | 93,622 |
| | 5.00 | % |
| | | | | | | | | | | | |
| December 31, 2018: | | | | | | | | | | | |
| Total Risk-Based Capital | $ | 211,240 |
| | 15.66 | % | | $ | 107,912 |
| | 8.00 | % | | $ | 133,204 |
| | 9.88 | % |
| Tier I Risk-Based Capital | $ | 198,716 |
| | 14.73 | % | | $ | 80,934 |
| | 6.00 | % | | $ | 106,226 |
| | 7.88 | % |
| Common Equity Tier I Capital | $ | 198,716 |
| | 14.73 | % | | $ | 60,701 |
| | 4.50 | % | | $ | 85,993 |
| | 6.38 | % |
| Tier I Leverage Capital | $ | 198,716 |
| | 10.76 | % | | $ | 73,874 |
| | 4.00 | % | | $ | 92,343 |
| | 5.00 | % |
As a general matter, bank holding companies are subject to Basel III capital adequacy requirements under applicable Federal Reserve regulations.regulations on a consolidated basis. However, bank holding companies whichthat qualify as "small“small bank holding companies"companies” under the Federal Reserve's Small Bank Holding Company Policy Statement are exempt from the Federal Reserve'sReserve’s consolidated capital adequacy guidelinesratios at the holding company level and instead are evaluated at the bank level. In May 2018, the Economic Growth Act was enacted, and it increasedenacted. One of the Economic Growth Act’s highlights, with implications for us, was the asset threshold for "small bank holding companies"under the Policy Statement being increased from $1.0 billion to $3.0 billion. Because the Company has less than $3.0 billion, in assets, it is no longerwhich 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, scaled biannual regulatory reporting requirements as opposed to quarterly regulatory reporting requirements, and not being subject 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 30th 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 and will continue to do so 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 will begin in 2022. As of June 30, 2022, the last applicable measurement date, the Company had more than $3.0 billion in assets. Therefore, beginning in 2023, the Company expects to no longer receive any benefits under the Policy Statement. Although the minimum regulatory capital requirements are no longernot currently applicable to the Company, the Company calculates these ratios for its own planning and monitoring purposes.
Capital amounts and ratios for Red River Bancshares, Inc. as of March 31, 2019September 30, 2022 and December 31, 2018 for the Company2021, are presented in the following table (in thousands):table:
| | | | | | | | | | | | | | | | | | | |
| Actual | | | | |
| (dollars in thousands) | Amount | | Ratio | | | | | | | | |
| September 30, 2022 | | | | | | | | | | | |
| Total Risk-Based Capital | $ | 345,564 | | | 17.15 | % | | | | | | | | |
| Tier I Risk-Based Capital | $ | 325,611 | | | 16.16 | % | | | | | | | | |
| Common Equity Tier I Capital | $ | 325,611 | | | 16.16 | % | | | | | | | | |
| Tier I Leverage Capital | $ | 325,611 | | | 10.31 | % | | | | | | | | |
| | | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | | |
| Total Risk-Based Capital | $ | 319,553 | | | 17.83 | % | | | | | | | | |
| Tier I Risk-Based Capital | $ | 300,377 | | | 16.76 | % | | | | | | | | |
| Common Equity Tier I Capital | $ | 300,377 | | | 16.76 | % | | | | | | | | |
| Tier I Leverage Capital | $ | 300,377 | | | 9.67 | % | | | | | | | | |
|
| | | | | | |
| | Actual |
| | Amount | | Ratio |
| Red River Bancshares, Inc. | | | |
| March 31, 2019: | | | |
| Total Risk-Based Capital | $ | 228,360 |
| | 16.52 | % |
| Tier I Risk-Based Capital | $ | 215,259 |
| | 15.57 | % |
| Common Equity Tier I Capital | $ | 204,259 |
| | 14.78 | % |
| Tier I Leverage Capital | $ | 215,259 |
| | 11.50 | % |
| | | | |
| December 31, 2018: | | | |
| Total Risk-Based Capital | $ | 223,187 |
| | 16.55 | % |
| Tier I Risk-Based Capital | $ | 210,663 |
| | 15.62 | % |
| Common Equity Tier I Capital | $ | 199,663 |
| | 14.80 | % |
| Tier I Leverage Capital | $ | 210,663 |
| | 11.40 | % |
30
Cash Dividends
The ability of Red RiverCommunity Bank to pay dividends on its common stock is restricted by Louisiana Banking Law, the FDIA, and by 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 paymentLeverage Ratio Framework
As part of the dividend. Prior approval ofdirective under the Louisiana Office of Financial InstitutionsEconomic Growth Act, on September 17, 2019, the FDIC and other federal bank regulatory agencies approved the CBLR framework. This optional framework became effective January 1, 2020, and is requiredavailable as an alternative to the Basel III risk-based capital framework. The CBLR framework provides for a Louisiana state banksimple measure of capital adequacy for certain community banking organizations. Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier 1 leverage ratio of greater than 9.00% (subsequently temporarily reduced to pay any dividend that would exceed its net profits earned during8.00% for 2020 and 8.50% for 2021 as a COVID-19 relief measure), are considered qualifying community banking organizations and are eligible to opt into the current year combined with its retained net profitsCBLR framework and replace the applicable Basel III risk-based capital requirements.
As of September 30, 2022, 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 BankCompany and the Company have internal policies to not ordinarily pay dividends if following the payment, the entity would not be “well-capitalized” under all applicable measurement ratios calculated pursuant to the regulatory capital adequacy guidelines. The exception to this policy is in situations where the payment of a dividend is necessaryBank qualify for the CompanyCBLR framework. Management does not intend to be able to meet its obligations and as long as after such paymentutilize the Bank would still be considered “adequately-capitalized” under the regulatory capital adequacy guidelines.CBLR framework.
Taking into consideration the Company's performance and capital levels, dividends were paid in both 2018 and 2019. In May 2018, the Company paid a cash dividend of $0.15 per share, adjusted for the 2018 2-for-1 stock split, to shareholders of record as of March 31, 2018. In February 2019, the Company paid a cash dividend of $0.20 per share to shareholders of record as of January 31, 2019.
Stock split8. Earnings Per Common Share
In 2018, the Board of Directors authorized a 2-for-1 stock split that was accomplished by a stock dividend with a record date of October 1, 2018, whereby each holder of record of the Company's common stock received one additional share of common stock for each share owned as of such date. This transaction is referred to in this report as the 2018 2-for-1 stock split.
| |
9. | 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 Directors’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 (in thousands, except share amounts):follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| (in thousands, except share amounts) | 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | | | | | | | |
| Net income - basic | $ | 10,186 | | | $ | 8,138 | | | $ | 26,725 | | | $ | 24,442 | |
| Net income - diluted | $ | 10,186 | | | $ | 8,138 | | | $ | 26,725 | | | $ | 24,442 | |
| | | | | | | | |
| Denominator: | | | | | | | |
| Weighted average shares outstanding - basic | 7,183,915 | | | 7,278,192 | | | 7,179,984 | | | 7,298,597 | |
| Plus: Effect of Director Compensation Program | 394 | | | 156 | | | 1,183 | | | 678 | |
| Plus: Effect of restricted stock | 12,791 | | | 15,663 | | | 12,791 | | | 15,663 | |
| Weighted average shares outstanding - diluted | 7,197,100 | | | 7,294,011 | | | 7,193,958 | | | 7,314,938 | |
| | | | | | | | |
| Earnings per common share: | | | | | | | |
| Basic | $ | 1.42 | | | $ | 1.12 | | | $ | 3.72 | | | $ | 3.35 | |
| Diluted | $ | 1.42 | | | $ | 1.12 | | | $ | 3.71 | | | $ | 3.34 | |
9. Equity
|
| | | | | | | |
| | For the Three Months Ended March 31, |
| | 2019 | | 2018 |
| Numerator: | | | |
| Net income - basic | $ | 5,696 |
| | $ | 5,231 |
|
| Net income - diluted | $ | 5,696 |
| | $ | 5,231 |
|
| | | | |
Denominator:(1) | | | |
| Weighted - average shares outstanding - basic | 6,632,482 |
| | 6,721,200 |
|
| Plus: Effect of Directors Compensation Program | 574 |
| | 677 |
|
| Plus: Effect of stock options and restricted stock | 34,973 |
| | 43,400 |
|
| Weighted - average shares outstanding - diluted | 6,668,029 |
| | 6,765,277 |
|
| | | | |
| Earnings per common share: | | | |
| Basic | $ | 0.86 |
| | $ | 0.78 |
|
| Diluted | $ | 0.85 |
| | $ | 0.77 |
|
| |
(1)
| 2018 amounts adjusted to give effect to the 2018 2-for-1 stock split |
On February 4, 2022, the Company’s Board of Directors approved the renewal of its stock repurchase program that was completed in the fourth quarter of 2021 after reaching its purchase limit. The Company'srenewed repurchase program authorizes the Company to purchase up to $5.0 million of its outstanding shares of common stock began tradingfrom February 4, 2022 through December 31, 2022. Repurchases may be made from time to time in the open market at prevailing prices and based on May 3, 2019 onmarket conditions, or in privately negotiated transactions. For the Nasdaq Global Select Market under the symbol "RRBI." On May 7, 2019,three months ended September 30, 2022, the Company completed an IPOdid not repurchase any shares of its common stock. For the nine months ended September 30, 2022, the Company repurchased 4,465 shares of its common stock at a public offering pricean aggregate cost of $45.00 per share. A$218,000. As of September 30, 2022, the Company had $4.8 million available for repurchasing its common stock under this program.
AOCI - Transfer of Unrealized Gain (Loss) of Securities AFS and HTM
During the second quarter of 2022, the Company reclassified certain securities from AFS to HTM. Such transfers are made at fair value on the date of transfer. The net unrealized holding loss on the date of transfer is retained, net of tax, in AOCI, with no immediate change to the total of 690,000 sharesbalance in AOCI. The unrealized holding loss will be amortized over the remaining life of the Company's common stock were sold in the IPO, of which the Company sold 663,320 shares (including 90,000 shares sold pursuant to the exercise of the underwriters' option to purchase additional shares) and certain shareholders sold 26,680 shares. The Company received net proceeds of approximately $26.8 million in the offering.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Red River Bancshares, Inc. and our wholly owned subsidiary, Red River Bank,on a consolidated basis from December 31, 20182021 through March 31, 2019September 30, 2022, and on our results of operations for the threequarters ended September 30, 2022 and June 30, 2022, and for the nine months ended March 31, 2019September 30, 2022 and March 31, 2018. September 30, 2021.
This discussion and analysis should be read in conjunction with the Consolidated Financial Statementsour audited consolidated financial statements and notes thereto for the year ended December 31, 20182021, included in our Prospectus that was filed withAnnual Report on Form 10-K for the SEC on May 3, 2019, relating to the IPO,year ended December 31, 2021, and information presented elsewhere in this quarterly report on Form 10-Q,Report, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.
The following discussion contains forward-looking statements that reflect our current views with respect to, among other things, future events and our financial performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “Cautionary Note Regarding Forward-Looking Statements.”Statements” and “Part II - Item 1A. Risk Factors” in this Report. Also, see risk factors and other cautionary statements described under the heading “Riskin “Part I - Item 1A. Risk Factors” included in our Prospectus filed withAnnual Report on Form 10-K for the SEC on May 3, 2019.year ended December 31, 2021. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
CORPORATE SUMMARY
Red River Bancshares, Inc. was founded in 1998 and is athe bank holding company headquartered in Alexandria, Louisiana. On May 3, 2019, our common stock began trading on the Nasdaq Global Select Market under the trading symbol "RRBI", and on May 7, 2019, we completed an IPO of our common stock.
Through our wholly owned subsidiary,for Red River Bank, a Louisiana state-chartered bank we provideestablished in 1999 that provides a fully integrated suite of banking products and services tailored to the needs of our commercial and retail customers. We operateRed River Bank operates from a network of 2328 banking centers throughout Louisiana and one loan production officecombined LDPO in Covington,New Orleans, Louisiana. Banking centers are located in the following Louisiana markets: Central, Louisiana, which includes the Alexandria MSA; Northwest, Louisiana, which includes the Shreveport-Bossier City MSA; Southeast Louisiana,Capital, which includes the Baton Rouge MSA; and Southwest, Louisiana, which includes the Lake Charles MSA.MSA; the Northshore, which includes Covington; Acadiana, which includes the Lafayette MSA; and New Orleans.
Our priority is to drive shareholder value through the establishment of a market-leading commercial banking franchise based in Louisiana. We provide superior serviceour services through highly qualified, relationship-oriented bankers who are committed to their customers and the communities in whichwhere we offer our products and services. Our strategy is to expand geographically through the establishment ofmarket share in existing markets and engage in opportunistic new market de novo banking centers in new markets and, to a lesser extent, through the acquisitionexpansion, supplemented by strategic acquisitions of financial institutions with customer-oriented, compatible philosophies and in desirable geographic areas.
OVERVIEWTHIRD QUARTER 2022 FINANCIAL AND OPERATIONAL HIGHLIGHTS
In the firstThe third quarter of 2019,2022 financial results included record-high quarterly net income for the Company showedsecond consecutive quarter and an improved net interest margin FTE. Our balance sheet reflects continued solid loan growth, as well as lower securities, deposits, and assets. We also continued to execute our organic expansion plan in totalthe New Orleans market.
•Net income for the third quarter of 2022 was $10.2 million, or $1.42 diluted EPS, an increase of $1.0 million, or 11.4%, compared to $9.1 million, or $1.27 diluted EPS for the second quarter of 2022. These increases were mainly due to a $1.9 million increase in net interest income.
•For the third quarter of 2022, the return on assets higher profitabilitywas 1.30%, and the return on equity was 15.48%.
•Net interest income and net interest margin FTE increased in the third quarter of 2022, compared to the firstprior quarter. Net interest income for the third quarter of 2018,2022 was $23.1 million, compared to $21.1 million for the prior quarter. Net interest margin FTE was 3.06% for the third quarter of 2022, compared to 2.75% for the prior quarter. These increases were a result of the impact of a higher interest rate environment and an improved asset quality results. On January 14, 2019, we celebrated 20 years since Red River Bank openedmix.
•As of September 30, 2022, assets were $3.06 billion, a decrease of $61.4 million from June 30, 2022. The decrease in assets was mainly due to a $53.7 million decrease in deposits primarily due to customer deposit activity in response to the changing interest rate environment.
•Our participation in the SBA PPP is substantially complete. As of September 30, 2022, PPP loans were $1.4 million, net of $28,000 of deferred income, or 0.1% of loans HFI.
•As of September 30, 2022, loans HFI were $1.88 billion, an increase of $38.1 million, or 2.1%, from June 30, 2022. The growth in loans HFI was primarily a result of loan activity in various markets across Louisiana.
•As of September 30, 2022, total securities were $764.5 million, or 25.0% of assets, compared to $810.7 million, or 26.0% of assets, as of June 30, 2022. Securities decreased primarily due to a larger unrealized loss and principal repayments in the securities portfolio.
•NPAs were $2.7 million, or 0.09% of assets, as of September 30, 2022. As of September 30, 2022, the allowance for banking services. In the first quarterloan losses was $20.0 million, or 1.06% of 2019, we declared andloans HFI.
•We paid a quarterly cash dividend of $0.20$0.07 per common share.share in the third quarter of 2022.
•We did not repurchase any shares through our stock repurchase program in the third quarter of 2022.
•We continued implementing our organic expansion plan in the New Orleans market. We remodeled and received regulatory approval on a leased banking center location in downtown New Orleans, which we opened as the Bank’s first full-service banking center in New Orleans on August 1, 2022.
The following tables contain selected financial information regarding our financial position and performance as of and for the periods indicated:
| | | | | | | | | | | | As of | | Change from
December 31, 2021 to September 30, 2022 |
| | As of | | Change from
December 31, 2018 to March 31, 2019 | |
| | March 31, 2019 | | December 31, 2018 | | $ Change | | % Change | |
| | (Dollars in thousands) | |
| (dollars in thousands) | | (dollars in thousands) | September 30,
2022 | | December 31,
2021 | | $ Change | | % Change |
| Selected Period End Balance Sheet Data: | | | | | | | | Selected Period End Balance Sheet Data: | | | | | | | |
| Total assets | $ | 1,922,118 |
| | $ | 1,860,588 |
| | $ | 61,530 |
| | 3.3 | % | Total assets | $ | 3,059,678 | | | $ | 3,224,710 | | | $ | (165,032) | | | (5.1) | % |
| Securities available-for-sale | 319,353 |
| | 307,877 |
| | 11,476 |
| | 3.7 | % | |
| Interest-bearing deposits in other banks | | Interest-bearing deposits in other banks | 261,608 | | | 761,721 | | | (500,113) | | | (65.7) | % |
| Securities available-for-sale, at fair value | | Securities available-for-sale, at fair value | 609,748 | | | 659,178 | | | (49,430) | | | (7.5) | % |
| Securities held-to-maturity, at amortized cost | | Securities held-to-maturity, at amortized cost | 154,736 | | | — | | | 154,736 | | | — | % |
| Loans held for investment | 1,349,181 |
| | 1,328,438 |
| | 20,743 |
| | 1.6 | % | Loans held for investment | 1,879,669 | | | 1,683,832 | | | 195,837 | | | 11.6 | % |
| Total deposits | 1,691,134 |
| | 1,645,583 |
| | 45,551 |
| | 2.8 | % | Total deposits | 2,796,494 | | | 2,910,348 | | | (113,854) | | | (3.9) | % |
| Junior subordinated debentures | 11,341 |
| | 11,341 |
| | — |
| | — | % | |
| Total stockholders’ equity | 202,184 |
| | 193,703 |
| | 8,481 |
| | 4.4 | % | Total stockholders’ equity | 243,413 | | | 298,150 | | | (54,737) | | | (18.4) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of and for the
Three Months Ended | | As of and for the
Nine Months Ended |
| (dollars in thousands, except per share data) | September 30,
2022 | | June 30,
2022 | | September 30,
2021 | | September 30,
2022 | | September 30,
2021 |
| Net Income | $ | 10,186 | | | $ | 9,147 | | | $ | 8,138 | | | $ | 26,725 | | | $ | 24,442 | |
| | | | | | | | | |
| Per Common Share Data: | | | | | | | | | |
| Earnings per share, basic | $ | 1.42 | | | $ | 1.27 | | | $ | 1.12 | | | $ | 3.72 | | | $ | 3.35 | |
| Earnings per share, diluted | $ | 1.42 | | | $ | 1.27 | | | $ | 1.12 | | | $ | 3.71 | | | $ | 3.34 | |
| Book value per share | $ | 33.88 | | | $ | 35.34 | | | $ | 41.05 | | | $ | 33.88 | | | $ | 41.05 | |
Tangible book value per share(1,2) | $ | 33.67 | | | $ | 35.12 | | | $ | 40.84 | | | $ | 33.67 | | | $ | 40.84 | |
Realized book value per share(1,3) | $ | 45.54 | | | $ | 44.23 | | | $ | 41.06 | | | $ | 45.54 | | | $ | 41.06 | |
| Cash dividends per share | $ | 0.07 | | | $ | 0.07 | | | $ | 0.07 | | | $ | 0.21 | | | $ | 0.21 | |
| Shares outstanding | 7,183,915 | | | 7,176,365 | | | 7,276,400 | | | 7,183,915 | | | 7,276,400 | |
| Weighted average shares outstanding, basic | 7,183,915 | | | 7,176,365 | | | 7,278,192 | | | 7,179,984 | | | 7,298,597 | |
| Weighted average shares outstanding, diluted | 7,197,100 | | | 7,196,643 | | | 7,294,011 | | | 7,193,958 | | | 7,314,938 | |
| | | | | | | | | | |
| Summary Performance Ratios: | | | | | | | | | |
| Return on average assets | 1.30 | % | | 1.15 | % | | 1.11 | % | | 1.13 | % | | 1.15 | % |
| Return on average equity | 15.48 | % | | 14.30 | % | | 10.83 | % | | 13.25 | % | | 11.17 | % |
| Net interest margin | 3.00 | % | | 2.70 | % | | 2.54 | % | | 2.70 | % | | 2.57 | % |
Net interest margin FTE(4) | 3.06 | % | | 2.75 | % | | 2.60 | % | | 2.76 | % | | 2.63 | % |
Efficiency ratio(5) | 53.80 | % | | 55.64 | % | | 57.61 | % | | 56.52 | % | | 56.07 | % |
| Loans HFI to deposits ratio | 67.22 | % | | 64.61 | % | | 59.99 | % | | 67.22 | % | | 59.99 | % |
| Noninterest-bearing deposits to deposits ratio | 41.92 | % | | 41.46 | % | | 42.29 | % | | 41.92 | % | | 42.29 | % |
| Noninterest income to average assets | 0.62 | % | | 0.61 | % | | 0.77 | % | | 0.60 | % | | 0.89 | % |
| Operating expense to average assets | 1.93 | % | | 1.82 | % | | 1.86 | % | | 1.84 | % | | 1.90 | % |
| | | | | | | | | | |
| Summary Credit Quality Ratios: | | | | | | | | | |
| NPAs to total assets | 0.09 | % | | 0.03 | % | | 0.08 | % | | 0.09 | % | | 0.08 | % |
| Nonperforming loans to loans HFI | 0.14 | % | | 0.02 | % | | 0.09 | % | | 0.14 | % | | 0.09 | % |
| Allowance for loan losses to loans HFI | 1.06 | % | | 1.05 | % | | 1.18 | % | | 1.06 | % | | 1.18 | % |
| Net charge-offs to average loans | 0.00 | % | | 0.01 | % | | 0.03 | % | | 0.01 | % | | 0.03 | % |
| | | | | | | | | | |
| Capital Ratios: | | | | | | | | | |
| Total stockholders’ equity to total assets | 7.96 | % | | 8.13 | % | | 9.89 | % | | 7.96 | % | | 9.89 | % |
Tangible common equity to tangible assets(1,6) | 7.91 | % | | 8.08 | % | | 9.84 | % | | 7.91 | % | | 9.84 | % |
| Total risk-based capital to risk-weighted assets | 17.15 | % | | 16.89 | % | | 18.74 | % | | 17.15 | % | | 18.74 | % |
| Tier 1 risk-based capital to risk-weighted assets | 16.16 | % | | 15.92 | % | | 17.60 | % | | 16.16 | % | | 17.60 | % |
| Common equity Tier 1 capital to risk-weighted assets | 16.16 | % | | 15.92 | % | | 17.60 | % | | 16.16 | % | | 17.60 | % |
| Tier 1 risk-based capital to average assets | 10.31 | % | | 9.73 | % | | 10.21 | % | | 10.31 | % | | 10.21 | % |
(1)Non-GAAP financial measure. Calculations of this measure and reconciliations to GAAP are included in “ - Non-GAAP Financial Measures” in this Report. This measure has not been audited. |
| | | | | | | | | | | | | | |
| | As of and for the Three Months Ended March 31, | | | | |
| | 2019 | | 2018 | | $ Change | | % Change |
| | (Dollars in thousands, except per share data) |
| Net Income | $ | 5,696 |
| | $ | 5,231 |
| | $ | 465 |
| | 8.9 | % |
| | | | | | | | |
Per Common Share Data:(1) | | | | | | | |
| Earnings per share, diluted | $ | 0.85 |
| | $ | 0.77 |
| | $ | 0.08 |
| | 10.4 | % |
| Book value per share | $ | 30.46 |
| | $ | 26.64 |
| | $ | 3.82 |
| | 14.3 | % |
| Tangible book value per share | $ | 30.23 |
| | $ | 26.41 |
| | $ | 3.82 |
| | 14.5 | % |
| Cash dividends per share | $ | 0.20 |
| | $ | 0.15 |
| | $ | 0.05 |
| | 33.3 | % |
| | |
| | |
| | | | |
| Summary Performance Ratios: | | | | | | | |
| Return on average assets | 1.24 | % | | 1.22 | % | | | | |
| Return on average equity | 11.69 | % | | 11.88 | % | | | | |
| Net interest margin (FTE) | 3.50 | % | | 3.37 | % | | | | |
| Efficiency ratio | 59.52 | % | | 60.39 | % | | | | |
| Loans to deposits ratio | 79.91 | % | | 81.98 | % | | | | |
| Noninterest income to average assets | 0.72 | % | | 0.74 | % | | | | |
| Operating expense to average assets | 2.43 | % | | 2.40 | % | | | | |
| | |
| | |
| | | | |
| Summary Credit Quality Ratios: | | | | | | | |
| Nonperforming assets to total assets | 0.34 | % | | 0.57 | % | | | | |
| Allowance for loan losses to total loans held for investment | 0.97 | % | | 0.88 | % | | | | |
| Net charge-offs to average loans outstanding | 0.00 | % | | 0.00 | % | | | | |
| | |
| | |
| | | | |
| Capital Ratios: | |
| | |
| | | | |
| Total stockholders’ equity to total assets | 10.52 | % | | 10.16 | % | | | | |
| Tangible common equity to tangible assets | 10.45 | % | | 10.08 | % | | | | |
| Total risk-based capital to risk-weighted assets | 16.52 | % | | 15.99 | % | | | | |
| Tier 1 risk-based capital to average assets | 11.50 | % | | 11.28 | % | | | | |
| |
(1)
| 2018 amounts adjusted to give effect to the 2018 2-for-1 stock split |
As part(2)We calculate tangible book value per share as total stockholders’ equity, less intangible assets, divided by the outstanding number of shares of our organic expansion plan, in the fourth quarter of 2018, we purchased an existing banking center location in Covington, Louisiana (St. Tammany Parish), for future expansion. In the first quarter of 2019, we hired an experienced banker with extensive knowledge of the St. Tammany community as our area president and, effective April 3, 2019, we opened a temporary loan production office in Covington. During the second quarter of 2019, we are remodeling and updating the banking center location purchased in 2018. While these renovations are being completed, we are operating from the LPO in a leased office a short distance from the permanent banking center. After the renovations are completed, which we expect will be in the third quarter of 2019, our plans are to close the LPO and shift our operations into the permanent, full-service banking center.
FINANCIAL CONDITION
General
As of March 31, 2019, total assets were $1.92 billion which was $61.5 million, or 3.3%, higher than total assets of $1.86 billion as of December 31, 2018. Within total assets, interest-bearing deposits in other banks increased by $27.8 million, loans held for investment increased by $20.7 million, and securities increased by $11.5 million in the first quarter of 2019. The balance sheet growth was funded by a $45.6 million increase in deposits in the first quarter of 2019. The loans to deposits ratio was 79.91% as of March 31, 2019.
Securities
Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. As of March 31, 2019, our securities portfolio was 16.8% of total assets. It is designed primarily to provide and maintain liquidity, generate a favorable return on investments without incurring unnecessary interest rate and credit risk, and complement our lending activities. As of March 31, 2019 all securities were classified as AFS within the portfolio. We
invest in various types of liquid assets that are permissible under governing regulations, which include U.S. Treasury obligations, U.S. government agency obligations, certificates of deposit of insured domestic banks, mortgage-backed and mortgage-related securities, corporate notes having an investment rating of A or better, municipal bonds, and certain equity securities. We do not purchase noninvestment grade bonds or stripped mortgage-backed securities for the portfolio.
Total securities were $323.2 million as of March 31, 2019, an increase of $11.5 million, or 3.7%, from $311.7 million as of December 31, 2018. Investment activity for the three months ended March 31, 2019 included $23.8 million of securities purchased, offset by $17.0 million in maturities, prepayments, and calls. The additional net increase in investments was primarily due to redirecting available short-term assets into the securities portfolio. As of March 31, 2019, we held $319.4 million of AFS securities and $3.9 million in equity securities.
The securities portfolio tax-equivalent yield was 2.29% for the three months ended March 31, 2019, compared to 2.16% for the three months ended March 31, 2018. The increase in yield for the three months ended March 31, 2019, compared to the same period for 2018, was primarily due to the purchasing of $44.5 million of securities from March 31, 2018 to March 31, 2019, at significantly higher yields than the existing portfolio yield at the time of the purchases.
The carrying values of our securities classified as 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 other comprehensive income (loss) in stockholders’ equity. Equity securities, consisting of a mutual fund, are carried at fair value on the balance sheet with periodic changes in value recorded through the income statement. As of March 31, 2019, the net unrealized loss of the AFS securities portfolio was $4.6 million, or 1.4% of the total carrying value of the portfolio, as compared to a net unrealized loss of $9.5 million, or 3.0% of the total carrying value of the portfolio, as of December 31, 2018.
The fair value of our equity securities was $3.9 million with recognized losses of $131,000 for the three months ended March 31, 2019, compared to $3.8 million with recognized losses of $85,000 for the year ended December 31, 2018. Prior to the 2018 adoption of ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10), mutual fund securities were included in AFS securities.
The following tables summarize the amortized cost and estimated fair value of our securities by type as of the dates indicated. As of March 31, 2019, other than securities issued by U.S. government agencies or government sponsored enterprises, our securities portfolio did not contain securities of any one issuer with an aggregate book value in excess of 10.0% of our stockholders’ equity.
|
| | | | | | | | | | | | | | | |
| | Amounts as of March 31, 2019 |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| | (in thousands) |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 219,112 |
| | $ | 81 |
| | $ | (3,922 | ) | | $ | 215,271 |
|
| Municipal bonds | 82,302 |
| | 387 |
| | (1,120 | ) | | 81,569 |
|
| U.S. agency securities | 20,528 |
| | 47 |
| | (71 | ) | | 20,504 |
|
| U.S. Treasury securities | 1,995 |
| | 14 |
| | — |
| | 2,009 |
|
| Total Securities AFS: | $ | 323,937 |
| | $ | 529 |
| | $ | (5,113 | ) | | $ | 319,353 |
|
|
| | | | | | | | | | | | | | | |
| | Amounts as of December 31,2018 |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| | (in thousands) |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 221,799 |
| | $ | 11 |
| | $ | (7,122 | ) | | $ | 214,688 |
|
| Municipal bonds | 70,416 |
| | 94 |
| | (2,235 | ) | | 68,275 |
|
| U.S. agency securities | 23,170 |
| | 6 |
| | (261 | ) | | 22,915 |
|
| U.S. Treasury securities | 1,994 |
| | 5 |
| | — |
| | 1,999 |
|
| Total Securities AFS: | $ | 317,379 |
| | $ | 116 |
| | $ | (9,618 | ) | | $ | 307,877 |
|
The following tables show the fair value of AFS securities which mature during each of the periods indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures. The yields shown in the table indicate tax-equivalent projected book yields as of the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amounts as of March 31, 2019 which mature |
| | Within One Year | | After One Year but Within Five Years | | After Five Years but Within Ten Years | | After Ten Years | | Total |
| | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| | (Dollars in thousands) |
| Securities AFS: | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | $ | 9 |
| | 2.94 | % | | $ | 30,289 |
| | 1.75 | % | | $ | 46,039 |
| | 2.08 | % | | $ | 138,934 |
| | 2.24 | % | | $ | 215,271 |
| | 2.14 | % |
| Municipal bonds | 3,618 |
| | 3.01 | % | | 11,184 |
| | 2.26 | % | | 37,196 |
| | 2.61 | % | | 29,571 |
| | 3.52 | % | | 81,569 |
| | 2.91 | % |
| U.S. agency securities | 6,964 |
| | 1.44 | % | | 6,167 |
| | 2.58 | % | | 5,418 |
| | 2.58 | % | | 1,955 |
| | 3.00 | % | | 20,504 |
| | 2.23 | % |
| U.S. Treasury securities | — |
| | — | % | | 2,009 |
| | 2.84 | % | | — |
| | — | % | | — |
| | — | % | | 2,009 |
| | 2.84 | % |
| Total Securities AFS: | $ | 10,591 |
| | 1.98 | % | | $ | 49,649 |
| | 2.01 | % | | $ | 88,653 |
| | 2.33 | % | | $ | 170,460 |
| | 2.47 | % | | $ | 319,353 |
| | 2.34 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amounts as of December 31, 2018 which mature |
| | Within One Year | | After One Year but Within Five Years | | After Five Years but Within Ten Years | | After Ten Years | | Total |
| | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| | (Dollars in thousands) |
| Securities AFS: | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | $ | 9 |
| | 2.70 | % | | $ | 29,591 |
| | 1.73 | % | | $ | 45,409 |
| | 1.98 | % | | $ | 139,679 |
| | 2.23 | % | | $ | 214,688 |
| | 2.11 | % |
| Municipal bonds | 5,647 |
| | 2.35 | % | | 10,084 |
| | 2.26 | % | | 35,727 |
| | 2.60 | % | | 16,817 |
| | 3.51 | % | | 68,275 |
| | 2.76 | % |
| U.S. agency securities | 6,934 |
| | 1.44 | % | | 9,348 |
| | 2.67 | % | | 4,670 |
| | 2.53 | % | | 1,963 |
| | 2.81 | % | | 22,915 |
| | 2.28 | % |
| U.S. treasury securities | — |
| | — | % | | 1,999 |
| | 2.84 | % | | — |
| | — | % | | — |
| | — | % | | 1,999 |
| | 2.84 | % |
| Total Securities AFS: | $ | 12,590 |
| | 1.85 | % | | $ | 51,022 |
| | 2.05 | % | | $ | 85,806 |
| | 2.27 | % | | $ | 158,459 |
| | 2.37 | % | | $ | 307,877 |
| | 2.27 | % |
Loan Portfolio
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. As of March 31, 2019, total loans held for investment were $1.35 billion, an increase of $20.7 million, or 1.6%, compared to $1.33 billion as of December 31, 2018. New loan origination activity was normal for the first quarter, and spread across all of our markets, with our newer markets experiencing the most growth. The loan portfolio was also impacted by problem loan pay downs, including a substandard energy loan that was paid off in full during the first quarter. Energy related credits were 2.6% of the loan portfolio as of March 31, 2019, compared to 2.9% as of December 31, 2018.
Total loans held for investment by category are summarized below as of the dates indicated:
|
| | | | | | | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
| | Amount | | Percent | | Amount | | Percent |
| | (Dollars in thousands) |
| Real estate: | | | | | | | |
| Commercial real estate | $ | 475,269 |
| | 35.2 | % | | $ | 454,689 |
| | 34.2 | % |
| One-to-four family residential | 406,823 |
| | 30.2 | % | | 406,963 |
| | 30.7 | % |
| Construction and development | 111,344 |
| | 8.3 | % | | 102,868 |
| | 7.7 | % |
| Commercial and industrial | 269,987 |
| | 20.0 | % | | 275,881 |
| | 20.8 | % |
| Tax-exempt | 56,838 |
| | 4.2 | % | | 60,104 |
| | 4.5 | % |
| Consumer | 28,920 |
| | 2.1 | % | | 27,933 |
| | 2.1 | % |
| Total loans held for investment | $ | 1,349,181 |
| | 100.0 | % | | $ | 1,328,438 |
| | 100.0 | % |
| Total loans held for sale | $ | 2,210 |
| | | | $ | 2,904 |
| | |
Nonperforming Assets
Nonperforming assets consist of nonperforming loans and property acquired through foreclosures or repossession. Nonperforming loans include loans that are contractually past due 90 days or more and loans that are on nonaccrual status. Loans are considered past due when principal and interest payments have not been received as of the date such payments are due.
Loans are placed on nonaccrual status when management determines that a borrower may be unable to meet future contractual payments as they become due. When a loan is placed on nonaccrual status, uncollected accrued interest is reversed, reducing interest income, and future income accrual is discontinued. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Asset quality is managed through disciplined underwriting policies, continual monitoring of loan performance, and focused management of nonperforming assets. There can be no assurance, however, that the loan portfolio will not become subject to losses due to declines in economic conditions, deterioration in the financial condition of our borrowers, or a decline in the value of collateral.
Asset quality levels improved in the first quarter of 2019. Our nonperforming assets to total assets ratio was 0.34% as of March 31, 2019, compared to 0.38% as of December 31, 2018. Total nonperforming assets decreased $570,000, or 8.0%, to $6.6 million as of March 31, 2019 from $7.1 million as of December 31, 2018. This decrease was mainly due to the sale of foreclosed assets and improved performance of past due loans.
Nonperforming loan and asset information is summarized below:
|
| | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
| | (Dollars in thousands) |
| Nonperforming loans: | | | |
| Nonaccrual loans | $ | 5,445 |
| | $ | 5,560 |
|
| Accruing loans 90 or more days past due | 716 |
| | 939 |
|
| Total nonperforming loans | 6,161 |
| | 6,499 |
|
| Foreclosed assets: | | | |
| Real estate | 414 |
| | 646 |
|
| Other | — |
| | — |
|
| Total foreclosed assets | 414 |
| | 646 |
|
| Total nonperforming assets | $ | 6,575 |
| | $ | 7,145 |
|
| | | | |
Troubled debt restructurings:(1) | | | |
| Nonaccrual loans | $ | 3,513 |
| | $ | 3,540 |
|
| Accruing loans 90 or more days past due | — |
| | — |
|
| Performing loans | 1,710 |
| | 1,572 |
|
| Total troubled debt restructurings | $ | 5,223 |
| | $ | 5,112 |
|
| | | | |
Nonperforming loans to total loans held for investment(1) | 0.46 | % | | 0.49 | % |
| Nonperforming assets to total assets | 0.34 | % | | 0.38 | % |
| |
(1)
| Troubled debt restructurings – nonaccrual and accruing loans 90 or more days past due are included in the respective components of nonperforming loans. |
Nonaccrual loans are summarized below by category:
|
| | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
| | (in thousands) |
| Nonaccrual loans by category: | | | |
| Real estate: | | | |
| Commercial real estate | $ | 1,338 |
| | $ | 1,362 |
|
| One-to-four family residential | 340 |
| | 424 |
|
| Construction and development | 53 |
| | 55 |
|
| Commercial and industrial | 3,670 |
| | 3,675 |
|
| Tax-exempt | — |
| | — |
|
| Consumer | 44 |
| | 44 |
|
| Total | $ | 5,445 |
| | $ | 5,560 |
|
Potential Problem Loans
From a credit risk standpoint, we classify loans in one of five categories: pass, special mention, substandard, doubtful, or loss. Loan classifications reflect a judgment about the risk of default and loss associated with the loans. Classifications are reviewed periodically and adjusted to reflect the degree of risk and loss believed to be inherent in each loan. The methodology is structured so that specific reserve allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss). Loans classified as pass are loans with very low to acceptable risk levels based on the borrower’s financial condition, financial trends, management strength, and collateral quality. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If these weaknesses are not corrected, repayment possibilities for the loan may deteriorate. However, the loss potential does not pose sufficient risk to warrant substandard classification.
Loans classified as substandard have well defined weaknesses which 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. Loans classified as doubtful have well defined weaknesses that make full collection improbable. Loans classified as loss are considered uncollectible and charged-off to the allowance for loan losses.
As of March 31, 2019, loans classified as pass were 96.6% of total loans held for investment and loans classified as special mention and substandard were 2.2% and 1.2%, respectively, of total loans held for investment. There were no loans as of March 31, 2019 classified as doubtful or loss. As of December 31, 2018, loans classified as pass were 96.7% of total loans and loans classified as special mention and substandard were 1.7% and 1.6%, respectively, of total loans. There were no loans as of December 31, 2018 classified as doubtful or loss.
Allowance for Loan Losses
The allowance for loan losses represents management’s best assessment of potential loan losses and risks inherent in the loan portfolio. It is maintained at a level estimated to be adequate to absorb these potential losses through periodic charges to the provision for loan losses. The amount of the allowance for loan losses should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all.
The allowance for loan losses is established in accordance with GAAP and consists of specific and general reserves. Specific reserves relate to loans classified as impaired. Loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due in accordance with the contractual terms of the loan. Impaired loans include troubled debt restructurings and performing and nonperforming loans. Impaired loans are reviewed individually, and a specific allowance is 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 relate to the remainder of the loan portfolio, including overdrawn deposit accounts, and are based on 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.
In connection with the review of the loan portfolio, risk elements attributable to particular loan types or categories are considered in assessing the quality of individual loans. Some of the risk elements considered include:
for commercial real estate loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements); operating results of the owner in the case
of owner occupied properties; the loan to value ratio; the age and condition of the collateral; the volatility of income, property value, and future operating results typical of properties of that type;
for one-to-four family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability; the loan-to-value ratio; and the age, condition, and marketability of the collateral;
for construction and development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease; the quality and nature of contracts for presale or prelease, if any; experience and ability of the developer; and the loan to value ratio; and
for commercial and industrial loans, the debt service coverage ratio; the operating results of the commercial, industrial, or professional enterprise; the borrower’s business, professional, and financial ability and expertise; the specific risks and volatility of income and operating results typical for businesses in that category; the value, nature, and marketability of collateral; and the financial resources of the guarantor(s), if any.
The allowance for loan losses totaled $13.1 million, or 0.97%, of loans held for investment as of March 31, 2019. As of December 31, 2018, the allowance for loan losses totaled $12.5 million, or 0.94%, of loans held for investment.
The provision for loan losses for the three months ended March 31, 2019 was $526,000, an increase of $115,000, or 28.0%, from $411,000 for the three months ended March 31, 2018. The provision for loans increased primarily as a result of the growth of the loan portfolio.
The following table displays activity in the allowance for loan losses for the periods shown:
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
| | (Dollars in thousands) |
| Total loans held for investment | $ | 1,349,181 |
| | $ | 1,276,140 |
|
| Average loans outstanding | $ | 1,344,523 |
| | $ | 1,265,422 |
|
| Allowance for loan losses at beginning of period | $ | 12,524 |
| | $ | 10,895 |
|
| Provision for loan losses | 526 |
| | 411 |
|
| Charge-offs: | | | |
| Real estate: | | | |
| One-to-four family residential | — |
| | 4 |
|
| Commercial and industrial | — |
| | 9 |
|
| Consumer | 81 |
| | 98 |
|
| Total charge-offs | 81 |
| | 111 |
|
| Recoveries: | | | |
| Real estate: | | | |
| One-to-four family residential | 1 |
| | 1 |
|
| Construction and development | 77 |
| | — |
|
| Commercial and industrial | 1 |
| | 2 |
|
| Consumer | 53 |
| | 56 |
|
| Total recoveries | 132 |
| | 59 |
|
| Net (charge-offs) recoveries | 51 |
| | (52 | ) |
| Allowance for loan losses at end of period | $ | 13,101 |
| | $ | 11,254 |
|
| Allowance for loan losses to total loans held for investment | 0.97 | % | | 0.88 | % |
| Net charge-offs to average loans outstanding | 0.00 | % | | 0.00 | % |
We believe the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above. Future provisions for loan losses are subject to ongoing evaluations of the factors and loan portfolio risks described above. A decline in market area economic conditions, deterioration of asset quality, or growth in portfolio size could cause the allowance to become inadequate and material additional provisions for loan losses could be required.Deposits
We offer a variety of deposit products designed to attract and retain consumer, commercial, and public entity customers. These products consist of noninterest and interest-bearing checking accounts, savings accounts, money market accounts, and time deposit accounts. Deposits are gathered from individuals, partnerships, corporations, and public entities located primarily in our market areas. We do not have any internet-sourced or brokered deposits.
Total deposits increased $45.6 million, or 2.8%, to $1.69 billion as of March 31, 2019 from $1.65 billion as of December 31, 2018. Noninterest-bearing deposits increased by $17.9 million, or 3.3%, due to normal fluctuations in customer account balances. NOW accounts increased by $15.4 million, or 5.0%, with increases in Interest on Lawyers Trust Accounts ("IOLTA") NOW balances and decreases in public entity NOW balances. IOLTA NOW balances were driven highercommon stock at the end of the quarter due to a large legal settlement receivedrelevant period.
(3)We calculate realized book value per share as total stockholders’ equity, less AOCI, divided by a law firm customer. These funds were reduced in the second quarteroutstanding number of 2019 as disbursements were made to third parties. The decrease in public entity NOW balances was a resultshares of normal seasonal drawdowns as public entity customers distributed their year-end funds to other organizations. Noninterest-bearing deposits as a percentage of total deposits were 33.5% as of March 31, 2019, compared to 33.3% as of December 31, 2018.
The following table presents deposits by account type asour common stock at the end of the dates indicatedrelevant period.
(4)Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.
(5)Efficiency ratio represents operating expenses divided by the dollarsum of net interest income and percentage change between periods:noninterest income.
(6)We calculate tangible common equity as total stockholders’ equity, less intangible assets, net of accumulated amortization, and we calculate tangible assets as total assets, less intangible assets, net of accumulated amortization.
|
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2019 | | December 31, 2018 | | Change from
December 31, 2018 to March 31, 2019 |
| | Balance | | % of Total | | Balance | | % of Total | | $ Change | | % Change |
| | (Dollars in thousands) |
| Noninterest-bearing deposits | $ | 565,757 |
| | 33.5 | % | | $ | 547,880 |
| | 33.3 | % | | $ | 17,877 |
| | 3.3 | % |
| Interest-bearing deposits: | | | | | | | | | | | |
| Money market accounts | 362,261 |
| | 21.4 | % | | 358,575 |
| | 21.8 | % | | 3,686 |
| | 1.0 | % |
| Time deposits <= $250,000 | 249,583 |
| | 14.8 | % | | 248,274 |
| | 15.1 | % | | 1,309 |
| | 0.5 | % |
| Time deposits > $250,000 | 85,222 |
| | 5.0 | % | | 81,954 |
| | 5.0 | % | | 3,268 |
| | 4.0 | % |
| NOW accounts | 319,898 |
| | 18.9 | % | | 304,545 |
| | 18.5 | % | | 15,353 |
| | 5.0 | % |
| Savings accounts | 108,413 |
| | 6.4 | % | | 104,355 |
| | 6.3 | % | | 4,058 |
| | 3.9 | % |
| Total deposits | $ | 1,691,134 |
| | 100.0 | % | | $ | 1,645,583 |
| | 100.0 | % | | $ | 45,551 |
| | 2.8 | % |
The following table presents deposits by customer type as of the dates indicated and the dollar and percentage change between periods:
|
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2019 | | December 31, 2018 | | Change from
December 31, 2018 to March 31, 2019 |
| | Balance | | % of Total | | Balance | | % of Total | | $ Change | | % Change |
| | (Dollars in thousands) |
| Consumer | $ | 886,576 |
| | 52.4 | % | | $ | 869,725 |
| | 52.8 | % | | $ | 16,851 |
| | 1.9 | % |
| Commercial | 672,330 |
| | 39.8 | % | | 611,903 |
| | 37.2 | % | | 60,427 |
| | 9.9 | % |
| Public | 132,228 |
| | 7.8 | % | | 163,955 |
| | 10.0 | % | | (31,727 | ) | | (19.4 | )% |
| Total deposits | $ | 1,691,134 |
| | 100.0 | % | | $ | 1,645,583 |
| | 100.0 | % | | $ | 45,551 |
| | 2.8 | % |
The following table presents the maturity distribution of our time deposits of $100,000 or more as of March 31, 2019:
|
| | | |
| | March 31, 2019 |
| | (in thousands) |
| Three months or less | $ | 35,917 |
|
| Over three months through six months | 37,844 |
|
| Over six months through 12 months | 67,698 |
|
| Over 12 months through three years | 52,111 |
|
| Over three years | 23,438 |
|
| Total | $ | 217,008 |
|
Junior Subordinated Debentures
The company is the sponsor of three wholly owned business trusts that were established for the purpose of issuing trust preferred securities. The trust preferred securities accrue and pay distributions periodically at specified quarterly rates as provided in each trust agreement. The trusts used the net proceeds from each of the offerings to purchase a like amount of our junior subordinated debentures. The debentures are the sole assets of the trusts. Our obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by us of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon maturity of the debentures, or upon earlier redemption as provided in the indentures. We have the right to redeem the debentures in whole or in part on or after specific dates at a redemption price specified in the indentures governing the debentures plus any accrued but unpaid interest to the redemption date. If the debentures are redeemed prior to maturity, redemption fees totaling approximately $12,000 will be incurred. Due to the extended maturity date of the trust preferred securities a portion of these instruments qualifies as Tier 1 capital under applicable regulatory capital rules. We anticipate using a portion of the proceeds of the IPO to redeem Trust II and Trust III in June 2019 and FBT CT I in August 2019.
The following table is a summary of the terms of our junior subordinated debentures as of March 31, 2019 and December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | |
| | Issuance Date | | Maturity Date | | Amount Outstanding
March 31,
2019 | | Amount Outstanding
December 31,
2018 | | Rate Type | | Rate at
March 31,
2019 | | Rate at
December 31,
2018 |
| | (Dollars in thousands) |
| Trust II | May 28, 2003 | | May 28, 2033 | | $ | 3,093 |
| | $ | 3,093 |
| | Variable(2) | | 6.05 | % | | 5.65 | % |
| Trust III | April 20, 2005 | | June 15, 2035 | | 3,093 |
| | 3,093 |
| | Variable(3) | | 4.76 | % | | 4.30 | % |
FBT CT I(1) | September 4, 2003 | | August 8, 2033 | | 5,155 |
| | 5,155 |
| | Variable(4) | | 5.54 | % | | 5.34 | % |
| Total | | | | | $ | 11,341 |
| | $ | 11,341 |
| | | | | | |
| |
(1)
| On April 1, 2013, we assumed $5.0 million of floating rate junior subordinated debentures and FBT CT I in conjunction with the acquisition of Fidelity Bancorp, Inc. |
| |
(2)
| The trust preferred securities reprice quarterly based on three-month LIBOR plus 3.25%, with the last reprice date on March 28, 2019. |
| |
(3)
| The trust preferred securities reprice quarterly based on three-month LIBOR plus 1.97%, with the last reprice date on March 13, 2019. |
| |
(4)
| The trust preferred securities reprice quarterly based on three-month LIBOR plus 3.00%, with the last reprice date on January 30, 2019. |
Equity and Regulatory Capital Requirements
Total stockholders’ equity as of March 31, 2019, was $202.2 million, compared to $193.7 million as of December 31, 2018, an increase of $8.5 million, or 4.4%. This increase was attributable to first quarter 2019 net income of $5.7 million and a $3.9 million market adjustment to AOCI related to AFS securities, partially offset by $1.3 million in cash dividends.
As of March 31, 2019 and December 31, 2018, Red River Bank was in compliance with all applicable regulatory capital requirements, and was classified as “well capitalized,” for purposes of the prompt corrective action regulations. As we deploy our capital and continue to grow our operations, our capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2019,third quarter of 2022 was $5.7$10.2 million, or $1.42 diluted EPS, an increase of $465,000,$1.0 million, or 8.9% from $5.211.4%, compared to $9.1 million, or $1.27 diluted EPS, for the three months ended March 31, 2018.second quarter of 2022. The increase in net income was primarily due to increased net interest income partially offset by higher operating expenses.
Diluted earnings per share were $0.85 for the three months ended March 31, 2019, an increase of $0.08 from $0.77 for the three months ended March 31, 2018, adjusted to give effect to the 2018 2-for-1 stock split.
Our efficiency ratio improved to 59.52% for the three months ended March 31, 2019, compared to 60.39% for the three months ended March 31, 2018. The change in the efficiency ratio is due to a $1.5$1.9 million increase in net interest income, a $139,000$13,000 decrease in income tax expense, and a $7,000 increase in noninterest income, partially offset by an $851,000a $570,000 increase in operating expenses.expenses and a $350,000 increase in provision for loan losses. The return on assets for the third quarter of 2022 was 1.30%, compared to 1.15% for the second quarter of 2022. The return on equity was 15.48% for the third quarter of 2022, compared to 14.30% for the second quarter of 2022. Our efficiency ratio for the third quarter of 2022 was 53.80%, compared to 55.64% for the second quarter of 2022.
Net income for the nine months ended September 30, 2022, was $26.7 million, or $3.71 diluted EPS, an increase of $2.3 million, or 9.3%, compared to $24.4 million, or $3.34 diluted EPS, for the nine months ended September 30, 2021. The increase in net income was due to a $10.0 million increase in net interest income and a $750,000 decrease in the provision for loan losses, partially offset by a $4.7 million decrease in noninterest income, a $3.3 million increase in operating expenses, and a $458,000 increase in income tax expense. The return on assets for the nine months ended September 30, 2022, was 1.13%, compared to 1.15% for the nine months ended September 30, 2021. The return on equity was 13.25% for the nine months ended September 30, 2022, compared to 11.17% for the nine months ended September 30, 2021. Our efficiency ratio for the nine months ended September 30, 2022, was 56.52%, compared to 56.07% for the nine months ended September 30, 2021.
Net Interest Income and Net Interest Margin
Our operating results depend primarily on our net interest income. Fluctuations in market interest rates impact the yield on interest-earning assets and the rate paid on interest-bearing liabilities. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income. To evaluate net interest income, we measure and monitor: (1) yields on loans and other interest-earning assets; (2) the costscost of deposits and other funding sources; (3) net interest spread; and (4) net interest margin. Since noninterest-bearing sources of funds, such as noninterest-bearing deposits and stockholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing funding sources.
Beginning March 2020, we were in a low interest rate environment that impacted both the net interest income and net interest margin FTE. In March 2020, the target federal funds rate decreased 150 bps to a range of 0.00% to 0.25% and remained at that rate until March 2022, when the FOMC began increasing the target federal funds rate. The FOMC increased the target federal funds rate by 25 bps in March 2022, 50 bps in May 2022, and 75 bps in each of June, July, and September 2022, resulting in a range of 3.00% to 3.25% as of September 30, 2022. The average effective federal funds rate for the third quarter of 2022 was 2.19% compared to 0.77% for the second quarter of 2022. For the nine months ended September 30, 2022, the average effective federal funds rate was 1.03% compared to 0.08% for the nine months ended September 30, 2021. The 2022 net interest income and net interest margin FTE were positively impacted by the 2022 target federal funds rate increases by the FOMC.
Third Quarter of 2022 vs. Second Quarter of 2022
Net interest income increased by $1.5for the third quarter of 2022 was $23.1 million, which was $1.9 million, or 11.1%9.2%, higher than the second quarter of 2022, due to $15.5a $2.4 million forincrease in interest and dividend income, partially offset by a $449,000 increase in interest expense. The increase in interest and dividend income was primarily due to an increase in non-PPP loan income and an increase in income on short-term liquid assets. Non-PPP loan income increased $1.9 million due to higher rates on new and renewed non-PPP loans and a $78.4 million increase in the three months ended March 31, 2019 from $13.9 million foraverage balance of non-PPP loans when compared to the three months ended March 31, 2018. Netprior quarter. Income on short-term liquid assets increased $768,000 due to the FOMC’s increases to the target federal funds rate. The increase in interest income improved asexpense in the third quarter of 2022 was primarily a result of a 13 basis pointan increase in the net interest margin,rates on an FTE basis, to 3.50% for the three months ended March 31, 2019 from 3.37% for the three months ended March 31, 2018, combined with a $115.0 million, or 6.9%, increase in average interest earning assets between the first quarter of 2019 and 2018. interest-bearing transaction deposits.
The net interest margin benefited fromFTE increased 31 bps to 3.06% for the third quarter of 2022, compared to 2.75% for the prior quarter. This increase was driven primarily by the higher interest rate environment and an improved asset mix in the firstthird quarter of 2019 compared2022. The yield on non-PPP loans increased 18 bps driven by higher rates on new and renewed loans, and the yield on short-term liquid assets increased 144 bps due to the firsthigher interest rate environment. These increases were partially offset by a 12 bp increase in the rate on interest-bearing deposits.
The FOMC raised the target federal funds rate by 75 bps in November 2022 and is expected to raise the target federal funds rate one additional time in the fourth quarter of 2018. The average yield2022 and in early 2023. Our balance sheet is asset sensitive, and interest income on interest-earningearning assets forgenerally improves in a higher interest rate environment. However, we also expect additional pressure on deposit interest rates due to the three months ended March 31, 2019 was 4.03%, a 28 basis point increase from 3.75% forhigher interest rate environment. As of September 30, 2022, floating rate loans were 14.5% of loans HFI, and floating rate transaction deposits were 3.6% of interest-bearing transaction deposits. Depending on balance sheet activity and excluding PPP loans, we expect an increasing interest rate environment to positively impact our net interest income and net interest margin FTE in the same period in 2018, while the average costfourth quarter of deposits for the three months ended March 31, 2019 was 0.57%, 17 basis points higher than the 0.40% cost of deposits for the same period in 2018.
The following table presents average balance sheet information, interest income, interest expense, and the corresponding average yields earned and rates paid for the three months ended March 31, 2019September 30, 2022 and 2018. June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| September 30, 2022 | | June 30, 2022 |
| (dollars in thousands) | Average
Balance
Outstanding | | Interest
Earned/
Interest
Paid | | Average
Yield/
Rate | | Average
Balance
Outstanding | | Interest
Earned/
Interest
Paid | | Average
Yield/
Rate |
| Assets | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | |
Loans(1,2) | $ | 1,871,834 | | | $ | 19,740 | | | 4.13 | % | | $ | 1,796,322 | | | $ | 18,032 | | | 3.97 | % |
| Securities - taxable | 658,245 | | | 2,536 | | | 1.54 | % | | 690,772 | | | 2,615 | | | 1.52 | % |
| Securities - tax-exempt | 207,182 | | | 1,036 | | | 2.00 | % | | 211,672 | | | 1,062 | | | 2.01 | % |
| Federal funds sold | 55,201 | | | 317 | | | 2.25 | % | | 53,216 | | | 116 | | | 0.86 | % |
| Interest-bearing balances due from banks | 219,845 | | | 1,238 | | | 2.21 | % | | 351,092 | | | 671 | | | 0.76 | % |
| Nonmarketable equity securities | 3,452 | | | 19 | | | 2.24 | % | | 3,451 | | | 2 | | | 0.22 | % |
| | | | | | | | | | | |
| Total interest-earning assets | 3,015,759 | | | $ | 24,886 | | | 3.24 | % | | 3,106,525 | | | $ | 22,498 | | | 2.87 | % |
| Allowance for loan losses | (19,667) | | | | | | | (19,293) | | | | | |
| Noninterest-earning assets | 100,685 | | | | | | | 99,687 | | | | | |
| Total assets | $ | 3,096,777 | | | | | | | $ | 3,186,919 | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Interest-bearing transaction deposits | $ | 1,323,081 | | | $ | 938 | | | 0.28 | % | | $ | 1,410,270 | | | $ | 547 | | | 0.16 | % |
| Time deposits | 321,547 | | | 860 | | | 1.06 | % | | 328,420 | | | 802 | | | 0.98 | % |
| Total interest-bearing deposits | 1,644,628 | | | 1,798 | | | 0.43 | % | | 1,738,690 | | | 1,349 | | | 0.31 | % |
| | | | | | | | | | | |
| Other borrowings | — | | | — | | | — | % | | — | | | — | | | — | % |
| Total interest-bearing liabilities | 1,644,628 | | | $ | 1,798 | | | 0.43 | % | | 1,738,690 | | | $ | 1,349 | | | 0.31 | % |
| Noninterest-bearing liabilities: | | | | | | | | | | | |
| Noninterest-bearing deposits | 1,173,387 | | | | | | | 1,175,251 | | | | | |
| Accrued interest and other liabilities | 17,756 | | | | | | | 16,459 | | | | | |
| Total noninterest-bearing liabilities | 1,191,143 | | | | | | | 1,191,710 | | | | | |
| Stockholders’ equity | 261,006 | | | | | | | 256,519 | | | | | |
| Total liabilities and stockholders’ equity | $ | 3,096,777 | | | | | | | $ | 3,186,919 | | | | | |
| Net interest income | | | $ | 23,088 | | | | | | | $ | 21,149 | | | |
| Net interest spread | | | | | 2.81 | % | | | | | | 2.56 | % |
| Net interest margin | | | | | 3.00 | % | | | | | | 2.70 | % |
Net interest margin FTE(3) | | | | | 3.06 | % | | | | | | 2.75 | % |
| Cost of deposits | | | | | 0.25 | % | | | | | | 0.19 | % |
| Cost of funds | | | | | 0.24 | % | | | | | | 0.17 | % |
(1)Includes average outstanding balances of loans HFS of $2.7 million and $3.8 million for the three months ended September 30, 2022 and June 30, 2022, respectively.
(2)Nonaccrual loans are included in the following table as loans carrying a zero yield.
(3)Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.
For the third quarter of 2022, PPP loans had a minimal impact on loan yield and the net interest margin FTE. For the third quarter of 2022, PPP loan interest and fees totaled $6,000, compared to $150,000 in interest and fees for the prior quarter. As of September 30, 2022, deferred PPP fees were $28,000. For additional information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
|
| | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2019 | | 2018 |
| | Average Balance Outstanding | | Interest
Earned/
Interest
Paid | | Average
Yield/
Rate | | Average Balance Outstanding | | Interest
Earned/
Interest
Paid | | Average
Yield/
Rate |
| | (Dollars in thousands) |
| Assets | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | |
Loans(1) | $ | 1,344,523 |
| | $ | 15,504 |
| | 4.61 | % | | $ | 1,265,422 |
| | $ | 13,586 |
| | 4.29 | % |
| Securities - taxable | 261,325 |
| | 1,378 |
| | 2.11 | % | | 293,660 |
| | 1,471 |
| | 2.00 | % |
| Securities - nontaxable | 64,630 |
| | 385 |
| | 2.38 | % | | 60,155 |
| | 351 |
| | 2.33 | % |
| Federal funds sold | 34,228 |
| | 212 |
| | 2.48 | % | | 13,503 |
| | 51 |
| | 1.51 | % |
| Interest-bearing balances due from banks | 70,473 |
| | 416 |
| | 2.36 | % | | 27,507 |
| | 107 |
| | 1.56 | % |
| Nonmarketable equity securities | 1,299 |
| | 4 |
| | 1.23 | % | | 1,271 |
| | 2 |
| | 0.63 | % |
| Investment in trusts | 341 |
| | 5 |
| | 5.95 | % | | 341 |
| | 4 |
| | 4.76 | % |
| Total interest-earning assets | 1,776,819 |
| | $ | 17,904 |
| | 4.03 | % | | 1,661,859 |
| | $ | 15,572 |
| | 3.75 | % |
| Allowance for loan losses | (12,735 | ) | | | | | | (11,014 | ) | | | | |
| Noninterest earning assets | 101,545 |
| | | | | | 90,192 |
| | | | |
| Total assets | $ | 1,865,629 |
| | | | | | $ | 1,741,037 |
| | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Interest-bearing transaction deposits | $ | 753,617 |
| | $ | 962 |
| | 0.52 | % | | $ | 708,124 |
| | $ | 556 |
| | 0.32 | % |
| Time deposits | 334,759 |
| | 1,334 |
| | 1.62 | % | | 321,529 |
| | 979 |
| | 1.23 | % |
| Total interest-bearing deposits | 1,088,376 |
| | 2,296 |
| | 0.86 | % | | 1,029,653 |
| | 1,535 |
| | 0.60 | % |
| Junior subordinated debentures | 11,341 |
| | 156 |
| | 5.58 | % | | 11,341 |
| | 124 |
| | 4.42 | % |
| Other borrowings | — |
| | — |
| | — | % | | 313 |
| | 3 |
| | 3.70 | % |
| Total interest-bearing liabilities | 1,099,717 |
| | $ | 2,452 |
| | 0.90 | % | | 1,041,307 |
| | $ | 1,662 |
| | 0.64 | % |
| Noninterest-bearing liabilities: | | | | | | | | | | | |
| Noninterest-bearing deposits | 552,204 |
| | | | | | 510,793 |
| | | | |
| Accrued interest and other liabilities | 16,027 |
| | | | | | 9,534 |
| | | | |
| Total noninterest-bearing liabilities: | 568,231 |
| | | | | | 520,327 |
| | | | |
| Stockholders’ equity | 197,681 |
| | | | | | 179,403 |
| | | | |
| Total liabilities and stockholders’ equity | $ | 1,865,629 |
| | | | | | $ | 1,741,037 |
| | | | |
| Net interest income | | | $ | 15,452 |
| | | | | | $ | 13,910 |
| | |
Net interest spread(2) | | | | | 3.13 | % | | | | | | 3.11 | % |
Net interest margin(3) | | | | | 3.47 | % | | | | | | 3.34 | % |
Net interest margin FTE(4) | | | | | 3.50 | % | | | | | | 3.37 | % |
| Cost of deposits | | | | | 0.57 | % | | | | | | 0.40 | % |
| Cost of funds | | | | | 0.56 | % | | | | | | 0.41 | % |
| |
(1)
| Includes average outstanding balances of loans held for sale of $2.5 million and $1.6 million for the three months ended March 31, 2019 and 2018, respectively. |
| |
(2)
| Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities. |
| |
(3)
| Net interest margin is net interest income divided by average interest-earning assets. |
| |
(4)
| In order to present pretax resulting yield on tax-exempt investments comparable to those on taxable investments, an FTE adjustment (a non-GAAP measure) has been computed.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| September 30, 2022 | | June 30, 2022 |
| (dollars in thousands) | Average
Balance
Outstanding | | Interest/Fee
Earned | | Average
Yield | | Average
Balance
Outstanding | | Interest/Fee
Earned | | Average
Yield |
Loans(1,2) | $ | 1,871,834 | | | $ | 19,740 | | | 4.13 | % | | $ | 1,796,322 | | | $ | 18,032 | | | 3.97 | % |
| Less: PPP loans, net | | | | | | | | | | | |
| Average | 1,350 | | | | | | | 4,202 | | | | | |
| Interest | | | 4 | | | | | | | 11 | | | |
| Fees | | | 2 | | | | | | | 139 | | | |
| Total PPP loans, net | 1,350 | | | 6 | | | 1.62 | % | | 4,202 | | | 150 | | | 14.30 | % |
Non-PPP loans (non-GAAP)(3) | $ | 1,870,484 | | | $ | 19,734 | | | 4.13 | % | | $ | 1,792,120 | | | $ | 17,882 | | | 3.95 | % |
| | | | | | | | | | | |
| Net interest income, excluding PPP loan income (non-GAAP) |
| Net interest income | | | $ | 23,088 | | | | | | | $ | 21,149 | | | |
| PPP loan income | | | (6) | | | | | | | (150) | | | |
Net interest income, excluding PPP loan income (non-GAAP)(3) | | | $ | 23,082 | | | | | | | $ | 20,999 | | | |
| | | | | | | | | | | |
Ratios excluding PPP loans, net (non-GAAP)(3) | | | | | | | | | | |
| Net interest spread | | | | | 2.81 | % | | | | | | 2.55 | % |
| Net interest margin | | | | | 3.00 | % | | | | | | 2.68 | % |
Net interest margin FTE(4) | | | | | 3.06 | % | | | | | | 2.73 | % |
(1)Includes average outstanding balances of loans HFS of $2.7 million and $3.8 millionfor the three months ended September 30, 2022 and June 30, 2022, respectively.
(2)Nonaccrual loans are included as loans carrying a zero yield.
(3)Non-GAAP financial measure. See also “ - Non-GAAP Financial Measures” in this Report.
(4)Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.
Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021
Net interest income for the nine months ended September 30, 2022 was $63.0 million, which was $10.0 million, or 18.9%, higher than $52.9 million for the nine months ended September 30, 2021. Net interest income increased due to a $10.1 million increase in interest and dividend income, partially offset by a $111,000 increase in interest expense.
The increase in interest and dividend income for the nine months ended September 30, 2022, when compared to the nine months ended September 30, 2021, was primarily due to an increase in non-PPP loan income, an increase in securities income, and an increase in income on short-term liquid assets, partially offset by a decrease in PPP loan income. Non-PPP loan income increased $8.0 million due to a $264.3 million increase in the average balance of non-PPP loans, when compared to the same period prior year. Securities income increased $4.0 million primarily due to a higher average balance of securities due to our deployment of lower-yielding short-term liquid assets into higher-yielding securities during the first half of 2022. Income on short-term liquid assets increased $2.1 million due to the FOMC’s increases to the target federal funds rate in 2022. PPP loan income decreased $3.9 million due to lower average PPP loan balances outstanding and lower fees recognized to income on PPP loans.
Interest expense was slightly higher for the nine months ended September 30, 2022, compared to the same period in 2021 mainly due to a higher balance of interest-bearing transaction deposits. For the nine months ended September 30, 2022, average interest-bearing transaction deposits increased $206.4 million, or 17.5%, compared to the nine months ended September 30, 2021; however, interest expense on time deposits decreased due to time deposits being priced downward as we adjusted rates on new and renewed time deposits in 2021.
Net interest margin FTE increased 13 bps to 2.76% for the nine months ended September 30, 2022, from 2.63% for the nine months ended September 30, 2021, primarily due to the higher interest rate environment and an improved asset mix. The FOMC’s increases to the target federal funds rate during the first nine months of 2022 increased the yield on short-term liquid assets by 68 bps when compared to the same period in 2021. Our deployment of lower-yielding short-term liquid assets into higher-yielding securities in 2022 also benefited the net interest margin FTE. This deployment increased the average balance of higher-yielding taxable securities from $318.4 million in 2021 to $635.6 million in 2022, an
increase of $317.2 million or 99.7%. The yield on taxable securities also benefited from higher market interest rates on securities purchased during 2022, compared to the interest rate on taxable securities during 2021. The yield on taxable securities increased 16 bps for the nine months ended September 30, 2022, when compared to the nine months ended September 30, 2021. The net interest margin FTE was further benefited by a two bp decrease in the cost of deposits. The cost of deposits decreased from 0.23% to 0.21% for the nine months ended September 30, 2022, due to a 19 bp decrease in the rate on time deposits as we adjusted rates on new and renewed time deposits in 2021. These increases were partially offset by an 11 bp decrease in loan yield. The loan yield decreased primarily as a result of a $3.2 million decrease in PPP loan fee income. PPP loan income decreased due to lower fees recognized to income on PPP loans and a lower average balance of PPP loans outstanding. The yield on non-PPP loans decreased slightly to 3.99% from 4.00% due to lower rates on new and renewed non-PPP loans through the first quarter of 2022, offset by higher loan rates in the second and third quarters of 2022.
The following table presents average balance sheet information, interest income, interest expense, and the corresponding average yields earned and rates paid for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended |
| September 30, 2022 | | September 30, 2021 |
| (dollars in thousands) | Average
Balance
Outstanding | | Interest
Earned/
Interest
Paid | | Average
Yield/
Rate | | Average
Balance
Outstanding | | Interest
Earned/
Interest
Paid | | Average
Yield/
Rate |
| Assets | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | |
Loans(1,2) | $ | 1,786,864 | | | $ | 54,543 | | | 4.03 | % | | $ | 1,610,449 | | | $ | 50,509 | | | 4.14 | % |
| Securities - taxable | 635,594 | | | 7,029 | | | 1.48 | % | | 318,354 | | | 3,145 | | | 1.32 | % |
| Securities - tax-exempt | 211,375 | | | 3,181 | | | 2.01 | % | | 199,556 | | | 3,102 | | | 2.07 | % |
| Federal funds sold | 53,896 | | | 458 | | | 1.12 | % | | 70,841 | | | 67 | | | 0.13 | % |
| Interest-bearing balances due from banks | 385,556 | | | 2,160 | | | 0.74 | % | | 521,118 | | | 432 | | | 0.11 | % |
| Nonmarketable equity securities | 3,451 | | | 22 | | | 0.86 | % | | 3,448 | | | 9 | | | 0.34 | % |
| | | | | | | | | | | |
| Total interest-earning assets | $ | 3,076,736 | | | $ | 67,393 | | | 2.90 | % | | $ | 2,723,766 | | | $ | 57,264 | | | 2.78 | % |
| Allowance for loan losses | (19,390) | | | | | | | (19,152) | | | | | |
| Noninterest-earning assets | 108,124 | | | | | | | 133,400 | | | | | |
| Total assets | $ | 3,165,470 | | | | | | | $ | 2,838,014 | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Interest-bearing transaction deposits | $ | 1,383,628 | | | $ | 1,940 | | | 0.19 | % | | $ | 1,177,220 | | | $ | 1,238 | | | 0.14 | % |
| Time deposits | 327,477 | | | 2,488 | | | 1.02 | % | | 341,847 | | | 3,079 | | | 1.20 | % |
| Total interest-bearing deposits | 1,711,105 | | | 4,428 | | | 0.35 | % | | 1,519,067 | | | 4,317 | | | 0.38 | % |
| | | | | | | | | | | |
| Other borrowings | — | | | — | | | — | % | | — | | | — | | | — | % |
| Total interest-bearing liabilities | 1,711,105 | | | $ | 4,428 | | | 0.35 | % | | 1,519,067 | | | $ | 4,317 | | | 0.38 | % |
| Noninterest-bearing liabilities: | | | | | | | | | | | |
| Noninterest-bearing deposits | 1,167,412 | | | | | | | 1,009,188 | | | | | |
| Accrued interest and other liabilities | 17,244 | | | | | | | 17,324 | | | | | |
| Total noninterest-bearing liabilities | 1,184,656 | | | | | | | 1,026,512 | | | | | |
| Stockholders’ equity | 269,709 | | | | | | | 292,435 | | | | | |
| Total liabilities and stockholders’ equity | $ | 3,165,470 | | | | | | | $ | 2,838,014 | | | | | |
| Net interest income | | | $ | 62,965 | | | | | | | $ | 52,947 | | | |
| Net interest spread | | | | | 2.55 | % | | | | | | 2.40 | % |
| Net interest margin | | | | | 2.70 | % | | | | | | 2.57 | % |
Net interest margin FTE(3) | | | | | 2.76 | % | | | | | | 2.63 | % |
| Cost of deposits | | | | | 0.21 | % | | | | | | 0.23 | % |
| Cost of funds | | | | | 0.19 | % | | | | | | 0.21 | % |
(1)Includes average outstanding balances of loans HFS of $3.6 million and $9.4 million for the nine months ended September 30, 2022 and 2021, respectively.
(2)Nonaccrual loans are included as loans carrying a zero yield.
(3)Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.
Excluding PPP loan income, net interest income (non-GAAP) for the nine months ended September 30, 2022, was $62.3 million, which was $13.9 million, or 28.8%, higher than the nine months ended September 30, 2021. Also, with PPP loans excluded for the nine months ended September 30, 2022, the yield on non-PPP loans (non-GAAP) was 3.99%, and the
net interest margin FTE (non-GAAP) was 2.73%. For the nine months ended September 30, 2022, PPP loans had a four bp accretive impact to the yield on loans and a three bp accretive impact to the net interest margin FTE. For additional information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
The following table presents interest income for total loans, PPP loans, and total non-PPP loans (non-GAAP), as well as net interest income and net interest ratios excluding PPP loans (non-GAAP) for the nine months ended September 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended |
| September 30, 2022 | | September 30, 2021 |
| (dollars in thousands) | Average
Balance
Outstanding | | Interest/Fee
Earned | | Average
Yield | | Average
Balance
Outstanding | | Interest/Fee
Earned | | Average
Yield |
Loans(1,2) | $ | 1,786,864 | | | $ | 54,543 | | | 4.03 | % | | $ | 1,610,449 | | | $ | 50,509 | | | 4.14 | % |
| Less: PPP loans, net | | | | | | | | | | | |
| Average | 5,502 | | | | | | | 93,408 | | | | | |
| Interest | | | 42 | | | | | | | 734 | | | |
| Fees | | | 598 | | | | | | | 3,827 | | | |
| Total PPP loans, net | 5,502 | | | 640 | | | 15.54 | % | | 93,408 | | | 4,561 | | | 6.51 | % |
Non-PPP loans (non-GAAP)(3) | $ | 1,781,362 | | | $ | 53,903 | | | 3.99 | % | | $ | 1,517,041 | | | $ | 45,948 | | | 4.00 | % |
| | | | | | | | | | | |
| Net interest income, excluding PPP loan income (non-GAAP) |
| Net interest income | | | $ | 62,965 | | | | | | | $ | 52,947 | | | |
| PPP loan income | | | (640) | | | | | | | (4,561) | | | |
Net interest income, excluding PPP loan income (non-GAAP)(3) | | | $ | 62,325 | | | | | | | $ | 48,386 | | | |
| | | | | | | | | | | |
Ratios excluding PPP loans, net (non-GAAP)(3) | | | | | | | | | | |
| Net interest spread | | | | | 2.52 | % | | | | | | 2.27 | % |
| Net interest margin | | | | | 2.68 | % | | | | | | 2.43 | % |
Net interest margin FTE(4) | | | | | 2.73 | % | | | | | | 2.49 | % |
(1)Includes average outstanding balances of loans HFS of $3.6 million and $9.4 million for the nine months ended September 30, 2022 and 2021, respectively.
(2)Nonaccrual loans are included as loans carrying a zero yield.
(3)Non-GAAP financial measure. See also “ - Non-GAAP Financial Measures” in this Report.
(4)Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.
Rate/Volume Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the earlier period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, 2022 vs. June 30, 2022 | | September 30, 2022 vs. September 30, 2021 |
| Increase (Decrease)
Due to Change in | | Total
Increase | | Increase (Decrease)
Due to Change in | | Total
Increase |
| (in thousands) | Volume | | Rate | | (Decrease) | | Volume | | Rate | | (Decrease) |
| Interest-earning assets: | | | | | | | | | | | |
| Loans | $ | 759 | | | $ | 949 | | | $ | 1,708 | | | $ | 5,542 | | | $ | (1,508) | | | $ | 4,034 | |
| Securities - taxable | (123) | | | 44 | | | (79) | | | 3,134 | | | 750 | | | 3,884 | |
| Securities - tax-exempt | (23) | | | (3) | | | (26) | | | 184 | | | (105) | | | 79 | |
| Federal funds sold | 4 | | | 197 | | | 201 | | | (16) | | | 407 | | | 391 | |
| Interest-bearing balances due from banks | (253) | | | 820 | | | 567 | | | (92) | | | 1,820 | | | 1,728 | |
| Nonmarketable equity securities | — | | | 17 | | | 17 | | | — | | | 13 | | | 13 | |
| | | | | | | | | | | |
| Total interest-earning assets | $ | 364 | | | $ | 2,024 | | | $ | 2,388 | | | $ | 8,752 | | | $ | 1,377 | | | $ | 10,129 | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Interest-bearing transaction deposits | $ | (24) | | | $ | 415 | | | $ | 391 | | | $ | 219 | | | $ | 483 | | | $ | 702 | |
| Time deposits | (17) | | | 75 | | | 58 | | | (129) | | | (462) | | | (591) | |
| Total interest-bearing deposits | (41) | | | 490 | | | 449 | | | 90 | | | 21 | | | 111 | |
| | | | | | | | | | | |
| Other borrowings | — | | | — | | | — | | | — | | | — | | | — | |
| Total interest-bearing liabilities | $ | (41) | | | $ | 490 | | | $ | 449 | | | $ | 90 | | | $ | 21 | | | $ | 111 | |
| Increase (decrease) in net interest income | $ | 405 | | | $ | 1,534 | | | $ | 1,939 | | | $ | 8,662 | | | $ | 1,356 | | | $ | 10,018 | |
|
| | | | | | | | | | | |
| | For the Three Months Ended
March 31, 2019 vs 2018 |
| | Increase (Decrease)
Due to Change in | | Total
Increase |
| | Volume | | Rate | | (Decrease) |
| | (in thousands) |
| Interest-earning assets: | | | | | |
| Loans | $ | 848 |
| | $ | 1,070 |
| | $ | 1,918 |
|
| Securities - taxable | (162 | ) | | 69 |
| | (93 | ) |
| Securities - nontaxable | 26 |
| | 8 |
| | 34 |
|
| Federal funds sold | 78 |
| | 83 |
| | 161 |
|
| Interest-bearing balances due from banks | 168 |
| | 141 |
| | 309 |
|
| Nonmarketable equity securities | — |
| | 2 |
| | 2 |
|
| Investment in trusts | — |
| | 1 |
| | 1 |
|
| Total interest income | $ | 958 |
| | $ | 1,374 |
| | $ | 2,332 |
|
| Interest-bearing liabilities: | | | | | |
| Interest-bearing transaction deposits | $ | 36 |
| | $ | 370 |
| | $ | 406 |
|
| Time deposits | 40 |
| | 315 |
| | 355 |
|
| Total interest-bearing deposits | 76 |
| | 685 |
| | 761 |
|
| Junior subordinated debentures | — |
| | 32 |
| | 32 |
|
| Other borrowings | (3 | ) | | — |
| | (3 | ) |
| Total interest expense | $ | 73 |
| | $ | 717 |
| | $ | 790 |
|
| Increase (decrease) in net interest income | $ | 885 |
| | $ | 657 |
| | $ | 1,542 |
|
Provision for Loan Losses
The provision for loan losses is a charge to income necessary to maintain the allowance for loan losses 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 table below presents, for the periods indicated, the provision for loan losses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | |
| (dollars in thousands) | September 30,
2022 | | June 30,
2022 | | Increase (Decrease) | | | | | | |
| Provision for loan losses | $ | 600 | | | $ | 250 | | | $ | 350 | | | 140.0 | % | | | | | | | | |
The provision for loan losses for the three months ended March 31, 2019third quarter of 2022 was $526,000, an increase$600,000, which was $350,000 higher than the provision for loan losses of $115,000, or 28.0%, from $411,000$250,000 for the three months ended March 31, 2018. prior quarter. This increase was due to potential economic challenges resulting from the current inflationary environment, changing monetary policy, and loan growth. We will continue to evaluate future provision needs in relation to current economic situations, loan growth, and trends in asset quality.
The table below presents, for the periods indicated, the provision for loan losses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended | | |
| (dollars in thousands) | September 30,
2022 | | September 30,
2021 | | Increase (Decrease) | | | | | | |
| Provision for loan losses | $ | 1,000 | | | $ | 1,750 | | | $ | (750) | | | (42.9) | % | | | | | | | | |
The provision for loan losses increased primarily asfor the nine months ended September 30, 2022, was $1.0 million, a resultdecrease of $750,000, or 42.9%, from $1.8 million for the growth of the loan portfolio.nine months ended September 30, 2021. The allowanceprovision for loan losses for 2022 was due to total loans heldthe current inflationary environment, changing monetary policy, and loan growth. The provision for investmentloan losses in the same period of 2021 was 0.97%due to the anticipated adverse effects of the COVID-19 pandemic at March 31, 2019, compared to 0.88% at March 31, 2018.that time.
Noninterest Income
Our primary sources of noninterest income are fees related to the sale of mortgage loans, service charges on deposit accounts, debit card fees, fees related to the sale of mortgage loans, brokerage income from advisory services, and other loan and deposit fees.
Third Quarter of 2022 vs. Second Quarter of 2022
Noninterest income increased $139,000, or 4.4%, to $3.3was consistent at $4.9 million for the three months ended March 31, 2019 compared to $3.2 million for the three months ended March 31, 2018.third and second quarters of 2022. The slight increase in noninterest income was mainly due to a gain on the sale and call of securities, higher mortgage loan and deposit income, no impact related to equity securities due to their liquidation in the second quarter, and higher SBIC income, all of which was partially offset by lower deposit income. Mortgagemortgage loan income increased $168,000, or 48.6%, to $514,000 for the three months ended March 31, 2019, compared to $346,000 for the three months ended March 31, 2018 as a result of a higher number of mortgage loan applications in the first quarter of 2019. Deposit income decreased $174,000, or 14.5%, to $1.0 million for the three months ended March 31, 2019, compared to $1.2 million for the three months ended March 31, 2018. In the fourth quarter of 2018, a system change relating to overdraft processing on electronic transactions was made which resulted in lower deposit income in the first quarter of 2019. Management is evaluating other deposit fees to replace the decrease in deposit revenue.
The table below presents, for the periods indicated, the major categories of noninterest income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | |
| (dollars in thousands) | September 30,
2022 | | June 30,
2022 | | Increase (Decrease) | | | | | | |
| Noninterest income: | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | $ | 1,488 | | | $ | 1,410 | | | $ | 78 | | | 5.5 | % | | | | | | | | |
| Debit card income, net | 934 | | | 1,056 | | | (122) | | | (11.6) | % | | | | | | | | |
| Mortgage loan income | 624 | | | 892 | | | (268) | | | (30.0) | % | | | | | | | | |
| Brokerage income | 870 | | | 890 | | | (20) | | | (2.2) | % | | | | | | | | |
| Loan and deposit income | 502 | | | 410 | | | 92 | | | 22.4 | % | | | | | | | | |
| Bank-owned life insurance income | 181 | | | 180 | | | 1 | | | 0.6 | % | | | | | | | | |
| Gain (Loss) on equity securities | — | | | (82) | | | 82 | | | 100.0 | % | | | | | | | | |
| Gain (Loss) on sale and call of securities | 16 | | | (114) | | | 130 | | | (114.0) | % | | | | | | | | |
| SBIC income | 231 | | | 151 | | | 80 | | | 53.0 | % | | | | | | | | |
| Other income (loss) | 21 | | | 67 | | | (46) | | | (68.7) | % | | | | | | | | |
| Total noninterest income | $ | 4,867 | | | $ | 4,860 | | | $ | 7 | | | 0.1 | % | | | | | | | | |
The gain on the sale and call of securities was $16,000 for the third quarter of 2022 as a result of a municipal security that was called. In the second quarter of 2022, the loss on the sale and call of securities was $114,000 as a result of portfolio restructuring transactions.
Loan and deposit income increased $92,000 to $502,000 for the third quarter of 2022 from the previous quarter. This increase was primarily related to annual renewals of letters of credit.
Equity securities were 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. The mutual fund had a loss of $82,000 in the second quarter of 2022. In April 2022, we liquidated all shares invested in the mutual fund.
SBIC income for the third quarter of 2022 increased $80,000 to $231,000 from the prior quarter primarily due to a $95,000 dividend received from the SBIC.
Mortgage loan income decreased $268,000 to $624,000 for the third quarter of 2022, compared to $892,000 for the previous quarter. This decrease was primarily driven by reduced purchase activity due to higher mortgage interest rates.
Debit card income, net, decreased $122,000 to $934,000 for the third quarter of 2022 from the prior quarter. This decrease was mainly due to a decrease in the number of debit card transactions and higher debit card processing fees.
Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021
Noninterest income decreased $4.7 million to $14.1 million for the nine months ended September 30, 2022, compared to $18.8 million for the nine months ended September 30, 2021. The decrease in noninterest income was due to lower mortgage loan income and net debit card income, losses on equity securities and the sale and call of securities, and reduced income from an SBIC limited partnership of which Red River Bank is a member. These decreases were partially offset by increased service charges on deposit accounts.
|
| | | | | | | | | | | | | | |
| | For the Three Months Ended | | Increase (Decrease) |
| | March 31, | |
| | 2019 | | 2018 | | 2019 v. 2018 |
| | (Dollars in thousands) |
| Noninterest income: | | | | | | | |
| Service charges on deposit accounts | $ | 1,026 |
| | $ | 1,200 |
| | $ | (174 | ) | | (14.5 | )% |
| Debit card income, net | 695 |
| | 704 |
| | (9 | ) | | (1.3 | )% |
| Mortgage loan income | 514 |
| | 346 |
| | 168 |
| | 48.6 | % |
| Brokerage income | 365 |
| | 335 |
| | 30 |
| | 9.0 | % |
| Loan and deposit income | 346 |
| | 268 |
| | 78 |
| | 29.1 | % |
| Bank-owned life insurance income | 133 |
| | 137 |
| | (4 | ) | | (2.9 | )% |
| Gain on sale of investments | — |
| | 41 |
| | (41 | ) | | (100.0 | )% |
| Other income | 217 |
| | 126 |
| | 91 |
| | 72.2 | % |
| Total noninterest income | $ | 3,296 |
| | $ | 3,157 |
| | $ | 139 |
| | 4.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Nine Months Ended |
| (dollars in thousands) | | | | | | | September 30,
2022 | | September 30,
2021 | | Increase (Decrease) |
| Noninterest income: | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | | | | | | | | $ | 4,205 | | | $ | 3,457 | | | $ | 748 | | | 21.6 | % |
| Debit card income, net | | | | | | | | | 2,926 | | | 3,344 | | | (418) | | | (12.5) | % |
| Mortgage loan income | | | | | | | | | 2,643 | | | 7,009 | | | (4,366) | | | (62.3) | % |
| Brokerage income | | | | | | | | | 2,536 | | | 2,491 | | | 45 | | | 1.8 | % |
| Loan and deposit income | | | | | | | | | 1,283 | | | 1,281 | | | 2 | | | 0.2 | % |
| Bank-owned life insurance income | | | | | | | | | 533 | | | 473 | | | 60 | | | 12.7 | % |
| Gain (Loss) on equity securities | | | | | | | | | (447) | | | (100) | | | (347) | | | (347.0) | % |
| Gain (Loss) on sale and call of securities | | | | | | | | | (59) | | | 193 | | | (252) | | | (130.6) | % |
| SBIC income | | | | | | | | | 401 | | | 616 | | | (215) | | | (34.9) | % |
| Other income (loss) | | | | | | | | | 107 | | | 57 | | | 50 | | | 87.7 | % |
| Total noninterest income | | | | | | | | | $ | 14,128 | | | $ | 18,821 | | | $ | (4,693) | | | (24.9) | % |
Mortgage loan income decreased $4.4 million to $2.6 million for the nine months ended September 30, 2022, compared to $7.0 million for the same period prior year due to rising mortgage interest rates and home prices, as well as limited housing stock available for purchase. The low mortgage interest rate environment in the nine months ended September 30, 2021, contributed to the high levels of mortgage lending activity for that period.
Debit card income, net, decreased $418,000 to $2.9 million for the nine months ended September 30, 2022, compared to the same period in the prior year. This decrease was primarily related to higher debit card expense as a result of upgrading our debit card stock in the first quarter of 2022 and higher debit card processing fees.
Due to a significant increase in interest rates, equity securities had a fair value loss of $447,000 for the nine months ended September 30, 2022, compared to a loss of $100,000 for the same period in 2021. In April 2022, we liquidated all shares invested in the mutual fund.
The loss on the sale and call of securities was $59,000 for the nine months ended September 30, 2022, and consisted of a loss of $114,000 related to portfolio restructuring transactions in the second quarter of 2022, offset by a $55,000 gain from municipal securities being called in 2022. For the nine months ended September 30, 2021, the gain on the sale and call of securities was $193,000 as a result of portfolio restructuring transactions to improve the structure and yield of the portfolio.
SBIC income decreased $215,000 to $401,000 for the nine months ended September 30, 2022, due to lower operating income being distributed by the SBIC in 2022.
Service charges on deposit accounts increased $748,000 to $4.2 million for the nine months ended September 30, 2022, compared to the same period in the prior year. This increase was mainly due to a larger number of non-sufficient fund transactions and related fee income in 2022.
Operating Expenses
Operating expenses are composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships, and providing services.
Third Quarter of 2022 vs. Second Quarter of 2022
Operating expenses increased $851,000, or 8.3%,$570,000 to $11.2$15.0 million for the three months ended March 31, 2019,third quarter of 2022, compared to $10.3$14.5 million for the three months ended March 31, 2018,second quarter of 2022. The increase was mainly due to higher personnel expenses, other business development expenses, legal and professional expenses, and occupancy expenses. Personnel expenses increased $498,000, or 8.1%, to $6.6 million for the three months ended March 31, 2019, compared to $6.1 million for the three months ended March 31, 2018. As of March 31, 2019 and 2018, we had 321 and 309 full-time equivalent employees, respectively, an increase of 12 full time-equivalent employees. The increase in personnel was related to an increase in back office staff to support increasing volumes and to prepare to operate as a public company, as well as personnel for the Covington area. Occupancy and equipment expenses increased $96,000, or 8.9%, to $1.2 million for the three months ended March 31, 2019, compared to $1.1 million for the three months ended March 31, 2018, due to new expenses in the Southwest Louisiana market related to the openingexpenses.
The following table presents, for the periods indicated, the major categories of operating expense:expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | |
| (dollars in thousands) | September 30,
2022 | | June 30,
2022 | | Increase (Decrease) | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | |
| Personnel expenses | $ | 8,853 | | | $ | 8,574 | | | $ | 279 | | | 3.3 | % | | | | | | | | |
| Non-staff expenses: | | | | | | | | | | | | | | | |
| Occupancy and equipment expenses | 1,531 | | | 1,473 | | | 58 | | | 3.9 | % | | | | | | | | |
| Technology expenses | 653 | | | 695 | | | (42) | | | (6.0) | % | | | | | | | | |
| Advertising | 316 | | | 306 | | | 10 | | | 3.3 | % | | | | | | | | |
| Other business development expenses | 436 | | | 340 | | | 96 | | | 28.2 | % | | | | | | | | |
| Data processing expense | 604 | | | 564 | | | 40 | | | 7.1 | % | | | | | | | | |
| Other taxes | 650 | | | 647 | | | 3 | | | 0.5 | % | | | | | | | | |
| Loan and deposit expenses | 164 | | | 185 | | | (21) | | | (11.4) | % | | | | | | | | |
| Legal and professional expenses | 553 | | | 475 | | | 78 | | | 16.4 | % | | | | | | | | |
| Regulatory assessment expenses | 280 | | | 251 | | | 29 | | | 11.6 | % | | | | | | | | |
| Other operating expenses | 1,001 | | | 961 | | | 40 | | | 4.2 | % | | | | | | | | |
| Total operating expenses | $ | 15,041 | | | $ | 14,471 | | | $ | 570 | | | 3.9 | % | | | | | | | | |
Personnel expenses increased $279,000 to $8.9 million for the third quarter of 2022, compared to the prior quarter. This increase was primarily due to an increase in headcount. As of September 30, 2022 and June 30, 2022, we had 358 and 348 total employees, respectively.
Other business development expenses increased $96,000 to $436,000 for the third quarter of 2022, compared to the prior quarter. This increase was primarily the result of an increase in community sponsorships and CRA related contributions, as well as expenses associated with an SBIC limited partnership.
Legal and professional expenses increased $78,000 to $553,000 for the third quarter of 2022, compared to the prior quarter. This increase was primarily due to higher professional fees and auditing fees.
Occupancy and equipment expenses increased $58,000 to $1.5 million for the third quarter of 2022, compared to the prior quarter. This increase was primarily due to $44,000 of nonrecurring expenses related to the third-quarter opening of a new location in our New Orleans market, partially offset by lower expenses due to relocating the staff and closing the Lafayette LDPO on June 30, 2022.
Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021
Operating expenses increased $3.3 million to $43.6 million for the nine months ended September 30, 2022, compared to $40.2 million for the nine months ended September 30, 2021. The increase in operating expenses was mainly due to higher personnel expenses, occupancy and equipment expenses, other taxes, other operating expenses, and legal and professional expenses, partially offset by lower loan and deposit expenses.
|
| | | | | | | | | | | | | | |
| | For the Three Months Ended | | Increase (Decrease) |
| | March 31, | |
| | 2019 | | 2018 | | 2019 v. 2018 |
| | (Dollars in thousands) |
| Personnel expenses | $ | 6,640 |
| | $ | 6,142 |
| | $ | 498 |
| | 8.1 | % |
| Non-staff expenses: | | | | | | |
|
| Occupancy and equipment expenses | 1,175 |
| | 1,079 |
| | 96 |
| | 8.9 | % |
| Technology expenses | 544 |
| | 506 |
| | 38 |
| | 7.5 | % |
| Advertising | 209 |
| | 175 |
| | 34 |
| | 19.4 | % |
| Other business development expenses | 282 |
| | 307 |
| | (25 | ) | | (8.1 | )% |
| Data processing expense | 459 |
| | 392 |
| | 67 |
| | 17.1 | % |
| Other taxes | 353 |
| | 342 |
| | 11 |
| | 3.2 | % |
| Loan and deposit expenses | 223 |
| | 180 |
| | 43 |
| | 23.9 | % |
| Legal and professional expenses | 319 |
| | 324 |
| | (5 | ) | | (1.5 | )% |
| Other operating expenses | 954 |
| | 860 |
| | 94 |
| | 10.9 | % |
| Total operating expenses | $ | 11,158 |
| | $ | 10,307 |
| | $ | 851 |
| | 8.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended | | |
| (dollars in thousands) | September 30,
2022 | | September 30,
2021 | | Increase (Decrease) | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | |
| Personnel expenses | $ | 25,879 | | | $ | 24,087 | | | $ | 1,792 | | | 7.4 | % | | | | | | | | |
| Non-staff expenses: | | | | | | | | | | | | | | | |
| Occupancy and equipment expenses | 4,496 | | | 4,019 | | | 477 | | | 11.9 | % | | | | | | | | |
| Technology expenses | 2,118 | | | 2,144 | | | (26) | | | (1.2) | % | | | | | | | | |
| Advertising | 841 | | | 691 | | | 150 | | | 21.7 | % | | | | | | | | |
| Other business development expenses | 1,079 | | | 889 | | | 190 | | | 21.4 | % | | | | | | | | |
| Data processing expense | 1,484 | | | 1,445 | | | 39 | | | 2.7 | % | | | | | | | | |
| Other taxes | 1,933 | | | 1,584 | | | 349 | | | 22.0 | % | | | | | | | | |
| Loan and deposit expenses | 479 | | | 773 | | | (294) | | | (38.0) | % | | | | | | | | |
| Legal and professional expenses | 1,446 | | | 1,189 | | | 257 | | | 21.6 | % | | | | | | | | |
| Regulatory assessment expenses | 781 | | | 665 | | | 116 | | | 17.4 | % | | | | | | | | |
| Other operating expenses | 3,037 | | | 2,753 | | | 284 | | | 10.3 | % | | | | | | | | |
| Total operating expenses | $ | 43,573 | | | $ | 40,239 | | | $ | 3,334 | | | 8.3 | % | | | | | | | | |
Personnel expenses increased $1.8 million to $25.9 million for the nine months ended September 30, 2022, compared to the same period in 2021. This increase was primarily due to having nine months of expenses for new staff that were added in the fourth quarter of 2021 in our expansion markets, as well as additional staff in our existing markets, which was partially offset by lower commission compensation in 2022 due to lower mortgage loan activity, when compared to the same period in 2021. As of September 30, 2022 and 2021, we had 358 and 344 total employees, respectively.
Occupancy and equipment expenses increased $477,000 to $4.5 million for the nine months ended September 30, 2022, compared to the same period in 2021. This increase was primarily a result of opening new locations in our expansion markets.
Other taxes increased $349,000 to $1.9 million for the nine months ended September 30, 2022, compared to the same period in 2021. This increase was due to a $353,000 increase in State of Louisiana bank stock tax resulting from higher deposit account balances and higher net income for the applicable tax years.
Other operating expenses increased $284,000 to $3.0 million for the nine months ended September 30, 2022, compared to the same period in 2021. This increase was primarily the result of opening new locations in our expansion markets and an increase in employee related events due to removal of COVID-19 pandemic restrictions.
Legal and professional expenses increased $257,000 to $1.4 million for the nine months ended September 30, 2022, compared to the same period in 2021. This increase was primarily due to higher professional fees and public company expenses due to organizational growth, partially offset by lower attorney fees as a result of the completion of various legal matters.
Loan and deposit expenses decreased $294,000 to $479,000 for the nine months ended September 30, 2022, compared to the same period in 2021. The decrease in loan expenses was primarily due to decreased mortgage loan activity, which was largely driven by rising mortgage interest rates. Deposit expenses decreased due to receipt of a $122,000 negotiated, variable rebate from a vendor in the first quarter of 2022.
Income Tax Expense
The amount of income tax expense is influenced by the amountsamount of our pre-tax income, tax-exempt income, and other nondeductible expenses. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Our effective income tax rates have differed from the U.S. statutory rate due to the effect of tax-exempt income from loans, securities, and life insurance policies, and the income tax effects associated with stock-based compensation.
The table below presents, for the periods indicated, income tax expense:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | |
| (dollars in thousands) | September 30,
2022 | | June 30,
2022 | | Increase (Decrease) | | | | | | |
| Income tax expense | $ | 2,128 | | | $ | 2,141 | | | $ | (13) | | | (0.6) | % | | | | | | | | |
For the three months ended March 31, 2019 and 2018,September 30, 2022, income tax expense totaled $1.4$2.1 million, which was consistent with the second quarter of 2022. The slight decrease in income tax expense was a result of an adjustment to the income tax accrual for the third quarter due to the liquidation of equity securities in the second quarter of 2022. Our effective income tax rates for each of the quarters ended September 30, 2022 and June 30, 2022, were 17.3% and 19.0%, respectively.
The table below presents, for the periods indicated, income tax expense:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended | | |
| (dollars in thousands) | September 30,
2022 | | September 30,
2021 | | Increase (Decrease) | | | | | | |
| Income tax expense | $ | 5,795 | | | $ | 5,337 | | | $ | 458 | | | 8.6 | % | | | | | | | | |
For the nine months ended September 30, 2022 and 2021, income tax expense totaled $5.8 million and $1.1$5.3 million, respectively. The increase in income tax expense was primarily due to the increase in pre-tax income. Our effective income tax rates for the nine months ended September 30, 2022 and 2021, were 17.8% and 17.9%, respectively.
FINANCIAL CONDITION
General
As of September 30, 2022, assets were $3.06 billion, which was $165.0 million, or 5.1%, lower than assets of $3.22 billion as of December 31, 2021, primarily due to a decrease in deposits. Total deposits decreased $113.9 million, or 3.9%, to $2.80 billion as of September 30, 2022, from $2.91 billion as of December 31, 2021. During the nine months ended September 30, 2022, we made several changes to the asset mix, including deploying short-term liquid assets into loans and the securities portfolio, as well as restructuring the securities portfolio. However, in the third quarter of 2022, we did not engage in any securities purchases or sales. Due to the securities purchased in the first half of 2022, total securities increased $97.5 million, or 14.6%, to $764.5 million during the first nine months of 2022, and were 25.0% of assets as of September 30, 2022. As a result of the increase in loans and securities, interest-bearing deposits in other banks decreased $500.1 million, or 65.7%, to $261.6 million and were 8.6% of assets as of September 30, 2022. Loans HFI increased $195.8 million, or 11.6%, which included a $212.0 million, or 12.7%, increase in non-PPP loans compared to December 31, 2021. Stockholders’ equity decreased $54.7 million during the first nine months of 2022 to $243.4 million as of September 30, 2022. As of September 30, 2022, the loans HFI to deposits ratio was 67.22%, compared to 57.86% as of December 31, 2021, and the noninterest-bearing deposits to total deposits ratio was 41.92%, compared to 39.50% as of December 31, 2021.
Interest-bearing Deposits in Other Banks
Interest-bearing deposits in other banks are the third-largest component of earning assets as of September 30, 2022. Excess liquidity that is not being deployed into loans or securities is placed in these accounts. Starting during the COVID-19 pandemic, which began in the first quarter of 2020, and continuing into the first quarter of 2022, interest-bearing deposits in other banks had become the second-largest component of earning assets as deposit growth exceeded loan growth. As of September 30, 2022, interest-bearing deposits in other banks were $261.6 million and were 8.6% of assets, a decrease of $500.1 million, or 65.7%, compared to $761.7 million and 23.6% of assets as of December 31, 2021. In the first nine months of 2022, we deployed excess liquidity into loans and the securities portfolio, although we did not engage in any securities purchases or sales in the third quarter of 2022.
Securities
Our securities portfolio is the second-largest component of earning assets and provides a significant source of revenue. Securities are classified as AFS, HTM, and equity securities. As of September 30, 2022, our total securities portfolio was 25.0% of assets. It is designed primarily to provide and maintain liquidity, generate a favorable return on investments without incurring unnecessary interest rate and credit risk, and complement our lending activities. We may invest in various types of liquid assets that are permissible under governing regulations and approved by our investment policy, which include U.S. Treasury obligations, U.S. government agency obligations, certificates of deposit of insured domestic banks, mortgage-backed and mortgage-related securities, corporate notes having an investment rating of “A” or better, municipal bonds, and certain equity securities.
Securities AFS and Securities HTM
Securities AFS and securities HTM are debt securities. Total debt securities were $764.5 million as of September 30, 2022, an increase of $105.3 million, or 16.0%, from $659.2 million as of December 31, 2021.
Securities AFS are held for indefinite periods of time and are carried at estimated fair value. As of September 30, 2022, the estimated fair value of securities AFS was $609.7 million. The net unrealized loss on securities AFS increased $84.8 million for the nine months ended September 30, 2022, resulting in a net unrealized loss of $89.6 million as of September 30, 2022.
Over the past year, due to the increase in our securities portfolio size, the current and projected balance sheet mix and growth, cash flows, and available liquidity sources, we evaluated transferring selected securities from AFS to HTM. In the second quarter of 2022, we reclassified $166.3 million, net of $17.9 million of unrealized loss, or 20.5% of the securities portfolio from AFS to HTM. Securities HTM, which we have the intent and ability to hold until maturity, are carried at amortized cost. As of September 30, 2022, the amortized cost of securities HTM was $154.7 million.
Investment activity for the nine months ended September 30, 2022, included $313.5 million of securities purchased, partially offset by $31.8 million in sales and $73.4 million in maturities, principal repayments, and calls. There were no purchases or sales of securities HTM for the same period.
Securities AFS purchased during the nine months ended September 30, 2022, primarily consisted of $159.8 million in U.S. Treasuries and $139.1 million in mortgage-backed securities. The U.S. Treasuries purchased had a yield of 1.78% and an average life of 1.85 years, and the mortgage-backed securities had a yield of 1.78% and an average life of 3.63 years. The overall price risk of the securities AFS and securities HTM portfolio decreased 210 bps, compared to December 31, 2021, primarily due to the short-term U.S. Treasury securities purchased in the first and second quarters of 2022 and the rising interest rate environment.
During the first six months of 2022, we reallocated $260.5 million from overnight funds yielding 0.39% to securities AFS yielding 1.80% and purchased $53.0 million of securities yielding 1.91% as we reinvested cash flows from the securities portfolio. In the third quarter of 2022, we did not engage in any purchases or sales transactions; however, we will continue to monitor our portfolio.
The securities AFS portfolio tax-equivalent yield was 1.74% for the nine months ended September 30, 2022, compared to 1.82% for the nine months ended September 30, 2021. The decrease in yield for the nine months ended September 30, 2022, compared to the same period for 2021, was due to purchasing a significant amount of securities in the second half of 2021 and the first half of 2022 with lower yields than the overall portfolio yield at the time of purchase.
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. Mortgage-backed securities and collateralized mortgage obligations are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly pay downs on mortgage-backed securities may cause the average lives of the securities to be much different than the stated contractual maturity. During a period of rising interest rates, fixed rate mortgage-backed securities are not likely to experience heavy prepayments of principal, and consequently, the average lives of these securities are typically lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated average lives of these securities. As of September 30, 2022, the average life of our securities portfolio was 6.9 years with an estimated effective duration of 5.0 years. As of December 31, 2021, the average life of our securities portfolio was 4.9 years with an estimated effective duration of 4.1 years. Both the average life and the effective duration increased due to the increase in market rates and the resulting impact on mortgage-backed securities and our callable municipal securities.
The carrying values of our securities AFS are adjusted for unrealized gain or loss, and any unrealized gain or loss is reported on an after-tax basis as a component of AOCI in stockholders’ equity. As of September 30, 2022, the net unrealized loss of the securities AFS portfolio was $89.6 million, an increase of $84.8 million, compared to a net unrealized loss of $4.8 million as of December 31, 2021. This change is attributed to a significant increase in market rates, which resulted in lower prices on securities and therefore, an overall lower market value of the portfolio.
The following tables summarize the amortized cost and estimated fair value of our securities by type as of the dates indicated. As of September 30, 2022, other than securities issued by U.S. government agencies or government-sponsored enterprises, our securities portfolio did not contain securities of any one issuer with an aggregate book value in excess of 10.0% of our stockholders’ equity.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| (in thousands) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 295,166 | | | $ | — | | | $ | (37,623) | | | $ | 257,543 | |
| Municipal bonds | 220,078 | | | 1 | | | (44,780) | | | 175,299 | |
| U.S. Treasury securities | 176,500 | | | — | | | (6,631) | | | 169,869 | |
| U.S. agency securities | 7,596 | | | — | | | (559) | | | 7,037 | |
| Total Securities AFS | $ | 699,340 | | | $ | 1 | | | $ | (89,593) | | | $ | 609,748 | |
| | | | | | | |
| Securities HTM: | | | | | | | |
| Mortgage-backed securities | $ | 153,826 | | | $ | — | | | $ | (20,785) | | | $ | 133,041 | |
| U.S. agency securities | 910 | | | — | | | (114) | | | 796 | |
| Total Securities HTM | $ | 154,736 | | | $ | — | | | $ | (20,899) | | | $ | 133,837 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| (in thousands) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| Securities AFS: | | | | | | | |
| Mortgage-backed securities | $ | 386,874 | | | $ | 1,112 | | | $ | (8,460) | | | $ | 379,526 | |
| Municipal bonds | 227,248 | | | 3,665 | | | (942) | | | 229,971 | |
| U.S. Treasury securities | 41,770 | | | — | | | (154) | | | 41,616 | |
| U.S. agency securities | 8,062 | | | 61 | | | (58) | | | 8,065 | |
| Total Securities AFS | $ | 663,954 | | | $ | 4,838 | | | $ | (9,614) | | | $ | 659,178 | |
| | | | | | | |
| Securities HTM: | | | | | | | |
| Mortgage-backed securities | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| U.S. agency securities | — | | | — | | | — | | | — | |
| Total Securities HTM | $ | — | | | $ | — | | | $ | — | | | $ | — | |
The following table shows the fair value of securities AFS that mature during each of the periods indicated. The contractual maturity of a mortgage-backed security is the date the last underlying mortgage matures. Yields are weighted-average tax equivalent yields that are calculated by dividing projected annual income by the average amortized cost of the applicable securities while using a 21.0% federal income tax rate, when applicable.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contractual Maturity as of September 30, 2022 |
| Within
One Year | | After One Year
but Within
Five Years | | After Five Years
but Within
Ten Years | | After
Ten Years | | Total |
| (dollars in thousands) | Amount | | Yield(1) | | Amount | | Yield(1) | | Amount | | Yield(1) | | Amount | | Yield(1) | | Amount | | Yield(1) |
| Securities AFS: | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | $ | 136 | | | 1.59 | % | | $ | 795 | | | 2.02 | % | | $ | 60,900 | | | 1.50 | % | | $ | 195,712 | | | 1.83 | % | | $ | 257,543 | | | 1.76 | % |
| Municipal bonds | 4,948 | | | 1.33 | % | | 20,428 | | | 1.80 | % | | 13,639 | | | 2.89 | % | | 136,284 | | | 2.56 | % | | 175,299 | | | 2.48 | % |
| U.S. Treasury securities | 53,067 | | | 1.48 | % | | 116,802 | | | 1.43 | % | | — | | | — | % | | — | | | — | % | | 169,869 | | | 1.45 | % |
| U.S. agency securities | 55 | | | 1.66 | % | | 5,288 | | | 1.75 | % | | 1,694 | | | 1.26 | % | | — | | | — | % | | 7,037 | | | 1.62 | % |
| Total Securities AFS | $ | 58,206 | | | 1.47 | % | | $ | 143,313 | | | 1.50 | % | | $ | 76,233 | | | 1.74 | % | | $ | 331,996 | | | 2.15 | % | | $ | 609,748 | | | 1.91 | % |
(1)Tax equivalent projected book yield as of September 30, 2022.
The following table shows the amortized cost of securities HTM that mature during each of the periods indicated. The contractual maturity of a mortgage-backed security is the date the last underlying mortgage matures. Yields are weighted-average tax equivalent yields that are calculated by dividing projected annual income by the average amortized cost of the applicable securities while using a 21.0% federal income tax rate, when applicable.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contractual Maturity as of September 30, 2022 |
| Within
One Year | | After One Year
but Within
Five Years | | After Five Years
but Within
Ten Years | | After
Ten Years | | Total |
| (dollars in thousands) | Amount | | Yield(1) | | Amount | | Yield(1) | | Amount | | Yield(1) | | Amount | | Yield(1) | | Amount | | Yield(1) |
| Securities HTM: | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | $ | — | | | —% | | | $ | — | | | —% | | | $ | — | | | —% | | | $ | 153,826 | | | 2.95% | | | $ | 153,826 | | | 2.95% | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| U.S. agency securities | — | | | —% | | | — | | | —% | | | 910 | | | 2.61% | | | — | | | —% | | | 910 | | | 2.61% | |
| Total Securities HTM | $ | — | | | —% | | | $ | — | | | —% | | | $ | 910 | | | 2.61% | | | $ | 153,826 | | | 2.95% | | | $ | 154,736 | | | 2.95% | |
(1)Tax equivalent projected book yield as of September 30, 2022.
Equity Securities
Equity securities were an investment in a CRA mutual fund, consisting primarily of bonds. Equity securities were 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, 2021, equity securities had a fair value of $7.8 million with a recognized loss of $175,000 for the year ended December 31, 2021. Equity securities had a recognized loss of $447,000 for the nine months ended September 30, 2022. The loss on equity securities during 2022 was due to a significant increase in interest rates. In April 2022, we liquidated all shares invested in this fund.
Loan Portfolio
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. As of September 30, 2022, loans HFI were $1.88 billion, an increase of $195.8 million, or 11.6%, compared to $1.68 billion as of December 31, 2021.
As of September 30, 2022, our participation in the SBA PPP was substantially complete. As of September 30, 2022, PPP loans totaled $1.4 million, net of $28,000 of deferred income, and were 0.1% of loans HFI.
As of September 30, 2022, non-PPP loans HFI (non-GAAP) were $1.88 billion, an increase of $212.0 million, or 12.7%, from December 31, 2021, due to new customer activity associated with new lenders in our expansion markets and increased loan activity across Louisiana. For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
Loans by Category
Loans HFI by category, non-PPP loans HFI (non-GAAP), and loans HFS are summarized below as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 | | | | | | |
| (dollars in thousands) | Amount | | Percent | | Amount | | Percent | | | | | | | | | | | | |
| Real estate: | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | $ | 787,464 | | | 41.9 | % | | $ | 670,293 | | | 39.8 | % | | | | | | | | | | | | |
| One-to-four family residential | 532,034 | | | 28.3 | % | | 474,420 | | | 28.2 | % | | | | | | | | | | | | |
| Construction and development | 140,398 | | | 7.5 | % | | 106,339 | | | 6.3 | % | | | | | | | | | | | | |
| Commercial and industrial | 307,159 | | | 16.3 | % | | 311,373 | | | 18.5 | % | | | | | | | | | | | | |
| SBA PPP, net of deferred income | 1,350 | | | 0.1 | % | | 17,550 | | | 1.0 | % | | | | | | | | | | | | |
| Tax-exempt | 84,947 | | | 4.5 | % | | 80,726 | | | 4.8 | % | | | | | | | | | | | | |
| Consumer | 26,317 | | | 1.4 | % | | 23,131 | | | 1.4 | % | | | | | | | | | | | | |
| Total loans HFI | $ | 1,879,669 | | | 100.0 | % | | $ | 1,683,832 | | | 100.0 | % | | | | | | | | | | | | |
Total non-PPP loans HFI (non-GAAP)(1) | $ | 1,878,319 | | | | | $ | 1,666,282 | | | | | | | | | | | | | | | |
| Total loans HFS | $ | 1,536 | | | | | $ | 4,290 | | | | | | | | | | | | | | | |
(1)Non-GAAP financial measure. Calculations of this measure and reconciliations to GAAP are included in “ - Non-GAAP Financial Measures” in this Report.
Industry Concentrations
Health care loans are our largest loan industry concentration and are made up of a diversified portfolio of health care providers. As of September 30, 2022, health care loans were $145.7 million, or 7.8% of non-PPP loans HFI (non-GAAP), compared to $138.1 million, or 8.3% of non-PPP loans HFI (non-GAAP) as of December 31, 2021. The average health care loan size was $344,000 as of September 30, 2022, and $295,000 as of December 31, 2021. Within the health care sector, loans to nursing and residential care facilities were 3.9% of non-PPP loans HFI (non-GAAP) as of September 30, 2022, and 3.6% as of December 31, 2021. Loans to physician and dental practices were 3.8% of non-PPP loans HFI (non-GAAP) as of September 30, 2022, and 4.6% as of December 31, 2021.
Energy loans were 2.1% of non-PPP loans HFI (non-GAAP) as of September 30, 2022, and 1.2% as of December 31, 2021. For additional information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
Geographic Markets
As of September 30, 2022, Red River Bank operates in seven geographic markets throughout the state of Louisiana. We entered the Acadiana market in the fourth quarter of 2020 and the New Orleans market in the fourth quarter of 2021. The following table summarizes non-PPP loans HFI (non-GAAP) by market of origin:
| | | | | | | | | | | | | | |
| September 30, 2022 | |
| (dollars in thousands) | Amount | | Percent of Non-PPP Loans HFI (non-GAAP) | |
| Central | $ | 610,692 | | | 32.5 | % | |
| Capital | 511,572 | | | 27.2 | % | |
| Northwest | 369,374 | | | 19.7 | % | |
| Southwest | 140,977 | | | 7.5 | % | |
| Northshore | 127,609 | | | 6.8 | % | |
| New Orleans | 66,676 | | | 3.6 | % | |
| Acadiana | 51,419 | | | 2.7 | % | |
| Total non-PPP loans HFI | $ | 1,878,319 | | | 100.0 | % | |
For additional information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
LIBOR
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 September 30, 2022, 2.1% of our non-PPP loans HFI (non-GAAP) were LIBOR-based with a setting that expires June 30, 2023. Alternative rate language is present in each credit agreement with a LIBOR-based rate. We do not anticipate any issue with transitioning each loan to a non-LIBOR-based rate. For additional information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
Nonperforming Assets
NPAs consist of nonperforming loans and property acquired through foreclosures or repossession. Nonperforming loans include loans that are contractually past due 90 days or more and loans that are on nonaccrual status. Loans are considered past due when principal and interest payments have not been received as of the date such payments are due.
Asset quality is managed through disciplined underwriting policies, continual monitoring of loan performance, and focused management of NPAs. There can be no assurance, however, that the loan portfolio will not become subject to losses due to declines in economic conditions, deterioration in the financial condition of our borrowers, or a decline in the value of collateral.
NPAs totaled $2.7 million as of September 30, 2022, an increase of $1.7 million, or 177.3%, from $979,000 as of December 31, 2021. This increase was primarily due to additional loans placed on nonaccrual status in the third quarter of 2022, partially offset by payments on nonaccrual loans and the sale of foreclosed assets during the year. The ratio of NPAs to total assets was 0.09% as of September 30, 2022, and 0.03% as of December 31, 2021.
Nonperforming loan and asset information is summarized below:
| | | | | | | | | | | |
| (dollars in thousands) | September 30, 2022 | | December 31, 2021 |
| Nonperforming loans: | | | |
| Nonaccrual loans | $ | 2,703 | | | $ | 280 | |
| Accruing loans 90 or more days past due | 12 | | | 39 | |
| Total nonperforming loans | 2,715 | | | 319 | |
| Foreclosed assets: | | | |
| Real estate | — | | | 660 | |
| | | |
| Total foreclosed assets | — | | | 660 | |
| Total NPAs | $ | 2,715 | | | $ | 979 | |
| | | |
Troubled debt restructurings:(1,2) | | | |
| Nonaccrual loans | $ | 147 | | | $ | — | |
| | | |
| Performing loans | 4,204 | | | 3,944 | |
| Total TDRs | $ | 4,351 | | | $ | 3,944 | |
| | | |
| Nonaccrual loans to loans HFI | 0.14% | | | 0.02 | % |
Nonperforming loans to loans HFI(1) | 0.14% | | | 0.02 | % |
| NPAs to total assets | 0.09% | | | 0.03 | % |
(1)Troubled debt restructurings – nonaccrual and accruing loans 90 or more days past due are included in the respective components of nonperforming loans.
(2)In accordance with interagency regulatory guidance issued in March 2020, and revised in April 2020, COVID-19 pandemic-related short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance.
Nonaccrual loans are summarized below by category:
| | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 |
| Real estate: | | | |
| Commercial real estate | $ | 722 | | | $ | 51 | |
| One-to-four family residential | 372 | | | 216 | |
| Construction and development | 9 | | | — | |
| Commercial and industrial | 1,498 | | | 13 | |
| SBA PPP, net of deferred income | — | | | — | |
| Tax-exempt | — | | | — | |
| Consumer | 102 | | | — | |
| Total nonaccrual loans | $ | 2,703 | | | $ | 280 | |
Potential Problem Loans
From a credit risk standpoint, we classify loans in one of five categories: pass, special mention, substandard, doubtful, or loss. Loan classifications reflect a judgment about the risk of default and loss associated with the loans. Classifications are reviewed periodically and adjusted to reflect the degree of risk and loss believed to be inherent in each loan. The methodology is structured so that specific reserve allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
Loans classified as pass are of satisfactory quality and do not require a more severe classification.
Loans classified as special mention have potential weaknesses that deserve management’s close attention. If these weaknesses are not corrected, repayment possibilities for the loan may deteriorate. However, the loss potential does not warrant substandard classification.
Loans classified as substandard have well-defined weaknesses that jeopardize normal repayment of principal and interest. Prompt corrective action is required to reduce exposure and to assure adequate remedial actions are taken by the borrower. If these weaknesses do not improve, loss is possible.
Loans classified as doubtful have well-defined weaknesses that make full collection improbable.
Loans classified as loss are considered uncollectible and charged-off to the allowance for loan losses.
As of September 30, 2022, loans classified as pass were 98.6% of loans HFI, and loans classified as special mention and substandard were 1.1% and 0.3%, respectively, of loans HFI. There were no loans as of September 30, 2022, classified as doubtful or loss. As of December 31, 2021, loans classified as pass were 99.5% of loans HFI, and loans classified as special mention and substandard were 0.1% and 0.4%, respectively, of loans HFI. There were no loans as of December 31, 2021, classified as doubtful or loss.
Allowance for Loan Losses
The allowance for loan losses is 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 is maintained at a level estimated to be adequate to absorb potential losses through periodic changes to loan losses.
In connection with the review of the loan portfolio, risk elements attributable to particular loan types or categories are considered in assessing the quality of individual loans. Some of the risk elements considered include:
• for commercial real estate loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements); operating results of the owner in the case of owner occupied properties; the loan-to-value ratio; the age and condition of the collateral; and the volatility of income, property value, and future operating results typical of properties of that type;
• for one-to-four family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability; the loan-to-value ratio; and the age, condition, and marketability of the collateral;
• for construction and development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease; the quality and nature of contracts for presale or prelease, if any; experience and ability of the developer; and the loan-to-value ratio; and
• for commercial and industrial loans, the debt service coverage ratio; the operating results of the commercial, industrial, or professional enterprise; the borrower’s business, professional, and financial ability and expertise; the specific risks and volatility of income and operating results typical for businesses in that category; the value, nature, and marketability of collateral; and the financial resources of the guarantor(s), if any.
As an SEC registrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for us on January 1, 2023. When effective, the CECL allowance model, prescribed by ASU No. 2016-13, will require measurement of expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts. This model will replace the existing incurred loss model. Based upon our preliminary CECL analysis as of September 30, 2022, we expect the adoption of CECL will result in a combined 1.0% to 5.0% increase in our allowance for credit losses and allowance for unfunded commitments. Refer to “Item 1. Financial Statements - Note 1 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements” in this Report for more information on ASU No. 2016-13.
As of September 30, 2022, the allowance for loan losses was $20.0 million, or 1.06% of both loans HFI and non-PPP loans HFI (non-GAAP). As of December 31, 2021, the allowance for loan losses totaled $19.2 million, or 1.14% of loans HFI, and 1.15% of non-PPP loans HFI (non-GAAP). The $777,000 increase in the allowance for loan losses for the nine months ended September 30, 2022, was mainly due to $1.0 million from the provision for loan losses, partially offset by $223,000 of net charge-offs. For additional information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
The provision for loan losses for the nine months ended September 30, 2022, was $1.0 million, a decrease of $750,000, or 42.9%, from $1.8 million for the nine months ended September 30, 2021. The provision for loan losses for 2022 was due to the current inflationary environment, changing monetary policy, and loan growth. The provision for loan losses in the same period of 2021 was due to the anticipated adverse effects of the COVID-19 pandemic at that time. We will continue to evaluate future provision needs in relation to current economic situations, loan growth, and trends in asset quality.
The following table displays activity in the allowance for loan losses for the periods shown:
| | | | | | | | | | | | | |
| As of and for the Nine Months Ended |
| (dollars in thousands) | September 30,
2022 | | | | September 30,
2021 |
| Loans HFI | $ | 1,879,669 | | | | | $ | 1,622,593 | |
Non-PPP Loans HFI (non-GAAP)(1) | $ | 1,878,319 | | | | | $ | 1,576,631 | |
| Nonaccrual loans | $ | 2,703 | | | | | $ | 1,375 | |
| Average loans | $ | 1,786,864 | | | | | $ | 1,610,449 | |
| | | | | |
| Allowance for loan losses at beginning of period | $ | 19,176 | | | | | $ | 17,951 | |
| Provision for loan losses | 1,000 | | | | | 1,750 | |
| Charge-offs: | | | | | |
| Real estate: | | | | | |
| Commercial real estate | — | | | | | (410) | |
| One-to-four family residential | — | | | | | (10) | |
| Construction and development | (18) | | | | | — | |
| Commercial and industrial | (25) | | | | | (47) | |
| Consumer | (384) | | | | | (243) | |
| Total charge-offs | (427) | | | | | (710) | |
| Recoveries: | | | | | |
| Real estate: | | | | | |
| One-to-four family residential | 8 | | | | | 15 | |
| Construction and development | 18 | | | | | 2 | |
| Commercial and industrial | 81 | | | | | 26 | |
| Consumer | 97 | | | | | 134 | |
| Total recoveries | 204 | | | | | 177 | |
| Net (charge-offs)/recoveries | (223) | | | | | (533) | |
| Allowance for loan losses at end of period | $ | 19,953 | | | | | $ | 19,168 | |
| | | | | |
| Allowance for loan losses to loans HFI | 1.06 | % | | | | 1.18 | % |
Allowance for loan losses to non-PPP loans HFI (non-GAAP)(1) | 1.06 | % | | | | 1.22 | % |
| Allowance for loan losses to nonaccrual loans | 738.18% | | | | | 1,394.04% | |
| Net charge-offs to average loans | 0.01 | % | | | | 0.03 | % |
(1)Non-GAAP financial measure. Calculations of this measure and reconciliations to GAAP are included in “ - Non-GAAP Financial Measures” in this Report.
We believe the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above. Future provisions for loan losses are subject to ongoing evaluations of the factors and loan portfolio risks described above, including economic pressures related to 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 loan losses could be required.
Deposits
Deposits are the primary funding source for loans and investments. We offer a variety of deposit products designed to attract and retain consumer, commercial, and public entity customers. These products consist of noninterest and interest-bearing checking accounts, savings accounts, money market accounts, and time deposit accounts. Deposits are gathered from individuals, partnerships, corporations, and public entities located primarily in our market areas. We do not have any internet-sourced or brokered deposits.
Total deposits decreased $113.9 million, or 3.9%, to $2.80 billion as of September 30, 2022, from $2.91 billion as of December 31, 2021. This decrease was primarily a result of expected customer deposit account activity and customer response to the changing interest rate environment. Noninterest-bearing deposits increased by $22.5 million, or 2.0%, to $1.17 billion as of September 30, 2022. Noninterest-bearing deposits as a percentage of total deposits were 41.92% as of
September 30, 2022, compared to 39.50% as of December 31, 2021. Interest-bearing deposits decreased by $136.3 million, or 7.7%, to $1.62 billion as of September 30, 2022.
The following table presents our deposits by account type as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 | | Change from
December 31, 2021 to September 30, 2022 |
| (dollars in thousands) | Balance | | % of Total | | Balance | | % of Total | | $ Change | | % Change |
| Noninterest-bearing deposits | $ | 1,172,157 | | | 41.9 | % | | $ | 1,149,672 | | | 39.5 | % | | $ | 22,485 | | | 2.0 | % |
| Interest-bearing deposits: | | | | | | | | | | | |
| NOW accounts | 449,543 | | | 16.1 | % | | 503,383 | | | 17.3 | % | | (53,840) | | | (10.7) | % |
| Money market accounts | 644,318 | | | 23.1 | % | | 733,044 | | | 25.2 | % | | (88,726) | | | (12.1) | % |
| Savings accounts | 198,741 | | | 7.1 | % | | 191,076 | | | 6.5 | % | | 7,665 | | | 4.0 | % |
| Time deposits less than or equal to $250,000 | 238,614 | | | 8.5 | % | | 243,596 | | | 8.4 | % | | (4,982) | | | (2.0) | % |
| Time deposits greater than $250,000 | 93,121 | | | 3.3 | % | | 89,577 | | | 3.1 | % | | 3,544 | | | 4.0 | % |
| Total interest-bearing deposits | 1,624,337 | | | 58.1 | % | | 1,760,676 | | | 60.5 | % | | (136,339) | | | (7.7) | % |
| Total deposits | $ | 2,796,494 | | | 100.0 | % | | $ | 2,910,348 | | | 100.0 | % | | $ | (113,854) | | | (3.9) | % |
The following table presents deposits by customer type as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 | | Change from
December 31, 2021 to September 30, 2022 |
| (dollars in thousands) | Balance | | % of Total | | Balance | | % of Total | | $ Change | | % Change |
| Consumer | $ | 1,333,893 | | | 47.7 | % | | $ | 1,400,369 | | | 48.1 | % | | $ | (66,476) | | | (4.7) | % |
| Commercial | 1,296,758 | | | 46.4 | % | | 1,283,992 | | | 44.1 | % | | 12,766 | | | 1.0 | % |
| Public | 165,843 | | | 5.9 | % | | 225,987 | | | 7.8 | % | | (60,144) | | | (26.6) | % |
| Total deposits | $ | 2,796,494 | | | 100.0 | % | | $ | 2,910,348 | | | 100.0 | % | | $ | (113,854) | | | (3.9) | % |
Our uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), were approximately $1.05 billion and $1.22 billion at September 30, 2022 and December 31, 2021, respectively. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.
The following table presents the amount of time deposits, by account, that are in excess of the FDIC insurance limit (currently $250,000) by time remaining until maturity for the period indicated:
| | | | | |
| (in thousands) | September 30, 2022 |
| Three months or less | $ | 10,368 | |
| Over three months through six months | 16,914 | |
| Over six months through 12 months | 9,280 | |
| Over 12 months | 13,559 | |
| Total | $ | 50,121 | |
Borrowings
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. We had no outstanding borrowings as of September 30, 2022 or December 31, 2021.
Equity and Regulatory Capital Requirements
Total stockholders’ equity as of September 30, 2022, was $243.4 million, compared to $298.2 million as of December 31, 2021, a decrease of $54.7 million, or 18.4%. This decrease was attributed to an $80.0 million, net of tax, market adjustment to AOCI related to securities, $1.5 million in cash dividends, and the repurchase of 4,465 shares of common stock for $218,000, partially offset by $26.7 million of net income for the nine months ended September 30, 2022, and $235,000 of stock compensation.
During the second quarter of 2022, the Company reclassified certain securities from AFS to HTM. Such transfers are made at fair value on the date of transfer. The net unrealized holding loss on the date of transfer is retained, net of tax, in AOCI, with no immediate change to the total balance in AOCI. The unrealized holding loss will be amortized over the remaining life of the securities.
At the date of transfer, the net unamortized, unrealized loss on the transferred securities included in the consolidated balance sheets totaled $17.9 million, of which $14.2 million, net of tax, was included in AOCI. As of September 30, 2022, the net unamortized, unrealized loss remaining on the transferred securities included in the consolidated balance sheets totaled $16.0 million, of which $13.0 million, net of tax, was included in AOCI.
On February 4, 2022, our Board of Directors approved the renewal of the stock repurchase program that was completed in the fourth quarter of 2021 after reaching its purchase limit. The renewed repurchase program authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from February 4, 2022 through December 31, 2022. Repurchases may be made from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions. For the three months ended MarchSeptember 30, 2022, the Company did not repurchase any shares of its common stock. For the nine months ended September 30, 2022, the Company repurchased 4,465 shares of its common stock at an aggregate cost of $218,000. As of September 30, 2022, we had $4.8 million available for repurchasing our common stock under this program.
On November 4, 2022, our Board of Directors approved the renewal of the stock repurchase program that will expire on December 31, 2022. This renewed repurchase program has similar terms to the previous program and authorizes us to purchase $5.0 million of our outstanding shares of common stock from January 1, 2023 through December 31, 2023. 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.
The Economic Growth Act, which was signed into law in May 2018, provides, among other items, certain targeted modifications to prior financial services reform regulatory requirements. 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, scaled biannual regulatory reporting requirements as opposed to quarterly regulatory reporting requirements, and not being subject to capital adequacy guidelines on a consolidated basis. Because we had less than $3.0 billion in assets as of each of the June 30th measurement dates starting with the Economic Growth Act’s enactment and going through June 30, 2021, we have received benefits under the Policy Statement and will continue to do so 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 will begin in 2022. As of June 30, 2022, the last applicable measurement date, we had more than $3.0 billion in assets. Therefore, beginning in 2023, we expect to no longer receive any benefits under the Policy Statement.
Another significant provision was the Economic Growth Act’s directive that federal bank regulatory agencies adopt a threshold for a CBLR framework. As part of the directive under the Economic Growth Act, on September 17, 2019, the FDIC and 2018 were 19.4%other federal bank regulatory agencies approved the CBLR framework. This optional framework became effective January 1, 2020, and 17.6%is available as an alternative to the Basel III risk-based capital framework. The CBLR framework provides for a simple measure of capital adequacy for certain community banking organizations. Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier 1 leverage ratio of greater than 9.00% (subsequently temporarily reduced to 8.00% for 2020 and 8.50% for 2021 as a COVID-19 relief measure), respectively.are considered qualifying community banking organizations and are eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements.
As of September 30, 2022, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework. LIQUIDITY AND ASSET-LIABILITY MANAGEMENT
Liquidity
Liquidity involves our ability to raise funds to support asset growth and potential acquisitions or to reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements, and otherwise to operate on an ongoing basis and manage unexpected events. For the threenine months ended March 31, 2019,September 30, 2022, and the year ended December 31, 2018,2021, liquidity needs were primarily met by core deposits, security and loan maturities, and cash flows from amortizing security and loan portfolios. While maturities and scheduled amortization of loans are predictable sources of funds, deposit outflows, mortgage prepayments, and prepayments on amortizing securities are greatly influenced by market interest rates, economic conditions, and the competitive environment in which we operate, and therefore, these cash flows are monitored regularly.
Our most liquid assets are cash and short-term investments that include both interest-earning demand deposits and securities AFS. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. Access to purchased funds from correspondent banks and overnight advances from the FHLB and the Federal Reserve Bank of Atlanta are also available. Purchased funds from correspondent banks and overnight advances can be utilized to meet funding obligations, although we do not generally rely on these external funding sources.
Our primary source of funds is deposits, and our primary use of funds is the funding of loans. We invest excess deposits in interest-earning deposits at other banks or at the Federal Reserve, federal funds sold, securities, or other short-term liquid investments until the deposits are needed to fund loan growth or other obligations. Our average deposits increased $284.7 million, or 11.0%, for the nine months ended September 30, 2022, compared to the average deposits for the twelve months ended December 31, 2021. The increase in average total deposits was primarily a result of customers maintaining higher deposit balances. Our average total loans increased $165.3 million, or 10.2%, for the nine months ended September 30, 2022, compared to average total loans for the twelve months ended December 31, 2021.
Our securities AFS portfolio is anotheran alternative source for meeting liquidity needs.needs, and was our second-largest component of assets as of September 30, 2022. Securities generate cash flow through principal paymentsrepayments, calls, and maturities, and they generally have readily available markets that allow for their conversion to cash. As of March 31, 2019,September 30, 2022, securities AFS securities totaled $319.4$609.7 million, or 19.9% of assets, compared to $307.9$659.2 million, or 20.4% of assets as of December 31, 2018. Additionally,2021. However, certain investments within our securities AFS portfolio are also used to secure specific deposit types, such as for public entities, which impacts their liquidity. As of September 30, 2022, securities AFS with a carrying value of $164.8 million, or 27.0% of the securities AFS portfolio, were pledged to secure public entity deposits as compared to securities AFS with a carrying value of $118.6 million, or 18.0% of the securities AFS portfolio, similarly pledged as of December 31, 2021. The increase of $46.2 million, or 39.0%, was primarily the result of utilizing securities to replace FHLB letters of credit as pledged collateral, combined with an increase in several public entity deposit accounts that occurred during 2022. During the second quarter of 2022, the Company reclassified $166.3 million, or 20.5%, of the securities portfolio from AFS to HTM. Significant limitations exist for selling debt securities classified as HTM, and therefore, are excluded from liquidity sources. For additional information, see “Part I. Financial Information - Item. 1 Financial Statements (Unaudited) - Notes to Unaudited Consolidated Financial Statements - Note 2. Securities - Securities AFS and Securities HTM.”
Interest-bearing deposits in other banks are our main source for meeting daily liquidity needs and were our third-largest component of assets as of September 30, 2022. Interest-bearing deposits in other banks were $261.6 million, or 8.6% of assets as of September 30, 2022, compared to $761.7 million, or 23.6% of assets as of December 31, 2021. The decrease of $500.1 million, or 65.7%, was primarily a result of deploying funds into securities and loans, combined with an outflow of deposits, during the first nine months of the year.
We also utilize the FHLB as needed as a viable funding source. FHLB advances may be used to meet short-term liquidity needs, particularly if the prevailing interest rate on an FHLB advance compares favorably to the rates that would be required to attract the necessary deposits. As of September 30, 2022 and December 31, 2021, our total borrowing availability from the FHLB was $874.0 million and $748.6 million, respectively. At various times, we may obtain letters of credit from the FHLB as collateral for our public entity deposits. As of September 30, 2022 and December 31, 2021, we held unfunded letters of credit in the amount of $15.0 million and $143.8 million, respectively. As of September 30, 2022 and December 31, 2021, our net borrowing capacity from the FHLB was $859.0 million and $604.8 million, respectively.
Other sources available for meeting liquidity needs include federal funds lines, repurchase agreements, and other lines of credit. We maintain four federal funds lines of credit with commercial banks that provided for the availability to borrow up to an aggregate of $95.0 million in federal funds as of March 31, 2019September 30, 2022 and December 31, 2018. There were no outstanding funds under these lines2021. We also maintain an additional $6.0 million revolving line of credit asat one of March 31, 2019 or December 31, 2018. Other sources available for meeting liquidity needs include FHLB advances as well as repurchase agreements.our correspondent banks. As of March 31, 2019September 30, 2022 and December 31, 2018, our net2021, we had total borrowing capacity from the FHLB was $509.0of $101.0 million and $427.6 million, respectively.through these combined funding sources. We had no borrowingsoutstanding balances from the FHLB, nor any utilizationeither of repurchase agreements,these sources as of March 31, 2019 orSeptember 30, 2022 and December 31, 2018.2021.
Our average loans, including average loans held for sale, increased $32.4 million or 2.5% for
Commitments to Extend Credit
In the three months ended March 31, 2019. Our average deposits increased $65.5 million, or 4.2%, for the three months ended March 31, 2019.
Asnormal course of March 31, 2019,business, we had $235.8 million in outstandingenter into certain financial instruments, such as commitments to extend credit and $14.0letters of credit, to meet the financing needs of our customers. These commitments involve elements of credit risk, interest rate risk, and liquidity risk. Some instruments may not be reflected in the accompanying consolidated financial statements until they are funded, although they expose us to varying degrees of credit risk and interest rate risk in much the same way as funded loans.
Commitments to extend credit are agreements to lend to a customer if all conditions of the commitment have been met. Commitments include revolving and nonrevolving credit lines and are primarily issued for commercial purposes. Commitments to extend credit generally have fixed expiration dates or other termination clauses. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions.
As of September 30, 2022, we had $384.6 million in unfunded loan commitments and $14.5 million in commitments associated with outstanding standby letters of credit. As of December 31, 2018,2021, we had $231.5$357.9 million in outstandingunfunded loan commitments to extend credit and $11.6$12.5 million in commitments associated with outstanding standby letters of credit. SinceAs commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding commitments may not necessarily reflect the actual future cash funding requirements.
For
Investment Commitments
The Company is party to various investment commitments in the three months ended March 31, 2019 andnormal course of business. The Company’s exposure is represented by the year ended December 31, 2018, we had no exposurecontractual amount of these commitments.
In 2014, the Company committed to known future cash requirements or capital expenditures of a material nature.an investment into an SBIC limited partnership. As of March 31, 2019, we had cash and cash equivalentsSeptember 30, 2022, 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 $178.0September 30, 2022, there was a $4.3 million comparedoutstanding commitment to $151.9 million asthis partnership.
In the second quarter of December 31, 2018. The increase2021, the Company committed to an investment into a bank technology limited partnership. As of $26.1 million, or 17.2%,September 30, 2022, there was primarily duea $727,000 outstanding commitment to a temporary but large influx of funds to our NOW account balances on the last day of the quarter. These funds were scheduled to be withdrawn within a few days of being deposited.this partnership.
Interest Rate Sensitivity and Market Risk
As a financial institution, our primary component of market risk is interest rate volatility. Our asset-liability management policies provide management with guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our rate sensitivity position within our established policy guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, other than those that have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
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 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 0.64% as of September 30, 2022.
Our exposure to interest rate risk is managed by Red River 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. In determining the appropriate level of interest rate risk, the committee considers the impact on both earnings and capital given the current outlook on interest rates, regional economies, liquidity, business strategies, and other related factorsfactors.
OnThe committee meets quarterly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and economic values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans, and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits, and consumer and commercial deposit activity. We employ methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, as well as an interest rate shock simulation model.
In conjunction with our interest rate risk management process, on a quarterly basis, we run various simulation models includingsimulations within a static balance sheet and dynamic growth balance sheet. These models testmodel. This model tests the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic growth models, ratesRates are shocked instantaneously and ramped
rates change over a 12-month and 24-month horizon based upon parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Our nonparallel rate shock modelsimulation involves analysis of interest income and expense under various changes in the shape of the yield curve.
InternalBank 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 basis pointbp shift and 15.0% for a 200 basis pointbp shift. InternalBank policy regarding economic value at risk simulations performed by our risk model currently specifies that 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 20.0% for a 100 basis pointbp shift and 25.0% for a 200 basis pointbp 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.
| | | | | | | | | | | As of September 30, 2022 | | As of December 31, 2021 |
| | As of March 31, 2019 | | As of December 31, 2018 | | % Change in
Net Interest
Income | | % Change in
Fair Value
of Equity | | % Change in
Net Interest
Income | | % Change in
Fair Value
of Equity |
| | % Change in
Net Interest
Income | | % Change in
Fair Value
of Equity | | % Change in
Net Interest
Income | | % Change in
Fair Value
of Equity | |
| Change in Interest Rates (Basis Points) | | | | | | | | |
| Change in Interest Rates (Bps) | | Change in Interest Rates (Bps) | | | | | | | |
| +300 | 19.50 | % | | 7.10 | % | | 19.20 | % | | 7.10 | % | +300 | 10.7 | % | | (1.6) | % | | 45.7 | % | | 16.7 | % |
| +200 | 13.30 | % | | 5.50 | % | | 12.90 | % | | 5.10 | % | +200 | 7.1 | % | | (0.7) | % | | 30.6 | % | | 13.3 | % |
| +100 | 6.70 | % | | 3.10 | % | | 6.60 | % | | 3.00 | % | +100 | 3.7 | % | | 0.2 | % | | 15.3 | % | | 8.0 | % |
| Base | 0.00 | % | | 0.00 | % | | 0.00 | % | | 0.00 | % | Base | 0.0 | % | | 0.0 | % | | 0.0 | % | | 0.0 | % |
| -100 | (7.00 | )% | | (6.50 | )% | | (6.60 | )% | | (5.00 | )% | -100 | (4.9) | % | | (1.9) | % | | (0.4) | % | | (18.9) | % |
| -200 | (15.60 | )% | | (16.70 | )% | | (14.60 | )% | | (13.40 | )% | -200 | (9.9) | % | | (6.1) | % | | (2.6) | % | | (32.8) | % |
The results above, as of March 31, 2019September 30, 2022 and December 31, 2018,2021, demonstrate that our balance sheet is asset sensitive. sensitive, which means our assets have the opportunity to reprice at a faster pace than our liabilities, over the 12-month horizon. We have also observed that, historically, our deposit interest rates have adjusted more slowly than the change in the federal funds rate. This assumption is incorporated into the risk simulation model and is generally not reflected in a gap analysis, which is the process by which we measure the repricing gap between interest rate-sensitive assets versus interest rate-sensitive liabilities.
As of September 30, 2022, the reported percentage 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. 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.
The impact of our floating rate loans and floating rate transaction deposits are also reflected in the results shown in the above table. As of September 30, 2022, floating rate loans were 14.5% of the loans HFI, and floating rate transaction deposits were 3.6% of interest-bearing transaction deposits.
The assumptions incorporated into the model are inherently uncertain, and as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and the application and timing of various management strategies.strategies and the slope of the yield curve.
NON-GAAP FINANCIAL MEASURES
Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. Certain financial measures used by management to evaluate our operating performance are discussed in this reportReport as supplemental non-GAAP performance measures. In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the U.S. in
Management and the statementsboard of income, balance sheets, or statementsdirectors review tangible book value per share, tangible common equity to tangible assets, realized book value per share, and PPP-adjusted metrics as part of cash flows. Non-GAAP financial measures do not includemanaging operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures, or both.
Theperformance. However, these non-GAAP financial measures that we discuss in this reportReport should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in whichthat we calculate the non-GAAP financial measures that are discussed in this reportReport 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 prospectusReport when comparing such non-GAAP financial measures.
We provide these measures in addition to, not as a substitute for, net incomeTangible Assets, Tangible Equity, Tangible Book Value, and earnings per share, which are reported in adherence to GAAP. Management and the board of directors review tangible book value per share and tangible common equity to tangible assets as part of managing operating performance. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income, earnings per share, and total expenses, are useful for both management and investors when evaluating underlying operating and financial performance and its available resources.Realized Book Value
Tangible Book Value Per Common Share. Tangible book value per common share is a non-GAAP measure commonly used by investors, financial analysts, and investorsinvestment bankers to evaluate financial institutions. We believe that this measure is important to many
investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets. We calculate tangible book value per common share as total stockholders’ equity, less intangible assets, divided by the outstanding number of shares of our common stock at the end of the relevant period. Intangible assets have the effect of increasing total book value while not increasing tangible book value. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share.
Tangible Common Equity to Tangible Assets. Tangible common equity to tangible assets is a non-GAAP measure generally used by investors, financial analysts, and investment bankers to evaluate financial institutions. We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets. Intangible assets have the effect of increasing both total stockholders’ equity and assets while not increasing our tangible common equity or tangible assets. We calculate tangible common equity as total stockholders’ equity less intangible assets, net of accumulated amortization, and we calculate tangible assets as total assets less intangible assets, net of accumulated amortization.assets. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common stockholders’ equity to total assets.
As a result of previous acquisitions, we have a small amount of intangible assets. As of March 31, 2019,September 30, 2022, total intangible assets were $1.5 million, which is less than 1.0% of total assets.
Realized Book Value Per Share. Realized book value per share is a non-GAAP measure that we use to evaluate our operating performance. We believe that this measure is important because it allows us to monitor changes from period to period in book value per share exclusive of changes in AOCI. Our AOCI is impacted primarily by the unrealized gains and losses on securities AFS. These unrealized gains or losses on securities AFS are driven by market factors and may also be temporary and vary greatly from period to period. Due to the possibly temporary and greatly variable nature of these changes, we find it useful to monitor realized book value per share. We calculate realized book value per share as total stockholders’ equity, less AOCI, divided by the outstanding number of shares of our common stock at the end of the relevant period. AOCI has the effect of increasing or decreasing total book value while not increasing or decreasing realized book value. The most directly comparable GAAP financial measure for realized book value per share is book value per share.
The following table reconciles, as of the dates set forth below, stockholders’ equity to tangible common equity, stockholders’ equity to realized common equity, and assets to tangible assets, and presents related resulting ratios.
| | | | | | | | | | | | | | | | | | | |
| (dollars in thousands, except per share data) | September 30,
2022 | | June 30,
2022 | | September 30,
2021 | | |
| Tangible common equity | | | | | | | |
| Total stockholders’ equity | $ | 243,413 | | | $ | 253,596 | | | $ | 298,688 | | | |
| Adjustments: | | | | | | | |
| Intangible assets | (1,546) | | | (1,546) | | | (1,546) | | | |
| Total tangible common equity (non-GAAP) | $ | 241,867 | | | $ | 252,050 | | | $ | 297,142 | | | |
| Realized common equity | | | | | | | |
| Total stockholders’ equity | $ | 243,413 | | | $ | 253,596 | | | $ | 298,688 | | | |
| Adjustments: | | | | | | | |
| Accumulated other comprehensive (income) loss | 83,744 | | | 63,804 | | | 61 | | | |
| Total realized common equity (non-GAAP) | $ | 327,157 | | | $ | 317,400 | | | $ | 298,749 | | | |
| Common shares outstanding | 7,183,915 | | | 7,176,365 | | | 7,276,400 | | | |
| Book value per share | $ | 33.88 | | | $ | 35.34 | | | $ | 41.05 | | | |
| Tangible book value per share (non-GAAP) | $ | 33.67 | | | $ | 35.12 | | | $ | 40.84 | | | |
| Realized book value per share (non-GAAP) | $ | 45.54 | | | $ | 44.23 | | | $ | 41.06 | | | |
| | | | | | | |
| Tangible assets | | | | | | | |
| Total assets | $ | 3,059,678 | | | $ | 3,121,113 | | | $ | 3,020,784 | | | |
| Adjustments: | | | | | | | |
| Intangible assets | (1,546) | | | (1,546) | | | (1,546) | | | |
| Total tangible assets (non-GAAP) | $ | 3,058,132 | | | $ | 3,119,567 | | | $ | 3,019,238 | | | |
| Total stockholders’ equity to assets | 7.96 | % | | 8.13 | % | | 9.89 | % | | |
| Tangible common equity to tangible assets (non-GAAP) | 7.91 | % | | 8.08 | % | | 9.84 | % | | |
|
| | | | | | | | | | | |
| | As of March 31, | | As of December 31, |
| | 2019 | | 2018 | | 2018 |
| | (Dollars in thousands, except per share data) |
| Tangible common equity | | | | | |
| Total stockholders' equity | $ | 202,184 |
| | $ | 179,094 |
| | $ | 193,703 |
|
| Adjustments: | | | | | |
| Intangible assets | (1,546 | ) | | (1,546 | ) | | (1,546 | ) |
| Total tangible common equity | $ | 200,638 |
| | $ | 177,548 |
| | $ | 192,157 |
|
Common shares outstanding(1) | 6,636,926 |
| | 6,723,598 |
| | 6,627,358 |
|
| Book value per common share | $ | 30.46 |
| | $ | 26.64 |
| | $ | 29.23 |
|
| Tangible book value per common share | $ | 30.23 |
| | $ | 26.41 |
| | $ | 28.99 |
|
| | | | | | |
| Tangible assets | | | | | |
| Total assets | $ | 1,922,118 |
| | $ | 1,762,590 |
| | $ | 1,860,588 |
|
| Adjustments: | | | | | |
| Intangible assets | (1,546 | ) | | (1,546 | ) | | (1,546 | ) |
| Total tangible assets | $ | 1,920,572 |
| | $ | 1,761,044 |
| | $ | 1,859,042 |
|
| Total stockholder's equity to assets | 10.52 | % | | 10.16 | % | | 10.41 | % |
| Tangible common equity to tangible assets | 10.45 | % | | 10.08 | % | | 10.34 | % |
| |
(1)
| March 31, 2018 amount adjusted to give effect to the 2018 2-for-1 stock split. |
Red River Bank has participated in the SBA PPP and originated 1,888 PPP loans totaling $260.8 million. PPP loan originations were concluded in the second quarter of 2021. Through September 30, 2022, we had received $259.5 million in SBA forgiveness and borrower payments on 99.9% of the PPP loans originated. As of September 30, 2022, PPP loans totaled $1.4 million, net of $28,000 of deferred income, and were 0.1% of loans HFI.
The following table reconciles, as of the dates set forth below, non-PPP loans to total loans HFI and presents certain ratios using non-PPP loans:
| | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | September 30,
2022 | | December 31,
2021 | | | | September 30,
2021 |
| Non-PPP loans HFI | | | | | | | |
| Loans HFI | $ | 1,879,669 | | | $ | 1,683,832 | | | | | $ | 1,622,593 | |
| Adjustments: | | | | | | | |
| PPP loans, net | (1,350) | | | (17,550) | | | | | (45,962) | |
| Non-PPP loans HFI (non-GAAP) | $ | 1,878,319 | | | $ | 1,666,282 | | | | | $ | 1,576,631 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Allowance for loan losses | $ | 19,953 | | | $ | 19,176 | | | | | $ | 19,168 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Allowance for loan losses to loans HFI | 1.06 | % | | 1.14 | % | | | | 1.18 | % |
| Allowance for loan losses to non-PPP loans HFI (non-GAAP) | 1.06 | % | | 1.15 | % | | | | 1.22 | % |
CRITICAL ACCOUNTING ESTIMATES
There were no material changes or developments during the reporting period with respect to methodologies that we use when developing critical accounting estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Our consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
See “Item 1. Financial Statements – Note 1. Summary of Significant Accounting Policies – Recent Accounting Pronouncements.”
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are presented in our Annual Report on Form 10-K for the Company’s Prospectus that was filed with the SEC on May 3, 2019, relating to its IPOyear ended December 31, 2021, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial ConditionLiquidity and Asset-Liability Management - Interest Rate Sensitivity and Market Risk.” Additional information as of March 31, 2019,September 30, 2022, is included herein under Item 2, “Management’s“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial ConditionLiquidity and Asset-Liability Management - Interest Rate Sensitivity and Market Risk.” The foregoing information is incorporated into this Item 3 by reference.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As of the end of the period covered by this report,Report, an evaluation was performed by the Company, under the supervision and with the participation of its management, including its Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.Report.
Changes in internal control over financial reporting
There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the firstthird quarter of 20192022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company,we, including itsour subsidiaries, are or may becomebe involved in various legal matters arising in the normalordinary course of business. In the opinion of management, neither the Company,we, nor any of itsour subsidiaries, isare involved in anysuch legal proceedingproceedings that the resolution of which is expected to have a material adverse effect on the Company’sour consolidated results of operations, financial condition, or cash flows. However, one or more unfavorable outcomes in any claimthese ordinary claims or litigation against the Companyus or itsour subsidiaries could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or ultimate outcomes, such matters are costly, divert management’s attention, and may materially and adversely affect theour reputation or that of the Company or itsour subsidiaries, even if resolved favorably.
Item 1A. Risk Factors
For information regarding risk factors that could affect the Company'sour business, financial condition, and results of operations, see the heading "Risk Factors"information in “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the Company's Prospectus filed with the SEC on May 3, 2019, relating to its IPO.year ended December 31, 2021. There have been no material changes to the risk factors disclosed in the Prospectus.our most recent Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds
None.Our purchases of shares of common stock made during the quarter under our publicly announced stock repurchase program are summarized in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands, except per share data) | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(1)(2) |
| July 1 - July 31, 2022 | | — | | $ | — | | | — | | $ | 4,782 | |
| August 1 - August 31, 2022 | | — | | $ | — | | | — | | $ | 4,782 | |
| September 1 - September 30, 2022 | | — | | $ | — | | | — | | $ | 4,782 | |
| Total | | — | | $ | — | | | — | | $ | 4,782 | |
(1)On February 4, 2022, our Board of Directors approved the renewal of the stock repurchase program that was completed in the fourth quarter of 2021 after reaching its purchase limit. The renewed repurchase program authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from February 4, 2022 through December 31, 2022. Repurchases may be made from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions.
(2)On November 4, 2022, our Board of Directors approved the renewal of the stock repurchase program that will expire on December 31, 2022. This renewed repurchase program has similar terms to the previous program and authorizes us to purchase $5.0 million of our outstanding shares of common stock from January 1, 2023 through December 31, 2023. 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.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
| |
Item 6. | Exhibits and Financial Statement Schedules |
|
| | | |
| NUMBER | | DESCRIPTION |
| 3.1 | | |
| 3.2 | | |
4.110.1 | | |
| 31.1 | | The other instruments defining the rights of the long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant hereby agrees to furnish copies of these instruments to the SEC upon request. |
31.1 | | |
| 31.2 | | |
| 32.1 | | |
| 32.2 | | |
101.INS101 | | The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, is formatted in Inline Extensible Business Reporting Language (XBRL): (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated Statements of Comprehensive Income, (iv) the Unaudited Consolidated Statements of Changes in Stockholders' Equity, (v) the Unaudited Consolidated Statements of Cash Flows, and (vi) the Notes to Unaudited Consolidated Financial Statements. |
| 101.INS | | Inline XBRL Instance DocumentDocument* - theThe instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentdocument. |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema DocumentDocument* |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase DocumentDocument* |
101.LAB101.DEF | | Inline XBRL Taxonomy Extension Definitions Linkbase Document* |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase DocumentDocument* |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase DocumentDocument* |
101.DEF104 | | Cover Page Interactive Data File* - Formatted as Inline XBRL Taxonomy Extension Definitions Linkbaseand contained within the Inline XBRL Instance Document in Exhibit 101. |
| * | | Filed herewith |
| ** | | These exhibits are furnished herewith and shall not be deemed "filed"“filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act. |
| + | | Indicates a management contract or compensatory plan. |
| # | | Certain exhibits to the Agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. We will furnish the omitted exhibits to the SEC upon request. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | |
| | |
| RED RIVER BANCSHARES, INC. |
| | |
Date: June 7, 2019November 10, 2022 | By: | /s/ R. Blake Chatelain |
| | R. Blake Chatelain |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
Date: June 7, 2019November 10, 2022 | By: | /s/ Isabel V. Carriere |
| | Isabel V. Carriere, CPA, CGMA |
| | Executive Vice-President, Treasurer,Vice President and Chief Financial Officer |
| | (Principal Financial Officer and Assistant SecretaryPrincipal Accounting Officer) |