Red River Bancshares Inc 10-Q for FY2022 Q1
Red River Bancshares Inc (RRBI)
10-Q
2022-05-13
For: 2022-03-31
View Original
Added on
April 08, 2026
About this 10-Q
Red River Bancshares Inc filed this 10-Q on May 13, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $7.39M
- down 8.3% from net income of $8.07M a year earlier
- Diluted EPS
- $1.03
- down 6.4% from $1.10 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended: March 31, 2022
or
| 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
| (Exact name of registrant as specified in its charter) | ||||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code: (318 ) 561-5028
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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 ☒ 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). Yes ☒ 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.
| Large accelerated filer | ☐ | 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 ☐ No ☒
As of April 30, 2022, the registrant had 7,176,365 shares of common stock, no par value, issued and outstanding.
TABLE OF CONTENTS
Page | ||||||||
PART I | Financial Information | |||||||
Item 1. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
PART II | Other Information | |||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
2
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,” and “the Bank” refer to Red River Bank, our wholly owned bank subsidiary.
Other abbreviations or acronyms used in this filing are defined below.
| ABBREVIATION OR ACRONYM | DEFINITION | |||||||
| AFS | Available-for-sale | |||||||
| AOCI | Accumulated other comprehensive income or loss | |||||||
| ASC | Accounting Standards Codification | |||||||
| ASU | Accounting Standards Update | |||||||
| Basel III | Basel Committee’s 2010 Regulatory Capital Framework (Third Accord) | |||||||
| BOLI | Bank-owned life insurance | |||||||
| bp(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 | |||||||
| FDIC | Federal Deposit Insurance Corporation | |||||||
| Federal Reserve | Board of Governors of the Federal Reserve System | |||||||
| FOMC | 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 | |||||||
| HFI | Held for investment | |||||||
| HFS | Held for sale | |||||||
| HTM | Held to maturity | |||||||
| IPO | Initial public offering | |||||||
| LDPO(s) | Loan and deposit production office(s) | |||||||
| LIBOR | London Interbank Offered Rate | |||||||
| MSA | Metropolitan statistical area | |||||||
| NOW | Negotiable order of withdrawal | |||||||
| NPA(s) | Nonperforming asset(s) | |||||||
| OTTI | Other-than-temporary impairment | |||||||
| PPP | Paycheck Protection Program | |||||||
| Report | Quarterly Report on Form 10-Q | |||||||
| SBA | Small Business Administration | |||||||
| SBIC | Small Business Investment Company | |||||||
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| ABBREVIATION OR ACRONYM | DEFINITION | |||||||
| Securities Act | Securities Act of 1933, as amended | |||||||
| SEC | Securities and Exchange Commission | |||||||
| TDR(s) | Troubled debt restructuring(s) | |||||||
4
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report 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, 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, 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, and 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 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 risk factors found in “Part I - Item 1A. Risk Factors” in our Annual 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.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. 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-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, 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
5
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.
6
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RED RIVER BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| (in thousands, except share amounts) | March 31, 2022 | December 31, 2021 | |||||||||||||||
| ASSETS | |||||||||||||||||
| Cash and due from banks | $ | $ | |||||||||||||||
| Interest-bearing deposits in other banks | |||||||||||||||||
| Total Cash and Cash Equivalents | |||||||||||||||||
| Securities available-for-sale, at fair value | |||||||||||||||||
| Equity securities, at fair value | |||||||||||||||||
| Nonmarketable equity securities | |||||||||||||||||
| Loans held for sale | |||||||||||||||||
| Loans held for investment | |||||||||||||||||
| Allowance for loan losses | ( | ( | |||||||||||||||
| Premises and equipment, net | |||||||||||||||||
| Accrued interest receivable | |||||||||||||||||
| Bank-owned life insurance | |||||||||||||||||
| Intangible assets | |||||||||||||||||
| Right-of-use assets | |||||||||||||||||
| Other assets | |||||||||||||||||
| Total Assets | $ | $ | |||||||||||||||
| LIABILITIES | |||||||||||||||||
| Noninterest-bearing deposits | $ | $ | |||||||||||||||
| Interest-bearing deposits | |||||||||||||||||
| Total Deposits | |||||||||||||||||
| Accrued interest payable | |||||||||||||||||
| Lease liabilities | |||||||||||||||||
| Accrued expenses and other liabilities | |||||||||||||||||
| Total Liabilities | |||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||||||||
Preferred stock, no par value: Authorized - | |||||||||||||||||
Common stock, no par value: Authorized - Issued and Outstanding - | |||||||||||||||||
| Additional paid-in capital | |||||||||||||||||
| Retained earnings | |||||||||||||||||
| Accumulated other comprehensive income (loss) | ( | ( | |||||||||||||||
| Total Stockholders’ Equity | |||||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands, except per share data) | 2022 | 2021 | |||||||||||||||||||||
| INTEREST AND DIVIDEND INCOME | |||||||||||||||||||||||
| Interest and fees on loans | $ | $ | |||||||||||||||||||||
| Interest on securities | |||||||||||||||||||||||
| Interest on federal funds sold | |||||||||||||||||||||||
| Interest on deposits in other banks | |||||||||||||||||||||||
| Dividends on stock | |||||||||||||||||||||||
| Total Interest and Dividend Income | |||||||||||||||||||||||
| INTEREST EXPENSE | |||||||||||||||||||||||
| Interest on deposits | |||||||||||||||||||||||
| Total Interest Expense | |||||||||||||||||||||||
| Net Interest Income | |||||||||||||||||||||||
| Provision for loan losses | |||||||||||||||||||||||
| Net Interest Income After Provision for Loan Losses | |||||||||||||||||||||||
| NONINTEREST INCOME | |||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| Debit card income, net | |||||||||||||||||||||||
| Mortgage loan income | |||||||||||||||||||||||
| Brokerage income | |||||||||||||||||||||||
| Loan and deposit income | |||||||||||||||||||||||
| Bank-owned life insurance income | |||||||||||||||||||||||
| Gain (Loss) on equity securities | ( | ( | |||||||||||||||||||||
| Gain (Loss) on sale and call of securities | |||||||||||||||||||||||
| SBIC income | |||||||||||||||||||||||
| Other income (loss) | |||||||||||||||||||||||
| Total Noninterest Income | |||||||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||
| Personnel expenses | |||||||||||||||||||||||
| Occupancy and equipment expenses | |||||||||||||||||||||||
| Technology expenses | |||||||||||||||||||||||
| Advertising | |||||||||||||||||||||||
| Other business development expenses | |||||||||||||||||||||||
| Data processing expense | |||||||||||||||||||||||
| Other taxes | |||||||||||||||||||||||
| Loan and deposit expenses | |||||||||||||||||||||||
| Legal and professional expenses | |||||||||||||||||||||||
| Regulatory assessment expenses | |||||||||||||||||||||||
| Other operating expenses | |||||||||||||||||||||||
| Total Operating Expenses | |||||||||||||||||||||||
| Income Before Income Tax Expense | |||||||||||||||||||||||
Income tax expense | |||||||||||||||||||||||
| Net Income | $ | $ | |||||||||||||||||||||
| EARNINGS PER SHARE | |||||||||||||||||||||||
Basic | $ | $ | |||||||||||||||||||||
Diluted | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Unrealized net gain (loss) on securities arising during period | ( | ( | |||||||||||||||||||||
| Tax effect | |||||||||||||||||||||||
| (Gain) Loss on sale and call of securities included in net income | ( | ( | |||||||||||||||||||||
| Tax effect | |||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Comprehensive Income (Loss) | $ | ( | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
9
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (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, 2020 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock incentive plan | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of shares of common stock as board compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Repurchase of common stock under stock repurchase program | ( | ( | — | — | — | ( | |||||||||||||||||||||||||||||
Cash dividend - $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock incentive plan | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of shares of common stock as board compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Repurchase of common stock under stock repurchase program | ( | ( | — | — | — | ( | |||||||||||||||||||||||||||||
Cash dividend - $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
10
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Share-based compensation earned | |||||||||||
| Share-based board compensation earned | |||||||||||
| (Gain) Loss on other assets owned | |||||||||||
| Net (accretion) amortization on securities AFS | |||||||||||
| (Gain) Loss on sale and call of securities | ( | ( | |||||||||
| Provision for loan losses | |||||||||||
| Deferred income tax (benefit) expense | ( | ( | |||||||||
| Net (increase) decrease in loans HFS | ( | ||||||||||
| Net (increase) decrease in accrued interest receivable | ( | ||||||||||
| Net (increase) decrease in BOLI | ( | ( | |||||||||
| Net increase (decrease) in accrued interest payable | ( | ||||||||||
| Net increase (decrease) in accrued income taxes payable | |||||||||||
| Other operating activities, net | |||||||||||
| Net cash provided by (used in) operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Activity in securities AFS: | |||||||||||
| Sales | |||||||||||
| Maturities, principal repayments, and calls | |||||||||||
| Purchases | ( | ( | |||||||||
| Purchase of nonmarketable equity securities | ( | ||||||||||
| Net (increase) decrease in loans HFI | ( | ( | |||||||||
| Proceeds from sales of foreclosed assets | |||||||||||
| Purchases of premises and equipment | ( | ( | |||||||||
| Net cash provided by (used in) investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Net increase (decrease) in deposits | |||||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Cash dividends | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | |||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents - beginning of period | |||||||||||
| Cash and cash equivalents - end of period | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURES | |||||||||||
| Cash paid during the year for: | |||||||||||
Interest | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
11
RED RIVER BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies
Accounting Standards Adopted in 2022
ASU 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, 2022, and did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 sets forth the CECL model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses. In addition, the update amends the accounting for credit losses on AFS securities. As an SEC registrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for 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-functional working group and is currently working through an implementation plan. The implementation plan includes an assessment of data, model development and documentation, documentation of processes, and implementation of a third-party vendor solution to assist in the adoption of ASU 2016-13.
ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update address how to determine whether a contract liability is recognized by the acquirer in a business combination. The amendment also resolves the inconsistency of post-acquisition revenue recognition by providing specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This standard will be adopted by 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.
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
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2. Securities
Securities held for indefinite periods of time are classified as AFS and carried at estimated fair value. Investment activity for the three months ended March 31, 2022, included $232.7 million of securities purchased and $29.8 million in maturities, principal repayments, and calls. The net unrealized loss on the securities AFS portfolio increased $50.7 million for the three months ended March 31, 2022, resulting in an unrealized loss of $55.5 million as of March 31, 2022.
The amortized cost and estimated fair values of securities AFS are summarized in the following tables:
| March 31, 2022 | |||||||||||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| Securities AFS: | |||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Municipal bonds | ( | ||||||||||||||||||||||
| U.S. Treasury securities | ( | ||||||||||||||||||||||
| U.S. agency securities | ( | ||||||||||||||||||||||
| Total Securities AFS | $ | $ | $ | ( | $ | ||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| Securities AFS: | |||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Municipal bonds | ( | ||||||||||||||||||||||
| U.S. Treasury securities | ( | ||||||||||||||||||||||
| U.S. agency securities | ( | ||||||||||||||||||||||
| Total Securities AFS | $ | $ | $ | ( | $ | ||||||||||||||||||
The amortized cost and estimated fair value of debt securities as of March 31, 2022, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers have the right to call or repay obligations with or without call or prepayment penalties.
| (in thousands) | Amortized Cost | Fair Value | |||||||||
| Within one year | $ | $ | |||||||||
| After one year but within five years | |||||||||||
| After five years but within ten years | |||||||||||
| After ten years | |||||||||||
| Total | $ | $ | |||||||||
13
Information pertaining to securities with gross unrealized losses as of March 31, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is described as follows:
| Less than twelve months | Twelve months or more | ||||||||||||||||||||||
| (in thousands) | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||
| Securities AFS: | |||||||||||||||||||||||
| Mortgage-backed securities | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Municipal bonds | ( | ( | |||||||||||||||||||||
| U.S. Treasury securities | ( | ||||||||||||||||||||||
| U.S. agency securities | ( | ( | |||||||||||||||||||||
| Total Securities AFS | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Securities AFS: | |||||||||||||||||||||||
| Mortgage-backed securities | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Municipal bonds | ( | ( | |||||||||||||||||||||
| U.S. Treasury securities | ( | ||||||||||||||||||||||
| U.S. agency securities | ( | ||||||||||||||||||||||
| Total Securities AFS | $ | ( | $ | $ | ( | $ | |||||||||||||||||
As of March 31, 2022, the Company held 513 securities that were in unrealized loss positions. The aggregate unrealized loss of these securities as of March 31, 2022, was 6.43 % of the amortized cost basis of the total securities AFS portfolio. 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. The unrealized losses on these securities have 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 decline in fair value of these securities is 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 three months ended March 31, 2022, or the year ended December 31, 2021.
The proceeds from sales and calls of securities AFS and their gross gain (loss) for the three months ended March 31, 2022 and 2021, are shown below:
| Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||
Proceeds (1) | $ | $ | |||||||||||||||||||||
| Gross gain | $ | $ | |||||||||||||||||||||
| Gross loss | $ | $ | ( | ||||||||||||||||||||
Pledged Securities
Securities with carrying values of approximately $133.6 million and $118.6 million were pledged to secure public entity deposits as of March 31, 2022 and December 31, 2021, respectively.
14
3. Loans and Asset Quality
Loans
Loans HFI by category and loans HFS are summarized below:
| (in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| Real estate: | |||||||||||
| Commercial real estate | $ | $ | |||||||||
| One-to-four family residential | |||||||||||
| Construction and development | |||||||||||
| Commercial and industrial | |||||||||||
| SBA PPP, net of deferred income | |||||||||||
| Tax-exempt | |||||||||||
| Consumer | |||||||||||
| Total loans HFI | $ | $ | |||||||||
| Total loans HFS | $ | $ | |||||||||
Allowance for Loan Losses
The following table summarizes the activity in the allowance for loan losses by category for the three months ended March 31, 2022:
| (in thousands) | Beginning Balance December 31, 2021 | Provision for Loan Losses | Charge-offs | Recoveries | Ending Balance March 31, 2022 | ||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| One-to-four family residential | ( | ||||||||||||||||||||||||||||
| Construction and development | ( | ||||||||||||||||||||||||||||
| Commercial and industrial | ( | ( | |||||||||||||||||||||||||||
| SBA PPP, net of deferred income | ( | ||||||||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||||||||
| Consumer | ( | ||||||||||||||||||||||||||||
| Total allowance for loan losses | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
The following table summarizes the activity in the allowance for loan losses by category for the twelve months ended December 31, 2021:
| (in thousands) | Beginning Balance December 31, 2020 | Provision for Loan Losses | Charge-offs | Recoveries | Ending Balance December 31, 2021 | ||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| One-to-four family residential | ( | ( | |||||||||||||||||||||||||||
| Construction and development | ( | ||||||||||||||||||||||||||||
| Commercial and industrial | ( | ||||||||||||||||||||||||||||
| SBA PPP, net of deferred income | ( | ||||||||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||||||||
| Consumer | ( | ||||||||||||||||||||||||||||
| Total allowance for loan losses | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
15
The balance in the allowance for loan losses and the related recorded investment in loans by category as of March 31, 2022, are as follows:
| (in thousands) | Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Acquired with Deteriorated Credit Quality | Total | |||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | |||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Total allowance for loan losses | $ | $ | $ | $ | |||||||||||||||||||
| Loans: | |||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | |||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Total loans HFI | $ | $ | $ | $ | |||||||||||||||||||
The balance in the allowance for loan losses and the related recorded investment in loans by category as of December 31, 2021, are as follows:
| (in thousands) | Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Acquired with Deteriorated Credit Quality | Total | |||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | |||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Total allowance for loan losses | $ | $ | $ | $ | |||||||||||||||||||
| Loans: | |||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | |||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Total loans HFI | $ | $ | $ | $ | |||||||||||||||||||
16
Past Due and Nonaccrual Loans
A summary of current, past due, and nonaccrual loans as of March 31, 2022, is as follows:
| Accruing | |||||||||||||||||||||||||||||
| (in thousands) | Current | 30-89 Days Past Due | 90 Days or More Past Due | Nonaccrual | Total Loans | ||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Total loans HFI | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
A summary of current, past due, and nonaccrual loans as of December 31, 2021, is as follows:
| Accruing | |||||||||||||||||||||||||||||
| (in thousands) | Current | 30-89 Days Past Due | 90 Days or More Past Due | Nonaccrual | Total Loans | ||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Total loans HFI | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
17
Impaired Loans
Impaired loans include TDRs and performing and nonperforming loans. Information pertaining to impaired loans as of March 31, 2022, is as follows:
| (in thousands) | Unpaid Principal Balance | Recorded Investment | Related Allowance | Average Recorded Investment | |||||||||||||||||||
| With no related allowance recorded: | |||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | — | $ | ||||||||||||||||||
| One-to-four family residential | — | ||||||||||||||||||||||
| Construction and development | — | ||||||||||||||||||||||
| Commercial and industrial | — | ||||||||||||||||||||||
| SBA PPP, net of deferred income | — | ||||||||||||||||||||||
| Tax-exempt | — | ||||||||||||||||||||||
| Consumer | — | ||||||||||||||||||||||
| Total with no related allowance | — | ||||||||||||||||||||||
| With allowance recorded: | |||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Total with related allowance | |||||||||||||||||||||||
| Total impaired loans | $ | $ | $ | $ | |||||||||||||||||||
18
Information pertaining to impaired loans as of December 31, 2021, is as follows:
| (in thousands) | Unpaid Principal Balance | Recorded Investment | Related Allowance | Average Recorded Investment | |||||||||||||||||||
| With no related allowance recorded: | |||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | — | $ | ||||||||||||||||||
| One-to-four family residential | — | ||||||||||||||||||||||
| Construction and development | — | ||||||||||||||||||||||
| Commercial and industrial | — | ||||||||||||||||||||||
| SBA PPP, net of deferred income | — | ||||||||||||||||||||||
| Tax-exempt | — | ||||||||||||||||||||||
| Consumer | — | ||||||||||||||||||||||
| Total with no related allowance | — | ||||||||||||||||||||||
| With allowance recorded: | |||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Total with related allowance | |||||||||||||||||||||||
| Total impaired loans | $ | $ | $ | $ | |||||||||||||||||||
The interest income recognized on impaired loans for the three months ended March 31, 2022 and March 31, 2021, was $54,000 and $65,000 , respectively.
Troubled Debt Restructurings
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 as of March 31, 2022 or December 31, 2021.
A summary of current, past due, and nonaccrual TDR loans as of March 31, 2022, is as follows:
| (dollars in thousands) | Current | 30-89 Days Past Due | 90 Days or More Past Due | Nonaccrual(1) | Total TDRs | ||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Number of TDR loans | |||||||||||||||||||||||||||||
(1)This loan has a contractual obligation to the Company despite carrying a zero balance.
19
A summary of current, past due, and nonaccrual TDR loans as of December 31, 2021, is as follows:
| (dollars in thousands) | Current | 30-89 Days Past Due | 90 Days or More Past Due | Nonaccrual(1) | Total TDRs | ||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Number of TDR loans | |||||||||||||||||||||||||||||
(1)This loan has a contractual obligation to the Company despite carrying a zero balance.
There were no no
Credit Quality Indicators
Loans are categorized based on the degree of risk inherent in the credit and the ability of the borrower to service the debt. A description of the general characteristics of the Bank’s risk rating grades follows:
Pass - These loans are of satisfactory quality and do not require a more severe classification.
Special Mention - This category includes loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan.
Substandard - Loans in this category have well-defined weaknesses that jeopardize normal repayment of principal and interest.
Doubtful - Loans in this category have well-defined weaknesses that make full collection improbable.
Loss - Loans classified in this category are considered uncollectible and charged-off to the allowance for loan losses.
The following table summarizes loans by risk rating as of March 31, 2022:
| (in thousands) | Pass | Special Mention | Substandard | Doubtful | Loss | Total | |||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||||||||
| Total loans HFI | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
20
The following table summarizes loans by risk rating as of December 31, 2021:
| (in thousands) | Pass | Special Mention | Substandard | Doubtful | Loss | Total | |||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| One-to-four family residential | |||||||||||||||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||
| SBA PPP, net of deferred income | |||||||||||||||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||||||||
| Total loans HFI | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer if all conditions of the commitment have been met. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s evaluation of the customer’s ability to repay. As of March 31, 2022, unfunded loan commitments totaled approximately $356.4 million. As of December 31, 2021, unfunded loan commitments totaled approximately $357.9 million.
4. Deposits
Deposits were $2.93 billion and $2.91 billion as of March 31, 2022 and December 31, 2021, respectively. This increase was primarily a result of customers maintaining higher deposit balances, partially offset by the normal seasonal drawdowns as public entity customers distributed their year-end funds to other organizations. Deposits are summarized below:
| (in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| Noninterest-bearing deposits | $ | $ | |||||||||
| Interest-bearing deposits: | |||||||||||
| NOW accounts | |||||||||||
| Money market accounts | |||||||||||
| Savings accounts | |||||||||||
| Time deposits less than or equal to $250,000 | |||||||||||
| Time deposits greater than $250,000 | |||||||||||
| Total interest-bearing deposits | |||||||||||
| Total deposits | $ | $ | |||||||||
5. Contingencies
21
6. Fair Value
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair Value Disclosure
Securities AFS, loans HFS, and equity securities are recorded at fair value on a recurring basis. Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, foreclosed assets, and other certain assets. The nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
ASC 820, Fair Value Measurements and Disclosures indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels:
•Level 1 pricing represents quotes on the exact financial instrument that is traded in active markets. Quoted prices on actively traded equities, for example, are in this category.
•Level 2 pricing is derived from observable data including market spreads, current and projected rates, prepayment data, and credit quality. The valuation may be based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 pricing is derived without the use of observable data. In such cases, mark-to-model strategies are typically employed. Often, these types of instruments have no active market, possess unique characteristics, and are thinly traded.
The Company used the following methods and significant assumptions to estimate fair value:
Investment Securities and Equity Securities: The fair values for marketable securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Loans HFS: Residential mortgage loans originated and held for sale are carried at the lower of cost or estimated fair value on an individual basis. The fair values of mortgage loans HFS are based on commitments on hand from investors within the secondary market for loans with similar characteristics. As such, the fair value adjustments for mortgage loans HFS are recurring Level 2.
Loans HFI: The Company does not record loans HFI at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an allowance 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.
22
Fair Value of Assets Measured on a Recurring Basis
The table below presents the recorded amount of assets measured at fair value on a recurring basis:
| (in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||
| Loans HFS | $ | $ | $ | $ | |||||||||||||||||||
| Securities AFS: | |||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | $ | |||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| U.S. agency securities | $ | $ | $ | $ | |||||||||||||||||||
| Equity securities | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Loans HFS | $ | $ | $ | $ | |||||||||||||||||||
| Securities AFS: | |||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | $ | |||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| U.S. agency securities | $ | $ | $ | $ | |||||||||||||||||||
| Equity securities | $ | $ | $ | $ | |||||||||||||||||||
There were no transfers between Level 1, 2, or 3 for the three months ended March 31, 2022 and the year ended December 31, 2021.
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis
Financial Assets and Financial Liabilities: Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances. Financial assets measured at fair value on a nonrecurring basis include certain impaired collateral dependent loans reported at fair value of the underlying collateral if repayment is expected solely from the collateral. Prior to foreclosure of these loans, fair value of the collateral is estimated using Level 3 inputs based on customized discounting criteria.
The table below presents certain impaired loans that were remeasured and reported at fair value through the allowance for loan losses based upon the fair value of the underlying collateral during the reported periods:
| For the three Months Ended | |||||||||||
| (in thousands) | March 31, 2022 | March 31, 2021 | |||||||||
| Carrying value of impaired loans before allowance for loan losses | $ | $ | |||||||||
| Specific allowance for loan losses | ( | ||||||||||
| Fair value of impaired loans | $ | $ | |||||||||
The Company had no financial liabilities measured at fair value on a nonrecurring basis for the three months ended March 31, 2022 and March 31, 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.
There were no foreclosed assets that were remeasured at initial recognition for the three months ended March 31, 2022 and March 31, 2021.
There were no foreclosed assets that were remeasured subsequent to initial recognition for the three months ended March 31, 2022 and March 31, 2021.
23
The Company had no nonfinancial liabilities measured at fair value on a nonrecurring basis for the three months ended March 31, 2022 and March 31, 2021.
The unobservable inputs used for the Level 3 fair value measurements on a nonrecurring basis were as follows:
| (dollars in thousands) | Fair Value | Valuation Technique | Unobservable Input | Discount Ranges | Weighted Average Discount | ||||||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||||||||
| Impaired loans | $ | Discounted appraisals | Collateral discounts and costs to sell | ||||||||||||||||||||||||||
| Foreclosed assets | $ | Discounted appraisals | Collateral discounts and costs to sell | N/A | N/A | ||||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
| Impaired loans | $ | Discounted appraisals | Collateral discounts and costs to sell | ||||||||||||||||||||||||||
| Foreclosed assets | $ | Discounted appraisals | Collateral discounts and costs to sell | N/A | N/A | ||||||||||||||||||||||||
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments as of March 31, 2022 and December 31, 2021, were as follows:
| (in thousands) | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest-bearing deposits in other banks | |||||||||||||||||||||||||||||
| Securities AFS | |||||||||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||||
| Nonmarketable equity securities | |||||||||||||||||||||||||||||
| Loans HFS | |||||||||||||||||||||||||||||
| Loans HFI, net of allowance | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest-bearing deposits in other banks | |||||||||||||||||||||||||||||
| Securities AFS | |||||||||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||||
| Nonmarketable equity securities | |||||||||||||||||||||||||||||
| Loans HFS | |||||||||||||||||||||||||||||
| Loans HFI, net of allowance | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
24
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 Bank’s and the Company’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 subject to Basel III capital guidelines. Basel III requires the Bank to maintain certain minimum ratios to meet capital adequacy requirements. In addition, a CCB was established above the minimum regulatory capital requirements. Effective January 1, 2019, the final CCB was fully phased in at 2.50%. It is management’s belief that, as of March 31, 2022, the Bank met all capital adequacy requirements under Basel III. 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 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, 2022 and December 31, 2021, are presented in the following table:
| Regulatory Requirements | |||||||||||||||||||||||||||||||||||
| Actual | Minimum | Minimum Plus CCB | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Total Risk-Based Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Tier I Risk-Based Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Common Equity Tier I Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Tier I Leverage Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Total Risk-Based Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Tier I Risk-Based Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Common Equity Tier I Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Tier I Leverage Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
Red River Bancshares, Inc.
As a general matter, bank holding companies are subject to Basel III capital adequacy requirements under applicable Federal Reserve regulations on a consolidated basis. However, bank holding companies that qualify as “small bank holding companies” under the Federal Reserve’s Small Bank Holding Company Policy Statement are exempt from the Federal Reserve’s consolidated capital adequacy guidelines at the holding company level and instead are evaluated at the bank level. In May 2018, the Economic Growth Act was enacted, and it increased the asset threshold for “small bank holding companies” from $1.0 billion to $3.0 billion. Because the Company had less than $3.0 billion in assets as of June 30, 2021, the last applicable measurement date, it is not subject to capital adequacy guidelines on a consolidated basis as of March 31, 2022. Although the minimum regulatory capital requirements are not applicable to the Company, the Company calculates these ratios for its own planning and monitoring purposes.
25
Capital amounts and ratios for Red River Bancshares, Inc. as of March 31, 2022 and December 31, 2021, are presented in the following table:
| Actual | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Ratio | |||||||||||||||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Total Risk-Based Capital | $ | % | |||||||||||||||||||||||||||||||||
| Tier I Risk-Based Capital | $ | % | |||||||||||||||||||||||||||||||||
| Common Equity Tier I Capital | $ | % | |||||||||||||||||||||||||||||||||
| Tier I Leverage Capital | $ | % | |||||||||||||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Total Risk-Based Capital | $ | % | |||||||||||||||||||||||||||||||||
| Tier I Risk-Based Capital | $ | % | |||||||||||||||||||||||||||||||||
| Common Equity Tier I Capital | $ | % | |||||||||||||||||||||||||||||||||
| Tier I Leverage Capital | $ | % | |||||||||||||||||||||||||||||||||
Community Bank Leverage Ratio Framework
As part of the directive under the Economic 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 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), 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 March 31, 2022, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework.
8. Earnings Per Common Share
26
The computations of basic and diluted earnings per common share for the Company were as follows:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands, except share amounts) | 2022 | 2021 | |||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income - basic | $ | $ | |||||||||||||||||||||
| Net income - diluted | $ | $ | |||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding - basic | |||||||||||||||||||||||
| Plus: Effect of Director Compensation Program | |||||||||||||||||||||||
| Plus: Effect of restricted stock | |||||||||||||||||||||||
| Weighted average shares outstanding - diluted | |||||||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
9. Stock Repurchase Program
10. Subsequent Events
Equity securities are an investment in a CRA mutual fund, consisting primarily of bonds. Equity securities are carried at fair value on the consolidated balance sheets with periodic changes in value recorded through the consolidated statements of income. The fair value of equity securities was $7.5 million as of March 31, 2022, with a recognized loss of $365,000 for the three months ended March 31, 2022, compared to a fair value of $7.8 million as of December 31, 2021, with a recognized loss of $175,000 for the year ended December 31, 2021. The loss on equity securities in the first quarter of 2022 was due to a significant increase in interest rates. In April 2022, all shares invested in the mutual fund were liquidated.
During the second quarter of 2022, the Company decided to reclassify a selected portion of the securities portfolio from AFS to HTM. Such reclassifications are made at fair value on the date of reclassification. The unrealized gains or losses on the date of the reclassification are retained in AOCI and in the carrying value of the HTM securities. This amount is amortized out of AOCI over the remaining life of the underlying HTM securities, and will impact the yield on those securities.
27
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. on a consolidated basis from December 31, 2021 through March 31, 2022, and on our results of operations for the quarters ended March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 and March 31, 2021. The comparison periods presented for our results of operations in this Report have changed since our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, which was our immediately prior Form 10-Q. Beginning with this Report, we will report our results of operations for the most recently completed quarter compared to the immediately preceding quarter as opposed to comparing to the corresponding quarter of the prior year. We believe this comparison aligns our quarterly disclosures more closely to how our management oversees our Company. Since we are a financial institution, we believe we are not as highly subject to seasonal fluctuations as other businesses and industries. Therefore, we believe comparing our results of operations to the immediately preceding fiscal quarter offers a more meaningful analysis to our investors.
This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021, and information presented elsewhere in this 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” and “Part II - Item 1A. Risk Factors” in this Report. Also, see risk factors and other cautionary statements described in “Part I - Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the 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. is the bank holding company for Red River Bank, a Louisiana state-chartered bank established in 1999 that provides a fully integrated suite of banking products and services tailored to the needs of our commercial and retail customers. Red River Bank operates from a network of 27 banking centers throughout Louisiana and two combined LDPOs, one each in Lafayette, Louisiana and New Orleans, Louisiana. Banking centers are located in the following Louisiana markets: Central, which includes the Alexandria MSA; Northwest, which includes the Shreveport-Bossier City MSA; Capital, which includes the Baton Rouge MSA; Southwest, which includes the Lake Charles MSA; the Northshore, which includes Covington; and Acadiana, which includes the Lafayette MSA.
Our priority is to drive shareholder value through the establishment of a market-leading commercial banking franchise based in Louisiana. We provide our services through relationship-oriented bankers who are committed to their customers and the communities where we offer our products and services. Our strategy is to expand market share in existing markets and engage in opportunistic new market de novo expansion, supplemented by strategic acquisitions of financial institutions with customer-oriented, compatible philosophies and in desirable geographic areas.
FIRST QUARTER 2022 FINANCIAL AND OPERATIONAL HIGHLIGHTS
In the first quarter of 2022, the Company had solid loan growth, deployed funds into the securities portfolio, and had reduced earnings. We continued to execute our organic expansion plan in the New Orleans and Acadiana markets, renewed the stock repurchase program, and announced changes to the board of directors.
•Assets were fairly consistent during the first quarter of 2022, and totaled $3.21 billion as of March 31, 2022. The asset mix improved due to deploying funds into securities and loans.
•Net income for the first quarter of 2022 was $7.4 million, or $1.03 diluted EPS, a decrease of $1.1 million, or 13.1%, compared to $8.5 million, or $1.17 diluted EPS for the prior quarter and a decrease of $673,000, or 8.3%, compared to $8.1 million, or $1.10 diluted EPS, for the first quarter of 2021. For the first quarter of 2022, the quarterly return on assets was 0.93%, and the quarterly return on equity was 10.27%.
•Net income for the first quarter of 2022 was lower than the prior quarter due to lower PPP loan income, lower mortgage loan fee income, and a loss on equity securities, partially offset by higher securities AFS income.
•Red River Bank is participating in the SBA PPP. As of March 31, 2022, PPP loans were $6.4 million, net of $169,000 of deferred income, or 0.4% of loans HFI. PPP loan income decreased in the first quarter of 2022 due to lower PPP loan balances. PPP loan income for the first quarter of 2022 was $485,000, compared to $1.2 million for the prior quarter.
•Mortgage loan income for the first quarter of 2022 was $1.1 million, $540,000 lower than the prior quarter. The decrease in mortgage loan income was a result of reduced activity due to rising home prices and higher mortgage interest rates, as well as limited housing stock available for purchase.
28
•Equity securities are an investment in a CRA mutual fund consisting primarily of bonds. The mutual fund had a loss of $365,000 for the first quarter of 2022, compared to a loss of $75,000 for the fourth quarter of 2021.
•In the first quarter of 2022, excess funds were deployed into the securities AFS portfolio. Securities AFS as of March 31, 2022, were $810.8 million, or 25.2% of assets, compared to $659.2 million, or 20.4% of assets, as of December 31, 2021. This portfolio increased $151.6 million, or 23.0%, during the first quarter of 2022, which resulted in a $550,000 increase in securities income.
•As of March 31, 2022, non-PPP loans HFI (non-GAAP) were $1.73 billion, an increase of $68.3 million, or 4.1%, from December 31, 2021. The growth in non-PPP loans HFI was primarily a result of new customer activity associated with new lenders in our expansion markets and increased loan activity in various legacy markets. For additional information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
•Excluding PPP loan income, the net interest margin FTE (non-GAAP) for the first quarter of 2022 was 2.41%, compared to 2.38% for the prior quarter. This increase was primarily a result of deploying low-yielding, short-term liquid assets into higher-yielding securities and loans. For additional information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
•NPAs were $973,000, or 0.03% of assets, as of March 31, 2022. As of March 31, 2022, the allowance for loan losses was $19.2 million, or 1.11% of loans HFI.
•The board of directors approved changes to the Red River Bank 401(k) Profit Sharing Plan (“401(k) Plan”). Effective April 1, 2022, employees have the opportunity to invest a portion of their 401(k) Plan funds in the Company’s common stock through a unitized fund.
•We paid a quarterly cash dividend of $0.07 per common share.
•In the fourth quarter of 2021, the $5.0 million stock repurchase program that was approved in August 2021 was completed after reaching the purchase limit. On February 4, 2022, the board of directors approved the renewal of our stock repurchase program. The renewed repurchase program authorizes the Company to purchase up to $5.0 million of outstanding shares of common stock from February 4, 2022 through December 31, 2022. In accordance with this stock repurchase program, we repurchased 4,465 shares of our common stock in the first quarter of 2022 at an aggregate cost of $218,000.
•We continued implementing our organic expansion plan. On January 26, 2022, we opened our first Red River Bank full-service banking center in Lafayette, Louisiana. In March 2022, we leased an existing banking center location in downtown New Orleans, which, pending regulatory approval, we expect to open as the Bank’s first full-service banking center in the New Orleans market in the second quarter of 2022. Also, we purchased property in Metairie, Louisiana, a New Orleans suburb, with the plan to construct a full-service banking center.
•Various changes occurred with the Boards of Directors of the Company and the Bank. John C. Simpson, Chair Emeritus and a founding director, retired from the Board of Directors of the Company and the Bank at the end of his term at the Company’s 2022 annual shareholder meeting on May 5, 2022. Michael D. Crowell was appointed to the boards of the Company and the Bank.
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 March 31, 2022 | ||||||||||||||||||||||
| (dollars in thousands) | March 31, 2022 | December 31, 2021 | $ Change | % Change | |||||||||||||||||||
| Selected Period End Balance Sheet Data: | |||||||||||||||||||||||
| Total assets | $ | 3,212,460 | $ | 3,224,710 | $ | (12,250) | (0.4) | % | |||||||||||||||
| Interest-bearing deposits in other banks | 506,982 | 761,721 | (254,739) | (33.4) | % | ||||||||||||||||||
| Securities available-for-sale | 810,804 | 659,178 | 151,626 | 23.0 | % | ||||||||||||||||||
| Loans held for investment | 1,741,026 | 1,683,832 | 57,194 | 3.4 | % | ||||||||||||||||||
| Total deposits | 2,927,728 | 2,910,348 | 17,380 | 0.6 | % | ||||||||||||||||||
| Total stockholders’ equity | 264,874 | 298,150 | (33,276) | (11.2) | % | ||||||||||||||||||
29
| As of and for the Three Months Ended | |||||||||||||||||||||||||||||
| (dollars in thousands, except per share data) | March 31, 2022 | December 31, 2021 | March 31, 2021 | ||||||||||||||||||||||||||
| Net Income | $ | 7,392 | $ | 8,510 | $ | 8,065 | |||||||||||||||||||||||
| Per Common Share Data: | |||||||||||||||||||||||||||||
| Earnings per share, basic | $ | 1.03 | $ | 1.18 | $ | 1.10 | |||||||||||||||||||||||
| Earnings per share, diluted | $ | 1.03 | $ | 1.17 | $ | 1.10 | |||||||||||||||||||||||
| Book value per share | $ | 36.91 | $ | 41.52 | $ | 38.99 | |||||||||||||||||||||||
Tangible book value per share(1,2) | $ | 36.69 | $ | 41.31 | $ | 38.78 | |||||||||||||||||||||||
Realized book value per share(1,3) | $ | 43.02 | $ | 42.05 | $ | 39.04 | |||||||||||||||||||||||
| Cash dividends per share | $ | 0.07 | $ | 0.07 | $ | 0.07 | |||||||||||||||||||||||
| Shares outstanding | 7,176,365 | 7,180,155 | 7,306,747 | ||||||||||||||||||||||||||
Weighted average shares outstanding, basic | 7,179,624 | 7,229,324 | 7,317,995 | ||||||||||||||||||||||||||
Weighted average shares outstanding, diluted | 7,198,616 | 7,247,277 | 7,337,151 | ||||||||||||||||||||||||||
| Summary Performance Ratios: | |||||||||||||||||||||||||||||
| Return on average assets | 0.93 | % | 1.09 | % | 1.20 | % | |||||||||||||||||||||||
| Return on average equity | 10.27 | % | 11.33 | % | 11.36 | % | |||||||||||||||||||||||
| Net interest margin | 2.41 | % | 2.46 | % | 2.69 | % | |||||||||||||||||||||||
Net interest margin FTE(4) | 2.46 | % | 2.52 | % | 2.76 | % | |||||||||||||||||||||||
Efficiency ratio(5) | 60.80 | % | 57.33 | % | 54.02 | % | |||||||||||||||||||||||
| Loans HFI to deposits ratio | 59.47 | % | 57.86 | % | 63.69 | % | |||||||||||||||||||||||
Noninterest-bearing deposits to deposits ratio | 40.34 | % | 39.50 | % | 40.37 | % | |||||||||||||||||||||||
| Noninterest income to average assets | 0.56 | % | 0.72 | % | 1.01 | % | |||||||||||||||||||||||
| Operating expense to average assets | 1.77 | % | 1.79 | % | 1.96 | % | |||||||||||||||||||||||
| Summary Credit Quality Ratios: | |||||||||||||||||||||||||||||
| NPAs to total assets | 0.03 | % | 0.03 | % | 0.13 | % | |||||||||||||||||||||||
Nonperforming loans to loans HFI | 0.02 | % | 0.02 | % | 0.18 | % | |||||||||||||||||||||||
Allowance for loan losses to loans HFI | 1.11 | % | 1.14 | % | 1.21 | % | |||||||||||||||||||||||
Net charge-offs to average loans | 0.00 | % | 0.01 | % | 0.00 | % | |||||||||||||||||||||||
| Capital Ratios: | |||||||||||||||||||||||||||||
| Total stockholders’ equity to total assets | 8.25 | % | 9.25 | % | 10.10 | % | |||||||||||||||||||||||
Tangible common equity to tangible assets(1,6) | 8.20 | % | 9.20 | % | 10.05 | % | |||||||||||||||||||||||
Total risk-based capital to risk-weighted assets | 17.28 | % | 17.83 | % | 18.87 | % | |||||||||||||||||||||||
Tier 1 risk-based capital to risk-weighted assets | 16.26 | % | 16.76 | % | 17.66 | % | |||||||||||||||||||||||
Common equity Tier 1 capital to risk-weighted assets | 16.26 | % | 16.76 | % | 17.66 | % | |||||||||||||||||||||||
Tier 1 risk-based capital to average assets | 9.51 | % | 9.67 | % | 10.43 | % | |||||||||||||||||||||||
(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.
(2)We calculate tangible book value per share as total stockholders’ equity, less intangible assets, divided by the outstanding number of shares of our common stock at the end of the relevant period.
(3)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.
(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 sum of net interest income and 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.
30
RESULTS OF OPERATIONS
Net income for the first quarter of 2022 was $7.4 million, or $1.03 diluted EPS, a decrease of $1.1 million or 13.1%, compared to $8.5 million, or $1.17 diluted EPS, in the fourth quarter of 2021. The decrease in net income was due to a $1.3 million decrease in noninterest income, a $47,000 decrease in net interest income, and a $46,000 increase in operating expenses, partially offset by a $245,000 decrease in income tax expense. The return on assets for the first quarter of 2022 was 0.93%, compared to 1.09% for the fourth quarter of 2021. The return on equity was 10.27% for the first quarter of 2022 and 11.33% for the fourth quarter of 2021. Our efficiency ratio for the first quarter of 2022 was 60.80%, compared to 57.33% for the fourth quarter of 2021.
Net income for the three months ended March 31, 2022, was $7.4 million, or $1.03 diluted EPS, a decrease of $673,000, or 8.3%, compared to $8.1 million, or $1.10 diluted EPS, for the three months ended March 31, 2021. The decrease in net income was due to a $2.4 million decrease in noninterest income and an $899,000 increase in operating expenses, partially offset by a $1.3 million decrease in the provision for loan losses, a $1.1 million increase in net interest income, and a $162,000 decrease in income tax expense. The return on assets for the three months ended March 31, 2022, was 0.93%, compared to 1.20% for the same period in the prior year. The return on equity was 10.27% for the three months ended March 31, 2022, and 11.36% for the three months ended March 31, 2021. Our efficiency ratio for the three months ended March 31, 2022, was 60.80%, compared to 54.02% for the three months ended March 31, 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 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 cost 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 0.25% and remained at that rate until March 16, 2022, when the FOMC increased the target federal funds rate 25 bps to 0.50%. The average effective federal funds rate for the first quarter of 2022 was 0.12% compared to 0.08% for both the fourth quarter of 2021 and the first quarter of 2021. The net interest income and net interest margin FTE continued to be impacted by the low interest rate environment, despite the FOMC increasing the target federal funds rate.
First Quarter of 2022 vs. Fourth Quarter of 2021
Net interest income for the first quarter of 2022 was $18.7 million, which was $47,000, or 0.3%, lower than the fourth quarter of 2021, due to a $66,000 decrease in interest and dividend income, partially offset by a $19,000 decrease in interest expense. The decrease in interest and dividend income was primarily due to a decrease in PPP loan income, partially offset by an increase in securities income. PPP loan income decreased $727,000 due to lower average PPP loans outstanding and lower fees recognized to income on PPP loans. Securities income increased $550,000 during the first quarter as we increased our investment in our securities portfolio by deploying lower-yielding short-term liquid assets into higher-yielding taxable securities. Interest expense decreased in the first quarter of 2022 as a result of our third quarter 2021 adjustment to rates, which impacted new and renewing time deposits, partially offset by an increase in the average balance of interest-bearing transaction deposits.
The net interest margin FTE decreased six bps to 2.46% for the first quarter of 2022, compared to 2.52% for the prior quarter, primarily due to a 16 bp decrease in loan yield driven by a $727,000 decrease in PPP loan income. This decrease was partially offset by an eight bp increase in the yield on taxable securities driven by our deployment of short-term liquid assets into the securities portfolio. This activity increased the balance of higher-yielding taxable securities and decreased the balance of lower-yielding short-term liquid assets, which also benefited from higher yields compared to the prior quarter due to a higher interest rate environment.
The FOMC is expected to raise the target federal funds rate several more times in 2022. Our balance sheet is asset sensitive, and historically, our deposit interest rates have adjusted more slowly than the change in the federal funds rate. As of March 31, 2022, floating rate loans were 14.5% of loans HFI, and floating rate transaction deposits were 4.4% of interest-bearing transaction deposits. Dependent upon 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 2022.
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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, 2022 and December 31, 2021:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2022 | December 31, 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) | $ | 1,690,445 | $ | 16,770 | 3.97 | % | $ | 1,654,711 | $ | 17,415 | 4.13 | % | |||||||||||||||||||||||
| Securities - taxable | 556,648 | 1,879 | 1.35 | % | 423,724 | 1,347 | 1.27 | % | |||||||||||||||||||||||||||
| Securities - tax-exempt | 215,360 | 1,083 | 2.01 | % | 210,263 | 1,065 | 2.03 | % | |||||||||||||||||||||||||||
Federal funds sold | 53,249 | 25 | 0.19 | % | 55,342 | 21 | 0.15 | % | |||||||||||||||||||||||||||
Interest-bearing balances due from banks | 589,794 | 251 | 0.17 | % | 645,627 | 226 | 0.14 | % | |||||||||||||||||||||||||||
| Nonmarketable equity securities | 3,450 | 1 | 0.10 | % | 3,449 | 1 | 0.10 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | 3,108,946 | $ | 20,009 | 2.58 | % | 2,993,116 | $ | 20,075 | 2.64 | % | |||||||||||||||||||||||||
| Allowance for loan losses | (19,203) | (19,164) | |||||||||||||||||||||||||||||||||
| Noninterest-earning assets | 124,258 | 130,268 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 3,214,001 | $ | 3,104,220 | |||||||||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
Interest-bearing transaction deposits | $ | 1,418,583 | $ | 455 | 0.13 | % | $ | 1,310,430 | $ | 410 | 0.12 | % | |||||||||||||||||||||||
| Time deposits | 332,585 | 826 | 1.01 | % | 341,445 | 890 | 1.03 | % | |||||||||||||||||||||||||||
| Total interest-bearing deposits | 1,751,168 | 1,281 | 0.30 | % | 1,651,875 | 1,300 | 0.31 | % | |||||||||||||||||||||||||||
| Other borrowings | — | — | — | % | — | — | — | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 1,751,168 | $ | 1,281 | 0.30 | % | 1,651,875 | $ | 1,300 | 0.31 | % | |||||||||||||||||||||||||
| Noninterest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 1,153,377 | 1,136,342 | |||||||||||||||||||||||||||||||||
Accrued interest and other liabilities | 17,514 | 18,050 | |||||||||||||||||||||||||||||||||
Total noninterest-bearing liabilities | 1,170,891 | 1,154,392 | |||||||||||||||||||||||||||||||||
| Stockholders’ equity | 291,942 | 297,953 | |||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 3,214,001 | $ | 3,104,220 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 18,728 | $ | 18,775 | |||||||||||||||||||||||||||||||
| Net interest spread | 2.28 | % | 2.33 | % | |||||||||||||||||||||||||||||||
| Net interest margin | 2.41 | % | 2.46 | % | |||||||||||||||||||||||||||||||
Net interest margin FTE(3) | 2.46 | % | 2.52 | % | |||||||||||||||||||||||||||||||
| Cost of deposits | 0.18 | % | 0.18 | % | |||||||||||||||||||||||||||||||
| Cost of funds | 0.17 | % | 0.17 | % | |||||||||||||||||||||||||||||||
(1)Includes average outstanding balances of loans HFS of $4.3 million and $6.1 million for the three months ended March 31, 2022 and December 31, 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.
Average PPP loans outstanding, net of deferred income, for the first quarter of 2022 were $11.1 million, which was $18.1 million lower than the prior quarter. During the first quarter of 2022, we received $11.6 million in SBA forgiveness and borrower repayments on PPP loans, compared to $29.6 million in the prior quarter. PPP loans have a 1.0% interest rate, and PPP loan origination fees are recorded to interest income over the loan term, or until the loans are forgiven by the SBA or repaid by the borrower. When PPP loan forgiveness payments or borrower payments are received in full, the remaining portion of origination fees are recorded to income. For the first quarter of 2022, PPP loan interest and fees totaled $485,000, resulting in a 17.77% yield, compared to $1.2 million in interest and fees and a 16.46% yield for the prior quarter. The decrease in PPP loan income was primarily due to a lower amount of PPP loans forgiven by the SBA in the first quarter of 2022 than in the fourth quarter of 2021. The increase in PPP loan yield was primarily due to forgiving loans with higher origination fee percentages in the first quarter of 2022 when compared to the prior quarter. As of March 31, 2022, deferred PPP fees were $169,000.
Excluding PPP loan income, net interest income (non-GAAP) for the first quarter of 2022 was $18.2 million, which was $680,000, or 3.9%, higher than the fourth quarter of 2021. Also, with PPP loans excluded for the first quarter of 2022, the yield on non-PPP loans (non-GAAP) was 3.88%, and the net interest margin FTE (non-GAAP) was 2.41%. For the first
32
quarter of 2022, PPP loans had a nine bp accretive impact to the yield on loans and a five 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, total non-PPP loans (non-GAAP), as well as net interest income and net interest ratios excluding PPP loans (non-GAAP) for the three months ended March 31, 2022 and December 31, 2021:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Average Balance Outstanding | Interest/Fee Earned | Average Yield | Average Balance Outstanding | Interest/Fee Earned | Average Yield | |||||||||||||||||||||||||||||
Loans(1,2) | $ | 1,690,445 | $ | 16,770 | 3.97 | % | $ | 1,654,711 | $ | 17,415 | 4.13 | % | |||||||||||||||||||||||
| Less: PPP loans, net | |||||||||||||||||||||||||||||||||||
| Average | 11,061 | 29,191 | |||||||||||||||||||||||||||||||||
| Interest | 28 | 76 | |||||||||||||||||||||||||||||||||
| Fees | 457 | 1,136 | |||||||||||||||||||||||||||||||||
| Total PPP loans, net | 11,061 | 485 | 17.77 | % | 29,191 | 1,212 | 16.46 | % | |||||||||||||||||||||||||||
Non-PPP loans (non-GAAP)(3) | $ | 1,679,384 | $ | 16,285 | 3.88 | % | $ | 1,625,520 | $ | 16,203 | 3.90 | % | |||||||||||||||||||||||
| Net interest income, excluding PPP loan income (non-GAAP) | |||||||||||||||||||||||||||||||||||
| Net interest income | $ | 18,728 | $ | 18,775 | |||||||||||||||||||||||||||||||
| PPP loan income | (485) | (1,212) | |||||||||||||||||||||||||||||||||
Net interest income, excluding PPP loan income (non-GAAP)(3) | $ | 18,243 | $ | 17,563 | |||||||||||||||||||||||||||||||
Ratios excluding PPP loans, net (non-GAAP)(3) | |||||||||||||||||||||||||||||||||||
| Net interest spread | 2.22 | % | 2.19 | % | |||||||||||||||||||||||||||||||
| Net interest margin | 2.35 | % | 2.33 | % | |||||||||||||||||||||||||||||||
Net interest margin FTE(4) | 2.41 | % | 2.38 | % | |||||||||||||||||||||||||||||||
(1)Includes average outstanding balances of loans HFS of $4.3 million and $6.1 million for the three months ended March 31, 2022 and December 31, 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.
Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021
Net interest income for the three months ended March 31, 2022 was $18.7 million, which was $1.1 million, or 6.5%, higher than $17.6 million for the three months ended March 31, 2021. Net interest income increased due to an $831,000 increase in interest and dividend income and a $306,000 decrease in interest expense.
The increase in interest and dividend income for the three months ended March 31, 2022, when compared to the three months ended March 31, 2021, was primarily due to our deployment of excess liquidity, which resulted in increases to non-PPP loan income and securities income, partially offset by a decrease in PPP loan income. Non-PPP loan income increased $1.3 million due to a $192.9 million increase in the average balance of non-PPP loans when compared to the first quarter of 2021, partially offset by lower rates on new and renewed non-PPP loans. Securities income increased $1.1 million due to a higher average balance of securities as we increased our investment in our securities portfolio during the first quarter of 2022 by deploying lower-yielding short-term liquid assets into higher-yielding taxable securities. PPP loan income decreased $1.6 million due to lower average PPP loan balances outstanding and lower fees recognized to income on PPP loans.
Interest expense decreased over the past 12 months as deposits continued to price downward as we adjusted rates on interest-bearing deposits. This decrease was partially offset by higher interest-bearing deposit balances. For the three months ended March 31, 2022, average interest-bearing deposits increased $286.1 million, or 19.5%, compared to the three months ended March 31, 2021.
Net interest margin FTE decreased 30 bps to 2.46% for the three months ended March 31, 2022, from 2.76% for the three months ended March 31, 2021, primarily due to a 34 bp decrease in loan yield. Loan yield decreased as a result of a $1.6 million decrease in PPP loan income and a 17 bp decrease in the yield on non-PPP loans. PPP loan income decreased
33
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 from 4.05% to 3.88% due to lower rates on new and renewed non-PPP loans over the past 12 months. These decreases were partially offset by an 18 bp increase in the yield on taxable securities driven by our deployment of short-term liquid assets into our securities portfolio. This deployment increased the average balance of higher-yielding taxable securities from $295.5 million to $556.6 million, an increase of $261.1 million or 88.4%. In addition, the yield on taxable securities benefited from higher market interest rates on securities purchased during the first quarter of 2022, compared to the interest rate on taxable securities during the same period in 2021. The net interest margin also benefited from a nine bp decrease in the cost of deposits. The cost of deposits decreased from 0.27% to 0.18% for the three months ended March 31, 2022, due to a 14 bp decrease in the rate on interest-bearing deposits as a result of our adjustments to deposit rates.
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, 2022 and 2021:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2022 | March 31, 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) | $ | 1,690,445 | $ | 16,770 | 3.97 | % | $ | 1,594,796 | $ | 17,165 | 4.31 | % | |||||||||||||||||||||||
| Securities - taxable | 556,648 | 1,879 | 1.35 | % | 295,501 | 862 | 1.17 | % | |||||||||||||||||||||||||||
| Securities - tax-exempt | 215,360 | 1,083 | 2.01 | % | 195,406 | 1,028 | 2.10 | % | |||||||||||||||||||||||||||
Federal funds sold | 53,249 | 25 | 0.19 | % | 77,484 | 22 | 0.11 | % | |||||||||||||||||||||||||||
Interest-bearing balances due from banks | 589,794 | 251 | 0.17 | % | 447,265 | 100 | 0.09 | % | |||||||||||||||||||||||||||
| Nonmarketable equity securities | 3,450 | 1 | 0.10 | % | 3,447 | 1 | 0.13 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | $ | 3,108,946 | $ | 20,009 | 2.58 | % | $ | 2,613,899 | $ | 19,178 | 2.94 | % | |||||||||||||||||||||||
| Allowance for loan losses | (19,203) | (18,669) | |||||||||||||||||||||||||||||||||
| Noninterest-earning assets | 124,258 | 133,381 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 3,214,001 | $ | 2,728,611 | |||||||||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
Interest-bearing transaction deposits | $ | 1,418,583 | $ | 455 | 0.13 | % | $ | 1,124,341 | $ | 479 | 0.17 | % | |||||||||||||||||||||||
| Time deposits | 332,585 | 826 | 1.01 | % | 340,705 | 1,108 | 1.32 | % | |||||||||||||||||||||||||||
| Total interest-bearing deposits | 1,751,168 | 1,281 | 0.30 | % | 1,465,046 | 1,587 | 0.44 | % | |||||||||||||||||||||||||||
| Other borrowings | — | — | — | % | — | — | — | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 1,751,168 | $ | 1,281 | 0.30 | % | 1,465,046 | $ | 1,587 | 0.44 | % | |||||||||||||||||||||||||
| Noninterest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 1,153,377 | 956,612 | |||||||||||||||||||||||||||||||||
Accrued interest and other liabilities | 17,514 | 18,187 | |||||||||||||||||||||||||||||||||
Total noninterest-bearing liabilities | 1,170,891 | 974,799 | |||||||||||||||||||||||||||||||||
| Stockholders’ equity | 291,942 | 288,766 | |||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 3,214,001 | $ | 2,728,611 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 18,728 | $ | 17,591 | |||||||||||||||||||||||||||||||
| Net interest spread | 2.28 | % | 2.50 | % | |||||||||||||||||||||||||||||||
| Net interest margin | 2.41 | % | 2.69 | % | |||||||||||||||||||||||||||||||
Net interest margin FTE(3) | 2.46 | % | 2.76 | % | |||||||||||||||||||||||||||||||
| Cost of deposits | 0.18 | % | 0.27 | % | |||||||||||||||||||||||||||||||
| Cost of funds | 0.17 | % | 0.25 | % | |||||||||||||||||||||||||||||||
(1)Includes average outstanding balances of loans HFS of $4.3 million and $11.1 million for the three months ended March 31, 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% federal income tax rate on tax-exempt securities and tax-exempt loans.
Excluding PPP loan income, net interest income (non-GAAP) for the three months ended March 31, 2022, was $18.2 million, which was $2.8 million, or 18.0%, higher than the three months ended March 31, 2021. Also, with PPP loans excluded for the three months ended March 31, 2022, the yield on non-PPP loans (non-GAAP) was 3.88%, and the net interest margin FTE (non-GAAP) was 2.41%. For the three months ended March 31, 2022, PPP loans had a nine bp
34
accretive impact to the yield on loans and a five 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, total non-PPP loans (non-GAAP), as well as net interest income and net interest ratios excluding PPP loans (non-GAAP) for the three months ended March 31, 2022 and 2021.
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Average Balance Outstanding | Interest/Fee Earned | Average Yield | Average Balance Outstanding | Interest/Fee Earned | Average Yield | |||||||||||||||||||||||||||||
Loans(1,2) | $ | 1,690,445 | $ | 16,770 | 3.97 | % | $ | 1,594,796 | $ | 17,165 | 4.31 | % | |||||||||||||||||||||||
| Less: PPP loans, net | |||||||||||||||||||||||||||||||||||
| Average | 11,061 | 108,334 | |||||||||||||||||||||||||||||||||
| Interest | 28 | 284 | |||||||||||||||||||||||||||||||||
| Fees | 457 | 1,848 | |||||||||||||||||||||||||||||||||
| Total PPP loans, net | 11,061 | 485 | 17.77 | % | 108,334 | 2,132 | 7.97 | % | |||||||||||||||||||||||||||
Non-PPP loans (non-GAAP)(3) | $ | 1,679,384 | $ | 16,285 | 3.88 | % | $ | 1,486,462 | $ | 15,033 | 4.05 | % | |||||||||||||||||||||||
| Net interest income, excluding PPP loan income (non-GAAP) | |||||||||||||||||||||||||||||||||||
| Net interest income | $ | 18,728 | $ | 17,591 | |||||||||||||||||||||||||||||||
| PPP loan income | (485) | (2,132) | |||||||||||||||||||||||||||||||||
Net interest income, excluding PPP loan income (non-GAAP)(3) | $ | 18,243 | $ | 15,459 | |||||||||||||||||||||||||||||||
Ratios excluding PPP loans, net (non-GAAP)(3) | |||||||||||||||||||||||||||||||||||
| Net interest spread | 2.22 | % | 2.28 | % | |||||||||||||||||||||||||||||||
| Net interest margin | 2.35 | % | 2.47 | % | |||||||||||||||||||||||||||||||
Net interest margin FTE(4) | 2.41 | % | 2.53 | % | |||||||||||||||||||||||||||||||
(1)Includes average outstanding balances of loans HFS of $4.3 million and $11.1 million for the three months ended March 31, 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.
35
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 Three Months Ended | ||||||||||||||||||||||||||||||||||
March 31, 2022 vs. December 31, 2021 | March 31, 2022 vs. March 31, 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 | $ | 377 | $ | (1,022) | $ | (645) | $ | 1,031 | $ | (1,426) | $ | (395) | |||||||||||||||||||||||
Securities - taxable | 423 | 109 | 532 | 762 | 255 | 1,017 | |||||||||||||||||||||||||||||
Securities - tax-exempt | 26 | (8) | 18 | 105 | (50) | 55 | |||||||||||||||||||||||||||||
Federal funds sold | (1) | 5 | 4 | (7) | 10 | 3 | |||||||||||||||||||||||||||||
Interest-bearing balances due from banks | (18) | 43 | 25 | 39 | 112 | 151 | |||||||||||||||||||||||||||||
Nonmarketable equity securities | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Total interest-earning assets | $ | 807 | $ | (873) | $ | (66) | $ | 1,930 | $ | (1,099) | $ | 831 | |||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
Interest-bearing transaction deposits | $ | 27 | $ | 18 | $ | 45 | $ | 128 | $ | (152) | $ | (24) | |||||||||||||||||||||||
Time deposits | (23) | (41) | (64) | (26) | (256) | (282) | |||||||||||||||||||||||||||||
Total interest-bearing deposits | 4 | (23) | (19) | 102 | (408) | (306) | |||||||||||||||||||||||||||||
Other borrowings | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Total interest-bearing liabilities | $ | 4 | $ | (23) | $ | (19) | $ | 102 | $ | (408) | $ | (306) | |||||||||||||||||||||||
| Increase (decrease) in net interest income | $ | 803 | $ | (850) | $ | (47) | $ | 1,828 | $ | (691) | $ | 1,137 | |||||||||||||||||||||||
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) | March 31, 2022 | December 31, 2021 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||
| Provision for loan losses | $ | 150 | $ | 150 | $ | — | — | % | |||||||||||||||||||||||||||||||||||||||
The provision for loan losses for the first quarter of 2022 was $150,000, which was consistent with the prior quarter provision. The economic activity in Louisiana remained relatively consistent, and our asset quality metrics remained favorable for the quarter. We will continue to evaluate future provision needs in relation to loan growth and trends in asset quality.
The table below presents, for the periods indicated, the provision for loan losses:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2022 | March 31, 2021 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||
| Provision for loan losses | $ | 150 | $ | 1,450 | $ | (1,300) | (89.7) | % | |||||||||||||||||||||||||||||||||||||||
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The provision for loan losses for the three months ended March 31, 2022 was $150,000, a decrease of $1.3 million, or 89.7%, from $1.5 million for the three months ended March 31, 2021. The decrease in provision expense for 2022 was attributed to continued, favorable asset quality metrics. The higher provision for loan losses in the same period of 2021 was due to the anticipated adverse effects of the COVID-19 pandemic.
Noninterest Income
Our primary sources of noninterest income are fees related to the sale of mortgage loans, service charges on deposit accounts, debit card fees, brokerage income from advisory services, and other loan and deposit fees.
First Quarter of 2022 vs. Fourth Quarter of 2021
Noninterest income decreased $1.3 million to $4.4 million for the first quarter of 2022, compared to $5.7 million for the fourth quarter of 2021. The decrease in noninterest income was primarily due to lower mortgage loan income, a loss on equity securities, lower other income, and lower net debit card income.
The table below presents, for the periods indicated, the major categories of noninterest income:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2022 | December 31, 2021 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Service charges on deposit accounts | $ | 1,308 | $ | 1,318 | $ | (10) | (0.8) | % | |||||||||||||||||||||||||||||||||||||||
| Debit card income, net | 936 | 1,071 | (135) | (12.6) | % | ||||||||||||||||||||||||||||||||||||||||||
| Mortgage loan income | 1,127 | 1,667 | (540) | (32.4) | % | ||||||||||||||||||||||||||||||||||||||||||
| Brokerage income | 775 | 806 | (31) | (3.8) | % | ||||||||||||||||||||||||||||||||||||||||||
| Loan and deposit income | 371 | 457 | (86) | (18.8) | % | ||||||||||||||||||||||||||||||||||||||||||
| Bank-owned life insurance income | 172 | 175 | (3) | (1.7) | % | ||||||||||||||||||||||||||||||||||||||||||
| Gain (Loss) on equity securities | (365) | (75) | (290) | (386.7) | % | ||||||||||||||||||||||||||||||||||||||||||
| Gain (Loss) on sale and call of securities | 39 | 1 | 38 | 3,800.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| SBIC income | 20 | 38 | (18) | (47.4) | % | ||||||||||||||||||||||||||||||||||||||||||
| Other income (loss) | 19 | 214 | (195) | (91.1) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total noninterest income | $ | 4,402 | $ | 5,672 | $ | (1,270) | (22.4) | % | |||||||||||||||||||||||||||||||||||||||
Mortgage loan income decreased $540,000 to $1.1 million for the first quarter of 2022, compared to $1.7 million for the previous quarter. This decrease was primarily driven by reduced activity due to rising home prices and higher mortgage interest rates, as well as limited housing stock available for purchase.
Equity securities are an investment in a CRA mutual fund consisting primarily of bonds. The gain or loss on equity securities is a fair value adjustment primarily driven by changes in the interest rate environment. In the first quarter of 2022, there was a significant increase in interest rates, which caused equity securities to have a fair value loss of $365,000, compared to a loss of $75,000 for the previous quarter. In April 2022, all shares invested in the mutual fund were liquidated.
Other income for the first quarter of 2022 was $19,000, compared to $214,000 for the prior quarter. Other real estate owned properties and a bank property were sold in the fourth quarter of 2021, resulting in a nonrecurring $196,000 net gain on sale.
Debit card income, net, decreased $135,000 to $936,000 for the first quarter of 2022, when compared to the prior quarter due to a seasonal decline in the number of debit card transactions.
Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021
Noninterest income decreased $2.4 million to $4.4 million for the three months ended March 31, 2022, compared to $6.8 million for the three months ended March 31, 2021. The decrease in noninterest income was due to lower mortgage loan income, a loss on equity securities, reduced income from an SBIC limited partnership of which Red River Bank is a member, a lower gain on sale and call of securities, lower net debit card income, and lower loan and deposit income. These decreases were partially offset by increased service charges on deposit accounts.
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The table below presents, for the periods indicated, the major categories of noninterest income:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2022 | March 31, 2021 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Service charges on deposit accounts | $ | 1,308 | $ | 1,059 | $ | 249 | 23.5 | % | |||||||||||||||||||||||||||||||||||||||
| Debit card income, net | 936 | 1,046 | (110) | (10.5) | % | ||||||||||||||||||||||||||||||||||||||||||
| Mortgage loan income | 1,127 | 2,882 | (1,755) | (60.9) | % | ||||||||||||||||||||||||||||||||||||||||||
| Brokerage income | 775 | 834 | (59) | (7.1) | % | ||||||||||||||||||||||||||||||||||||||||||
| Loan and deposit income | 371 | 473 | (102) | (21.6) | % | ||||||||||||||||||||||||||||||||||||||||||
| Bank-owned life insurance income | 172 | 133 | 39 | 29.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Gain (Loss) on equity securities | (365) | (70) | (295) | (421.4) | % | ||||||||||||||||||||||||||||||||||||||||||
| Gain (Loss) on sale and call of securities | 39 | 159 | (120) | (75.5) | % | ||||||||||||||||||||||||||||||||||||||||||
| SBIC income | 20 | 241 | (221) | (91.7) | % | ||||||||||||||||||||||||||||||||||||||||||
| Other income (loss) | 19 | 18 | 1 | 5.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total noninterest income | $ | 4,402 | $ | 6,775 | $ | (2,373) | (35.0) | % | |||||||||||||||||||||||||||||||||||||||
Mortgage loan income decreased $1.8 million to $1.1 million for the first quarter of 2022, compared to $2.9 million for the same quarter prior year due to rising mortgage interest rates and home prices, as well as limited housing stock available for purchase. The low interest rate environment in the first quarter of 2021 contributed to the high levels of mortgage lending activity for that period.
Due to a significant increase in interest rates, equity securities had a fair value loss of $365,000 for the first quarter of 2022, compared to a loss of $70,000 for the same period in 2021.
SBIC income decreased $221,000 to $20,000 for the first quarter of 2021 due to lower operating income being distributed by the SBIC in the first quarter of 2022.
The gain on the sale and call of securities was $39,000 for the first quarter of 2022 as a result of municipal securities with unaccreted balances being called. In the first quarter of 2021, the gain on the sale and call of securities was $159,000, primarily due to favorable pricing obtained from the sale of lower yielding taxable municipal securities.
Debit card income, net, decreased $110,000 to $936,000 for the first quarter of 2022, compared to the same quarter prior year. This decrease was mainly due to higher debit card expense as a result of upgrading our debit card stock in the first quarter of 2022.
Loan and deposit income decreased $102,000 to $371,000 for the first quarter of 2022, compared to the same period in 2021. The decrease was primarily related to $110,000 of nonrecurring commercial real estate loan fees in the first quarter of 2021.
Service charges on deposit accounts increased $249,000 to $1.3 million for the first quarter of 2022, compared to the first quarter of 2021. This increase was mainly due to more non-sufficient fund transactions in the first quarter of 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.
First Quarter of 2022 vs. Fourth Quarter of 2021
Operating expenses increased $46,000 to $14.1 million for the first quarter of 2022, compared to $14.0 million for the fourth quarter of 2021. The increase in operating expenses was mainly due to higher other taxes, technology expenses, personnel expenses, and occupancy and equipment expenses. These increases were offset by lower data processing expense and loan and deposit expenses.
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The following table presents, for the periods indicated, the major categories of operating expenses:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2022 | December 31, 2021 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Personnel expenses | $ | 8,452 | $ | 8,362 | $ | 90 | 1.1 | % | |||||||||||||||||||||||||||||||||||||||
| Non-staff expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Occupancy and equipment expenses | 1,492 | 1,424 | 68 | 4.8 | % | ||||||||||||||||||||||||||||||||||||||||||
| Technology expenses | 771 | 667 | 104 | 15.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Advertising | 219 | 230 | (11) | (4.8) | % | ||||||||||||||||||||||||||||||||||||||||||
| Other business development expenses | 303 | 280 | 23 | 8.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| Data processing expense | 316 | 537 | (221) | (41.2) | % | ||||||||||||||||||||||||||||||||||||||||||
| Other taxes | 636 | 498 | 138 | 27.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Loan and deposit expenses | 130 | 243 | (113) | (46.5) | % | ||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses | 418 | 493 | (75) | (15.2) | % | ||||||||||||||||||||||||||||||||||||||||||
| Regulatory assessment expenses | 250 | 268 | (18) | (6.7) | % | ||||||||||||||||||||||||||||||||||||||||||
| Other operating expenses | 1,075 | 1,014 | 61 | 6.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 14,062 | $ | 14,016 | $ | 46 | 0.3 | % | |||||||||||||||||||||||||||||||||||||||
Other taxes increased $138,000 to $636,000 for the first quarter of 2022, compared to the prior quarter. This increase was due to an increase in State of Louisiana bank stock tax resulting from higher deposit account balances and higher net income for the applicable tax years.
Technology expenses increased $104,000 to $771,000 for the first quarter of 2022, compared to the prior quarter. This increase was primarily due to $59,000 of nonrecurring computer hardware and software expenses related to opening new locations in our expansion markets.
Personnel expenses are the largest component of operating expenses and include payroll expenses, incentive compensation, benefit plans, health insurance, and payroll taxes. Personnel expenses increased $90,000 to $8.5 million for the first quarter of 2022, compared to the prior quarter. This increase was primarily due to having a full quarter of expenses for new staff added in the fourth quarter of 2021 in our expansion markets, partially offset by lower commission compensation related to lower mortgage loan activity. As of March 31, 2022 and December 31, 2021, we had 355 and 358 total employees, respectively.
Occupancy and equipment expenses increased $68,000 to $1.5 million for the first quarter of 2022, compared to the prior quarter. This increase was primarily due to $124,000 of nonrecurring expenses in the first quarter of 2022 related to opening new locations in our expansion markets, partially offset by lower facility maintenance and repair expenses.
Data processing expense decreased $221,000 to $316,000 for the first quarter of 2022, compared to the prior quarter. This decrease was primarily attributed to receipt of a $230,000 periodic refund from our data processing center in the first quarter of 2022.
Loan and deposit expenses decreased $113,000 to $130,000 for the first quarter of 2022, compared to the prior quarter. This decrease was primarily due to receipt of a $122,000 negotiated, variable rebate from a vendor in the first quarter of 2022.
Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021
Operating expenses increased $899,000 to $14.1 million for the three months ended March 31, 2022, compared to $13.2 million for the three months ended March 31, 2021. The increase in operating expenses was mainly due to higher personnel expenses, occupancy and equipment expenses, other taxes, and technology expenses. These increases were partially offset by lower loan and deposit expenses.
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The following table presents, for the periods indicated, the major categories of operating expenses:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2022 | March 31, 2021 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Personnel expenses | $ | 8,452 | $ | 8,021 | $ | 431 | 5.4 | % | |||||||||||||||||||||||||||||||||||||||
| Non-staff expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Occupancy and equipment expenses | 1,492 | 1,278 | 214 | 16.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Technology expenses | 771 | 665 | 106 | 15.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Advertising | 219 | 183 | 36 | 19.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Other business development expenses | 303 | 299 | 4 | 1.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Data processing expense | 316 | 385 | (69) | (17.9) | % | ||||||||||||||||||||||||||||||||||||||||||
| Other taxes | 636 | 525 | 111 | 21.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Loan and deposit expenses | 130 | 255 | (125) | (49.0) | % | ||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses | 418 | 368 | 50 | 13.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Regulatory assessment expenses | 250 | 201 | 49 | 24.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Other operating expenses | 1,075 | 983 | 92 | 9.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 14,062 | $ | 13,163 | $ | 899 | 6.8 | % | |||||||||||||||||||||||||||||||||||||||
Personnel expenses increased $431,000 to $8.5 million for the first quarter of 2022, compared to the same quarter prior year. As of March 31, 2022 and 2021, we had 355 and 336 total employees, respectively. Personnel expenses, and the number of employees, increased primarily as a result of expansion in our newer markets. Partially offsetting this increase was lower commission compensation related to lower mortgage loan activity when compared to the same quarter prior year.
Occupancy and equipment expenses increased $214,000 to $1.5 million for the first quarter of 2022, compared to the same quarter prior year. This increase was primarily due to $124,000 of nonrecurring expenses in the first quarter of 2022 related to opening new locations in our expansion markets.
Other taxes increased $111,000 to $636,000 for the first quarter of 2022, compared to the same quarter prior year. This increase was due to a $112,000 increase in State of Louisiana bank stock tax resulting from higher deposit account balances and higher net income for the applicable tax years.
Technology expenses increased $106,000 to $771,000 for the first quarter of 2022, compared to the same quarter prior year. This increase was mainly due to $59,000 of nonrecurring computer hardware and software expenses in the first quarter of 2022 related to opening new locations in our expansion markets.
Loan and deposit expenses decreased $125,000 to $130,000 for the first quarter of 2022, compared to the same quarter prior year. This decrease was primarily 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 amount 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, 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) | March 31, 2022 | December 31, 2021 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | $ | 1,526 | $ | 1,771 | $ | (245) | (13.8) | % | |||||||||||||||||||||||||||||||||||||||
For the quarters ended March 31, 2022 and December 31, 2021, income tax expense totaled $1.5 million and $1.8 million, respectively. The decrease in income tax expense was primarily due to the decrease in pre-tax income. Our effective
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income tax rates for each of the quarters ended March 31, 2022 and December 31, 2021, were 17.1% and 17.2%, respectively.
The table below presents, for the periods indicated, income tax expense:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2022 | March 31, 2021 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | $ | 1,526 | $ | 1,688 | $ | (162) | (9.6) | % | |||||||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2022 and 2021, income tax expense totaled $1.5 million and $1.7 million, respectively. The decrease in income tax expense was primarily due to the decrease in pre-tax income. Our effective income tax rates for the three months ended March 31, 2022 and 2021, were 17.1% and 17.3%, respectively.
FINANCIAL CONDITION
General
As of March 31, 2022, assets were $3.21 billion, which was $12.3 million, or 0.4%, lower than assets of $3.22 billion as of December 31, 2021. During the first quarter of 2022, we deployed short-term liquid assets into the securities AFS portfolio and had non-PPP loan growth. Interest-bearing deposits in other banks decreased $254.7 million, or 33.4%, to $507.0 million and were 15.8% of assets as of March 31, 2022. Securities AFS increased $151.6 million, or 23.0%, to $810.8 million during the first quarter and were 25.2% of assets as of March 31, 2022. Partially offsetting the increase in the securities AFS portfolio was a $50.7 million net unrealized loss during the first quarter due to the change in market interest rates. The net unrealized loss on securities AFS was $55.5 million as of March 31, 2022, compared to $4.8 million as of December 31, 2021. Loans HFI increased $57.2 million, or 3.4%, which included a $68.3 million, or 4.1%, increase in non-PPP loans compared to the prior quarter. As of March 31, 2022, the loans HFI to deposits ratio was 59.47%, compared to 57.86% as of December 31, 2021, and the noninterest-bearing deposits to total deposits ratio was 40.34%, compared to 39.50% as of December 31, 2021. Stockholders’ equity decreased $33.3 million in the first quarter of 2022 to $264.9 million as of March 31, 2022.
Interest-bearing Deposits in Other Banks
Interest-bearing deposits in other banks are the third-largest component of earning assets. 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, interest-bearing deposits in other banks had become the second-largest component of earning assets as deposit growth exceeded loan growth. Since December 31, 2021, we have deployed excess liquidity into loans and securities AFS. As of March 31, 2022, interest-bearing deposits in other banks were $507.0 million and were 15.8% of assets, a decrease of $254.7 million, or 33.4%, compared to $761.7 million and 23.6% of assets as of December 31, 2021.
Securities
Our securities portfolio is the second-largest component of earning assets and provides a significant source of revenue. As of March 31, 2022, our securities portfolio was 25.5% 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
Securities AFS were $810.8 million as of March 31, 2022, an increase of $151.6 million, or 23.0%, from $659.2 million as of December 31, 2021. Investment activity for the three months ended March 31, 2022, included $232.7 million of securities purchased and $29.8 million in maturities, principal repayments, and calls. The net unrealized loss of the securities AFS portfolio was $55.5 million as of March 31, 2022, compared to $4.8 million as of December 31, 2021.
Of the $232.7 million of securities AFS purchased during the three months ended March 31, 2022, $130.3 million were mortgage-backed securities, $89.8 million were U.S. Treasuries, and $12.6 million were municipal securities. The U.S. Treasuries purchased had a yield of 1.51% and an average life of 2.04 years. The mortgage-backed securities had a yield of 1.72% and an average life of 3.68 years, and the municipal securities had a yield of 2.61% and an average life of 14.43 years. The overall price risk of the portfolio decreased 50 bps, compared to December 31, 2021, primarily due to the short-term U.S. Treasury securities purchased in the first quarter of 2022.
During the three months ended March 31, 2022, we reallocated $193.1 million from overnight funds yielding 0.17% to securities AFS yielding 1.66%. We expect this reallocation to improve future interest income by moving these funds from
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overnight funds to a higher-yielding investment. In addition, $39.6 million of securities yielding 1.86% were purchased as we reinvested cash flows from the securities portfolio.
The securities AFS portfolio tax-equivalent yield was 1.68% for the three months ended March 31, 2022, compared to 1.76% for the three months ended March 31, 2021. The decrease in yield for the three months ended March 31, 2022, compared to the same period for 2021, was due to purchasing a significant amount of securities over the past 12 months with lower yields than the portfolio yield as of March 31, 2021.
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 March 31, 2022, the average life of our securities portfolio was 6.5 years with an estimated effective duration of 5.6 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 during the first quarter of 2022 and the impact this had on mortgage-backed 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 March 31, 2022, the net unrealized loss of the securities AFS portfolio was $55.5 million, an increase of $50.7 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 March 31, 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.
| March 31, 2022 | |||||||||||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| Securities AFS: | |||||||||||||||||||||||
| Mortgage-backed securities | $ | 496,302 | $ | 7 | $ | (34,821) | $ | 461,488 | |||||||||||||||
| Municipal bonds | 231,198 | 237 | (18,165) | 213,270 | |||||||||||||||||||
| U.S. Treasury securities | 131,508 | — | (2,385) | 129,123 | |||||||||||||||||||
| U.S. agency securities | 7,263 | — | (340) | 6,923 | |||||||||||||||||||
| Total Securities AFS | $ | 866,271 | $ | 244 | $ | (55,711) | $ | 810,804 | |||||||||||||||
| 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 | |||||||||||||||
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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 March 31, 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 | $ | 130 | 1.31 | % | $ | 806 | 1.74 | % | $ | 65,037 | 1.45 | % | $ | 395,515 | 1.46 | % | $ | 461,488 | 1.46 | % | |||||||||||||||||||||||||||||||||||||||
| Municipal bonds | 6,059 | 1.36 | % | 25,522 | 1.86 | % | 15,049 | 2.71 | % | 166,640 | 2.58 | % | 213,270 | 2.48 | % | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | 3,999 | 1.11 | % | 125,124 | 1.25 | % | — | — | % | — | — | % | 129,123 | 1.25 | % | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. agency securities | 193 | 2.09 | % | 3,987 | 1.62 | % | 2,743 | 1.31 | % | — | — | % | 6,923 | 1.51 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total Securities AFS | $ | 10,381 | 1.28 | % | $ | 155,439 | 1.36 | % | $ | 82,829 | 1.67 | % | $ | 562,155 | 1.80 | % | $ | 810,804 | 1.70 | % | |||||||||||||||||||||||||||||||||||||||
(1)Tax equivalent projected book yield as of March 31, 2022.
During the second quarter of 2022, the Company decided to reclassify a selected portion of the securities portfolio from AFS to HTM. For additional information, see “Part I. Financial Information - Item. 1 Financial Statements (Unaudited) - Notes to Unaudited Consolidated Financial Statements - Note 10. Subsequent Events.”
Equity Securities
Equity securities are an investment in a CRA mutual fund, consisting primarily of bonds. Equity securities are carried at fair value on the consolidated balance sheets with periodic changes in value recorded through the consolidated statements of income. The fair value of our equity securities was $7.5 million as of March 31, 2022, with a recognized loss of $365,000 for the three months ended March 31, 2022, compared to a fair value of $7.8 million as of December 31, 2021, with a recognized loss of $175,000 for the year ended December 31, 2021. The loss on equity securities in the first quarter of 2022 was due to a significant increase in interest rates. In April 2022, all shares invested in the mutual fund were liquidated.
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, 2022, loans HFI were $1.74 billion, an increase of $57.2 million, or 3.4%, compared to $1.68 billion as of December 31, 2021.
Red River Bank began participating in the SBA PPP in the second quarter of 2020. Through March 31, 2022, we had received SBA forgiveness and borrower payments on 97.5% of the PPP loans originated. As of March 31, 2022, PPP loans totaled $6.4 million, net of $169,000 of deferred income, and were 0.4% of loans HFI.
As of March 31, 2022, non-PPP loans HFI (non-GAAP) were $1.73 billion, an increase of $68.3 million, or 4.1%, from December 31, 2021, due to new customer activity associated with new lenders in our expansion markets and increased loan activity in various legacy markets. For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
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Loans by Category
Loans HFI by category, non-PPP loans HFI (non-GAAP), and loans HFS are summarized below as of the dates indicated:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate | $ | 723,418 | 41.6 | % | $ | 670,293 | 39.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
One-to-four family residential | 484,871 | 27.8 | % | 474,420 | 28.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction and development | 117,526 | 6.8 | % | 106,339 | 6.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 303,556 | 17.4 | % | 311,373 | 18.5 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| SBA PPP, net of deferred income | 6,397 | 0.4 | % | 17,550 | 1.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax-exempt | 81,000 | 4.6 | % | 80,726 | 4.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer | 24,258 | 1.4 | % | 23,131 | 1.4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total loans HFI | $ | 1,741,026 | 100.0 | % | $ | 1,683,832 | 100.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total non-PPP loans HFI (non-GAAP)(1) | $ | 1,734,629 | $ | 1,666,282 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total loans HFS | $ | 6,641 | $ | 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 March 31, 2022, health care loans were $155.5 million, or 9.0% 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 $337,000 as of March 31, 2022, and $295,000 as of December 31, 2021. Within the health care sector, nursing and residential care loans were 4.7% of non-PPP loans HFI (non-GAAP) as of March 31, 2022, and 3.6% as of December 31, 2021. Loans to physician and dental practices were 4.2% of non-PPP loans HFI (non-GAAP) as of March 31, 2022, and 4.6% as of December 31, 2021.
Energy loans were 1.2% of non-PPP loans HFI (non-GAAP) as of March 31, 2022, and December 31, 2021. For additional information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
Geographic Markets
As of March 31, 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:
| March 31, 2022 | ||||||||||||||
| (dollars in thousands) | Amount | Percent of Non-PPP Loans HFI (non-GAAP) | ||||||||||||
| Central | $ | 613,274 | 35.4 | % | ||||||||||
| Capital | 478,255 | 27.6 | % | |||||||||||
| Northwest | 352,512 | 20.3 | % | |||||||||||
| Southwest | 119,254 | 6.9 | % | |||||||||||
| Northshore | 97,528 | 5.6 | % | |||||||||||
| New Orleans | 37,214 | 2.1 | % | |||||||||||
| Acadiana | 36,592 | 2.1 | % | |||||||||||
| Total non-PPP loans HFI | $ | 1,734,629 | 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 March 31, 2022, 3.0% 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
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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 $973,000 as of March 31, 2022, down $6,000, or 0.6%, from $979,000 as of December 31, 2021, primarily due to payments on nonaccrual loans. The ratio of NPAs to total assets was 0.03% as of March 31, 2022 and December 31, 2021.
Nonperforming loan and asset information is summarized below:
| (dollars in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| Nonperforming loans: | |||||||||||
| Nonaccrual loans | $ | 269 | $ | 280 | |||||||
| Accruing loans 90 or more days past due | 44 | 39 | |||||||||
| Total nonperforming loans | 313 | 319 | |||||||||
| Foreclosed assets: | |||||||||||
| Real estate | 660 | 660 | |||||||||
| Total foreclosed assets | 660 | 660 | |||||||||
| Total NPAs | $ | 973 | $ | 979 | |||||||
Troubled debt restructurings:(1,2) | |||||||||||
| Nonaccrual loans | $ | — | $ | — | |||||||
Performing loans | 3,900 | 3,944 | |||||||||
| Total TDRs | $ | 3,900 | $ | 3,944 | |||||||
| Nonaccrual loans to loans HFI | 0.02% | 0.02% | |||||||||
Nonperforming loans to loans HFI(1) | 0.02 | % | 0.02 | % | |||||||
Nonperforming loans to non-PPP loans HFI (non-GAAP)(1,3) | 0.02 | % | 0.02 | % | |||||||
| NPAs to total assets | 0.03 | % | 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.
(3)Non-GAAP financial measure. For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.
Nonaccrual loans are summarized below by category:
| (in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| Real estate: | |||||||||||
Commercial real estate | $ | 48 | $ | 51 | |||||||
One-to-four family residential | 209 | 216 | |||||||||
Construction and development | — | — | |||||||||
| Commercial and industrial | 12 | 13 | |||||||||
| SBA PPP, net of deferred income | — | — | |||||||||
| Tax-exempt | — | — | |||||||||
| Consumer | — | — | |||||||||
| Total nonaccrual loans | $ | 269 | $ | 280 | |||||||
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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 March 31, 2022, loans classified as pass were 99.4% of loans HFI, and loans classified as special mention and substandard were 0.2% and 0.4%, respectively, of loans HFI. There were no loans as of March 31, 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. 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 March 31, 2022, the allowance for loan losses was $19.2 million, or 1.11% 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 $68,000 increase in the allowance for loan losses for the three months ended March 31, 2022, was mainly due to $150,000 from the provision for loan losses, partially offset by $82,000 of net
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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 three months ended March 31, 2022, was $150,000, a decrease of $1.3 million, or 89.7%, from $1.5 million for the three months ended March 31, 2021. The decrease in provision for loan losses for 2022 was attributed to continued, favorable asset quality metrics. The higher provision for loan losses in the same period of 2021 was due to the anticipated adverse effects of the COVID-19 pandemic. We will continue to evaluate future provision needs in relation to 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 Three Months Ended | |||||||||||||||||
| (dollars in thousands) | March 31, 2022 | March 31, 2021 | |||||||||||||||
| Loans HFI | $ | 1,741,026 | $ | 1,602,086 | |||||||||||||
Non-PPP Loans HFI (non-GAAP)(1) | $ | 1,734,629 | $ | 1,482,728 | |||||||||||||
| Nonaccrual loans | $ | 269 | $ | 2,805 | |||||||||||||
| Average loans | $ | 1,690,445 | $ | 1,594,796 | |||||||||||||
| Allowance for loan losses at beginning of period | $ | 19,176 | $ | 17,951 | |||||||||||||
| Provision for loan losses | 150 | 1,450 | |||||||||||||||
| Charge-offs: | |||||||||||||||||
Commercial and industrial | (6) | (7) | |||||||||||||||
Consumer | (123) | (88) | |||||||||||||||
Total charge-offs | (129) | (95) | |||||||||||||||
| Recoveries: | |||||||||||||||||
Real estate: | |||||||||||||||||
One-to-four family residential | 3 | 3 | |||||||||||||||
Construction and development | — | 1 | |||||||||||||||
Commercial and industrial | 4 | 10 | |||||||||||||||
Consumer | 40 | 57 | |||||||||||||||
Total recoveries | 47 | 71 | |||||||||||||||
| Net (charge-offs)/recoveries | (82) | (24) | |||||||||||||||
| Allowance for loan losses at end of period | $ | 19,244 | $ | 19,377 | |||||||||||||
Allowance for loan losses to loans HFI | 1.11 | % | 1.21 | % | |||||||||||||
Allowance for loan losses to non-PPP loans HFI (non-GAAP)(1) | 1.11 | % | 1.31 | % | |||||||||||||
| Allowance for loan losses to nonaccrual loans | 7,153.90% | 690.80% | |||||||||||||||
Net charge-offs to average loans | 0.00 | % | 0.00 | % | |||||||||||||
(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 the COVID-19 pandemic, 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
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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 $17.4 million, or 0.6%, to $2.93 billion as of March 31, 2022, from $2.91 billion as of December 31, 2021. This increase was primarily a result of customers maintaining higher deposit balances, partially offset by the normal seasonal drawdowns as public entity customers distributed their year-end funds to other organizations. Noninterest-bearing deposits increased by $31.5 million, or 2.7%, to $1.18 billion as of March 31, 2022. Noninterest-bearing deposits as a percentage of total deposits were 40.34% as of March 31, 2022, compared to 39.50% as of December 31, 2021. Interest-bearing deposits decreased by $14.1 million, or 0.8%, to $1.75 billion as of March 31, 2022.
The following table presents our deposits by account type as of the dates indicated:
| March 31, 2022 | December 31, 2021 | Change from December 31, 2021 to March 31, 2022 | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | Balance | % of Total | Balance | % of Total | $ Change | % Change | |||||||||||||||||||||||||||||
| Noninterest-bearing deposits | $ | 1,181,136 | 40.3 | % | $ | 1,149,672 | 39.5 | % | $ | 31,464 | 2.7 | % | |||||||||||||||||||||||
| Interest-bearing deposits: | |||||||||||||||||||||||||||||||||||
| NOW accounts | 466,019 | 15.9 | % | 503,383 | 17.3 | % | (37,364) | (7.4) | % | ||||||||||||||||||||||||||
| Money market accounts | 747,397 | 25.5 | % | 733,044 | 25.2 | % | 14,353 | 2.0 | % | ||||||||||||||||||||||||||
| Savings accounts | 200,342 | 6.9 | % | 191,076 | 6.5 | % | 9,266 | 4.8 | % | ||||||||||||||||||||||||||
| Time deposits less than or equal to $250,000 | 242,088 | 8.3 | % | 243,596 | 8.4 | % | (1,508) | (0.6) | % | ||||||||||||||||||||||||||
| Time deposits greater than $250,000 | 90,746 | 3.1 | % | 89,577 | 3.1 | % | 1,169 | 1.3 | % | ||||||||||||||||||||||||||
| Total interest-bearing deposits | 1,746,592 | 59.7 | % | 1,760,676 | 60.5 | % | (14,084) | (0.8) | % | ||||||||||||||||||||||||||
| Total deposits | $ | 2,927,728 | 100.0 | % | $ | 2,910,348 | 100.0 | % | $ | 17,380 | 0.6 | % | |||||||||||||||||||||||
The following table presents deposits by customer type as of the dates indicated:
| March 31, 2022 | December 31, 2021 | Change from December 31, 2021 to March 31, 2022 | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | Balance | % of Total | Balance | % of Total | $ Change | % Change | |||||||||||||||||||||||||||||
| Consumer | $ | 1,452,427 | 49.6 | % | $ | 1,400,369 | 48.1 | % | $ | 52,058 | 3.7 | % | |||||||||||||||||||||||
| Commercial | 1,288,921 | 44.0 | % | 1,283,992 | 44.1 | % | 4,929 | 0.4 | % | ||||||||||||||||||||||||||
| Public | 186,380 | 6.4 | % | 225,987 | 7.8 | % | (39,607) | (17.5) | % | ||||||||||||||||||||||||||
| Total deposits | $ | 2,927,728 | 100.0 | % | $ | 2,910,348 | 100.0 | % | $ | 17,380 | 0.6 | % | |||||||||||||||||||||||
Our uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), were approximately $1.17 billion and $1.22 billion at March 31, 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) | March 31, 2022 | ||||
| Three months or less | $ | 11,063 | |||
| Over three months through six months | 6,543 | ||||
| Over six months through 12 months | 10,821 | ||||
| Over 12 months | 10,569 | ||||
| Total | $ | 38,996 | |||
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 March 31, 2022 or December 31, 2021.
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Equity and Regulatory Capital Requirements
Total stockholders’ equity as of March 31, 2022, was $264.9 million, compared to $298.2 million as of December 31, 2021, a decrease of $33.3 million, or 11.2%. This decrease was attributed to a $40.0 million, net of tax, market adjustment to AOCI related to securities AFS, $502,000 in cash dividends, and the repurchase of 4,465 shares of common stock for $218,000, partially offset by $7.4 million of net income for the three months ended March 31, 2022, and $98,000 of stock compensation.
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.
As part of the directive under the Economic 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 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), 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 March 31, 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 three months ended March 31, 2022, and the year ended December 31, 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 $310.8 million, or 12.0%, for the three months ended March 31, 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, partially offset by the normal seasonal drawdowns as public entity customers distributed their year-end funds to other organizations. Our average total loans increased $68.8 million, or 4.2%, for the three months ended March 31, 2022, compared to average total loans for the twelve months ended December 31, 2021.
Our securities portfolio is an alternative source for meeting liquidity needs, and was our second-largest component of assets as of March 31, 2022. Securities generate cash flow through principal repayments, calls, and maturities, and they generally have readily available markets that allow for their conversion to cash. As of March 31, 2022, securities AFS totaled $810.8 million, or 25.2% of assets, compared to $659.2 million, or 20.4% of assets as of December 31, 2021. However, certain investments within our securities portfolio are also used to secure specific deposit types, such as for public entities, which impacts their liquidity. As of March 31, 2022, securities with a carrying value of $133.6 million, or 16.5% of the securities AFS portfolio, were pledged to secure public entity deposits as compared to securities with a carrying value of $118.6 million, or 18.0% of the securities AFS portfolio, similarly pledged as of December 31, 2021. This increase of $15.0 million, or 12.7%, was primarily due to an increase in several public entity deposit accounts that occurred during the first quarter of 2022. Public entity account balances generally fluctuate throughout the year. During the second quarter of 2022, the Company decided to reclassify a selected portion of the securities portfolio from AFS to HTM. For additional information, see “Part I. Financial Information - Item. 1 Financial Statements (Unaudited) - Notes to Unaudited Consolidated Financial Statements - Note 10. Subsequent Events.”
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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 March 31, 2022. Interest-bearing deposits in other banks were $507.0 million, or 15.8% of assets as of March 31, 2022, compared to $761.7 million, or 23.6% of assets as of December 31, 2021. The decrease of $254.7 million, or 33.4%, was primarily a result of deploying funds into the securities AFS portfolio and also into loans during the first quarter.
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 March 31, 2022 and December 31, 2021, our total borrowing availability from the FHLB was $789.0 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 March 31, 2022 and December 31, 2021, we held unfunded letters of credit in the amount of $91.8 million and $143.8 million, respectively. As of March 31, 2022 and December 31, 2021, our net borrowing capacity from the FHLB was $697.2 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, 2022 and December 31, 2021. We also maintain an additional $6.0 million revolving line of credit at one of our correspondent banks. As of March 31, 2022 and December 31, 2021, we had total borrowing capacity of $101.0 million through these combined funding sources. We had no outstanding balances from either of these sources as of March 31, 2022 and December 31, 2021.
Commitments to Extend Credit
In the normal course of business, we enter into certain financial instruments, such as commitments to extend credit and letters 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 March 31, 2022, we had $356.4 million in unfunded loan commitments and $13.9 million in commitments associated with outstanding standby letters of credit. We have monitored the requests for extensions of credit under these lines and have not identified any requests outside of the normal course of business that appear to be attributable to COVID-19 hardships. As of December 31, 2021, we had $357.9 million in unfunded loan commitments and $12.5 million in commitments associated with outstanding standby letters of credit. As 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.
Investment Commitments
The Company is party to various investment commitments in the normal course of business. The Company’s exposure is represented by the contractual amount of these commitments.
In 2014, the Company committed to an investment into an SBIC limited partnership. As of March 31, 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 March 31, 2022, there was a $5.0 million outstanding commitment to this partnership.
In the second quarter of 2021, the Company committed to an investment into a bank technology limited partnership. As of March 31, 2022, there was an $827,000 outstanding commitment to 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
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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 0.44% as of March 31, 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 factors.
The 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-earnings 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 including a static balance sheet and dynamic growth balance sheet. These models test 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, rates 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 model involves analysis of interest income and expense under various changes in the shape of the yield curve.
Bank policy regarding interest rate risk simulations performed by our risk model currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 10.0% for a 100 bp shift and 15.0% for a 200 bp shift. Bank 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 bp shift and 25.0% for a 200 bp shift.
The following table shows the impact of an instantaneous and parallel change in rates, at the levels indicated, and summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated.
| As of March 31, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
% 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 (Bps) | |||||||||||||||||||||||
| +300 | 29.2 | % | 1.8 | % | 45.7 | % | 16.7 | % | |||||||||||||||
| +200 | 19.6 | % | 1.8 | % | 30.6 | % | 13.3 | % | |||||||||||||||
| +100 | 10.0 | % | 1.4 | % | 15.3 | % | 8.0 | % | |||||||||||||||
Base | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||
| -100 | (3.3) | % | (3.8) | % | (0.4) | % | (18.9) | % | |||||||||||||||
| -200 | (7.6) | % | (12.6) | % | (2.6) | % | (32.8) | % | |||||||||||||||
The results above, as of March 31, 2022 and December 31, 2021, demonstrate that our balance sheet is asset sensitive, which means our assets have the opportunity to reprice at a faster pace than our liabilities, over the 12-month horizon. 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.
The percentage of change in the fair value of equity in the down 200 bp scenario was back within the policy threshold as of March 31, 2022, due to the increase in market rates during the first quarter of 2022. As of December 31, 2021, the percentage of change in the fair value of equity in the down 200 bp scenario was below the policy threshold. These values
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are reported at each quarterly Asset-Liability Committee meeting, along with the percentages of change in the net interest income.
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 March 31, 2022, floating rate loans were 14.5% of the loans HFI, and floating rate transaction deposits were 4.4% 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 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 Report as supplemental non-GAAP performance measures. In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the U.S.
Management and the board of directors review tangible book value per share, tangible common equity to tangible assets, realized book value per share, and PPP-adjusted metrics as part of managing operating performance. However, these non-GAAP financial measures that we discuss in this Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner that we calculate the non-GAAP financial measures that are discussed in this Report may differ from that of other companies reporting measures with similar names. It is important to understand how such other banking organizations calculate and name their financial measures similar to the non-GAAP financial measures discussed in this Report when comparing such non-GAAP financial measures.
Tangible Assets, Tangible Equity, Tangible Book Value, and Realized Book Value
Tangible Book Value Per Share. Tangible book value per share is a non-GAAP measure commonly 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 changes from period to period in book value per share exclusive of changes in intangible assets. We calculate tangible book value per 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 share is book value per 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, and we calculate tangible assets as total assets less intangible assets. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common stockholders’ equity to total assets.
As a result of previous acquisitions, we have a small amount of intangible assets. As of March 31, 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.
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The following table reconciles, as of the dates set forth below, stockholders’ equity to tangible common equity, and assets to tangible assets, and presents related resulting ratios.
| (dollars in thousands, except per share data) | March 31, 2022 | December 31, 2021 | March 31, 2021 | ||||||||||||||||||||
| Tangible common equity | |||||||||||||||||||||||
| Total stockholders’ equity | $ | 264,874 | $ | 298,150 | $ | 284,911 | |||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Intangible assets | (1,546) | (1,546) | (1,546) | ||||||||||||||||||||
| Total tangible common equity (non-GAAP) | $ | 263,328 | $ | 296,604 | $ | 283,365 | |||||||||||||||||
| Realized common equity | |||||||||||||||||||||||
| Total stockholders’ equity | $ | 264,874 | $ | 298,150 | $ | 284,911 | |||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Accumulated other comprehensive (income) loss | 43,819 | 3,773 | 331 | ||||||||||||||||||||
| Total realized common equity (non-GAAP) | $ | 308,693 | $ | 301,923 | $ | 285,242 | |||||||||||||||||
| Common shares outstanding | 7,176,365 | 7,180,155 | 7,306,747 | ||||||||||||||||||||
| Book value per share | $ | 36.91 | $ | 41.52 | $ | 38.99 | |||||||||||||||||
| Tangible book value per share (non-GAAP) | $ | 36.69 | $ | 41.31 | $ | 38.78 | |||||||||||||||||
| Realized book value per share (non-GAAP) | $ | 43.02 | $ | 42.05 | $ | 39.04 | |||||||||||||||||
| Tangible assets | |||||||||||||||||||||||
| Total assets | $ | 3,212,460 | $ | 3,224,710 | $ | 2,820,672 | |||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Intangible assets | (1,546) | (1,546) | (1,546) | ||||||||||||||||||||
| Total tangible assets (non-GAAP) | $ | 3,210,914 | $ | 3,223,164 | $ | 2,819,126 | |||||||||||||||||
| Total stockholders’ equity to assets | 8.25 | % | 9.25 | % | 10.10 | % | |||||||||||||||||
| Tangible common equity to tangible assets (non-GAAP) | 8.20 | % | 9.20 | % | 10.05 | % | |||||||||||||||||
PPP-Adjusted Metrics
In 2020 and 2021, Red River Bank participated in the SBA PPP and originated 1,888 PPP loans totaling $260.8 million. PPP loan originations were concluded in the second quarter of 2021. Through March 31, 2022, we had received $254.3 million in SBA forgiveness and borrower payments on 97.5% of the PPP loans originated. As of March 31, 2022, PPP loans totaled $6.4 million, net of $169,000 of deferred income, and were 0.4% of loans HFI.
PPP loans were implemented as a response to the COVID-19 pandemic and have characteristics that are different than the rest of our loan portfolio, including being short-term in nature (24 or 60 months or less depending on loan forgiveness timing), having a lower than market interest rate, and only being originated during specified time periods during the COVID-19 pandemic. Because of these factors, management believes that PPP-adjusted metrics provide a more accurate portrayal of certain aspects of the Company’s financial condition and performance. Accordingly, we believe it is important to investors to see certain of our metrics with PPP loans excluded. The most directly comparable GAAP financial measure for PPP-adjusted metrics is total loans HFI.
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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) | March 31, 2022 | December 31, 2021 | March 31, 2021 | ||||||||||||||||||||
| Non-PPP loans HFI | |||||||||||||||||||||||
| Loans HFI | $ | 1,741,026 | $ | 1,683,832 | $ | 1,602,086 | |||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| PPP loans, net | (6,397) | (17,550) | (119,358) | ||||||||||||||||||||
| Non-PPP loans HFI (non-GAAP) | $ | 1,734,629 | $ | 1,666,282 | $ | 1,482,728 | |||||||||||||||||
| Deposits | $ | 2,927,728 | $ | 2,910,348 | $ | 2,515,275 | |||||||||||||||||
| Allowance for loan losses | $ | 19,244 | $ | 19,176 | $ | 19,377 | |||||||||||||||||
| Nonperforming loans | $ | 313 | $ | 319 | $ | 2,811 | |||||||||||||||||
| Loans HFI to deposits ratio | 59.47 | % | 57.86 | % | 63.69 | % | |||||||||||||||||
| Non-PPP loans HFI to deposits ratio (non-GAAP) | 59.25 | % | 57.25 | % | 58.95 | % | |||||||||||||||||
| Allowance for loan losses to loans HFI | 1.11 | % | 1.14 | % | 1.21 | % | |||||||||||||||||
| Allowance for loan losses to non-PPP loans HFI (non-GAAP) | 1.11 | % | 1.15 | % | 1.31 | % | |||||||||||||||||
| Nonperforming loans to loans HFI | 0.02 | % | 0.02 | % | 0.18 | % | |||||||||||||||||
| Nonperforming loans to non-PPP loans HFI | 0.02 | % | 0.02 | % | 0.19 | % | |||||||||||||||||
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 year ended December 31, 2021, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Asset-Liability Management - Interest Rate Sensitivity and Market Risk.” Additional information as of March 31, 2022, is included herein under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity 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, 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
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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.
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 first quarter of 2022 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, we, including our subsidiaries, are or may be involved in various legal matters arising in the ordinary course of business. In the opinion of management, neither we, nor any of our subsidiaries, are involved in such legal proceedings that the resolution is expected to have a material adverse effect on our consolidated results of operations, financial condition, or cash flows. However, one or more unfavorable outcomes in these ordinary claims or litigation against us or our 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 our reputation or that of our subsidiaries, even if resolved favorably.
Item 1A. Risk Factors
For information regarding risk factors that could affect our business, financial condition, and results of operations, see the information in “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to the risk factors disclosed in our most recent Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 7, 2019, we sold 663,320 new shares of our common stock at a public offering price of $45.00 per share in our IPO, including 90,000 shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares in the offering. The offer and sale of shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-230798), which the SEC declared effective on May 2, 2019. FIG Partners, LLC and Stephens Inc. acted as underwriters. The offering commenced on May 3, 2019, and did not terminate until the sale of all of the shares offered. There has been no material change in the planned use of proceeds from our IPO as described in our Prospectus that was filed with the SEC on May 3, 2019, pursuant to Rule 424(b)(4) under the Securities Act. As of March 31, 2022, all of the net proceeds from the IPO were expended.
Our purchases of shares of common stock made during the quarter consisted of stock repurchases made under our publically announced stock repurchase program and 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) | ||||||||||||||||||||||
| January 1 - January 31, 2022 | — | $ | — | — | $ | — | ||||||||||||||||||||
| February 1 - February 28, 2022 | — | $ | — | — | $ | — | ||||||||||||||||||||
| March 1 - March 31, 2022 | 4,465 | $ | 48.84 | 4,465 | $ | 4,782 | ||||||||||||||||||||
| Total | 4,465 | $ | 48.84 | 4,465 | $ | 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.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| NUMBER | DESCRIPTION | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 10.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101 | The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 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 Document* - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definitions Linkbase Document* | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |||||||
| 104 | Cover Page Interactive Data File* - Formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101. | |||||||
| * | Filed herewith | |||||||
| ** | These exhibits are furnished herewith and shall not be deemed “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 or the Exchange Act. | |||||||
| + | Indicates a management contract or compensatory plan. | |||||||
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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: May 13, 2022 | By: | /s/ R. Blake Chatelain | ||||||
| R. Blake Chatelain | ||||||||
| President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| Date: May 13, 2022 | By: | /s/ Isabel V. Carriere | ||||||
| Isabel V. Carriere, CPA, CGMA | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||||||
57
| Exhibit 31.1 | ||||||||
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, R. Blake Chatelain, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Red River Bancshares, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 13, 2022 | By: | /s/ R. Blake Chatelain | ||||||
| R. Blake Chatelain | ||||||||
| President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| Exhibit 31.2 | ||||||||
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Isabel V. Carriere, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Red River Bancshares, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 13, 2022 | By: | /s/ Isabel V. Carriere | ||||||
| Isabel V. Carriere, CPA, CGMA | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||||||
| Exhibit 32.1 | ||||||||
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Red River Bancshares, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Blake Chatelain, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 13, 2022 | By: | /s/ R. Blake Chatelain | ||||||
| R. Blake Chatelain | ||||||||
| President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| Exhibit 32.2 | ||||||||
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Red River Bancshares, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Isabel V. Carriere, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 13, 2022 | By: | /s/ Isabel V. Carriere | ||||||
| Isabel V. Carriere, CPA, CGMA | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||||||