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What changed in RED RIVER BANCSHARES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of RED RIVER BANCSHARES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+468 added−478 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-16)

Top changes in RED RIVER BANCSHARES INC's 2023 10-K

468 paragraphs added · 478 removed · 337 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

76 edited+21 added−9 removed153 unchanged
Biggest changeWe currently have no plans to make a financial holding company election, although we may make a financial holding company election in the future if we engage in any lines of business that are impermissible for bank holding companies but permissible for financial holding companies. 13 Table of Contents Volcker Rule Section 13 of the BHCA, commonly known as the “Volcker Rule,” has generally prohibited insured depository institutions and their affiliates from sponsoring or acquiring an ownership interest in certain investment funds, including hedge funds and private equity funds.
Biggest changeVolcker Rule Section 13 of the BHCA, commonly known as the “Volcker Rule,” has generally prohibited insured depository institutions and their affiliates from sponsoring or acquiring an ownership interest in certain investment funds, including hedge funds and private equity funds. The Volcker Rule also places restrictions on proprietary trading.
Although our consumer real estate loan portfolio presents lower levels of risk than our commercial and industrial, commercial real estate, and construction and development loan portfolios, we are exposed to risks based on fluctuations in the value of the real estate collateral 8 Table of Contents securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness, or other personal hardship.
Although our consumer real estate loan portfolio presents lower levels of risk than our commercial and industrial, commercial real estate, and construction and 8 Table of Contents development loan portfolios, we are exposed to risks based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness, or other personal hardship.
Permissible activities for a bank holding company include, among others, operating a mortgage, finance, credit card, or factoring company; performing certain data processing operations; providing investment and financial advice; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout, nonoperating basis; and providing certain stock brokerage services.
Permissible activities for a bank holding company include, among others, operating a mortgage, finance, credit card, or factoring company; performing certain data processing operations; providing investment and financial advice; acting as an insurance agent for certain types of insurance; leasing personal property on a full-payout, nonoperating basis; and providing certain stock brokerage services.
The Dodd-Frank Act (1) requires certain publicly traded companies to give shareholders a non-binding vote on executive compensation and golden parachute payments; (2) enhances independence requirements for compensation committee members; (3) requires national securities exchanges to require listed companies to adopt incentive-based compensation clawback policies for executive officers; (4) requires certain publicly traded companies to disclose the relationship between the executive compensation actually paid by the company and the financial performance of the company; and (5) authorizes the SEC to promulgate rules that would allow shareholders to nominate their own director candidates using a company’s proxy materials.
The Dodd-Frank Act (1) requires certain publicly traded companies to give shareholders a non-binding vote on executive 11 Table of Contents compensation and golden parachute payments; (2) enhances independence requirements for compensation committee members; (3) requires national securities exchanges to require listed companies to adopt incentive-based compensation clawback policies for executive officers; (4) requires certain publicly traded companies to disclose the relationship between the executive compensation actually paid by the company and the financial performance of the company; and (5) authorizes the SEC to promulgate rules that would allow shareholders to nominate their own director candidates using a company’s proxy materials.
Generally, Sections 23A and 23B (1) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such bank’s capital stock and surplus, and limit the aggregate of all such transactions with all affiliates to an amount equal to 20.0% of such capital stock and surplus, and (2) require that all such transactions be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those that would be provided to a non-affiliate.
Generally, Sections 23A and 23B (1) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such bank’s capital stock and surplus, and limit the aggregate of all such transactions with all affiliates to an amount equal to 20.0% of such capital stock and surplus, and (2) require that all such transactions be on terms substantially the same, or at least as favorable, to the 15 Table of Contents bank or subsidiary as those that would be provided to a non-affiliate.
As of December 31, 2022, our consumer loans were 1.4% of loans HFI. Loans Held for Sale Our mortgage lending group originates home mortgage loans that are sold to investors on the secondary market. Loan types include conventional, VA, FHA, and Rural Development.
As of December 31, 2023, our consumer loans were 1.4% of loans HFI. Loans Held for Sale Our mortgage lending group originates home mortgage loans that are sold to investors on the secondary market. Loan types include conventional, VA, FHA, and Rural Development.
The guidance provides that a bank may have a concentration in commercial real estate lending if (1) total reported loans for construction, land development, and other land represent 100.0% or more of total risk-based capital, or (2) total non-owner occupied commercial real estate loans, excluding owner occupied properties, 16 Table of Contents represent 300.0% or more of the bank’s total risk-based capital and the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50.0% or more during the prior 36 months.
The guidance provides that a bank may have a concentration in commercial real estate lending if (1) total reported loans for construction, land development, and other land represent 100.0% or more of total risk-based capital, or (2) total non-owner occupied commercial real estate loans, excluding owner occupied properties, represent 300.0% or more of the bank’s total risk-based capital and the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50.0% or more during the prior 36 months.
Changes resulting from further implementation of, changes to, or repeal of the Dodd-Frank Act may impact the profitability of our business activities; require changes to certain of our business practices; impose upon us more stringent capital, liquidity, and leverage requirements; or otherwise adversely affect our business.
Changes resulting from further implementation of, changes to, or repeal of the Dodd-Frank Act and other regulations may impact the profitability of our business activities; require changes to certain of our business practices; impose upon us more stringent capital, liquidity, and leverage requirements; or otherwise adversely affect our business.
For example, the CFPB issued a Request for Information in January 2022 seeking public input with respect to financial institution practices relating to, among other areas, credit card fees, overdraft fees and non-sufficient funds fees and stated its intent to reduce these types of fees through crafting rules, issuing industry guidance, and focusing supervision and enforcement resources to achieve this goal.
For example, the CFPB issued a Request for Information in January 2022 seeking public input with respect to financial institution practices relating to, among other areas, credit card fees, overdraft fees and non-sufficient funds fees and stated its intent to reduce these types of fees through crafting rules, issuing 17 Table of Contents industry guidance, and focusing supervision and enforcement resources to achieve this goal.
As of December 31, 2022, Red River Bank’s total reported loans for construction, land development, and other land represented less than 100.0% of the Bank’s total risk-based capital, and its total commercial real estate loans, excluding owner occupied properties, represented less than 300.0% of the Bank’s total risk-based capital.
As of December 31, 2023, Red River Bank’s total reported loans for construction, land development, and other land represented less than 100.0% of the Bank’s total risk-based capital, and its total commercial real estate loans, excluding owner occupied properties, represented less than 300.0% of the Bank’s total risk-based capital.
Such legislation, regulation, and policies have had a significant effect on the operations and activities, financial condition, results of operations, growth plans, and future prospects of commercial banks in the past and are expected to continue to do so. 19 Table of Contents
Such legislation, regulation, and policies have had a significant effect on the operations and activities, financial condition, results of operations, growth plans, and future prospects of commercial banks in the past and are expected to continue to do so. 20 Table of Contents
Control of a bank holding company is rebuttably presumed to exist under the Change in Bank Control Act if the acquiring person or entity will own 10.0% or more of any class of voting securities immediately following the transaction and either no other person will hold a greater percentage of that class of voting securities after the acquisition or the bank holding company has publicly registered securities.
Control of a bank holding company is rebuttably presumed to exist under the Change in Bank Control Act if the acquiring person or entity (or group acting in concert) will own 10.0% or more of any class of voting securities immediately following the transaction and either no other person will hold a greater percentage of that class of voting securities after the acquisition or the bank holding company has publicly registered securities.
CORPORATE INFORMATION Our principal executive offices are located at 1412 Centre Court Drive, Suite 501, Alexandria, Louisiana 71301, and our telephone number is (318) 561-4000. Our website is www.redriverbank.net.
CORPORATE INFORMATION Our principal executive offices are located at 1412 Centre Court Drive, Suite 301, Alexandria, Louisiana 71301, and our telephone number is (318) 561-4000. Our website is www.redriverbank.net.
If a bank holding company has elected to become a financial holding company, it may engage in activities that are (1) financial in nature or incidental to such financial activity, or (2) complementary to a financial activity and which do not pose a substantial risk to the safety and soundness of a depository institution or to the financial system generally.
If a bank holding company has elected to become a financial holding company, it may engage in activities that are (1) financial in nature or incidental to such financial activity, or (2) complementary to a financial activity and which do not 13 Table of Contents pose a substantial risk to the safety and soundness of a depository institution or to the financial system generally.
Due to the timing of the asset balance determination for the Red River Bank safety and soundness examination, a 12-month examination cycle began in the second half of 2022. As of June 30, 2022, the last applicable measurement date, we had more than $3.0 billion in assets.
Due to the timing of the asset balance determination for the Red River Bank safety and soundness examination, a 12-month examination cycle began in the second half of 2022. As of June 30, 2022 and 2023, the last applicable measurement dates, we had more than $3.0 billion in assets.
Under the Basel III capital rules, Red River Bank is required to maintain four minimum capital standards: (1) a leverage ratio of at least 4.00%, (2) a common equity Tier I risk-based capital ratio of at least 4.50%, (3) a Tier I risk-based capital ratio of at least 6.00%, and (4) a total risk-based capital ratio of at least 8.00%.
Under the Basel III capital rules, Red River Bank is required to maintain four minimum capital standards: (1) a leverage ratio of at least 4.00%, (2) a common equity Tier I risk-based capital ratio of at least 7.00%, (3) a Tier I risk-based capital ratio of at least 8.50%, and (4) a total risk-based capital ratio of at least 10.50%.
We also entered the New Orleans market in 2021 by opening a combined LDPO in downtown New Orleans, Louisiana. In Lafayette, Louisiana, in the first quarter of 2022, we opened our first full-service banking center, which we purchased in 2020.
In 2020, we entered the Acadiana market, which includes the Lafayette, Louisiana MSA, by opening a combined LDPO in Lafayette. We also entered the New Orleans market in 2021 by opening a combined LDPO in downtown New Orleans, Louisiana. In Lafayette, Louisiana, in the first quarter of 2022, we opened our first full-service banking center, which we purchased in 2020.
All loans, advances, letters of credit, and other extensions of credit made by the FHLB of Dallas to Red River Bank are secured by a portion of Red River Bank’s loan portfolio, as well as capital stock of the FHLB of Dallas held by Red 18 Table of Contents River Bank.
All loans, advances, letters of credit, and other extensions of credit made by the FHLB of Dallas to Red River Bank are secured by a portion of Red River Bank’s loan portfolio, as well as capital stock of the FHLB of Dallas held by Red River Bank.
The FDIC or OFI may also set higher capital requirements if warranted by the risk profile of Red River Bank, economic conditions impacting its markets, or other circumstances particular to the Bank.
These capital requirements are minimum requirements. The FDIC or OFI may also set higher capital requirements if warranted by the risk profile of Red River Bank, economic conditions impacting its markets, or other circumstances particular to the Bank.
These regulations extend the requirement that creditors verify and document a borrower’s income and assets to include a requirement to verify all information that creditors rely on in determining 17 Table of Contents repayment ability. The rules also define “qualified mortgages” based on adherence to certain underwriting standards and certain restrictions on loan terms.
These regulations extend the requirement that creditors verify and document a borrower’s income and assets to include a requirement to verify all information that creditors rely on in determining repayment ability. The rules also define “qualified mortgages” based on adherence to certain underwriting standards and certain restrictions on loan terms.
Although “control” is based on all of the facts and circumstances surrounding the investment, control is conclusively presumed to exist if a person or company acquires 25.0% or more of any class of voting securities of the bank holding company.
Although “control” is based on all of the facts and circumstances surrounding the investment, control is conclusively presumed to exist if a person or company (or group acting in concert) acquires 25.0% or more of any class of voting securities of the bank holding company.
In addition, we offer banking services in person, through ATMs, drive-through facilities, night deposits, telephone, mail, mobile banking, and remote deposits. We also offer debit cards, credit cards, direct deposits, cashier’s checks, and wire transfer services. INFORMATION TECHNOLOGY SYSTEMS We continue to make investments in our information technology systems supporting our deposit and lending operations and treasury management initiatives.
In addition, we offer banking services in person, through ATMs, drive-through facilities, night deposits, telephone, mail, and mobile banking. We also offer debit cards, credit cards, cashier’s checks, wire transfer services, and safe deposit boxes. INFORMATION TECHNOLOGY SYSTEMS We continue to make investments in our IT systems supporting our deposit and lending operations and treasury management initiatives.
As of December 31, 2022, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework. 14 Table of Contents Corrective Measures for Capital Deficiencies The federal banking regulators are required by the FDIA to take “prompt corrective action” with respect to capital-deficient banks that are FDIC-insured.
As of December 31, 2023, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework. Corrective Measures for Capital Deficiencies The federal banking regulators are required by the FDIA to take “prompt corrective action” with respect to capital-deficient banks that are FDIC-insured.
As of December 31, 2022, our tax-exempt loans were 4.3% of loans HFI. Consumer Loans We also make a variety of loans to individuals for personal, family, and household purposes, including secured and unsecured installment and term loans.
As of December 31, 2023, our tax-exempt loans were 3.7% of loans HFI. Consumer Loans We also make a variety of loans to individuals for personal, family, and household purposes, including secured and unsecured installment and term loans.
As of December 31, 2022, our construction and development loans were 8.2% of loans HFI. Commercial and Industrial Loans We have expertise in meeting the financing needs of commercial operating companies. Our specialists in these areas understand the cash cycle, working capital, and the fixed asset acquisition needs of businesses, which allows us to deliver customizable and effective financing solutions.
As of December 31, 2023, our construction and development loans were 6.3% of loans HFI. Commercial and Industrial Loans We have expertise in meeting the financing needs of commercial operating companies. Our specialists in these areas understand the cash cycle, working capital, and the fixed asset acquisition needs of businesses, which allows us to deliver customizable and effective financing solutions.
We operate seven banking centers in our Northwest Louisiana market, which we define to include Caddo, Bossier, and DeSoto Parishes. In our Capital market, which we define to include East Baton Rouge and Ascension Parishes, we operate six banking centers.
We operate seven banking centers in our Northwest Louisiana market, which we define to include Caddo, Bossier, and DeSoto Parishes. In our Capital market, which we define to include East Baton Rouge and Ascension Parishes, we operate six banking centers. We operate two banking centers in our Southwest Louisiana market, which we define to include Calcasieu Parish.
As of December 31, 2022, our non-owner occupied commercial real estate loans were 20.9% of loans HFI. One-to-Four Family Residential Loans. We offer primary and secondary liens on one-to-four family mortgage loans, as well as home equity lines of credit, in each case primarily on owner occupied primary residences.
As of December 31, 2023, our non-owner occupied commercial real estate loans were 22.0% of loans HFI. One-to-Four Family Residential Loans. We offer primary and secondary liens on one-to-four family mortgage loans, as well as home equity lines of credit, in each case primarily on owner occupied primary residences.
OUR MARKETS As of December 31, 2022, we operated from a network of 28 banking centers throughout Louisiana and one combined LDPO in New Orleans, Louisiana.
OUR MARKETS As of December 31, 2023, we operated from a network of 27 banking centers throughout Louisiana and one combined LDPO in New Orleans, Louisiana.
In the New Orleans market, we remodeled and received regulatory approval on a leased banking center location in downtown New Orleans, which we opened as the Bank’s first full-service banking center in New Orleans on August 1, 2022.
In the New Orleans market, we remodeled and received regulatory approval on a leased banking center location in downtown New Orleans, which we opened as the Bank’s first full-service banking center in New Orleans in the third quarter of 2022.
We recommend and utilize sound commercial and industrial loan structures that limit our risks as a lender, while also helping to drive the success of our clients’ businesses. Commercial and industrial loans comprised 16.2% of loans HFI as of December 31, 2022.
We recommend and utilize sound commercial and industrial loan structures that limit our risks as a lender, while also helping to drive the success of our clients’ businesses. Commercial and industrial loans comprised 15.8% of loans HFI as of December 31, 2023.
We operate one banking center in our Acadiana market, which we define to include Lafayette Parish. In our New Orleans market, which we define to include Orleans Parish, we operate one banking center and one combined LDPO.
In our Northshore Louisiana market, which we define to include St. Tammany Parish, we operate one banking center. We operate one banking center in our Acadiana market, which we define to include Lafayette Parish. In our New Orleans market, which we define to include Orleans Parish, we operate one banking center and one combined LDPO.
Commitments to Extend Credit We had outstanding commitments to extend credit in the forms of lines of credit and standby letters of credit of approximately $392.2 million as of December 31, 2022. We use the same credit policies in making these commitments as we do for our other loans.
Commitments to Extend Credit We had outstanding commitments to extend credit in the forms of lines of credit and standby letters of credit of approximately $387.4 million as of December 31, 2023. We use the same credit policies in making these commitments as we do for our other loans.
Through our partnership with registered investment advisors, our investment group also provides investment advisory services, financial planning services, and a comprehensive suite of retirement plans. As of December 31, 2022, our investment group had $915.1 million of assets under management.
Through our partnership with registered investment advisors, our investment group also provides investment advisory services, financial planning services, and a comprehensive suite of retirement plans. As of December 31, 2023, our investment group had $1.04 billion of assets under management.
Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier I leverage ratio of greater than 9.00% (subsequently temporarily reduced to 8.00% for 2020 and 8.50% for 2021 as a COVID-19 relief measure), are considered qualifying community banking organizations and are eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements.
Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier I leverage ratio of greater than 9.00%, are considered qualifying community banking organizations eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements.
In August 2022, the FDIC issued guidance with respect to banking practices involving charging multiple non-sufficient funds fees on the representment of the same unpaid transaction on a deposit account. In addition, the CFPB issued guidance in October 2022 with respect to certain practices relating to overdraft fees.
In August 2022, the FDIC issued guidance with respect to banking practices involving charging multiple non-sufficient funds fees on the representment of the same unpaid transaction on a deposit account. In October 2022, the CFPB issued guidance with respect to certain practices relating to overdraft fees, and it included overdraft fees in its fall 2023 rulemaking agenda.
Our common stock is listed on the Nasdaq Global Select Market under the symbol “RRBI.” As of December 31, 2022, we were the fifth largest financial institution headquartered in Louisiana based on assets, with total assets of $3.08 billion, loans HFI of $1.92 billion, total deposits of $2.80 billion, and total stockholders’ equity of $265.8 million.
Our common stock is listed on the Nasdaq Global Select Market under the symbol “RRBI.” As of December 31, 2023, we were the sixth largest financial institution headquartered in Louisiana based on assets, with total assets of $3.13 billion, loans HFI of $1.99 billion, total deposits of $2.80 billion, and total stockholders’ equity of $303.9 million.
In addition, the mortgage lending department plays a critical role in meeting our community reinvestment and fair lending goals. The mortgage group has a community specialist in each market focused on low-income and first-time home buyers, and we participate in various down payment assistance and low-income home loan programs to ensure the needs of our entire banking community are satisfied.
The mortgage group has a community specialist in each major market focused on low-income and first-time home buyers, and we participate in various down payment assistance and low-income home loan programs to ensure the needs of our entire banking community are satisfied.
Failure to meet capital guidelines could subject Red River Bank to a variety of enforcement remedies, including issuance of a capital directive, restrictions on business activities, and other measures under the FDIC’s prompt corrective action regulations. In September 2019, the FDIC and other federal bank regulatory agencies approved the CBLR framework.
Failure to meet capital guidelines could subject Red River Bank to a variety of enforcement remedies, including issuance of a capital directive, restrictions on business activities, and other measures under the FDIC’s prompt corrective action regulations.
From checking and savings products to sophisticated financing structures, we work to meet our clients’ changing needs. Brokerage Services We offer a broad range of products and services designed to meet the investment needs of all of our customers through our investment group and LPL Financial LLC, our registered broker-dealer.
Brokerage Services We offer a broad range of products and services designed to meet the investment needs of all of our customers through our investment group and LPL Financial LLC, our registered broker-dealer.
In particular, we target wholesale and professional service companies, as well as businesses with unique strengths in niche markets. Loans are conservatively underwritten and typically carry the personal guarantee of the business owners. We believe this portfolio segment is well diversified by industry type.
In particular, we target wholesale and professional service companies, as well as businesses with unique strengths in niche markets. Loans are conservatively underwritten and typically carry the personal guarantee of the business owners. We believe this portfolio segment is well-diversified by industry type. As of December 31, 2023, our owner occupied commercial real estate loans were 20.7% of loans HFI.
We target property types with a greater ability to withstand changes in market forces. Our underwriting criteria for non-owner occupied properties is even more conservative than our underwriting criteria for owner occupied properties due to the higher inherent risks generally associated with the former. Our target rate of return is also higher for non-owner occupied commercial real estate loans.
Our underwriting criteria for non-owner occupied properties is even more conservative than our underwriting criteria for owner occupied properties due to the higher inherent risks generally associated with the former. Our target rate of return is also higher for non-owner occupied commercial real estate loans.
As of December 31, 2022, our one-to-four family residential loans were 28.4% of loans HFI. Construction and Development Loans.
As of December 31, 2023, our one-to-four family residential loans were 30.1% of loans HFI. Construction and Development Loans.
Consumer Laws and Regulations Red River Bank is subject to numerous laws and regulations intended to protect consumers in transactions with the Bank. These laws include, among others, laws regarding unfair, deceptive, and abusive acts and practices, and other federal consumer protection statutes.
We continue to evaluate the new rule and its effects on our operations going forward. Consumer Laws and Regulations Red River Bank is subject to numerous laws and regulations intended to protect consumers in transactions with the Bank. These laws include, among others, laws regarding unfair, deceptive, and abusive acts and practices, and other federal consumer protection statutes.
These regulations affect how consumer information is transmitted through financial services companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
In addition, consumers may also prevent disclosure of certain information among affiliated 18 Table of Contents companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
The FDIC can also impose special assessments in certain instances. If there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates, Red River Bank may be required to pay higher FDIC insurance premiums.
While Red River Bank is not subject to this special assessment, Red River Bank may be required to pay higher FDIC insurance premiums if there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates.
In addition, the Dodd-Frank Act created the CFPB, which has broad authority to regulate the offering and provision of consumer financial products. The CFPB has authority to promulgate regulations; issue orders, guidance, interpretations, and policy statements; conduct examinations; and bring enforcement actions with regard to consumer financial products and services.
The CFPB has authority to promulgate regulations; issue orders, guidance, interpretations, and policy statements; conduct examinations; and bring enforcement actions with regard to consumer financial products and services.
Acquisitions by Bank Holding Companies We must obtain the prior approval of the Federal Reserve before (1) acquiring more than 5.0% of the voting stock of any bank or other bank holding company, (2) acquiring all or substantially all of the assets of any bank or bank holding company, or (3) merging or consolidating with any other bank holding company.
For example, a bank holding company controlling such a bank can be required to obtain prior Federal Reserve approval of proposed dividends, or might be required to divest the bank or other affiliates. 12 Table of Contents Acquisitions by Bank Holding Companies We must obtain the prior approval of the Federal Reserve before (1) acquiring more than 5.0% of the voting stock of any bank or other bank holding company, (2) acquiring all or substantially all of the assets of any bank or bank holding company, or (3) merging or consolidating with any other bank holding company.
Holding Company Capital Requirements As previously referenced, effective January 1, 2023, we are no longer subject to the Policy Statement. As a result, we are now subject, on a consolidated basis, to the same minimum capital ratios under Basel III as Red River Bank.
Holding Company Capital Requirements As previously referenced in “- Financial Services Industry Reform,” effective January 1, 2023, we became subject to, on a consolidated basis, the same minimum capital ratios under Basel III as Red River Bank.
The Volcker Rule also places restrictions on proprietary trading. The Economic Growth Act exempts from the Volcker Rule insured depository institutions with (1) $10.0 billion or less in total consolidated assets and (2) whose total trading assets and trading liabilities are 5.0% or less of total consolidated assets.
The Economic Growth Act exempts from the Volcker Rule insured depository institutions with (1) $10.0 billion or less in total consolidated assets and (2) whose total trading assets and trading liabilities are 5.0% or less of total consolidated assets. The Federal Reserve has effectively extended the exemption to bank holding companies with $10.0 billion or less in total consolidated assets.
An unsatisfactory CRA record could substantially delay approval or result in denial of an application. The federal banking agencies have proposed changes to modernize the CRA regulations, but at present such changes have not been finalized. Red River Bank received a “Satisfactory” rating in its most recent CRA examination in 2022.
An unsatisfactory CRA record could substantially delay approval or result in denial of an application. Red River Bank received a “Satisfactory” rating in its most recent CRA examination in 2022. On October 24, 2023, the federal banking agencies adopted a final rule to modernize the CRA regulations.
Banks that are adequately, but not well, capitalized may not accept, renew, or rollover brokered deposits without a waiver from the FDIC and are subject to restrictions on the interest rates that can be paid on deposits.
We believe that, as of December 31, 2023, the Bank is well-capitalized under the regulatory framework for prompt corrective action. Banks that are adequately capitalized, but not well-capitalized, may not accept, renew, or rollover brokered deposits without a waiver from the FDIC and are subject to restrictions on the interest rates that can be paid on deposits.
At least semi-annually, the FDIC updates its loss and income projections for the Deposit Insurance Fund and, if needed, increases or decreases assessment rates, following notice-and-comment rulemaking, if required. The FDIC issued a final rule in October 2022 increasing deposit insurance assessments beginning in the first quarterly assessment period of 2023.
At least semi-annually, the FDIC updates its loss and income projections for the Deposit Insurance Fund and, if needed, increases or decreases assessment rates, following notice-and-comment rulemaking, if required.
The Dodd-Frank Act expanded the coverage and scope of the limitations on affiliate transactions within a banking organization, including an expansion of what types of transactions are covered transactions to include credit exposures related to derivatives, repurchase agreements, and securities lending arrangements, and an increase in the amount of time for which collateral requirements regarding covered transactions must be satisfied. 15 Table of Contents Federal law also limits a bank’s authority to extend credit to its directors, executive officers, and 10.0% or greater shareholders, as well as to entities controlled by such persons.
The Dodd-Frank Act expanded the coverage and scope of the limitations on affiliate transactions within a banking organization, including an expansion of what types of transactions are covered transactions to include credit exposures related to derivatives, repurchase agreements, and securities lending arrangements, and an increase in the amount of time for which collateral requirements regarding covered transactions must be satisfied.
The Federal Reserve has effectively extended the exemption to bank holding companies with $10.0 billion or less in total consolidated assets. Since we meet the criteria listed above, we are exempt from the Volcker Rule. Safe and Sound Banking Practices Bank holding companies are not permitted to engage in unsafe and unsound banking practices.
Since we meet the criteria listed above, we are exempt from the Volcker Rule. Safe and Sound Banking Practices Bank holding companies are not permitted to engage in unsafe and unsound banking practices.
Those providers, because they are not so highly regulated, may have a competitive advantage over us and may continue to draw customers away from traditional banking institutions, with a continuing adverse effect on the banking industry in general.
Those providers, because they are not so highly regulated, may have a competitive advantage over us and may continue to draw customers away from traditional banking institutions, with a continuing adverse effect on the banking industry in general. 19 Table of Contents Future Legislation and Regulatory Reform In light of current economic conditions and the market outlook, regulators may increase their focus on the regulation of financial institutions.
While much of the Dodd-Frank Act has been implemented in the form of final rules from the 11 Table of Contents banking agencies, certain aspects of the Dodd-Frank Act remain in proposed form or have not been implemented.
While much of the Dodd-Frank Act has been implemented in the form of final rules from the banking agencies, certain aspects of the Dodd-Frank Act remain in proposed form or have not been implemented. Accordingly, it is possible that existing rules may still be modified or repealed or that new rules may be implemented that may impact our operations.
Private Banking Services Our private banking group provides specialized deposit and loan products and services to high net worth individuals, business owners, and professionals. Consistent with our overall business philosophy, we seek to develop long-term relationships with our private banking clients through an emphasis on personal service and products tailored to their specific needs.
Consistent with our overall business philosophy, we seek to develop long-term relationships with our private banking clients through an emphasis on personal service and products tailored to their specific needs. From checking and savings products to sophisticated financing structures, we work to meet our clients’ changing needs.
Our bankers are experienced business developers with extensive contacts and connections with targeted clients and centers 9 Table of Contents of influence throughout our communities. Our team is focused on driving relationships and noninterest-bearing accounts. We believe that the rates we offer for core deposits are competitive with those offered by other financial institutions in our market areas.
Our bankers are experienced business developers with extensive contacts and connections with targeted clients and centers of influence throughout our communities. Our team is focused on driving relationships and noninterest-bearing accounts.
As of December 31, 2022, our owner occupied commercial real estate loans were 20.6% of loans HFI. Commercial Real Estate Loans (Non-Owner Occupied) . Our pursuit of non-owner occupied commercial real estate properties is reserved primarily for developers and other persons or entities of influence who present additional business and personal relationship opportunities.
Commercial Real Estate Loans (Non-Owner Occupied) . Our pursuit of non-owner occupied commercial real estate properties is reserved primarily for developers and other persons or entities of influence who present additional business and personal relationship opportunities. This strategy is evidenced by our modest level of these loans relative to our capital, which has been consistent for many years.
The CBLR framework and its implications for us are discussed in more detail below under the heading “- Bank Regulation - Capital Adequacy Requirements.” At this time, it is difficult to anticipate the continued impact the above-described legislation may have on our business, our customers, and the financial industry generally.
At this time, it is difficult to anticipate the continued impact the above-described legislation may have on our business, our customers, and the financial industry generally.
New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of financial institutions operating in the U.S. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.
We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.
In addition, as a condition to receiving regulatory approval, the Federal Reserve can impose conditions on the acquiror or the business to be acquired, which may not be acceptable or, if acceptable, may reduce the benefit of a proposed acquisition. 12 Table of Contents Control Acquisitions Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval or non-objection prior to any person or company acquiring “control” of a bank holding company.
Control Acquisitions Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval or non-objection prior to any person or company (or group acting in concert) acquiring “control” of a bank holding company.
Cash management deposit products consist of remote deposit capture, automated clearing house origination, merchant services, positive pay and automated fraud detection tools, account reconciliation services, zero balance accounts, and sweep accounts, including loan and investment sweep accounts. We have a dedicated team of TMOs who partner with our commercial and private bankers to meet those needs.
Treasury management services include ways to help our business customers manage accounts payable, accounts receivable, account fraud risk, and information reporting. Treasury management deposit products consist of remote deposit capture, automated clearing house origination, merchant services, positive pay and automated fraud detection tools, account reconciliation services, zero balance accounts, and sweep accounts, including loan and investment sweep accounts.
This strategy is evidenced by our modest level of these loans relative to our capital, which has been consistent for many years. Risks associated with non-owner occupied commercial real estate include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, tenant vacancy rates, environmental contamination, and the quality of the borrower’s management.
Risks associated with non-owner occupied commercial real estate include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, tenant vacancy rates, environmental contamination, and the quality of the borrower’s management. We target property types with a greater ability to withstand changes in market forces.
The bank regulatory agencies have greater power in situations where a bank becomes significantly or critically undercapitalized or fails to submit a capital restoration plan. For example, a bank holding company controlling such a bank can be required to obtain prior Federal Reserve approval of proposed dividends, or might be required to divest the bank or other affiliates.
The bank regulatory agencies have greater power in situations where a bank becomes significantly or critically undercapitalized or fails to submit a capital restoration plan.
Another significant provision was the Economic Growth Act’s directive that federal bank regulatory agencies adopt a threshold for a CBLR framework.
Therefore, effective January 1, 2023, we no longer receive any benefits under the Policy Statement and became subject to consolidated capital requirements. Another significant provision was the Economic Growth Act’s directive that federal bank regulatory agencies adopt a threshold for a CBLR framework.
The Basel III capital rules also require the Bank to establish a CCB equal to 2.50% of total risk-weighted assets. The CCB is designed to ensure that banks build up capital buffers outside periods of stress, which can be drawn down as losses are incurred.
Due to the full phase-in of the CCB, the required ratios are 2.50% higher than the year ended December 31, 2022 and prior years. The CCB is designed to ensure that banks build up capital buffers outside periods of stress, which can be drawn down as losses are incurred.
Provisions in the Economic Growth Act generally address access to mortgage credit; consumer access to credit; protections for veterans, consumers, and homeowners; and protections for student borrowers.
The Economic Growth Act, which was signed into law in May 2018, provides certain limited amendments to the Dodd-Frank Act, as well as certain targeted modifications to prior financial services reform regulatory requirements. Provisions in the Economic Growth Act generally address access to mortgage credit; consumer access to credit; protections for veterans, consumers, and homeowners; and protections for student borrowers.
We offer comprehensive compensation and benefits packages to our employees including a 401(k) Plan, healthcare and insurance benefits, health and childcare flexible spending accounts, and paid vacation and sick time. We also offer stock-based compensation to key employees as a way to attract and retain talent. For more information on our benefit plans and stock-based compensation, see “Item 8.
We also offer a 401(k) Plan, which includes our stock as an investment option, and we make matching contributions to that plan. In addition, we offer stock-based compensation to key employees as a way to attract and retain talent. For more information on our benefit plans and stock-based compensation, see “Item 8. Financial Statements and Supplementary Data - Note 9.
We seek to engage personnel at all levels by offering opportunities for learning, growth, and the achievement of career objectives, and we encourage our 10 Table of Contents employees to volunteer in community service activities in the markets that we serve. We are an Equal Opportunity Employer committed to workplace diversity and inclusion.
Additionally, we encourage our employees to volunteer in community service activities in the markets that we serve. We are an Equal Opportunity Employer committed to workplace diversity and inclusion. We employ people based upon merit, ability and qualifications.
HUMAN CAPITAL As of December 31, 2022, we had 351 employees, including 340 full-time employees. We believe that we maintain employment and benefit programs that are appropriate with respect to position responsibilities, competitive with the external market, and capable of attracting, retaining, and motivating competent employees.
We believe that we maintain employment and benefit programs that are appropriate with respect to position responsibilities, competitive with the external market, and capable of attracting, retaining, and motivating competent employees. We recognize the importance of our employee’s financial health and well-being and strive to provide comprehensive compensation and benefits packages to help meet those needs.
Our TMOs analyze clients’ account activity and cash utilization and then recommend and implement solutions that enhance our clients’ efficiency, mitigate risks to their businesses, and maximize their earnings on available liquidity. Our TMOs provide in-person assistance with the initial setup of treasury services, as well as on-going client support post-implementation.
We have dedicated teams who partner with our commercial and private bankers to meet those needs. Our TMSOs analyze clients’ account activity and cash utilization and then recommend and implement solutions that enhance our clients’ efficiency, mitigate risks to their businesses, and maximize their earnings on available liquidity.
This optional framework became effective January 1, 2020, and is available to the Bank as an alternative to the Basel III risk-based capital framework. The CBLR framework provides for a simple measure of capital adequacy for certain community banking organizations.
As part of the directive under the Economic Growth Act, in September 2019, the FDIC and other federal bank regulatory agencies approved the CBLR framework. This optional framework became effective January 1, 2020, and is available to 14 Table of Contents the Company and the Bank as an alternative to the Basel III risk-based capital framework.
Financial Statements and Supplementary Data - Note 9. Employee Benefits” and “- Note 10. Stock-Based Compensation Plans,” respectively, in this Report. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. We believe that our relations with our employees are very good.
HUMAN CAPITAL As of December 31, 2023, we had 362 employees, including 353 full-time employees. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. We believe that our relations with our employees are very good.
Treasury Management Services Many of our clients and prospective clients have sophisticated depository needs. Our full array of commercial treasury services is designed to be competitive with banks of all sizes. Treasury management services include ways to help our business customers manage accounts payable, accounts receivable, account fraud risk, and information reporting.
We believe that the rates we offer for core deposits are competitive with those offered by other financial institutions in our market areas. 9 Table of Contents Treasury Management Services Many of our clients and prospective clients have sophisticated depository needs. Our full array of commercial treasury services is designed to be competitive with banks of all sizes.
The Federal Reserve can deny an application based on the above criteria or other considerations.
The Federal Reserve can deny an application based on the above criteria or other considerations. In addition, as a condition to receiving regulatory approval, the Federal Reserve can impose conditions on the acquiror or the business to be acquired, which may not be acceptable or, if acceptable, may reduce the benefit of a proposed acquisition.
Removed
As of December 31, 2022, we operated three banking centers in our Southwest Louisiana market, which we define to include Calcasieu Parish. On March 1, 2023, we consolidated two of our Southwest Louisiana market banking centers into one location. In our Northshore Louisiana market, which we define to include St. Tammany Parish, we operate one banking center.
Added
In the third quarter of 2023, we held a groundbreaking ceremony for our third banking location in the New Orleans market. Construction of this banking center is in process, and it is projected to open for business in the third quarter of 2024.
Removed
In 2020, we entered the Acadiana market, which includes the Lafayette, Louisiana MSA, by opening a combined LDPO in Lafayette. In 2021, we opened a banking center that we purchased in 2020 in Lake Charles, Louisiana, as our third banking center in the Southwest Louisiana market.
Added
In addition, the mortgage lending department plays a critical role in meeting our community reinvestment and fair lending goals.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

93 edited+28 added−35 removed128 unchanged
Biggest changeWe may be required to make additional provisions for loan losses to further supplement our allowance for loan losses, due either to our management’s decision or as a regulatory requirement. In addition, bank regulatory agencies will periodically review our allowance for loan losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure.
Biggest changeAdditional credit losses will likely occur in the future and may occur at a rate greater than we have previously experienced or greater than we anticipate. We may be required to make additional provisions for credit losses to further supplement our ACL, due either to our management’s decision or as a regulatory requirement.
A failure to effectively measure and limit our credit risk could result in loan defaults, foreclosures, and additional charge-offs. As a result, we may need to significantly increase our provision for loan losses, which could adversely affect our net income.
A failure to effectively measure and limit our credit risk could result in loan defaults, foreclosures, and additional charge-offs. As a result, we may need to significantly increase our provision for credit losses, which could adversely affect our net income.
In addition, the rate of delinquencies, foreclosures, bankruptcies, and losses on loan portfolios may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair our borrowers’ ability to repay their loans. Such external events could, therefore, result in decreased revenue and increased loan losses for us.
In addition, the rate of delinquencies, foreclosures, bankruptcies, and losses on loan portfolios may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair our borrowers’ ability to repay their loans. Such external events could, therefore, result in decreased revenue and increased credit losses for us.
In addition, there are risks inherent in making any loan, including risks with respect to the period of time the loan may be repaid; risks relating to proper loan underwriting; risks resulting from changes in economic and industry conditions such as labor and material shortages, supply chain difficulties, and heightened inflationary pressures; and risks inherent in dealing with individual borrowers.
In addition, there are risks inherent in making any loan, including risks with respect to the period of time the loan may be repaid; risks relating to proper loan underwriting; risks resulting from changes in economic and industry conditions such as labor and material shortages, supply chain difficulties, and inflationary pressures; and risks inherent in dealing with individual borrowers.
Certain aspects of current or proposed regulatory or legislative changes, if enacted or adopted, may impact the profitability of our business activities by requiring more oversight or changing certain of our business practices, including our ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads.
Certain aspects of current or proposed regulatory or legislative changes, if enacted or adopted, may impact the profitability of our business activities by requiring more oversight or changing certain of our business practices, including our ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest rate spreads.
Future changes in tax laws may have an adverse effect on our income tax expense, deferred tax balances, and the amount of taxes payable, which could have an adverse effect on our business and profitability. New activities and expansion require regulatory approvals, and failure to obtain them may restrict our growth.
In addition, future changes in tax laws may have an adverse effect on our income tax expense, deferred tax balances, and the amount of taxes payable, which could have an adverse effect on our business and profitability. New activities and expansion require regulatory approvals, and failure to obtain them may restrict our growth.
The primary impact of continued inflation on our operations is our ability to manage the impact of changes in interest rates, which could impact the demand for our products and services. In addition, we could also experience increased operating costs related to providing our products and services as a result of continued inflation.
The primary impact of inflation on our operations is our ability to manage the impact of changes in interest rates, which could impact the demand for our products and services. In addition, we could also experience increased operating costs related to providing our products and services as a result of inflation.
In addition, regardless of their merits, scope, validity, or ultimate outcomes, such matters are costly, time-consuming, may result in protracted litigation or otherwise divert management’s attention, and may materially and adversely affect our reputation, even if resolved favorably.
Regardless of their merits, scope, validity, or ultimate outcomes, such matters are costly, time-consuming, may result in protracted litigation or otherwise divert management’s attention, and may materially and adversely affect our reputation, even if resolved favorably.
Any of these factors, among others, could cause OTTI, realized or unrealized losses in future periods, and declines in AOCI, which could have a material adverse effect on our business, financial condition, results of operations, and capital requirements.
Any of these factors, among others, could cause realized or unrealized losses in future periods and declines in AOCI, which could have a material adverse effect on our business, financial condition, results of operations, and capital requirements.
We may not be able to generate sufficient new loans and deposits within acceptable risk and expense tolerances, obtain the personnel or funding necessary for additional growth, or find suitable acquisition candidates.
For example, we may not be able to generate sufficient new loans and deposits within acceptable risk and expense tolerances, obtain the personnel or funding necessary for additional growth, or find suitable acquisition candidates.
Congress and by regulatory agencies that could substantially increase regulation of the financial services industry; impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including in the areas of compensation, interest rates, fees on products and services (including overdraft fees and NSF fees), financial product offerings, and disclosures; and have an effect on collection and bankruptcy proceedings with respect to consumer residential real estate mortgages, among other things.
Congress and by regulatory agencies, which could substantially increase regulation of the financial services industry; impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including in the areas of compensation, interest rates, fees on products and services (including overdraft fees and NSF fees), financial product offerings, and disclosures; and have an effect on collection and bankruptcy proceedings with respect to consumer residential real estate mortgages, among other things.
These actions include the power to stop any practices such agency found to be unsafe or unsound; to require affirmative action to correct any conditions resulting from any violation or practice; to issue an administrative order that 29 Table of Contents can be judicially enforced; to direct an increase in our capital; to restrict our ability to pay dividends; to restrict our growth; to assess civil money penalties against us, the Bank, or our respective officers and directors; to remove officers and directors; and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s deposit insurance and place it into receivership or conservatorship.
These actions include the power to stop any practices such agency found to be unsafe or unsound; to require affirmative action to correct any conditions resulting from any violation or practice; to issue an administrative order that can be judicially enforced; to direct an increase in our capital; to restrict our ability to pay dividends; to restrict our growth; to assess civil money penalties against us, the Bank, or our respective officers and directors; to remove officers and directors; and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s deposit insurance and place it into receivership or conservatorship.
Since the commencement of the PPP, numerous other banks have been subject to litigation regarding the process and procedures that those banks used in processing applications for the PPP.
In addition, since the commencement of the PPP, numerous other banks have been subject to litigation regarding the process and procedures that those banks used in processing applications for the PPP.
Additionally, our operations could be interrupted if any of our third-party service providers experience financial difficulty, are inadvertently or intentionally negligent, are subject to cybersecurity breaches, terminate their services, or fail to comply with applicable banking regulations. We are subject to claims, litigation, and other proceedings that could result in legal liability.
Additionally, our operations could be interrupted if any of our third-party service providers experience financial difficulty, are inadvertently or intentionally negligent, are subject to cybersecurity breaches, fail to effectively manage their providers, terminate their services, or fail to comply with applicable banking regulations. We are subject to claims, litigation, and other proceedings that could result in legal liability.
The repayment of these loans is typically dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service. This projected income may be adversely affected by changes in the economy or local market conditions.
The repayment of these loans is typically dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service. This projected income may be adversely affected by changes in the economy, changes in interest rates, or local market conditions.
Although we have not historically issued shares of preferred stock, our board of directors has the authority to issue in the aggregate up to 1,000,000 such shares, and to determine the terms of each issuance of preferred stock and any indebtedness, without shareholder approval, which may be senior to our common stock.
Although we have not historically issued shares of preferred stock, our board of directors has the authority to issue up to 1,000,000 such shares, and to determine the terms of each issuance of preferred stock and any indebtedness, without shareholder approval, which may be senior to our common stock.
In addition, the process for determining whether impairment of a security is other-than-temporary often requires complex, subjective judgments about whether there has been a significant deterioration in the financial condition of the issuer, whether management has the intent or ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value, the future financial performance and liquidity of the issuer and any underlying collateral, and other relevant factors.
In addition, the process for determining impairment of a security often requires complex, subjective judgments about whether there has been a significant deterioration in the financial condition of the issuer, whether management has the intent or ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value, the future financial performance and liquidity of the issuer and any underlying collateral, and other relevant factors.
Natural disasters, acts of war or terrorism, the impact of pandemics, civil unrest, and other external events could result in a disruption of our operations and increases in loan losses. We are a community banking franchise concentrated in Louisiana.
Natural disasters, acts of war or terrorism, the impact of pandemics, civil unrest, and other external events could result in a disruption of our operations and increases in credit losses. We are a community banking franchise concentrated in Louisiana.
As a result, they may be able to offer additional or superior products, which would put us at a competitive disadvantage. Accordingly, we may lose customers seeking technology-driven products and services that we are not able to provide. 25 Table of Contents Our financial results depend on management’s selection of accounting methods and certain assumptions and estimates.
As a result, they may be able to offer additional or superior products, which would put us at a competitive disadvantage. Accordingly, we may lose customers seeking technology-driven products and services that we are not able to provide. Our financial results depend on management’s selection of accounting methods and certain assumptions and estimates.
While we do not expect that the conflict will be directly material to us, associated effects of the geopolitical instability, such as the imposition of sanctions against Russia and Russia’s response to such sanctions (including retaliatory acts like cyber-attacks and sanctions against other countries), could adversely affect the global economy or domestic markets, including ours.
While we do not expect that these conflicts will be directly material to us, associated effects of the geopolitical instability, such as the imposition of sanctions against Russia and Russia’s response to such sanctions (including retaliatory acts like cyber-attacks and sanctions against other countries), could adversely affect the global economy or domestic markets, including ours.
In addition, we cannot provide assurance that we will be able to successfully integrate any business or assets we acquire with our existing business. The integration of acquired operations and assets may require substantial management time, effort, and resources and may divert management’s focus from other strategic opportunities and operational matters.
In addition, we cannot provide assurance that we will be able to successfully integrate any business or assets we acquire with our existing business. The integration of acquired operations and assets may require 25 Table of Contents substantial management time, effort, and resources and may divert management’s focus from other strategic opportunities and operational matters.
Under this “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank at times when the bank holding company may not be inclined to do so and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank.
Under this “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank at times when the bank holding 32 Table of Contents company may not be inclined to do so and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank.
The repurchase programs authorize us to purchase up to a set amount of our outstanding shares of common stock between specific dates. Repurchases may be made from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions.
The repurchase programs authorize us to purchase up to a set amount of our outstanding shares of common stock between specific dates. Repurchases may be made from 30 Table of Contents time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions.
In addition, the success of a small or medium-sized business 22 Table of Contents often depends on the management skills, talents, and efforts of one individual or a small group of individuals. The death, disability, or resignation of one or more of these people could have an adverse impact on the business and its ability to repay loans.
In addition, the success of a small or medium-sized business often depends on the management skills, talents, and efforts of one individual or a small group of individuals. The death, disability, or resignation of one or more of these people could have an adverse impact on the business and its ability to repay loans.
Actual borrowing needs of our customers may exceed our expectations, especially during a challenging economic environment when our customers may be more dependent on our credit commitments due to reduced income or the lack of available credit elsewhere, the increasing costs of credit, or the limited availability of financings from alternative sources.
Actual borrowing needs of our customers may exceed our expectations, especially during a challenging economic environment when our customers may be more dependent on our credit commitments due to reduced income or the lack of available 24 Table of Contents credit elsewhere, the increasing costs of credit, or the limited availability of financings from alternative sources.
An investment in our common stock is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency and is subject to price fluctuations and risk of loss. There are many factors that may impact the 30 Table of Contents market price and trading volume of our common stock.
An investment in our common stock is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency and is subject to price fluctuations and risk of loss. There are many factors that may impact the market price and trading volume of our common stock.
If we unexpectedly lose the services of one or more of our key personnel and are unable to replace them, we would also lose the benefit of 24 Table of Contents their skills, knowledge of our primary markets, and years of industry experience, which could adversely affect our business and profitability.
If we unexpectedly lose the services of one or more of our key personnel and are unable to replace them, we would also lose the benefit of their skills, knowledge of our primary markets, and years of industry experience, which could adversely affect our business and profitability.
Certain accounting policies are inherently based to a greater extent on estimates, assumptions, and judgments of management and, as such, have a greater possibility of producing results that could be materially different than originally estimated. These policies include the allowance for loan losses, accounting for income taxes, the determination of fair value for financial instruments, and accounting for stock-based compensation.
Certain accounting policies are inherently based to a greater extent on estimates, assumptions, and judgments of management and, as such, have a greater possibility of producing results that could be materially different than originally estimated. These policies include the ACL, accounting for income taxes, the determination of fair value for financial instruments, and accounting for stock-based compensation.
As a result, we may not be able to realize the full amount of any remaining indebtedness when we foreclose on and sell the relevant property. In addition, we rely on appraisals and other valuation techniques to establish the value of our OREO and personal property that we acquire through foreclosure and to determine certain loan impairments.
As a result, we may not be able to realize the full amount of any remaining indebtedness when we foreclose on and sell the relevant property. In addition, we rely on appraisals and other valuation techniques to establish the value of our OREO and personal property that we acquire through foreclosure and to determine certain estimated losses.
If the population, employment, or income growth in any of our markets is negative or slower than projected, income levels, deposits, and real estate development could be adversely impacted, which could adversely affect our business and 23 Table of Contents profitability.
If the population, employment, or income growth in any of our markets is negative or slower than projected, income levels, deposits, and real estate development could be adversely impacted, which could adversely affect our business and profitability.
We expect competition to continue to intensify due to financial institution consolidation; legislative, regulatory, and technological changes; and the emergence of alternative sources for financial services, including fintech companies, 26 Table of Contents which could cause us to lose some of our existing customers, and we may not be successful attracting new customers.
We expect competition to continue to intensify due to financial institution consolidation; legislative, regulatory, and technological changes; and the emergence of alternative sources for financial services, including fintech companies, all of which could cause us to lose some of our existing customers, and we may not be successful attracting new customers.
Our access to funding sources could also be affected by regulatory actions against us or by a decrease in the level of our business activity due to a downturn in the Louisiana economy or in economic conditions generally.
Our access to funding sources could also be affected by regulatory actions against us or by a decrease in the level of our business 26 Table of Contents activity due to a downturn in the Louisiana economy or in economic conditions generally.
Further, any new laws, rules, and regulations could make compliance more difficult or expensive. For additional information regarding laws and regulation to which our business is subject, see “Item 1. Business - Supervision and Regulation. Legislative and regulatory actions taken now or in the future, may increase our costs.
Further, any new laws, rules, and regulations could make compliance more difficult or expensive. For additional information regarding laws and regulation to which our business is subject, see “Item 1. Business - Supervision and Regulation. 31 Table of Contents Legislative and regulatory actions taken now or in the future, may increase our costs.
If the overall economic climate in the U.S., generally, or in Louisiana, specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of nonperforming loans, charge-offs, and delinquencies could rise and require significant additional provisions for credit losses.
If the overall economic climate in the U.S., generally, or in Louisiana, specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of nonperforming loans, charge-offs, and delinquencies could rise and require significant additional provisions for credit losses, which could adversely affect our net income.
It is also becoming more prevalent in regulatory compliance. While we are not currently subject to annual stress testing under the Dodd-Frank Act and the Federal Reserve’s Comprehensive Capital Analysis and Review submissions, we currently utilize stress testing for monitoring and managing interest rate risk and liquidity.
It is also becoming more prevalent in regulatory compliance. While we are not currently subject to annual stress testing under the Dodd-Frank Act or the Federal Reserve’s Comprehensive Capital Analysis and Review submissions, we currently utilize asset/liability management modeling and stress testing for monitoring and managing interest rate risk and liquidity.
As of December 31, 2022, we had NPAs of $2.4 million, or 0.08% of assets. NPAs adversely affect our net income in various ways. We do not record interest income on OREO or on nonperforming loans, which adversely affects our income.
As of December 31, 2023, we had NPAs of $2.6 million, or 0.08% of assets. NPAs adversely affect our net income in various ways. We do not record interest income on OREO or on nonperforming loans, which adversely affects our income.
The interests of these insiders could conflict with the interests of our other shareholders. The rights of our common shareholders may be subordinate to the holders of any debt securities or preferred stock that we may issue in the future. As of December 31, 2022, we did not have any outstanding long-term debt.
The interests of these insiders could conflict with the interests of our other shareholders. 29 Table of Contents The rights of our common shareholders may be subordinate to the holders of any debt securities or preferred stock that we may issue in the future. As of December 31, 2023, we did not have any outstanding long-term debt.
We may need to rely on financial markets to provide needed capital in the future, and if we fail to maintain sufficient capital, we may not be able to satisfy regulatory requirements or maintain adequate protection against financial stress.
Risks Related to Our Financial Stability We may need to rely on financial markets to provide needed capital in the future, and if we fail to maintain sufficient capital, we may not be able to satisfy regulatory requirements or maintain adequate protection against financial stress.
This could adversely affect our liquidity, which could impair our ability to fund operations and meet obligations as they become due. Volatility in oil prices and downturns in the energy industry, particularly in Louisiana, could lead to increased credit losses in our loan portfolio.
This could adversely affect our liquidity, which could impair our ability to fund operations and meet obligations as they become due. Volatility in oil and natural gas prices along with cyclical downturns in the energy industry, particularly in Louisiana, could lead to increased credit losses in our loan portfolio.
We may thereafter own and operate such property, in which case we would be exposed to the risks inherent in the ownership of real estate, including potential environmental liability due to contamination of a property either during ownership or after the divesting of it. As of December 31, 2022, we held no OREO.
We may thereafter own and operate such property, in which case we would be exposed to the risks inherent in the ownership of real estate, including potential environmental liability due to contamination of a property either during ownership or after the divesting of it. As of December 31, 2023, we held OREO totaling $69,000.
Real estate values in many Louisiana markets have experienced periods of fluctuation over the last several years. As of December 31, 2022, $1.50 billion, or 78.1%, of loans HFI were secured by real estate as the primary component of collateral. We also make loans secured by real estate as a supplemental source of collateral.
Real estate values in many Louisiana markets have experienced periods of fluctuation over the last several years. As of December 31, 2023, $1.58 billion, or 79.1%, of loans HFI were secured by real estate as the primary component of collateral. We also make loans secured by real estate as a supplemental source of collateral.
We may experience operational challenges as we implement these new technology products or enhancements. As a result, we may not fully realize the anticipated benefits from our new technology, or we may incur significant costs to overcome related challenges in a timely manner. Many of our larger competitors have substantially greater resources to invest in technological improvements.
As a result, we may not fully realize the anticipated benefits from our new technology, or we may incur significant costs to overcome related challenges in a timely manner. Many of our larger competitors have substantially greater resources to invest in technological improvements.
If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the correct value of our OREO or personal property, and our allowance for loan losses may not reflect accurate loan impairments. The amount of our nonperforming assets may increase significantly, resulting in additional losses, costs, and expenses.
If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the correct value of our OREO or personal property, and our ACL may not reflect accurate estimated losses. The amount of our nonperforming assets may increase significantly, resulting in additional losses, costs, and expenses.
In the ordinary course of our business, we necessarily collect, use, and retain, on various information systems that we maintain and in those maintained by third party data service providers, personal and financial information concerning individuals and businesses with which we have a banking relationship.
In the ordinary course of our business, we necessarily collect, use, and retain, on various information systems that we maintain and in those maintained by third-party providers and, in some cases, vendors retained by those third parties, personal and financial information concerning individuals and businesses with which we have a banking relationship.
Because of the credit profile of our customers, we typically have a substantial amount of total unfunded credit commitments, which is not reflected on our balance sheet. As of December 31, 2022, we had $392.2 million in unfunded credit commitments to our customers.
Because of the credit profile of our customers, we typically have a substantial amount of total unfunded credit commitments, which is not reflected on our balance sheet. As of December 31, 2023, we had $387.4 million in unfunded credit commitments to our customers.
Also, because our primary earning asset is our investment in the capital stock of the Bank, we may become dependent upon dividends from the Bank to pay our operating expenses, satisfy our obligations, and pay 31 Table of Contents dividends on our common stock.
Also, because our primary earning asset is our investment in the capital stock of the Bank, we are dependent upon dividends from the Bank to pay our operating expenses, satisfy our obligations, and pay dividends on our common stock.
As of December 31, 2022, we had energy loans of $36.8 million, or 1.9%, of loans HFI. We also may have indirect exposure to energy prices, as some of our non-energy customers’ businesses may be affected by volatility with the oil and gas industry and the impact of inflation on energy prices.
As of December 31, 2023, we had energy loans of $34.0 million, or 1.7% of loans HFI. We also may have indirect exposure to energy prices, as some of our non-energy customers’ businesses may be affected by volatility with the oil and gas industry and the impact of inflation on energy prices.
As of December 31, 2022, our directors and executive officers beneficially owned approximately 16.9% of our issued and outstanding shares of common stock.
As of December 31, 2023, our directors and executive officers beneficially owned approximately 16.5% of our issued and outstanding shares of common stock.
Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, significantly impair the value of property pledged as collateral on loans, and affect our ability to sell the collateral upon foreclosure without a loss or additional losses.
Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, significantly impair the value of property pledged as collateral on loans, and affect our ability to sell the collateral upon foreclosure without a loss or additional losses. 21 Table of Contents Additionally, we may have to foreclose on the collateral property to protect our investment.
Further, we may not be able to identify and hire qualified replacement personnel on terms acceptable to us, or at all, whether due to tightening labor conditions or otherwise.
We may not be successful in retaining our key employees. Further, we may not be able to identify and hire qualified replacement personnel on terms acceptable to us, or at all, whether due to tightening labor conditions or otherwise.
As of December 31, 2022, approximately $310.1 million, or 16.2%, of loans HFI were commercial and industrial loans collateralized, in general, by general business assets including, among other things, accounts receivable, inventory, equipment, and available real estate, and most are backed by a personal guaranty of the borrower or principal.
As of December 31, 2023, approximately $315.3 million, or 15.8%, of loans HFI were commercial and industrial loans collateralized, in general, by general business assets including, among other things, accounts receivable, inventory, equipment, and available real estate, and most are backed by a personal guaranty of the borrower or principal.
However, an appraisal is only an estimate of the value of the property at the time the appraisal is made. Because real estate values may change significantly in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately describe the net value of the real property collateral after the loan is made.
Because real 22 Table of Contents estate values may change significantly in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately describe the net value of the real property collateral after the loan is made.
Additionally, our business could be adversely affected by the effects of war and international conflict, civil unrest, inflation, labor market and supply chain constraints, or a widespread outbreak of pandemics. Further, we are monitoring the ongoing conflict between Russia and Ukraine.
Additionally, our business could be adversely affected by the effects of war and international conflict, civil unrest, inflation, labor market and supply chain constraints, or a widespread outbreak of pandemics. Further, we are monitoring the ongoing military conflicts between Russia and Ukraine and Israel and Hamas, as well as the current tensions with China.
These commercial and industrial loans are typically larger in amount than loans to individuals and therefore have the potential for larger losses on an individual loan basis. Additionally, the repayment of commercial and industrial loans is subject to the ongoing business operations of the borrower. The collateral securing such loans generally includes movable property, such as equipment and inventory.
These commercial and industrial loans are typically larger in amount than loans to individuals and therefore have the potential for larger losses on an individual loan basis. Additionally, the repayment of commercial and industrial loans is subject to the ongoing business operations of the borrower.
We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations. Our most important source of funds is deposits. Historically, our deposits have provided a stable source of funds.
We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations.
If our customers move money out of bank deposits and into other investments such as money market funds, we would lose a relatively low-cost source of funds, increasing our funding costs, and reducing our net interest income and net income.
If our customers move money out of bank deposits, our liquidity position could be impacted, and we would lose a relatively low-cost source of funds, increasing our funding costs, and reducing our net interest income and net income.
We, or any of our vendors or third-party providers, could also experience a breach due to circumstances such as intentional or negligent conduct on the part of employees or other internal and external sources, software bugs, or other technical malfunctions. Any of these threats may cause our customer accounts and financial systems to become vulnerable to takeover schemes or cyber-fraud.
Further, we, or any of our vendors or third-party providers, could also experience a breach due to circumstances such as intentional or negligent conduct on the part of employees or other internal and external sources, software bugs, or other technical malfunctions.
While we believe the quantitative techniques and approaches of these models improve our decision-making, they also create the possibility that faulty data, flawed quantitative approaches, or misunderstanding or misuse of their outputs could negatively impact our decision-making ability or, if we become subject to regulatory stress-testing in the future, cause adverse regulatory scrutiny.
While we believe the quantitative techniques and approaches of these models improve our decision-making, they also create the possibility that faulty data, flawed quantitative approaches, or misunderstanding or misuse of their outputs could negatively impact our decision-making ability or, if we become subject to regulatory stress-testing in the future, cause adverse regulatory scrutiny. 28 Table of Contents We utilize third-party companies to support our investment group, and we may be adversely affected by the condition or performance of our third-party brokerage partners.
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 in desirable geographic areas with customer-oriented, compatible philosophies.
We may not be able to implement our expansion strategy, which may adversely affect our ability to maintain our historical earnings trends. 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 in desirable geographic areas with customer-oriented, compatible philosophies.
Unexpected deterioration in the credit quality of our commercial real estate loan portfolio would require us to increase our provision for loan losses, which would reduce our profitability. Our business may be adversely affected by credit risk associated with residential property.
Unexpected deterioration in the credit quality of our commercial real estate loan portfolio would require us to increase our provision for credit losses, which would reduce our profitability.
As of December 31, 2022, our owner occupied loans totaled $393.4 million, or 20.6% of loans HFI. Also, as of December 31, 2022, our construction and development loans, non-owner occupied commercial real estate loans, and non-real estate secured loans financing commercial real estate activities totaled $560.4 million, or 29.2% of 20 Table of Contents loans HFI.
As of December 31, 2023, our owner occupied loans totaled $412.7 million, or 20.7% of loans HFI. Also, as of December 31, 2023, our construction and development loans, non-owner occupied commercial real estate loans, and non-real estate secured loans financing commercial real estate activities totaled $566.6 million, or 28.4% of loans HFI.
A breach of our security that results in unauthorized access to our data could expose us to disruption or challenges relating to our daily operations as well as to data loss, litigation, fines, penalties, damages, inquiries, examinations, investigations, significant increases in compliance costs, and reputational damage, which could cause us to lose customers or potential customers.
A breach of our security that results in unauthorized access to our data could expose us to disruption or challenges relating to our daily operations as well as to data loss, litigation, fines, penalties, damages, inquiries, examinations, investigations, significant increases in compliance costs, and reputational damage, which could cause us to lose customers or potential customers. 27 Table of Contents We rely on third parties to provide key components of our business infrastructure, and a failure of these parties to perform for any reason could disrupt our operations.
Any future additional assessments, increases, or required prepayments in FDIC insurance premiums could adversely impact our earnings. Risks Related to an Investment in Our Common Stock The market price of our common stock may be subject to substantial fluctuations, which may make it difficult to sell shares at the volumes, prices, or times desired.
Risks Related to an Investment in Our Common Stock The market price of our common stock may be subject to substantial fluctuations, which may make it difficult to sell shares at the volumes, prices, or times desired.
Holders of our common stock are entitled to receive only such cash dividends as our board of directors may declare out of funds legally available for the payment of dividends.
Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions. Holders of our common stock are entitled to receive only such cash dividends as our board of directors may declare out of funds legally available for the payment of dividends.
A significant portion of our business is generated from Louisiana markets that have been, and may continue to be, damaged by major hurricanes, floods, tropical storms, tornadoes, ice storms, and other natural disasters.
A significant portion of our business is generated from Louisiana markets that have been, and may continue to be, damaged by major hurricanes, floods, tropical storms, tornadoes, ice storms, and other natural disasters. Natural disasters can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate.
However, deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff. Even though a majority of our certificates of deposit renew upon maturity with what we believe are competitive rates, some of our more rate-sensitive customers may move those funds to higher-yielding alternatives.
Even though a majority of our certificates of deposit renew upon maturity with what we believe are competitive rates, some of our more rate-sensitive customers may move those and other deposit funds to higher-yielding alternatives.
To provide a broader range of investment products and services to our customers through our investment group, we partner with third-parties who are licensed and registered to serve in those capacities. The investment products and services provided to our customers through our investment group, by virtue of these third-party channels generally are not insured by the FDIC.
We are not registered with the SEC as an investment advisor or broker-dealer. To provide a broader range of investment products and services to our customers through our investment group, we partner with third parties who are licensed and registered to serve in those capacities.
A downturn in the housing market coupled with elevated unemployment rates may also result in a decline in demand for our products and services. In addition, interest rate increases often result in larger payment requirements for our borrowers with variable rate loans, which increases the potential for default and could result in a decrease in the demand for residential loans.
By contrast, interest rate increases often result in larger payment requirements for our borrowers with variable rate loans, which increases the potential for default and could result in a decrease in the demand for residential loans.
We may be exposed to similar litigation from customers, non‑customers, and agents that approached us regarding PPP loans and litigation regarding our procedures for processing applications, funding PPP loans, and coordinating the forgiveness of the loans. If any such litigation is initiated against us, it may result in significant financial liability, significant litigation costs, or adversely affect our reputation.
We may be exposed to similar litigation from governmental agencies, customers, non‑customers, and agents that approached us regarding PPP loans and litigation regarding our procedures for processing applications, funding PPP loans, and coordinating the forgiveness of the loans.
Accordingly, negative changes in commodity prices, real estate values, or liquidity could impair the value of the collateral securing these loans. Significant adverse changes in the economy or local market conditions where our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage.
Significant adverse changes in the economy or local market conditions where our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage. Our ACL may prove to be insufficient to absorb losses inherent in our loan portfolio.
These types of collateral may decline in value more rapidly than we anticipate, exposing us to increased credit risk. In addition, a portion of our customer base, including customers in the energy and real estate business, may be exposed to volatile businesses or industries that are sensitive to commodity prices or market fluctuations, such as energy prices.
In addition, a portion of our customer base, including customers in the energy and real estate business, may be exposed to volatile businesses or industries that are sensitive to commodity prices, real estate values, or liquidity, which could impair the value of the collateral securing these loans.
The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, our earnings and cash flows depend to a great extent upon the level of our net interest income.
The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates that are highly sensitive to many factors that are beyond our control. Like most financial institutions, our profitability is dependent upon our net interest income.
Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business plan may be lengthy. We may not be successful in retaining our key employees.
Our success depends in large part on the performance of our key personnel, as well as on our ability to attract, motivate, and retain highly qualified management and employees. Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business plan may be lengthy.
If we are covered by securities analysts and are the subject of an unfavorable report, the price of our common stock may decline. Risks Related to the Ongoing COVID-19 Pandemic The COVID-19 pandemic could adversely affect our business, financial condition, and results of operations.
If we are covered by securities analysts and are the subject of an unfavorable report, the price of our common stock may decline.
As a result, defaults by, declines in the financial condition of, or even rumors or questions about one or more financial institutions, financial service companies, or the financial services industry generally, may lead to a decline in market-wide liquidity, asset quality problems, or other problems and could lead to losses or defaults by us or by other institutions. 27 Table of Contents Risks Related to Our Financial Stability The fair value of our investment securities can fluctuate due to factors outside of our control, which could have a material adverse effect on our business and profitability.
Failures by, declines in the financial condition of, or even rumors or questions about one or more financial institutions, financial service companies, or the financial services industry generally, may lead to a decline in market-wide liquidity, asset quality problems, or other problems and could lead to losses or defaults by us or by other institutions.
We are also subject to risks relating to potential new climate change-related legislation or regulations, which could increase our and our customers’ costs. The risks associated with these matters are continuing to evolve rapidly and the ultimate impact on our business is difficult to predict with any certainty.
We are also subject to risks relating to potential new climate change-related legislation or regulations, which could increase our and our customers’ costs.
As of December 31, 2022, 93.4% of loans HFI were made to borrowers who reside or conduct business in Louisiana, and substantially all of our real estate loans are secured by properties located in Louisiana. Natural disasters can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate.
As of December 31, 2023, 94.0% of loans HFI were made to borrowers who reside or conduct business in Louisiana, and substantially all of our real estate loans are secured by properties located in Louisiana.
Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity.
The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our IT and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity.
As of December 31, 2022, $543.5 million, or 28.4%, of our total loan portfolio was secured by primary and secondary liens on one-to-four family residential loans. One-to-four family residential loans are generally sensitive to regional and local economic conditions that significantly impact the borrowers’ ability to meet their loan payment obligations.
One-to-four family residential loans are generally sensitive to regional and local economic conditions that significantly impact the borrowers’ ability to meet their loan payment obligations.
An increase in the general level of interest rates may, among other things, reduce the demand for loans and decrease loan repayments. Increases could also adversely affect the ability of borrowers of floating rate loans to meet their higher payment obligations, which could in turn lead to an increase in NPAs and charge-offs.
Higher interest rates could adversely affect the ability of borrowers of floating rate loans to meet their higher payment obligations, which could result in an increase in delinquencies and charge-offs, and increase the cost of deposits.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties As of December 31, 2022, Red River Bank operated from a network of 28 banking centers throughout Louisiana and one combined LDPO in New Orleans, Louisiana. The Bank’s principal executive office is located at 1412 Centre Court Drive, Alexandria, Louisiana.
Biggest changeItem 2. Properties As of December 31, 2023, Red River Bank operated from a network of 27 banking centers throughout Louisiana and one combined LDPO in New Orleans, Louisiana. The Bank’s principal executive office is located at 1412 Centre Court Drive, Suite 301, Alexandria, Louisiana 71301.
As of December 31, 2022, Red River Bank owned its main office building and 21 of its banking centers. The remaining banking office facilities were subject to lease agreements. Our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.
As of December 31, 2023, Red River Bank owned its main office building, its operations center, and 21 of its banking centers. The remaining banking office facilities were subject to lease agreements. Our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRepurchases 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 6. [Reserved] 34 Table of Contents
Biggest changeRepurchases may be made from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions. 36 Table of Contents Stock Performance Graph The following graph shows a comparison of the cumulative total shareholder return for our common stock, the Nasdaq Composite Index, and the S&P US Small Cap Banks Index for the period beginning on May 3, 2019, which was the first day our common stock traded on the Nasdaq Global Select Market, through December 31, 2023.
The renewed repurchase program, the 2022 Program, authorized us to purchase up to $5.0 million of our outstanding shares of common stock from February 4, 2022 through December 31, 2022. Repurchases were made from time to time in the open market at prevailing prices and based on market conditions.
The 2023 stock repurchase program authorized us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2023 through December 31, 2023. Repurchases were made from time to time in the open market at prevailing prices and based on market conditions.
Prior to that date, there was no public trading market for our common stock. Holders of Record As of March 3, 2023, there were approximately 264 holders of record of our common stock. Dividends and Dividend Policy We anticipate paying quarterly dividends on our common stock, subject to approval by our board of directors.
Prior to that date, there was no public trading market for our common stock. Holders of Record As of February 29, 2024, there were approximately 247 holders of record of our common stock. 35 Table of Contents Dividends and Dividend Policy We anticipate paying quarterly dividends on our common stock, subject to approval by our board of directors.
Business - Supervision and Regulation - Bank Holding Company Regulation - Regulatory Restrictions on Dividends; Source of Strength” and “- Bank Regulation - Regulatory Restrictions on Dividends.” 33 Table of Contents Issuer Purchases of Equity Securities Our purchases of shares of common stock made during the quarter consisted of stock repurchases made under our publically announced stock repurchase programs 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)(2) October 1 - October 31, 2022 — $ — — $ 4,782 November 1 - November 30, 2022 — $ — — $ 4,782 December 1 - December 31, 2022 — $ — — $ 4,782 Total — $ — — $ 4,782 (1) On February 4, 2022, we announced that 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.
Business - Supervision and Regulation - Bank Holding Company Regulation - Regulatory Restrictions on Dividends; Source of Strength” and “- Bank Regulation - Regulatory Restrictions on Dividends.” Issuer Purchases of Equity Securities Our purchases of shares of common stock made during the quarter under our publicly announced stock repurchase program are summarized in the table below: (dollars in thousands, except per share data) Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1)(2) October 1 - October 31, 2023 18,919 $ 47.40 18,919 $ 2,000 November 1 - November 30, 2023 30,316 $ 49.09 30,316 $ 510 December 1 - December 31, 2023 9,813 $ 51.98 9,813 $ — Total 59,048 $ 49.01 59,048 $ — (1) On November 4, 2022, we announced that our board of directors approved the renewal of the 2022 stock repurchase program that expired on December 31, 2022.
(2) On November 4, 2022, we announced that our board of directors approved the renewal of the 2022 Program. The renewed repurchase program, the 2023 Program, has similar terms to the 2022 Program and authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2023 through December 31, 2023.
The 2024 stock repurchase program has terms similar to the 2023 stock repurchase program and authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2024 through December 31, 2024.
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(2) On December 14, 2023, we announced that our board of directors approved the renewal of the 2023 stock repurchase program that was completed in the fourth quarter of 2023 after reaching its purchase limit.
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The graph below represents $100 invested on May 3, 2019, in our common stock at our initial public offering price of $45.00 per share, and otherwise reflects our stock, the Nasdaq Composite Index, and the S&P US Small Cap Banks Index values as of the close of trading and assumes the reinvestment of dividends, if any.
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The historical stock price information shown above represents past performance and is not necessarily indicative of future price performance. Information was obtained from S&P Global Market Intelligence.
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The information provided under the heading “Stock Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to its proxy regulations or to the liabilities of Section 18 of the Exchange Act, other than as provided in Item 201 of Regulation S-K.
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The information provided in this section shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act. Item 6. [Reserved] 37 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe rate on interest-bearing transaction deposits increased due to rate competition for deposits that began in the second half of 2022. 38 Table of Contents The following table presents average balance sheet information, interest income, interest expense, and the corresponding average yields earned and rates paid for the years presented: For the Years Ended December 31, 2022 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) $ 1,816,538 $ 75,827 4.12 % $ 1,621,606 $ 67,923 4.14 % Securities - taxable 637,239 9,524 1.49 % 344,913 4,493 1.30 % Securities - tax-exempt 210,056 4,211 2.00 % 202,255 4,167 2.06 % Federal funds sold 56,958 1,091 1.89 % 66,934 88 0.13 % Interest-bearing deposits in other banks 329,096 3,682 1.11 % 552,501 658 0.12 % Nonmarketable equity securities 3,453 40 1.16 % 3,448 10 0.28 % Total interest-earning assets 3,053,340 $ 94,375 3.06 % 2,791,657 $ 77,339 2.74 % Allowance for loan losses (19,608) (19,155) Noninterest-earning assets 100,543 132,611 Total assets $ 3,134,275 $ 2,905,113 Liabilities and Stockholders’ Equity Interest-bearing liabilities: Interest-bearing transaction deposits $ 1,360,612 $ 4,071 0.30 % $ 1,210,796 $ 1,648 0.14 % Time deposits 329,480 3,665 1.11 % 341,746 3,969 1.16 % Total interest-bearing deposits 1,690,092 7,736 0.46 % 1,552,542 5,617 0.36 % Other borrowings — — — % — — — % Total interest-bearing liabilities 1,690,092 $ 7,736 0.46 % 1,552,542 $ 5,617 0.36 % Noninterest-bearing liabilities: Noninterest-bearing deposits 1,161,995 1,041,238 Accrued interest and other liabilities 18,111 17,507 Total noninterest-bearing liabilities 1,180,106 1,058,745 Stockholders’ equity 264,077 293,826 Total liabilities and stockholders’ equity $ 3,134,275 $ 2,905,113 Net interest income $ 86,639 $ 71,722 Net interest spread 2.60 % 2.38 % Net interest margin 2.80 % 2.54 % Net interest margin FTE (3) 2.86 % 2.60 % Cost of deposits 0.27 % 0.22 % Cost of funds 0.25 % 0.20 % (1) Includes average outstanding balances of loans HFS of $3.3 million and $8.6 million for the years ended December 31, 2022 and 2021, respectively.
Biggest changeDepending on balance sheet activity and the movement of interest rates, we expect the net interest margin FTE to improve slightly in the first half of 2024. 41 Table of Contents The following table presents average balance sheet information, interest income, interest expense, and the corresponding average yields earned and rates paid for the years presented: For the Years Ended December 31, 2023 2022 (dollars in thousands) Average Balance Outstanding Interest Income/Expense Average Yield/ Rate Average Balance Outstanding Interest Income/Expense Average Yield/ Rate Assets Interest-earning assets: Loans (1,2) $ 1,943,381 $ 93,439 4.74 % $ 1,816,538 $ 75,827 4.12 % Securities - taxable 605,692 10,169 1.68 % 637,239 9,524 1.49 % Securities - tax-exempt 202,673 4,122 2.03 % 210,056 4,211 2.00 % Federal funds sold 18,594 886 4.70 % 56,958 1,091 1.89 % Interest-bearing deposits in other banks 188,199 9,797 5.17 % 329,096 3,682 1.11 % Nonmarketable equity securities 3,353 155 4.61 % 3,453 40 1.16 % Total interest-earning assets 2,961,892 $ 118,568 3.96 % 3,053,340 $ 94,375 3.06 % Allowance for credit losses (20,980) (19,608) Noninterest-earning assets 86,939 100,543 Total assets $ 3,027,851 $ 3,134,275 Liabilities and Stockholders’ Equity Interest-bearing liabilities: Interest-bearing transaction deposits $ 1,249,259 $ 17,555 1.41 % $ 1,360,612 $ 4,071 0.30 % Time deposits 470,522 14,511 3.08 % 329,480 3,665 1.11 % Total interest-bearing deposits 1,719,781 32,066 1.86 % 1,690,092 7,736 0.46 % Other borrowings 1,151 64 5.49 % — — — % Total interest-bearing liabilities 1,720,932 $ 32,130 1.87 % 1,690,092 $ 7,736 0.46 % Noninterest-bearing liabilities: Noninterest-bearing deposits 1,004,107 1,161,995 Accrued interest and other liabilities 22,385 18,111 Total noninterest-bearing liabilities 1,026,492 1,180,106 Stockholders’ equity 280,427 264,077 Total liabilities and stockholders’ equity $ 3,027,851 $ 3,134,275 Net interest income $ 86,438 $ 86,639 Net interest spread 2.09 % 2.60 % Net interest margin 2.87 % 2.80 % Net interest margin FTE (3) 2.91 % 2.86 % Cost of deposits 1.18 % 0.27 % Cost of funds 1.08 % 0.25 % (1) Includes average outstanding balances of loans HFS of $2.4 million and $3.3 million for the years ended December 31, 2023 and 2022, respectively.
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.
The methodology is structured so that 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.
This line is secured by a blanket floating lien on selected Red River Bank loans that meet FHLB of Dallas collateral requirements. At various times, we may obtain letters of credit from the FHLB of Dallas as collateral for our public entity deposits.
This line is secured by a blanket lien on selected Red River Bank loans that meet FHLB of Dallas collateral requirements. At various times, we may obtain letters of credit from the FHLB of Dallas as collateral for our public entity deposits.
As of December 31, 2022, the reported percentage of changes in net interest income and fair value of equity remained within the policy thresholds. These values are reported at each quarterly Asset-Liability Committee meeting. The net interest income at risk and the fair value of equity will continue to be monitored, and appropriate mitigating action will be taken if needed.
As of December 31, 2023, the reported percentage of changes in net interest income and fair value of equity remained within the policy thresholds. These values are reported at each quarterly Asset-Liability Committee meeting. The net interest income at risk and the fair value of equity will continue to be monitored, and appropriate mitigating action will be taken if needed.
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 primary source of funds is deposits, and our primary use of funds is the funding of loans. We invest excess deposits in interest-earning deposit accounts at other banks or at the Federal Reserve, federal funds sold, securities, or other short-term liquid investments until the deposits are needed to fund loan growth or other obligations.
Item 7. 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 financial condition and results of operations of Red River Bancshares, Inc. on a consolidated basis during the year ended December 31, 2022 and selected prior periods.
Item 7. 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 financial condition and results of operations of Red River Bancshares, Inc. on a consolidated basis during the year ended December 31, 2023 and selected prior periods.
Off-Balance Sheet Items In the normal course of business, we enter into certain financial instruments, such as contractual obligations, 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.
Off-Balance Sheet Items 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.
As of December 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.
As of December 31, 2023, 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.
In March 2020, the target federal funds rate decreased 150 bps to a range of 0.00% to 0.25% and remained at that rate until March 2022, when the FOMC began increasing the target federal funds rate.
In March 2020, the target federal funds range decreased 150 bps to a range of 0.00% to 0.25% and remained at that level until March 2022, when the FOMC began increasing the target federal funds range.
We also utilize the FHLB of Dallas as needed as a viable funding source. FHLB of Dallas advances may be used to meet short-term liquidity needs, particularly if the prevailing interest rate on an FHLB of Dallas advance compares favorably to the rates that would be required to attract the necessary deposits.
We also utilize the FHLB of Dallas as needed as a viable funding source. FHLB of Dallas advances may be used to meet the Bank’s liquidity needs, particularly if the prevailing interest rate on an FHLB of Dallas advance compares favorably to the rates that would be required to attract the necessary deposits.
The allocations shown below should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in the future will necessarily occur in these amounts or in the indicated proportions. The total allowance for loan losses is available to absorb losses from any loan classification.
The allocations shown below should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in the future will necessarily occur in these amounts or in the indicated proportions. The total ACL is available to absorb losses from any loan classification.
For the years ended December 31, 2022 and 2021, liquidity needs were primarily met by core deposits, security and loan maturities, and cash flows from amortizing security and loan portfolios.
For the years ended December 31, 2023 and 2022, liquidity needs were primarily met by core deposits, security and loan maturities, and cash flows from amortizing security and loan portfolios.
Future provisions for loan losses are subject to ongoing evaluations of the factors and loan portfolio risks described above, including economic pressures related to inflation, labor market and supply chain constraints, and natural disasters affecting the state of Louisiana.
Future provisions for credit losses are subject to ongoing evaluations of the factors and loan portfolio risks, including economic pressures related to inflation, labor market and supply chain constraints, and natural disasters affecting the state of Louisiana.
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 December 31, 2022, total intangible assets were $1.5 million, which is less than 1.0% of total assets. Realized Book Value Per Share.
The most directly comparable GAAP financial measure for tangible book value per share is book value per share. As a result of previous acquisitions, we have a small amount of intangible assets. As of December 31, 2023, total intangible assets were $1.5 million, which is less than 1.0% of total assets. Tangible Common Equity to Tangible Assets .
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. 54 Table of Contents The following table displays the allocation of the allowance for loan losses among the loan classifications as of the dates indicated.
A decline in market area economic conditions, deterioration of asset quality, or growth in portfolio size could cause the allowance to become inadequate, and material additional provisions for credit losses could be required. 55 Table of Contents The following table displays the allocation of the ACL and ALL among the loan classifications as of the dates indicated.
We maintain a revolving line of credit at Hancock Whitney Bank collateralized by 100.0% of the stock of Red River Bank. As of December 31, 2022 and 2021, total borrowing capacity was $6.0 million under this arrangement. We had no outstanding balances on this line during 2022 or 2021.
We had no outstanding balances on these lines as of December 31, 2023 or 2022. Hancock Whitney Bank Line of Credit. We maintain a revolving line of credit at Hancock Whitney Bank collateralized by 100.0% of the stock of Red River Bank. As of December 31, 2023 and 2022, total borrowing capacity was $6.0 million under this arrangement.
We also maintain an additional $6.0 million revolving line of credit at one of our correspondent banks. As of December 31, 2022 and 2021, we had total 59 Table of Contents borrowing capacity of $101.0 million through these combined funding sources. We had no outstanding balances from either of these funding sources as of December 31, 2022 or 2021.
We also maintain an additional $6.0 million revolving line of credit at one of our correspondent banks. As of December 31, 2023 and 2022, we had total borrowing capacity of $101.0 million through these combined funding sources. We had no outstanding balances from either of these funding sources as of December 31, 2023 or 2022.
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.
Management and the board of directors review tangible book value per share, tangible common equity to tangible assets, and realized book value per share as part of managing operating performance.
We had no outstanding borrowings as of December 31, 2022 or 2021. Federal Home Loan Bank Advances. We utilize the FHLB of Dallas as needed as a funding source. As of December 31, 2022 and 2021, our total FHLB of Dallas line availability was $875.8 million and $748.6 million, respectively.
We had no outstanding borrowings as of December 31, 2023 or 2022. Federal Home Loan Bank Advances. We utilize the FHLB of Dallas as needed as a funding source. As of December 31, 2023 and 2022, our total FHLB of Dallas line availability was $934.1 million and $875.8 million, respectively.
As of December 31, 2022, Red River Bank operated from a network of 28 banking centers throughout Louisiana and one combined LDPO in New Orleans, Louisiana.
As of December 31, 2023, Red River Bank operated from a network of 27 banking centers throughout Louisiana and one combined LDPO in New Orleans, Louisiana.
If interest rates begin to fall, prepayments may increase, thereby shortening the estimated average lives of these securities. As of December 31, 2022, the average life of our securities portfolio was 6.8 years with an estimated effective duration of 5.0 years.
If interest rates begin to fall, prepayments may increase, thereby shortening the estimated average lives of these securities. As of December 31, 2023, the average life of our securities portfolio was 7.1 years with an estimated effective duration of 5.0 years.
Industry concentrations stated as a percentage of loans HFI are presented below: December 31, 2022 Health care 8.4 % Investor one-to-four family and multifamily 4.8 % Retail trade 4.0 % Construction 3.8 % Hospitality services 3.4 % Public administration 2.8 % Finance and insurance 2.2 % Energy 1.9 % Religious and other nonprofit 1.5 % Manufacturing 1.2 % All other 66.0 % Total loans HFI by industry concentration 100.0 % Health care loans are our largest loan industry concentration and are made up of a diversified portfolio of health care providers.
Industry Concentrations Industry concentrations, based on NAICS, stated as a percentage of loans HFI are presented below: December 31, 2023 Health care 7.7 % Investor one-to-four family and multifamily 5.7 % Construction 4.2 % Retail trade 3.4 % Hospitality services 3.1 % Public administration 2.3 % Finance and insurance 1.8 % Energy 1.7 % Religious and other nonprofit 1.5 % Manufacturing 1.0 % All other 67.6 % Total loans HFI by industry concentration 100.0 % Health care loans are our largest industry concentration and are made up of a diversified portfolio of health care providers.
December 31, 2022 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 6.4 % (2.0) % 45.7 % 16.7 % +200 4.1 % (1.2) % 30.6 % 13.3 % +100 2.2 % 0.0 % 15.3 % 8.0 % Base 0.0 % 0.0 % 0.0 % 0.0 % -100 (2.6) % (1.2) % (0.4) % (18.9) % -200 (6.3) % (5.4) % (2.6) % (32.8) % The results above, as of December 31, 2022 and 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.
December 31, 2023 December 31, 2022 % 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 4.8 % (5.3 %) 6.4 % (2.0 %) +200 3.5 % (3.0 %) 4.1 % (1.2 %) +100 2.3 % (1.0 %) 2.2 % — % Base — % — % — % — % -100 (0.4 %) 0.3 % (2.6 %) (1.2 %) -200 (3.5 %) (1.4 %) (6.3 %) (5.4 %) The results above, as of December 31, 2023 and 2022, 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.
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.
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.
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.
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.
Financial Statements and Supplementary Data - Note 3. Loans and Asset Quality - Commitments to Extend Credit.” For more information about our financial commitments with time deposits, operating lease obligations, and limited partnership investments and construction commitments, see “Item 8. Financial Statements and Supplementary Data - Note 5. Deposits,” “- Note 7. Leases,” and “- Note 12.
For more information about our commitments to extend credit and standby letters of credit, see “Item 8. Financial Statements and Supplementary Data - Note 3. Loans and Asset Quality - Commitments to Extend Credit.” For more information about our financial commitments with time deposits, operating lease obligations, and limited partnership investments and construction commitments, see “Item 8.
Net interest margin FTE increased 26 bps to 2.86% for the year ended December 31, 2022, from 2.60% for the year ended December 31, 2021, primarily due to the higher interest rate environment and an improved asset mix.
Net interest margin FTE increased five bps to 2.91% for the year ended December 31, 2023, from 2.86% for the year ended December 31, 2022, primarily due to the higher interest rate environment and an improved asset mix.
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.
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.
Securities - Securities AFS and Securities HTM.” Interest-bearing deposits in other banks are our main source of meeting daily liquidity needs and were our third-largest component of assets as of December 31, 2022.
Interest-bearing deposits in other banks are our main source of meeting daily liquidity needs and were our third-largest component of assets as of December 31, 2023.
The return on average equity was 13.98% for the year ended December 31, 2022, compared to 11.21% for the prior year. Our efficiency ratio for the year ended December 31, 2022, was 56.60%, compared to 56.39% for the year ended December 31, 2021. Net Interest Income and Net Interest Margin Our operating results depend primarily on our net interest income.
The return on equity was 12.44% for the year ended December 31, 2023, compared to 13.98% for the prior year. Our efficiency ratio for the year ended December 31, 2023, was 59.39%, compared to 56.60% for the year ended December 31, 2022. Net Interest Income and Net Interest Margin Our operating results depend primarily on our net interest income.
The following table presents the amount of time deposits, by account, that are in excess of the FDIC insurance limit (currently $250,000) by time remaining until maturity for the period indicated: (in thousands) December 31, 2022 Three months or less $ 4,084 Over three months through six months 15,628 Over six months through 12 months 13,662 Over 12 months 14,056 Total $ 47,430 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.
The following table presents the amount of time deposits, by account, that are in excess of the FDIC insurance limit (currently $250,000) by time remaining until maturity for the period indicated: (in thousands) December 31, 2023 Three months or less $ 31,970 Over three months through six months 26,983 Over six months through 12 months 22,448 Over 12 months 4,976 Total $ 86,377 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.
Noninterest Income Our primary sources of noninterest income are fees related to the sale of mortgage loans, service charges on deposit accounts, debit card fees, brokerage income from advisory services, and other loan and deposit fees. Noninterest income decreased $5.7 million to $18.7 million for the year ended December 31, 2022, compared to $24.5 million for the prior year.
Noninterest Income Our primary sources of noninterest income are fees related to the sale of mortgage loans, service charges on deposit accounts, debit card fees, brokerage income from advisory services, and other loan and deposit fees. Noninterest income increased $2.4 million to $21.1 million for the year ended December 31, 2023, compared to $18.7 million for the prior year.
Collateral typically includes a lien on general business assets including, among other things, accounts receivable, inventory, equipment, and available real estate. A personal guaranty is generally obtained from the borrower or principal. Commercial and industrial loans decreased $1.3 million, or 0.4%, to $310.1 million as of December 31, 2022, from $311.4 million as of December 31, 2021.
Collateral typically includes a lien on general business assets including, among other things, accounts receivable, inventory, equipment, and available real estate. A personal guaranty is generally obtained from the borrower or principal. Commercial and industrial loans increased $5.3 million, or 1.7%, to $315.3 million as of December 31, 2023, from $310.1 million as of December 31, 2022. Tax-Exempt Loans.
As of December 31, 2022 and 2021, we held unfunded letters of credit from the FHLB of Dallas in the amount of $100.9 million and $143.8 million, respectively. As of December 31, 2022 and 2021, we had net borrowing capacity of $774.9 million and $604.8 million, respectively, under this arrangement. Other Borrowings.
As of December 31, 2023 and 2022, we held unfunded letters of credit from the FHLB of Dallas in the amount of $104.8 million and $100.9 million, respectively. As of December 31, 2023 and 2022, we had net borrowing capacity of $829.2 million and $774.9 million, respectively, under this arrangement.
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.
Liquidity involves our ability to raise funds to support asset growth and potential acquisitions, reduce assets to meet deposit withdrawals and other payment obligations, maintain reserve requirements, and otherwise operate on an ongoing basis and manage unexpected events.
Investment activity for the year ended December 31, 2022, included $313.5 million of securities purchased, partially offset by $31.8 million in sales and $87.1 million in maturities, principal repayments, and calls. There were no purchases or sales of securities HTM for the same period.
Investment activity for the year ended December 31, 2023, included $163.1 million in maturities, principal repayments, and calls, partially offset by $96.4 million of securities purchased. There were no sales of securities AFS, and there were no purchases or sales of securities HTM for the same period.
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.
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.
(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. 37 Table of Contents RESULTS OF OPERATIONS Net income for the year ended December 31, 2022, was $36.9 million, or $5.13 diluted EPS, an increase of $4.0 million, or 12.0%, compared to $33.0 million, or $4.51 diluted EPS, for the year ended December 31, 2021.
(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. 40 Table of Contents RESULTS OF OPERATIONS Net income for the year ended December 31, 2023, was $34.9 million, or $4.86 diluted EPS, a decrease of $2.0 million, or 5.5%, compared to $36.9 million, or $5.13 diluted EPS, for the year ended December 31, 2022.
Within the health care sector, loans to nursing and residential care facilities were 4.4% of loans HFI as of December 31, 2022, and 3.6% as of December 31, 2021.
Within the health care sector, loans to nursing and residential care facilities were 4.0% of loans HFI as of December 31, 2023, and 4.4% as of December 31, 2022. Loans to physician and dental practices were 3.6% of loans HFI as of December 31, 2023, and 3.9% as of December 31, 2022.
Contractual Maturity as of December 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 HTM: Mortgage-backed securities $ — — % $ — — % $ — — % $ 150,771 2.51 % $ 150,771 2.51 % U.S. agency securities — — % — — % 912 2.61 % — — % 912 2.61 % Total Securities HTM $ — — % $ — — % $ 912 2.61 % $ 150,771 2.51 % $ 151,683 2.51 % Equity Securities Equity securities are an investment in a CRA mutual fund, consisting primarily of bonds.
Contractual Maturity as of December 31, 2023 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total (dollars in thousands) Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1) Securities HTM: Mortgage-backed securities $ — — % $ — — % $ — — % $ 140,314 2.37 % $ 140,314 2.37 % U.S. agency securities — — % — — % 922 2.61 % — — % 922 2.61 % Total Securities HTM $ — — % $ — — % $ 922 2.61 % $ 140,314 2.37 % $ 141,236 2.37 % Equity Securities Equity securities are an investment in a CRA mutual fund, consisting primarily of bonds.
Bank policy regarding economic value at risk 60 Table of Contents 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.
In accordance with Bank policy that was approved in September 2023, regarding economic value at risk simulations performed by our risk model for instantaneous parallel shifts of the yield curve, estimated fair value of equity for the subsequent one-year period should not decline by more than 10.0% for a 100 bp shift and 20.0% for a 200 bp shift.
As of December 31, (in thousands) 2022 2021 2020 Selected Period End Balance Sheet Data: Total assets $ 3,082,686 $ 3,224,710 $ 2,642,634 Interest-bearing deposits in other banks $ 240,568 $ 761,721 $ 417,664 Securities available-for-sale, at fair value $ 614,407 $ 659,178 $ 498,206 Securities held-to-maturity, at amortized cost $ 151,683 $ — $ — Loans held for investment $ 1,916,267 $ 1,683,832 $ 1,588,446 Total deposits $ 2,798,936 $ 2,910,348 $ 2,340,360 Total stockholders' equity $ 265,753 $ 298,150 $ 285,478 36 Table of Contents As of and for the Years Ended December 31, (dollars in thousands, except per share data) 2022 2021 2020 Net Income $ 36,916 $ 32,952 $ 28,145 Per Common Share Data: Earnings per share, basic $ 5.14 $ 4.53 $ 3.84 Earnings per share, diluted $ 5.13 $ 4.51 $ 3.83 Book value per share $ 36.99 $ 41.52 $ 38.97 Tangible book value per share (1,2) $ 36.78 $ 41.31 $ 38.76 Realized book value per share (1,3) $ 46.90 $ 42.05 $ 38.03 Cash dividends per share $ 0.28 $ 0.28 $ 0.24 Shares outstanding 7,183,915 7,180,155 7,325,333 Weighted average shares outstanding, basic 7,180,975 7,281,136 7,322,158 Weighted average shares outstanding, diluted 7,197,453 7,299,720 7,345,045 Summary Performance Ratios: Return on average assets 1.18 % 1.13 % 1.22 % Return on average equity 13.98 % 11.21 % 10.39 % Net interest margin 2.80 % 2.54 % 3.09 % Net interest margin FTE (4) 2.86 % 2.60 % 3.14 % Efficiency ratio (5) 56.60 % 56.39 % 55.77 % Loans HFI to deposits ratio 68.46 % 57.86 % 67.87 % Noninterest-bearing deposits to deposits ratio 38.96 % 39.50 % 40.32 % Noninterest income to average assets 0.60 % 0.84 % 1.00 % Operating expense to average assets 1.87 % 1.87 % 2.22 % Summary Credit Quality Ratios: NPAs to total assets 0.08 % 0.03 % 0.16 % Nonperforming loans to loans HFI 0.12 % 0.02 % 0.21 % Allowance for loan losses to loans HFI 1.08 % 1.14 % 1.13 % Net charge-offs to average loans 0.02 % 0.04 % 0.14 % Capital Ratios: Total stockholders’ equity to total assets 8.62 % 9.25 % 10.80 % Tangible common equity to tangible assets (1,6) 8.57 % 9.20 % 10.75 % Total risk-based capital to risk-weighted assets 17.39 % 17.83 % 18.68 % Tier I risk-based capital to risk-weighted assets 16.38 % 16.76 % 17.55 % Common equity Tier I capital to risk-weighted assets 16.38 % 16.76 % 17.55 % Tier I risk-based capital to average assets 10.71 % 9.67 % 10.92 % (1) Non-GAAP financial measure.
As of December 31, (in thousands) 2023 2022 2021 Selected Period End Balance Sheet Data: Total assets $ 3,128,810 $ 3,082,686 $ 3,224,710 Interest-bearing deposits in other banks $ 252,364 $ 240,568 $ 761,721 Securities available-for-sale, at fair value $ 570,092 $ 614,407 $ 659,178 Securities held-to-maturity, at amortized cost $ 141,236 $ 151,683 $ — Loans held for investment $ 1,992,858 $ 1,916,267 $ 1,683,832 Total deposits $ 2,801,888 $ 2,798,936 $ 2,910,348 Total stockholders' equity $ 303,851 $ 265,753 $ 298,150 39 Table of Contents As of and for the Years Ended December 31, (dollars in thousands, except per share data) 2023 2022 2021 Net Income $ 34,879 $ 36,916 $ 32,952 Per Common Share Data: Earnings per share, basic $ 4.87 $ 5.14 $ 4.53 Earnings per share, diluted $ 4.86 $ 5.13 $ 4.51 Book value per share $ 42.85 $ 36.99 $ 41.52 Tangible book value per share (1,2) $ 42.63 $ 36.78 $ 41.31 Realized book value per share (1,3) $ 51.38 $ 46.90 $ 42.05 Cash dividends per share $ 0.32 $ 0.28 $ 0.28 Shares outstanding 7,091,637 7,183,915 7,180,155 Weighted average shares outstanding, basic 7,164,314 7,180,975 7,281,136 Weighted average shares outstanding, diluted 7,181,728 7,197,453 7,299,720 Summary Performance Ratios: Return on average assets 1.15 % 1.18 % 1.13 % Return on average equity 12.44 % 13.98 % 11.21 % Net interest margin 2.87 % 2.80 % 2.54 % Net interest margin FTE (4) 2.91 % 2.86 % 2.60 % Efficiency ratio (5) 59.39 % 56.60 % 56.39 % Loans HFI to deposits ratio 71.13 % 68.46 % 57.86 % Noninterest-bearing deposits to deposits ratio 32.71 % 38.96 % 39.50 % Noninterest income to average assets 0.70 % 0.60 % 0.84 % Operating expense to average assets 2.11 % 1.87 % 1.87 % Summary Credit Quality Ratios: NPAs to assets 0.08 % 0.08 % 0.03 % Nonperforming loans to loans HFI 0.13 % 0.12 % 0.02 % ACL to loans HFI 1.07 % 1.08 % 1.14 % Net charge-offs to average loans 0.02 % 0.02 % 0.04 % Capital Ratios: Stockholders’ equity to assets 9.71 % 8.62 % 9.25 % Tangible common equity to tangible assets (1,6) 9.67 % 8.57 % 9.20 % Total risk-based capital to risk-weighted assets 18.28 % 17.39 % 17.83 % Tier I risk-based capital to risk-weighted assets 17.24 % 16.38 % 16.76 % Common equity Tier I capital to risk-weighted assets 17.24 % 16.38 % 16.76 % Tier I risk-based capital to average assets 11.56 % 10.71 % 9.67 % (1) Non-GAAP financial measure.
As of December 31, 2022, health care loans were $160.3 million, or 8.4% of loans HFI, compared to $141.0 million, or 8.4% of loans HFI, as of December 31, 2021. The average health care loan size was $338,000 as of December 31, 2022, and $288,000 as of December 31, 2021.
As of December 31, 2023, total health care loans were $153.8 million, or 7.7% of loans HFI, compared to $160.3 million, or 8.4% of loans HFI, as of December 31, 2022. The average health care loan size was $334,000 as of December 31, 2023, and $338,000 as of December 31, 2022.
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.
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.
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.
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.
December 31, 2022 2021 (dollars in thousands) Amount Percent Amount Percent Real estate: Commercial real estate $ 7,720 37.4 % $ 6,749 35.2 % One-to-four family residential 5,682 27.6 % 5,375 28.0 % Construction and development 1,654 8.0 % 1,326 6.9 % Commercial and industrial 4,350 21.1 % 4,440 23.2 % SBA PPP, net of deferred income — 0.0 % 25 0.1 % Tax-exempt 751 3.6 % 749 3.9 % Consumer 471 2.3 % 512 2.7 % Total allowance for loan losses $ 20,628 100.0 % $ 19,176 100.0 % The following table displays the ratio of net charge-offs to average loans HFI outstanding by category for the periods shown: For the Years Ended December 31, 2022 2021 Real estate: Commercial real estate —% 0.03% One-to-four family residential —% —% Construction and development —% —% Commercial and industrial —% —% SBA PPP, net of deferred income —% —% Tax-exempt —% —% Consumer 0.02% 0.01% Total net charge-offs to average loans HFI 0.02% 0.04% Deposits Deposits are the primary funding source for loans and investments.
December 31, 2023 2022 (dollars in thousands) Amount Percent Amount Percent Real estate: Commercial real estate $ 9,118 42.7 % $ 7,720 37.4 % One-to-four family residential 7,484 35.1 % 5,682 27.6 % Construction and development 1,309 6.1 % 1,654 8.0 % Commercial and industrial 2,553 12.0 % 4,350 21.1 % Tax-exempt 575 2.7 % 751 3.6 % Consumer 297 1.4 % 471 2.3 % Total allowance for credit losses $ 21,336 100.0 % $ 20,628 100.0 % The following table displays the ratio of net charge-offs to average loans HFI outstanding by category for the periods shown: For the Years Ended December 31, 2023 2022 Real estate: Commercial real estate —% —% One-to-four family residential —% —% Construction and development —% —% Commercial and industrial —% —% Tax-exempt —% —% Consumer 0.02% 0.02% Total net charge-offs to average loans HFI 0.02% 0.02% Deposits Deposits are the primary funding source for loans and investments.
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.
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. Changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
Construction and development loans increased $51.0 million, or 48.0%, to $157.4 million as of December 31, 2022, compared to $106.3 million as of December 31, 2021. Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including, but not limited to, inventory, equipment, capital expansion, and working capital enhancement.
Construction and development loans decreased $32.1 million, or 20.4%, to $125.2 million as of December 31, 2023, compared to $157.4 million as of December 31, 2022. Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including, but not limited to, inventory, equipment, capital expansion, and working capital enhancement.
Deposit expenses decreased due to receipt of a $122,000 negotiated, variable rebate from a vendor in the first quarter of 2022. Income Tax Expense The amount of income tax expense is influenced by the amounts of our pre-tax income, tax-exempt income, and other nondeductible expenses.
Deposit expenses in 2022 benefited from the receipt of a $122,000 negotiated, variable rebate from a vendor, resulting in lower loan and deposit expenses during that period. Income Tax Expense The amount of income tax expense is influenced by the amounts of our pre-tax income, tax-exempt income, and other nondeductible expenses.
As of December 31, 2022, the loans HFI to deposits ratio was 68.46%, compared to 57.86% as of December 31, 2021, and the noninterest-bearing deposits to total deposits ratio was 38.96%, compared to 39.50% as of December 31, 2021.
As of December 31, 2023, the loans HFI to deposits ratio was 71.13%, compared to 68.46% as of December 31, 2022, and the noninterest-bearing deposits to total deposits ratio was 32.71%, compared to 38.96% as of December 31, 2022.
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. 2022 FINANCIAL AND OPERATIONAL HIGHLIGHTS 2022 was a year of unusual interest rate increases and a changing economic environment.
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. 2023 FINANCIAL AND OPERATIONAL HIGHLIGHTS 2023 was a challenging year due to the failure of a few financial institutions in the first half of the year.
One-to-four family residential loans are predominantly first lien mortgage loans secured by owner occupied one-to-four family residential properties. One-to-four family residential loans increased $69.1 million, or 14.6%, to $543.5 million as of December 31, 2022, compared to $474.4 million as of December 31, 2021. Construction and Development Loans.
One-to-four family residential loans are predominantly first lien mortgage loans secured by owner occupied one-to-four family residential properties. One-to-four family residential loans increased $56.0 million, or 10.3%, to $599.5 million as of December 31, 2023, compared to $543.5 million as of December 31, 2022. Construction and Development Loans.
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.
We use parallel rate shock scenarios that assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. We also deploy a ramped rate scenario over a 12-month and 24-month horizon based upon parallel yield curve shifts.
The following tables set forth selected historical consolidated financial information for each of the periods indicated. The historical financial information as of and for the years ended December 31, 2022 and 2021, except for the selected ratios, is derived from our audited consolidated financial statements included elsewhere in this Report.
Brown, CFA was appointed to the boards of the Company and the Bank. The following tables set forth selected historical consolidated financial information for each of the periods indicated. The historical financial information as of and for the years ended December 31, 2023, 2022, and 2021, except for the selected ratios, is derived from our audited consolidated financial statements.
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.
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.
The increase in net income was primarily due to a $14.9 million increase in net interest income, partially offset by a $5.7 million decrease in noninterest income and a $4.4 million increase in operating expenses. The return on average assets for the year ended December 31, 2022, was 1.18%, compared to 1.13% for the prior year.
The decrease in net income was mainly due to a $5.2 million increase in operating expenses, partially offset by a $2.4 million increase in noninterest income and a $1.0 million decrease in the provision for credit losses. The return on assets for the year ended December 31, 2023, was 1.15%, compared to 1.18% for the prior year.
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 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.
As of December 31, 2022, floating rate loans were 14.5% of loans HFI, and floating rate transaction deposits were 2.6% of interest-bearing transaction deposits.
As of December 31, 2023, floating rate loans were 11.7% of loans HFI, and floating rate transaction deposits were 6.1% of interest-bearing transaction deposits.
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. For more information about our commitments to extend credit and standby letters of credit, see “Item 8.
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. We may also enter into contractual obligations.
The provision for loan losses for the year ended December 31, 2022, was $1.8 million, a decrease of $150,000 from $1.9 million for the year ended December 31, 2021. The provision for loan losses for 2022 was due to the current inflationary environment, changing monetary policy, and loan growth.
The provision for credit losses for the year ended December 31, 2023, was $735,000, a decrease of $1.0 million from $1.8 million for the year ended December 31, 2022. The primary drivers of the decrease were the current inflationary environment, changing monetary policy, current economic forecasts, and lower loan growth.
Nonperforming loan and asset information is summarized below: December 31, (dollars in thousands) 2022 2021 Nonperforming loans: Nonaccrual loans $ 2,364 $ 280 Accruing loans 90 or more days past due 2 39 Total nonperforming loans 2,366 319 Foreclosed assets: Real estate — 660 Total foreclosed assets — 660 Total NPAs $ 2,366 $ 979 Troubled debt restructurings: (1) Nonaccrual loans $ 165 $ — Performing loans 4,155 3,944 Total TDRs $ 4,320 $ 3,944 Nonaccrual loans to loans HFI 0.12 % 0.02 % Nonperforming loans to loans HFI (1) 0.12 % 0.02 % NPAs to assets 0.08 % 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. 51 Table of Contents Nonaccrual loans are summarized below by category: December 31, (in thousands) 2022 2021 Real estate: Commercial real estate $ 720 $ 51 One-to-four family residential 243 216 Construction and development 9 — Commercial and industrial 1,291 13 SBA PPP, net of deferred income — — Tax-exempt — — Consumer 101 — Total nonaccrual loans $ 2,364 $ 280 Potential Problem Loans From a credit risk standpoint, we classify loans in one of five categories: pass, special mention, substandard, doubtful, or loss.
The ratio of NPAs to assets was 0.08% as of December 31, 2023 and 2022. 52 Table of Contents Nonperforming loan and asset information is summarized below: December 31, (dollars in thousands) 2023 2022 Nonperforming loans: Nonaccrual loans $ 1,959 $ 2,364 Accruing loans 90 or more days past due 574 2 Total nonperforming loans 2,533 2,366 Foreclosed assets: Real estate 69 — Total foreclosed assets 69 — Total NPAs $ 2,602 $ 2,366 Nonaccrual loans to loans HFI 0.10 % 0.12 % Nonperforming loans to loans HFI 0.13 % 0.12 % NPAs to assets 0.08 % 0.08 % Nonaccrual loans are summarized below by category: December 31, (in thousands) 2023 2022 Real estate: Commercial real estate $ 714 $ 720 One-to-four family residential 269 243 Construction and development — 9 Commercial and industrial 844 1,291 Tax-exempt — — Consumer 132 101 Total nonaccrual loans $ 1,959 $ 2,364 Potential Problem Loans From a credit risk standpoint, we classify loans in one of five categories: pass, special mention, substandard, doubtful, or loss.
Noninterest-bearing deposits decreased $59.1 million, or 5.1%, during 2022 to $1.09 billion as of December 31, 2022. Noninterest-bearing deposits as a percentage of total deposits were 38.96% as of December 31, 2022, compared to 39.50% as of December 31, 2021.
Noninterest-bearing deposits decreased $174.1 million, or 16.0%, during 2023 to $916.5 million as of December 31, 2023. Noninterest-bearing deposits as a percentage of total deposits were 32.71% as of December 31, 2023, compared to 38.96% as of December 31, 2022.
In December 2022, we purchased shares in this fund. As of December 31, 2022, equity securities had a fair value of $10.0 million with a recognized loss of $468,000 for the year ended December 31, 2022.
As of December 31, 2022, equity securities had a fair value of $10.0 million with a recognized loss of $468,000 for the year ended December 31, 2022. The loss on equity securities during 2022 was due to a significant increase in interest rates. During 2023, we sold $7.0 million of the mutual fund.
This decrease was attributable to a $67.4 million, net of tax, market adjustment to AOCI related to securities, $2.0 million in cash dividends, and the repurchase of 4,465 shares of common stock for $218,000, partially offset by $36.9 million of net income for the year ended December 31, 2022, and $274,000 of stock compensation.
This increase was attributable to $34.9 million of net income for the year ended December 31, 2023, a $10.7 million, net of tax, market adjustment to AOCI related to securities, and $404,000 of stock compensation, partially offset by the repurchase of 101,298 shares of common stock for $5.0 million, $2.3 million in cash dividends, and a $569,000, net of tax, adjustment to retained earnings related to the adoption of CECL.
These loans are typically secured by and paid for by ad valorem taxes. Tax-exempt loans increased $2.4 million, or 3.0%, to $83.2 million as of December 31, 2022, compared to $80.7 million as of December 31, 2021. Consumer Loans. Consumer loans are made to individuals for personal, family, and household purposes and include secured and unsecured installment and term loans.
Tax-exempt loans decreased $10.3 million, or 12.3%, to $72.9 million as of December 31, 2023, compared to $83.2 million as of December 31, 2022. Consumer Loans. Consumer loans are made to individuals for personal, family, and household purposes and include secured and unsecured installment and term loans.
The 2023 stock repurchase program authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2023 through December 31, 2023. • Various changes occurred in 2022 with the boards of directors of the Company and the Bank. John C.
The 2024 stock repurchase program has similar terms to the 2023 stock repurchase program and authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2024 through December 31, 2024.
The 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.
As of December 31, 2023, floating rate loans were 11.7% of loans HFI, and floating rate transaction deposits were 6.1% of interest-bearing transaction deposits. 61 Table of Contents 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.
Other sources available for meeting liquidity needs include federal funds lines, repurchase agreements, and other lines of credit. We maintain four federal funds lines of credit with commercial banks that provided for the availability to borrow up to an aggregate of $95.0 million in federal funds as of December 31, 2022 and 2021.
We maintain four federal funds lines of credit with commercial banks that provided for the availability to borrow up to an aggregate of $95.0 million in federal funds as of December 31, 2023 and 2022. The rates for the federal funds lines are determined by the applicable commercial bank at the time of borrowing.
The impact of our floating rate loans and floating rate transaction deposits are also reflected in the results shown in the above table. As of December 31, 2022, floating rate loans were 14.5% of loans HFI, and floating rate transaction deposits were 2.6% of interest-bearing transaction deposits.
The impact of our floating rate loans and floating rate transaction deposits are also reflected in the results shown in the above table.
The most directly comparable GAAP financial measure for realized book value per share is book value per share. 62 Table of Contents The following table reconciles, as of the dates set forth below, stockholders’ equity to tangible common equity, stockholders’ equity to realized common equity, and assets to tangible assets, and presents related resulting ratios: December 31, (dollars in thousands, except per share data) 2022 2021 2020 Tangible common equity Total stockholders’ equity $ 265,753 $ 298,150 $ 285,478 Adjustments: Intangible assets (1,546) (1,546) (1,546) Total tangible common equity (non-GAAP) $ 264,207 $ 296,604 $ 283,932 Realized common equity Total stockholders’ equity $ 265,753 $ 298,150 $ 285,478 Adjustments: Accumulated other comprehensive (income) loss 71,166 3,773 (6,921) Total realized common equity (non-GAAP) $ 336,919 $ 301,923 $ 278,557 Common shares outstanding 7,183,915 7,180,155 7,325,333 Book value per share $ 36.99 $ 41.52 $ 38.97 Tangible book value per share (non-GAAP) $ 36.78 $ 41.31 $ 38.76 Realized book value per share (non-GAAP) $ 46.90 $ 42.05 $ 38.03 Tangible assets Total assets $ 3,082,686 $ 3,224,710 $ 2,642,634 Adjustments: Intangible assets (1,546) (1,546) (1,546) Total tangible assets (non-GAAP) $ 3,081,140 $ 3,223,164 $ 2,641,088 Total stockholders’ equity to assets 8.62 % 9.25 % 10.80 % Tangible common equity to tangible assets (non-GAAP) 8.57 % 9.20 % 10.75 % PPP-Adjusted Metrics Red River Bank participated in the SBA PPP and originated 1,888 PPP loans totaling $260.8 million.
The most directly comparable GAAP financial measure for realized book value per share is book value per share. 62 Table of Contents The following table reconciles, as of the dates set forth below, stockholders’ equity to tangible common equity, stockholders’ equity to realized common equity, and assets to tangible assets, and presents related resulting ratios: December 31, (dollars in thousands, except per share data) 2023 2022 2021 Tangible common equity Total stockholders’ equity $ 303,851 $ 265,753 $ 298,150 Adjustments: Intangible assets (1,546) (1,546) (1,546) Total tangible common equity (non-GAAP) $ 302,305 $ 264,207 $ 296,604 Realized common equity Total stockholders’ equity $ 303,851 $ 265,753 $ 298,150 Adjustments: Accumulated other comprehensive (income) loss 60,494 71,166 3,773 Total realized common equity (non-GAAP) $ 364,345 $ 336,919 $ 301,923 Common shares outstanding 7,091,637 7,183,915 7,180,155 Book value per share $ 42.85 $ 36.99 $ 41.52 Tangible book value per share (non-GAAP) $ 42.63 $ 36.78 $ 41.31 Realized book value per share (non-GAAP) $ 51.38 $ 46.90 $ 42.05 Tangible assets Total assets $ 3,128,810 $ 3,082,686 $ 3,224,710 Adjustments: Intangible assets (1,546) (1,546) (1,546) Total tangible assets (non-GAAP) $ 3,127,264 $ 3,081,140 $ 3,223,164 Total stockholders’ equity to assets 9.71 % 8.62 % 9.25 % Tangible common equity to tangible assets (non-GAAP) 9.67 % 8.57 % 9.20 % CRITICAL ACCOUNTING ESTIMATES Our consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry.
Our average deposit balance was $2.85 billion for the year ended December 31, 2022, an increase of $258.3 million, or 10.0%, from $2.59 billion for the year ended December 31, 2021. For 2022, average public entity deposits were 6.5% of average total deposits.
Our average deposit balance was $2.72 billion for the year ended December 31, 2023, a decrease of $128.2 million, or 4.5%, from $2.85 billion for the year ended December 31, 2022. For 2023, average public entity deposits were 7.9% of average total deposits.
Moreover, the manner that 61 Table of Contents we calculate the non-GAAP financial measures that are discussed in this Report may differ from that of other companies’ reporting measures with similar names.
Moreover, the manner 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.
The following table presents our average deposits by account type and the average rate paid for the periods indicated: For the Years Ended December 31, 2022 2021 (dollars in thousands) Average Balance Average Rate Average Balance Average Rate Noninterest-bearing demand deposits $ 1,161,995 0.00 % $ 1,041,238 0.00 % Interest-bearing deposits: Interest-bearing demand deposits 10,579 2.93 % — 0.00 % NOW accounts 464,699 0.26 % 398,620 0.07 % Money market accounts 687,699 0.34 % 638,137 0.19 % Savings accounts 197,635 0.11 % 174,039 0.10 % Time deposits 329,480 1.11 % 341,746 1.16 % Total interest-bearing deposits 1,690,092 0.46 % 1,552,542 0.36 % Total average deposits $ 2,852,087 0.27 % $ 2,593,780 0.22 % 56 Table of Contents Our uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), were approximately $975.1 million and $1.22 billion at December 31, 2022 and 2021, respectively.
The following table presents our average deposits by account type and the average rate paid for the periods indicated: For the Years Ended December 31, 2023 2022 (dollars in thousands) Average Balance Average Rate Average Balance Average Rate Noninterest-bearing demand deposits $ 1,004,107 0.00 % $ 1,161,995 0.00 % Interest-bearing deposits: Interest-bearing demand deposits 103,578 3.93 % 10,579 2.93 % NOW accounts 423,441 1.00 % 464,699 0.26 % Money market accounts 539,085 1.66 % 687,699 0.34 % Savings accounts 183,155 0.15 % 197,635 0.11 % Time deposits 470,522 3.08 % 329,480 1.11 % Total interest-bearing deposits $ 1,719,781 1.86 % $ 1,690,092 0.46 % Total average deposits $ 2,723,888 1.18 % $ 2,852,087 0.27 % 57 Table of Contents As of December 31, 2023, our estimated uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), were approximately $887.8 million, or 31.7% of total deposits, compared to $975.1 million, or 34.8% of total deposits, as of December 31, 2022.
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.
Treasury obligations, U.S. government agency obligations, certificates of deposit of insured domestic banks, mortgage-backed and mortgage-related securities, corporate notes having an investment rating of “A” or better, municipal bonds, and certain equity securities. Securities AFS and Securities HTM Securities AFS and securities HTM are debt securities.
Securities AFS purchased for the year ended December 31, 2022, primarily consisted of $159.8 million in U.S. Treasury securities and $139.1 million in mortgage-backed securities. The U.S. Treasury securities purchased had a yield of 1.78% and an average life of 1.85 years, and the mortgage-backed securities had a yield of 1.78% and an average life of 3.63 years.
Securities AFS purchased for the year ended December 31, 2023, consisted of $53.0 million in mortgage-backed securities, $23.7 million in U.S. agency securities, and $19.8 million in U.S. Treasury securities. The U.S. agency 46 Table of Contents securities purchased had a yield of 5.78% and an average life of 5.22 years.
We may also utilize federal funds from various correspondent financial institutions as a source of short-term funding. As of December 31, 2022 and 2021, we had $95.0 million in federal funds lines available from these funding sources. We had no outstanding balances on these lines during 2022 or 2021. Hancock Whitney Bank Line of Credit.
As of December 31, 2022, we had no borrowing capacity through this facility as collateral had not been pledged. Other Borrowings. We may also utilize federal funds from various correspondent financial institutions as a source of short-term funding. As of December 31, 2023 and 2022, we had $95.0 million in federal funds lines available from these funding sources.
Securities AFS and Securities HTM Securities AFS and securities HTM are debt securities. Total debt securities were $766.1 million as of December 31, 2022, an increase of $106.9 million, or 16.2%, from $659.2 million as of December 31, 2021. Securities AFS are held for indefinite periods of time and are carried at estimated fair value.
Total debt securities were $711.3 million as of December 31, 2023, a decrease of $54.8 million, or 7.1%, from $766.1 million as of December 31, 2022. Securities AFS are held for indefinite periods of time and are carried at estimated fair value. As of December 31, 2023, the estimated fair value of securities AFS was $570.1 million.
Consumer loans are offered as an accommodation to existing customers and are not marketed to persons without a pre-existing relationship with us. Industry Concentrations The North American Industry Classification System is an industry classification system used to categorize loans by the borrower’s type of business.
Consumer loans are offered as an accommodation to existing customers and are not marketed to persons without a pre-existing relationship with us.
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.
These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
As of December 31, 2022, the estimated fair value of securities AFS was $614.4 million. The net unrealized loss on securities AFS increased $69.4 million for the year ended December 31, 2022, resulting in a net unrealized loss of $74.1 million as of December 31, 2022.
The net unrealized loss on securities AFS decreased $12.0 million for the year ended December 31, 2023, resulting in a net unrealized loss of $62.2 million as of December 31, 2023, compared to a net unrealized loss of $74.1 million as of December 31, 2022.

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