Red River Bancshares, Inc. Reports Second Quarter 2023 Financial Results

ALEXANDRIA, La., July 28, 2023 (GLOBE NEWSWIRE) -- Red River Bancshares, Inc. (the “Company”) (Nasdaq: RRBI), the holding company for Red River Bank (the “Bank”), announced today its unaudited financial results for the second quarter of 2023.

Net income for the second quarter of 2023 was $9.0 million, or $1.25 per diluted common share (“EPS”), a decrease of $630,000, or 6.6%, compared to $9.6 million, or $1.33 EPS, for the first quarter of 2023. For the second quarter of 2023, the quarterly return on assets was 1.20%, and the quarterly return on equity was 12.78%.

Net income for the six months ended June 30, 2023, was $18.6 million, or $2.58 EPS, an increase of $2.0 million, or 12.3%, compared to $16.5 million, or $2.30 EPS, for the six months ended June 30, 2022. For the six months ended June 30, 2023, the return on assets was 1.24%, and the return on equity was 13.54%.

Second Quarter 2023 Performance and Operational Highlights

In the second quarter of 2023, the Company had a fairly consistent balance sheet, increased capital ratios, steady liquidity, and reduced earnings. Net interest income, net interest margin, and net income decreased as a result of higher interest expense on deposits. Activity in the stock repurchase program was higher than in the prior quarter.

• As of June 30, 2023, assets were $3.03 billion, consistent with March 31, 2023. Total assets were impacted by a $67.2 million decrease in deposits, offset by $60.0 million of new Federal Home Loan Bank (“FHLB”) advances.
• Deposits totaled $2.66 billion as of June 30, 2023, a decrease of $67.2 million, or 2.5%, compared to $2.73 billion as of March 31, 2023. During the second quarter of 2023, in addition to the slight decrease in total deposits, there was also a shift of balances between deposit categories due to customers moving funds from lower yielding categories to higher yielding categories.
• As of June 30, 2023, loans held for investment (“HFI”) were $1.95 billion, an increase of $25.8 million, or 1.3%, compared to $1.92 billion as of March 31, 2023. During the second quarter of 2023, new loan originations were partially offset by loan payments and paydowns.
• As of June 30, 2023, total securities were $739.0 million compared to $765.2 million as of March 31, 2023. Securities decreased $26.2 million primarily due to maturities and principal repayments exceeding purchases.
• In the second quarter of 2023, the Company maintained an average of $182.0 million of liquid assets, which are cash and cash equivalents. The liquid assets to assets ratio was 7.34% as of June 30, 2023.
• In the second quarter of 2023, the Bank recorded $60.0 million in borrowings from the FHLB.
• Net income for the second quarter of 2023 was $9.0 million, which was $630,000, or 6.6%, lower than the prior quarter mainly due to higher interest expense on deposits. Net income benefited from a $1.2 million, or 666.7%, increase in Small Business Investment Company (“SBIC”) income between the second quarter of 2023 and the prior quarter.
• Net interest income and net interest margin fully tax equivalent (“FTE”) decreased in the second quarter of 2023 compared to the prior quarter. Net interest income was $21.5 million for the second quarter of 2023 compared to $22.9 million for the prior quarter. Net interest margin FTE was 2.96% for the second quarter of 2023 compared to 3.13% for the prior quarter. These decreases were mainly due to the higher interest rate environment resulting in intensified deposit rate pressure and higher deposit costs.
• The current expected credit loss (“CECL”) methodology became effective for the Bank on January 1, 2023. No provision expense was recorded in the first quarter of 2023. Provision expense for the second quarter of 2023 was $300,000.
• As of June 30, 2023, nonperforming assets (“NPA(s)”) were $2.0 million, or 0.07% of assets, and the allowance for credit losses (“ACL”) was $21.1 million, or 1.08% of loans HFI.
• Capital ratios increased in the second quarter of 2023. The June 30, 2023 leverage ratio was 11.48% and the equity to assets ratio was 9.36%.
• We paid a quarterly cash dividend of $0.08 per common share in the second quarter of 2023.
• 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. In the second quarter of 2023, we repurchased 11,894 shares of our common stock at an aggregate cost of $601,000.
• Recently, S&P Market Intelligence ranked the Bank 45th of the top 50 best-performing community banks in 2022 with assets between $3.0 and $10.0 billion.

Blake Chatelain, President and Chief Executive Officer stated, “We are pleased to report steady financial results for the second quarter of 2023. These include consistent assets, higher capital ratios, solid liquidity, and good earnings.

“The interest rate environment continued to be challenging as we navigated significant deposit rate competition, higher deposit costs, and reduced net interest income and net income compared to the prior quarter. Earning asset yields improved; however, we anticipate continued deposit rate pressure and net interest margin challenges.

“Economic uncertainty and higher interest rates continued to dampen loan demand; however, active calling efforts by our lenders and new market expansion generated loan growth. Our loans HFI increased by $25.8 million, or 1.3%, during the second quarter of 2023. Deposits contracted slightly, primarily due to changes to public entity balances and customers making income tax payments and moving their funds to outside products. Overall, our liquidity position remained strong with minimal borrowings.

“Economies have cycles with periods of expansion and contraction. The current cycle is unique as the economy recovers from the COVID-19 pandemic, combined with record levels of government fiscal stimulus and the rapid, and significant, increase in interest rates. We believe that this environment requires prudent, conservative banking principles and continued focus on customer oriented, relationship banking services. We remain cautiously optimistic about the future economic environment and believe we are well positioned for any potential headwinds.

“We were very pleased to be selected as a Top 50 Community Bank in 2022 by S&P Market Intelligence. Our 45th ranking is an honor and a reflection of our financial performance and strength.”

Liquidity

As of June 30, 2023, we had sufficient liquid assets available and $1.27 billion in available borrowing capacity.

Cash and cash equivalents were $222.1 million as of June 30, 2023, and averaged $182.0 million for the second quarter of 2023. The liquid assets to assets ratio was 7.34% as of June 30, 2023.

Our securities available-for-sale (“AFS”) portfolio is an alternative source for meeting liquidity needs. Securities AFS generate cash flow through principal repayments, calls, and maturities, and can be sold or used as collateral in borrowings. As of June 30, 2023, securities AFS totaled $588.5 million. We project receipt of approximately $100.0 million of principal repayments through December 31, 2023. Certain investments within our securities AFS portfolio are also used to secure public entity deposits, which impacts their liquidity. As of June 30, 2023, $189.4 million, or 32.2% of the securities AFS portfolio, were pledged to secure public entity deposits.

In addition, FHLB advances may be used to meet the Bank’s liquidity needs. We currently are classified as having “blanket lien collateral status,” which means that advances can be executed at any time without further collateral requirements. In the second quarter of 2023, we recorded $60.0 million in short-term advances from the FHLB. This borrowing was a result of the uncertainty regarding deposit activity and the decision to bolster liquidity while also testing our borrowing lines. As of June 30, 2023, our borrowing capacity from the FHLB was $830.7 million, net of $60.0 million in advances and $10.9 million of letters of credit from the FHLB used as collateral for our public entity deposits. The $60.0 million advance matured in July 2023.

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, which allow us to borrow up to $95.0 million in federal funds at a rate determined by the applicable commercial bank at the time of borrowing. We also maintain an additional $6.0 million revolving line of credit at one of our correspondent banks. As of June 30, 2023, we had total borrowing capacity of $101.0 million through these combined funding sources.

The Bank can participate in the Federal Reserve Board’s Bank Term Funding Program (”BTFP”) as an additional liquidity source. If needed, the BTFP gives us the option to use eligible securities as collateral for a loan of up to one year from the Federal Reserve. As of June 30, 2023, our eligible securities totaled approximately $336.7 million.

Net Interest Income and Net Interest Margin FTE

Net interest income and net interest margin FTE for the second quarter of 2023 continued to be negatively impacted by heightened deposit rate pressures in the banking industry. The Federal Open Market Committee (“FOMC”) increased the federal funds rate by 50 basis points (“bp(s)”) in the first quarter and by 25 bps in the second quarter. These increases were in addition to the 425 bp increases in 2022.

Net interest income for the second quarter of 2023 was $21.5 million, which was $1.4 million, or 6.1%, lower than the first quarter of 2023, due to a $2.1 million increase in interest expense, partially offset by a $739,000 increase in interest and dividend income. The increase in interest expense was due to increased deposit rates combined with larger balances in higher cost deposit accounts. In responding to deposit rate competition, we increased the rates on time deposits and certain interest-bearing transaction deposits. The cost of deposits increased 32 bps to 1.03% for the second quarter of 2023 from 0.71% for the prior quarter. The increase in interest and dividend income was primarily due to an increase in income on loans, partially offset by a decrease in interest income on short-term liquid assets. Loan income increased $1.1 million due to higher rates on new, renewed, and floating rate loans. The rate on these loans was 7.09% for the second quarter of 2023 compared to 6.68% for the prior quarter. Income on short-term liquid assets decreased $451,000 due to a decrease in these balances during the second quarter.

The net interest margin FTE decreased 17 bps to 2.96% for the second quarter of 2023, compared to 3.13% for the prior quarter. This decrease was driven primarily by higher deposit rates as a result of the deposit rate pressures. As we increased rates on several of our deposit products, we continued to experience a change in the deposit mix due to customers moving deposits from lower yielding accounts to higher yielding accounts. The rate on time deposits increased 71 bps, and the rate on interest-bearing transaction deposits increased by 37 bps. The shift in deposit mix, combined with the increase in rates on these accounts, increased the total cost of deposits by 32 bps. The higher cost of deposits was partially offset by a 14 bp increase in the yield on loans and a 49 bp increase in the yield on short-term liquid assets, which were driven by the higher interest rate environment.

The FOMC raised the federal funds rate by 25 bps at its July 2023 meeting. The current expectation is that it will keep the rate consistent through December 2023. For the remainder of 2023, we anticipate receiving approximately $100.0 million in cash flows from our securities portfolio that should be redeployed into higher yielding assets and should benefit both net interest income and net interest margin FTE. We continue to experience additional pressure on deposit interest rates due to the higher interest rate environment and competition for deposits. As of June 30, 2023, floating rate loans were 13.3% of loans HFI, and floating rate transaction deposits were 3.9% of interest-bearing transaction deposits. Depending on balance sheet activity, movement in interest rates, deposit rate pressure, and deposit mix shift, we expect the net interest margin FTE to remain fairly consistent for the remainder of 2023.

Provision for Credit Losses

The provision for credit losses for the second quarter of 2023 was $300,000. No provision expense was recorded in the first quarter of 2023 under the new CECL methodology. The provision in the second quarter was due to potential economic challenges resulting from the current inflationary environment, changing monetary policy, and loan growth. We will continue to evaluate future provision needs in relation to current economic situations, loan growth, trends in asset quality, forecasted information, and other conditions influencing loss expectations.

Noninterest Income

Noninterest income totaled $6.0 million for the second quarter of 2023, an increase of $1.7 million, or 38.4%, compared to $4.3 million for the previous quarter. The increase was mainly due to higher SBIC, mortgage, and brokerage income.

SBIC income for the second quarter of 2023 was $1.4 million, an increase of $1.2 million, or 666.7%, from the prior quarter primarily due to the sale of an investment by the SBIC. We expect this income to be lower in future quarters.

Mortgage loan income for the second quarter of 2023 was $645,000, an increase of $370,000, or 134.5%, compared to $275,000 for the first quarter of 2023. This increase was mainly driven by improved purchase activity as consumers adjusted to the higher interest rate environment.

Brokerage income increased $116,000, or 14.4%, to $923,000 for the second quarter of 2023, compared to $807,000 for the first quarter of 2023. The higher income in the second quarter was largely due to investing activities of new and existing clients. Assets under management were $997.3 million as of June 30, 2023.

Operating Expenses

Operating expenses for the second quarter of 2023 totaled $16.1 million, an increase of $644,000, or 4.2%, compared to $15.5 million for the previous quarter. This increase was mainly due to higher personnel expenses and data processing expense, partially offset by lower occupancy and equipment expenses and technology expenses.

Personnel expenses totaled $9.5 million for the second quarter of 2023, an increase of $547,000, or 6.1%, from the previous quarter. This increase was primarily due to annual merit raises effective April 2023, higher personnel health insurance expenses, and higher commission compensation. As of June 30, 2023 and March 31, 2023, we had 353 and 352 total employees, respectively.

Data processing expense totaled $638,000 for the second quarter of 2023, an increase of $238,000, or 59.5%, from the previous quarter. This increase was primarily attributable to receipt of a $252,000 periodic refund from our data processing center in the first quarter of 2023.

Occupancy and equipment expenses totaled $1.6 million for the second quarter of 2023, a decrease of $163,000, or 9.5%, from the previous quarter. This decrease was primarily attributable to $161,000 of nonrecurring expenses related to opening our new operations center building in the first quarter of 2023 compared to $28,000 of nonrecurring expenses related to the expansion of a banking center in the Southwest market in the second quarter of 2023.

Technology expenses totaled $642,000 for the second quarter of 2023, a decrease of $106,000, or 14.2%, from the previous quarter. This decrease was mainly due to the renegotiation of a contract with a technology vendor, which resulted in lower expenses effective in the second quarter of 2023.

Asset Overview

As of June 30, 2023, assets were $3.03 billion, consistent with assets as of March 31, 2023. In the second quarter, assets were impacted by a $67.2 million, or 2.5%, decrease in deposits offset by $60.0 million of new short-term borrowings from the FHLB. During the second quarter of 2023, liquid assets decreased $7.1 million, or 3.1%, to $222.1 million and were 7.34% of assets as of June 30, 2023. Total securities decreased $26.2 million, or 3.4%, to $739.0 million in the second quarter and were 24.4% of assets as of June 30, 2023. As of June 30, 2023, loans HFI were $1.95 billion, an increase of $25.8 million, or 1.3%, compared to the prior quarter. The loans HFI to deposits ratio was 73.10% as of June 30, 2023, compared to 70.36% as of March 31, 2023.

Securities

Total securities as of June 30, 2023, were $739.0 million, a decrease of $26.2 million, or 3.4%, from March 31, 2023. Securities decreased primarily due to maturities and principal repayments exceeding purchases.

The estimated fair value of securities AFS totaled $588.5 million, net of $73.0 million of unrealized loss as of June 30, 2023, compared to $611.8 million, net of $71.2 million of unrealized loss as of March 31, 2023. As of June 30, 2023, the amortized cost of securities held-to-maturity (“HTM”) totaled $146.6 million compared to $149.4 million as of March 31, 2023. As of June 30, 2023, securities HTM had an unrealized loss of $22.1 million compared to $19.9 million as of March 31, 2023.

As of June 30, 2023, equity securities, which is an investment in a CRA mutual fund consisting primarily of bonds, totaled $3.9 million compared to $4.0 million as of March 31, 2023.

Loans

Loans HFI as of June 30, 2023, totaled $1.95 billion, an increase of $25.8 million, or 1.3%, from March 31, 2023. In the second quarter of 2023, new loan originations were partially offset by payments and paydowns.

Health care loans are our largest industry concentration and are made up of a diversified portfolio of health care providers. As of June 30, 2023, total health care loans were 8.2% of loans HFI. Within the health care sector, loans to physician and dental practices were 4.1% of loans HFI, and loans to nursing and residential care facilities were 4.0% of loans HFI. The average health care loan size was $338,000 as of June 30, 2023.

On March 5, 2021, it was announced that certain U.S. Dollar London Interbank Offered Rate (“LIBOR”) rates would cease to be published after June 30, 2023. As of June 30, 2023, 1.2% of our loans HFI were LIBOR-based with a setting that expired June 30, 2023. Alternative rate language was present in each credit agreement with a LIBOR-based rate. Effective July 1, 2023, these loans were converted to the alternative reference rate.

Asset Quality and Allowance for Credit Losses

NPAs totaled $2.0 million as of June 30, 2023, down $403,000, or 16.9%, from March 31, 2023, primarily due to payments on nonaccrual loans. The ratio of NPAs to assets was 0.07% as of June 30, 2023, and 0.08% as of March 31, 2023.

Effective January 1, 2023, the Company adopted the CECL methodology for estimating credit losses. In the first quarter of 2023, CECL resulted in a $278,000 increase to the ACL and established a $442,000 reserve for unfunded commitments, yielding a combined 3.5% increase to the December 31, 2022 allowance for loan losses. This one-time cumulative adjustment resulted in a $569,000, net of tax, decrease to stockholders’ equity.

As of June 30, 2023, the ACL was $21.1 million, and the ratio of ACL to loans HFI was 1.08%. As of March 31, 2023, the ratio of ACL to loans HFI was 1.09%. The net charge-offs to average loans ratio was 0.00% for the second and first quarters of 2023.

Deposits

As of June 30, 2023, deposits were $2.66 billion, a decrease of $67.2 million, or 2.5%, compared to March 31, 2023. Average deposits for the second quarter of 2023 were $2.69 billion, a decrease of $66.5 million, or 2.4%, from the prior quarter. The following tables provide details on our deposit portfolio:

Deposits decreased in the second quarter of 2023 as a result of the changing interest rate environment impacting customer deposit movement and activity, combined with normal tax payments. Also during the second quarter of 2023, there was a deposit mix shift between deposit categories as customers moved funds from lower yielding categories to higher yielding categories.

The Bank has a granular, diverse deposit portfolio with customers in a variety of industries throughout Louisiana. As of June 30, 2023, the average deposit account size was approximately $27,000.

In 2022, we implemented the IntraFi Network Insured Cash Sweep (“ICS”) and related reciprocal balance programs for qualified commercial customers. The ICS program provides our customers a demand deposit sweep account that has a competitive interest rate as well as full Federal Deposit Insurance Corporation (“FDIC”) insurance coverage. As of June 30, 2023, we had $96.0 million swept off our balance sheet. The related reciprocal program brings deposit balances back on to our balance sheet as interest-bearing demand deposit accounts. As of June 30, 2023, we had $94.1 million of interest-bearing demand deposit accounts.

As of June 30, 2023, our estimated uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), were approximately $805.0 million, or 30.2% of total deposits. This amount was estimated based on the same methodologies and assumptions used for regulatory reporting purposes. Also, as of June 30, 2023, our estimated uninsured deposits, excluding collateralized public entity deposits, were approximately $672.6 million, or 25.2% of total deposits. Our cash and cash equivalents of $222.1 million combined with our available borrowing capacity of $1.27 billion equaled 185.4% of our estimated uninsured deposits and 221.9% of our estimated uninsured deposits, excluding collateralized public entity deposits.

Stockholders’ Equity

Total stockholders’ equity as of June 30, 2023, was $283.4 million compared to $276.6 million as of March 31, 2023. The $6.7 million, or 2.4%, increase in stockholders’ equity was attributable to $9.0 million of net income for the three months ended June 30, 2023, and $91,000 of stock compensation, partially offset by a $1.2 million, net of tax, increase to accumulated other comprehensive loss related to securities, the repurchase of 11,894 shares of common stock for $601,000, and $574,000 in cash dividends. We paid a quarterly cash dividend of $0.08 per share on June 23, 2023.

Non-GAAP Disclosure

Our accounting and reporting policies conform to United States generally accepted accounting principles (“GAAP”) and the prevailing practices in the banking industry. Certain financial measures used by management to evaluate our operating performance are discussed as supplemental non-GAAP performance measures. In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the U.S.

Management and the board of directors review tangible book value per share, tangible common equity to tangible assets, and realized book value per share as part of managing operating performance. However, these non-GAAP financial measures should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that are discussed 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 by us when comparing such non-GAAP financial measures.

A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures is included within the following financial statement tables.

About Red River Bancshares, Inc.

Red River Bancshares, Inc. is the bank holding company for Red River Bank, a Louisiana state-chartered bank established in 1999 that provides a fully integrated suite of banking products and services tailored to the needs of commercial and retail customers. Red River Bank operates from a network of 27 banking centers throughout Louisiana and one combined loan and deposit production office in New Orleans, Louisiana. Banking centers are located in the following Louisiana markets: Central, which includes the Alexandria metropolitan statistical area (“MSA”); Northwest, which includes the Shreveport-Bossier City MSA; Capital, which includes the Baton Rouge MSA; Southwest, which includes the Lake Charles MSA; the Northshore, which includes Covington; Acadiana, which includes the Lafayette MSA; and New Orleans.

Forward-Looking Statements

Statements in this news release regarding our expectations and beliefs about our future financial performance and financial condition, as well as trends in our business and markets, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “outlook,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” The forward-looking statements in this news release are based on current information and on assumptions that we make about future events and circumstances that are subject to a number of risks and uncertainties that are often difficult to predict and beyond our control. As a result of those risks and uncertainties, our actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward-looking statements contained in this news release and could cause us to make changes to our future plans. Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in the section titled “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent quarterly reports on Form 10-Q, and in other documents that we file with the SEC from time to time. In addition, our actual financial results in the future may differ from those currently expected due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as, but in the future may become, material to our business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this news release or to make predictions based solely on historical financial performance. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. All forward-looking statements, express or implied, included in this news release are qualified in their entirety by this cautionary statement.

Contact:Isabel V. Carriere, CPA, CGMAExecutive Vice President and Chief Financial Officer318-561-4023[email protected]

(1)  Non-GAAP financial measure. Calculations of this measure and reconciliations to GAAP are included in the schedules accompanying this release.

(1)  Includes average outstanding balances of loans held for sale of $3.5 million and $1.3 million for the three months ended June 30, 2023 and March 31, 2023, respectively.(2)  Nonaccrual loans are included as loans carrying a zero yield.(3)  Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.

(1)  Includes average outstanding balances of loans held for sale of $2.4 million and $4.0 million for the six months ended June 30, 2023 and 2022, respectively.(2)  Nonaccrual loans are included as loans carrying a zero yield.(3)  Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.