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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, 2020 and selected prior periods. This discussion and analysis should be read in conjunction with information presented elsewhere in this report, including "Item 6. Selected Financial Data" and our audited consolidated financial statements and notes thereto included in "Item 8. Financial Statements and Supplementary Data."

The following discussion contains forward-looking statements that reflect our current views with respect to, among other things, future events and our financial performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “Cautionary Note Regarding Forward-Looking Statements.” Also, see risk factors and other cautionary statements described in "Item 1A. Risk Factors” in this Annual Report on Form 10-K. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

CORPORATE SUMMARY

Red River Bancshares, Inc. is the bank holding company for Red River Bank, a Louisiana state-chartered bank established in 1999 that provides a fully integrated suite of banking products and services tailored to the needs of our commercial and retail customers. Red River Bank operates from a network of 25 banking centers throughout Louisiana and one combined loan and deposit production office in Lafayette, Louisiana. Banking centers are located in the following Louisiana markets: Central, which includes the Alexandria MSA; Northwest, which includes the Shreveport-Bossier City MSA; Capital, which includes the Baton Rouge MSA; Southwest, which includes the Lake Charles MSA; and the Northshore, which includes Covington.

Our priority is to drive shareholder value through the establishment of a market-leading commercial banking franchise in Louisiana. We provide services through relationship-oriented bankers who are committed to their customers and the communities in which we offer our products and services. Our strategy is to expand geographically through the establishment of de novo banking centers in new markets and, to a lesser extent, through the acquisition of financial institutions with customer-oriented, compatible philosophies and in desirable geographic areas.

OVERVIEW

The year ended December 31, 2020, had many challenges and successes. We were impacted by the global outbreak of the COVID-19 pandemic, the passage of the CARES Act, changing government orders, economic shutdowns, a low interest rate environment, and two hurricanes that impacted our markets. Despite these challenges, we participated in the SBA PPP program, welcomed many new customers, implemented a stock buyback program, opened a new banking center, purchased two banking center locations, and had record high levels of mortgage activity, balance sheet growth, and earnings.

2020 Financial and Operational Highlights

•Net income for the year ended December 31, 2020, was $28.1 million, or $3.83 diluted EPS, an increase of $3.3 million, or 13.4%, compared to $24.8 million, or $3.49 diluted EPS, for the year ended December 31, 2019.

•The return on average assets was 1.22% for 2020 and 1.30% for 2019.

•The return on average equity was 10.39% for 2020 and 10.86% for 2019.

•Assets increased $654.4 million, or 32.9%, to $2.64 billion as of December 31, 2020, compared to $1.99 billion as of December 31, 2019. This increase was driven by a $619.2 million, or 36.0%, increase in deposits for the same period. The deposit growth in 2020 was due to customers receiving funds from various government stimulus programs, customers depositing the proceeds from their PPP loans, strong deposit account opening activity, and customers maintaining larger deposit balances.

•Loans HFI increased $149.5 million, or 10.4%, to $1.59 billion as of December 31, 2020, compared to $1.44 billion as of December 31, 2019. The increase in loans was mainly due to PPP loans originated during the year.

•Red River Bank participated in the SBA PPP, supporting Louisiana businesses with PPP loans. In the second quarter of 2020, Red River Bank originated 1,384 PPP loans totaling $199.0 million, with an average loan size of $144,000. In the fourth quarter of 2020, the SBA began approving our initial PPP loan forgiveness applications. As of December 31, 2020, PPP loans, net of deferred income, were $118.4 million.

•Mortgage loan production and income in 2020 were at record high levels for the Company.

•During 2020, our investment group successfully converted our registered broker-dealer relationship to LPL Financial LLC. This conversion allows us to support future brokerage services growth, as well as provide better technology and benefits to our customers and investment group.

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•We expanded organically throughout Louisiana with the following:

◦Late in 2019, we purchased a banking center building in Sulphur, Louisiana, located in our Southwest Louisiana market. This property was remodeled and opened as a Red River Bank banking center late in the first quarter of 2020.

◦In the third quarter of 2020, we began operations in our newest market, Acadiana, which includes the Lafayette, Louisiana MSA. We hired an Acadiana market president and opened a combined loan and deposit production office in Lafayette.

◦In the fourth quarter of 2020, we purchased a banking center building in Lake Charles, Louisiana. This location allows us to continue to expand banking services in our Southwest Louisiana market. This property is being remodeled and is expected to open as a full-service banking center in the second quarter of 2021, pending all necessary regulatory approvals.

◦In the fourth quarter of 2020, we purchased a banking center building in Lafayette, Louisiana. This property is being remodeled and is expected to open as our Acadiana market's first, full-service banking center in the summer of 2021, pending all necessary regulatory approvals.

•Beginning in the first quarter of 2020, we began paying cash dividends on a quarterly basis. Quarterly cash dividends of $0.06 per common share were paid in 2020, resulting in cash dividends of $0.24 per common share for 2020, compared to $0.20 per common share for 2019.

•In August 2020, our board approved a stock repurchase program that authorizes us to purchase up to $3.0 million of our outstanding shares through August 27, 2021. In 2020, we repurchased 2,824 shares.

•Our Southwest and Central Louisiana markets were impacted by Hurricane Laura in August 2020 and Hurricane Delta in October 2020. Banking center locations in the impacted areas were temporarily closed prior to and after the hurricane; however, banking services quickly resumed. Red River Bank did not sustain any significant damage to its locations from these hurricanes.

RESULTS OF OPERATIONS

Net income for the year ended December 31, 2020, was $28.1 million, or $3.83 diluted EPS, an increase of $3.3 million, or 13.4%, compared to $24.8 million, or $3.49 diluted EPS, for the year ended December 31, 2019. The increase in net income was primarily due to a $7.2 million increase in noninterest income and a $5.4 million increase in net interest income, partially offset by a $4.5 million increase in provision for loan losses and a $4.1 million increase in operating expenses. The return on average assets for the year ended December 31, 2020, was 1.22%, compared to 1.30% for the prior year. The return on average equity was 10.39% for the year ended December 31, 2020, compared to 10.86% for the prior year. Our efficiency ratio for the year ended December 31, 2020, was 55.77%, compared to 59.46% for the year ended December 31, 2019.

Net Interest Income and Net Interest Margin

Our operating results depend primarily on our net interest income. Fluctuations in market interest rates impact the yield on interest-earning assets and the rate paid on interest-bearing liabilities. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income. To evaluate net interest income, we measure and monitor: (1) yields on loans and other interest-earning assets; (2) the costs of deposits and other funding sources; (3) net interest spread; and (4) net interest margin. Since noninterest-bearing sources of funds, such as noninterest-bearing deposits and stockholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing funding sources.

The Federal Reserve sets the target federal funds rate, which is the cost of immediately available overnight funds, and influences other market rates, such as the prime rate. These market rates impact pricing of certain assets and liabilities used by financial institutions. Our net interest income and net interest margin are directly affected by these rates and their changes. During 2019, the target federal funds rate remained consistent between January and July, decreased 75 bps in the second half of the year, and was 1.75% as of December 31, 2019. During 2020, the target federal funds rate decreased 150 bps in March, remained consistent the rest of the year, and was 0.25% as of December 31, 2020. Due to these fluctuations, the average effective federal funds rate was 2.16% for 2019 and 0.38% for 2020. In 2020, the lower interest rate environment impacted yields on new, renewing, and floating rate loans, short-term liquid assets, and taxable securities. For the year ended December 31, 2020, net interest income and net interest margin FTE were impacted by the lower interest rate environment.

Net interest income for the year ended December 31, 2020, totaled $69.0 million, a $5.4 million, or 8.4%, increase from the year ended December 31, 2019. Net interest income increased due to a $3.7 million, or 5.0%, increase in interest and dividend income, combined with a $1.7 million, or 16.9%, decrease in interest expense. The increase in interest and dividend income was due to $5.6 million of PPP loan income recorded during 2020 and a $360,000 increase in interest

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income for total securities, partially offset by a $1.4 million decrease in interest income on short-term liquid assets and a $904,000 decrease in non-PPP loan income. In 2020, deposit growth exceeded loan growth which created excess liquidity. During 2020, this excess liquidity was deployed into interest-bearing deposits in other banks, as well as securities. For the year ended December 31, 2020, compared to the year ended December 31, 2019, average short-term liquid assets increased $110.1 million, while the interest income for these liquid assets decreased $1.4 million because of the lower interest rate environment. For the same period, average total securities increased $83.5 million resulting in an increase in interest income for total securities that was partially offset by a decrease in yield. For the year ended December 31, 2020, average non-interest bearing deposits increased $229.8 million, or 39.8%, and average interest-bearing transaction deposits increased $138.3 million, or 18.7%, compared to the prior year. Interest expense decreased as a result of our decision to reduce interest rates on deposits during the year ended December 31, 2020, combined with redeeming the junior subordinated debentures mid-2019 and eliminating the related interest expense.

Net interest margin FTE decreased 38 bps to 3.14% for the year ended December 31, 2020, from 3.52% for the year ended December 31, 2019, mainly due to the Federal Reserve lowering interest rates 225 bps since August 2019. The yield on loans decreased 29 bps to 4.30% for the year ended December 31, 2020, compared to 4.59% for the prior year, due to the impact of the low interest rate environment on new, renewed, and floating rate loans. As of December 31, 2020, floating rate loans were 14.6% of loans HFI. For the year ended December 31, 2020, the yield on taxable securities decreased 53 bps to 1.60%, compared to 2.13% for the prior year. The yield decreased as securities purchased throughout 2020 were at lower yields than the portfolio yield for taxable securities as of December 31, 2019, combined with an increase in amortization expense on mortage-backed securities. For the year ended December 31, 2020, compared to the prior year, the yield on federal funds sold decreased 184 bps, and the yield on interest-bearing balances due from banks decreased 190 bps, due to the lower interest rate environment. The resulting yield on interest-earning assets was 3.47% for the year ended December 31, 2020, a 56 bp decrease, compared to 4.03% for the prior year. The cost of deposits was 0.41% for the year ended December 31, 2020, an 18 bp decrease, compared to 0.59% for the prior year. The cost of deposits was lower for the year ended December 31, 2020, due to average noninterest-bearing deposits increasing $229.8 million, or 39.8%, combined with a 21 bp decrease in the rate on interest-bearing deposits for the same period as a result of our adjustments to deposit rates.

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

For the Years Ended December 31,

Assets

Interest-earning assets:

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Noninterest-bearing liabilities:

(1)Includes average outstanding balances of loans HFS of $14.2 million, $4.1 million, and $2.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.

(2)Nonaccrual loans are included as loans carrying a zero yield.

(3)Net interest margin FTE includes an FTE adjustment using a 21% federal income tax rate on tax-exempt securities and tax-exempt loans.

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In 2020, Red River Bank participated in the SBA PPP and originated 1,384 PPP loans totaling $199.0 million. For the year ended December 31, 2020, average PPP loans, net of deferred income, totaled $127.4 million at an interest rate of 1.0%. Under the terms of the PPP, we received loan origination fees from the SBA ranging from 1.0% to 5.0% of the initial principal amount of the loans. PPP origination fees were $7.0 million, or 3.52%, of originated PPP loans and are being recorded to interest income over the 24-month loan term or until the loans are forgiven by the SBA. As PPP loan forgiveness payments are received, the remaining portion of origination fees are recorded to income. In the fourth quarter of 2020, 39.4% of our PPP loans originated were forgiven by the SBA, and $77.7 million of PPP loan payments were received from the SBA and our borrowers. For the year ended December 31, 2020, PPP loan income totaled $5.6 million, resulting in a 4.35% yield.

Excluding PPP loan income, net interest income (non-GAAP) for the year ended December 31, 2020, was $63.4 million, which was $201,000, or 0.30%, lower than the prior year. Also, with PPP loans excluded for the year ended December 31, 2020, the yield on non-PPP loans (non-GAAP) was 4.29%, and the net interest margin FTE (non-GAAP) was 3.07%. For the year ended December 31, 2020, PPP loans had a one bp accretive impact to the yield on loans and a seven bp accretive impact to the net interest margin FTE. For further information on non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

The following table presents interest income for total loans, PPP loans, total non-PPP loans (non-GAAP), and net interest ratios excluding PPP loans (non-GAAP) for the years ended December 31, 2020, 2019 and 2018.

For the Years Ended December 31,

Less: PPP loans, net

Ratios excluding PPP loans, net (non-GAAP)(4)

(1)Includes average outstanding balances of loans HFS of $14.2 million, $4.1 million, and $2.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.

(2)Nonaccrual loans are included as loans carrying a zero yield.

(3)Net interest margin FTE includes an FTE adjustment using a 21% federal income tax rate on tax-exempt securities and tax-exempt loans.

(4)Non-GAAP financial measure. See also " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

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Rate/Volume Analysis

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the earlier period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

(in thousands) Volume Rate (Decrease) Volume Rate (Decrease)

Interest-earning assets:

Nonmarketable equity securities 26 (29) (3) 1 4 5

Investment in trusts (11) — (11) (8) 3 (5)

Interest-bearing liabilities:

Other borrowings 16 — 16 (7) — (7)

Provision for Loan Losses

The provision for loan losses is a charge to income necessary to maintain the allowance for loan losses at a level considered appropriate by management. Factors impacting the provision include loan portfolio growth, changes in the quality and composition of the loan portfolio, the level of nonperforming loans, delinquency and charge-off trends, and current economic conditions.

The provision expense for the year ended December 31, 2020, was $6.3 million, an increase of $4.5 million from $1.8 million for the year ended December 31, 2019. The increase in provision for loan losses was due to expected economic pressures relating to the COVID-19 pandemic.

Due to economic uncertainties related to the pandemic shutdowns and future risks associated with the continuing COVID-19 pandemic, we are closely monitoring asset quality and will adjust provision for loan losses as needed in 2021.

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 $7.2 million to $23.2 million for the year ended December 31, 2020, compared to the prior year. The increase in noninterest income was mainly due to higher mortgage loan income, a larger gain on the sale of securities, higher debit card income, and higher brokerage income. These increases were partially offset by a decrease in service charges on deposits accounts.

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

For the Years Ended December 31,

(dollars in thousands) 2020 2019 Increase/(Decrease)

Noninterest income:

Gain (Loss) on equity securities 85 115 (30) (26.1) %

Due to the lower mortgage interest rate environment in 2020, mortgage loan production and income have been at record high levels. For 2020, mortgage loan production increased 140.2% from 2019, resulting in $8.4 million of mortgage loan income, an increase of $5.4 million from $3.0 million for the prior year.

The gain on the sale of securities was $1.4 million for 2020, compared to $18,000 for 2019. The 2020 gain was primarily a result of proactive portfolio restructuring transactions that occurred in the first and second quarters of 2020 in response to the lower interest rate environment. We obtained favorable pricing on the securities sold, which resulted in the gain.

Debit card income, net, increased $546,000 to $3.6 million for 2020, compared to $3.1 million for 2019. The increase was due to increases in the number of deposit accounts, debit cards issued, and debit card transactions.

Brokerage income increased $199,000 to $2.3 million for 2020, compared to $2.1 million for 2019. This increase is primarily due to the addition of new brokerage clients and accounts in 2020, as well as additional funds invested by existing clients. These increases were partially offset by a temporary reduction in revenue in the second quarter of 2020 resulting from an investment group broker-dealer partner conversion. Assets under management were $647.8 million and $633.1 million as of December 31, 2020 and 2019, respectively.

Service charges on deposit accounts decreased $465,000 to $4.1 million for 2020, compared to $4.6 million for 2019. This decrease was partially due to fewer customer deposit non-sufficient fund transactions. In addition, 2020 was impacted by approximately $168,000 in reduced deposit fees due to temporary fee reductions in the second quarter of 2020 in response to the COVID-19 pandemic.

Operating Expenses

Operating expenses are composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships, and providing services. For the year ended December 31, 2020, operating expenses totaled $51.4 million, an increase of $4.1 million, compared to $47.3 million for the year ended December 31, 2019. The increase in operating expenses was mainly due to higher personnel expenses, legal and professional expenses, technology expenses, regulatory assessment expense, other taxes, and occupancy and equipment expenses, partially offset by lower other operating expenses.

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

For the Years Ended December 31,

(dollars in thousands) 2020 2019 Increase (Decrease)

Operating expenses:

Non-staff expenses:

Personnel expenses are the largest component of operating expenses and include payroll expenses, incentive compensation, benefit plans, health insurance, and payroll taxes. Personnel expenses were $31.2 million for 2020, an increase of $3.4 million compared to 2019. As of December 31, 2020 and 2019, we had 336 and 325 full-time equivalent employees, respectively. The increase in personnel expenses was related to additional staff resulting from our expansion in the Northshore, Southwest, and Acadiana markets, as well as an increase in staff to support operational growth. In addition, commission compensation increased for 2020, primarily due to significantly higher mortgage loan activity.

Legal and professional expenses increased $600,000 to $2.1 million for 2020 compared to 2019. This increase was a result of higher attorney, audit, and compliance expenses, combined with having a full year of expenses related to operating as a public company.

Technology expenses increased $249,000 to $2.5 million for 2020 compared to the prior year. This increase was a result of higher mortgage software expense due to increased mortgage loan activity; additional software to enhance operational efficiency, cybersecurity, and information security infrastructure; and COVID-19 pandemic preparation and response efforts.

Regulatory assessment expense increased $187,000 in 2020 compared to 2019. This increase was primarily due to an increase of $159,000 in FDIC insurance assessment expense. The Bank was notified by the FDIC that it did not have an FDIC insurance assessment for the second half of 2019 and first quarter of 2020. Therefore, no FDIC insurance assessment expense was incurred for these periods. The FDIC insurance assessment expense for 2020 was $409,000 compared to $250,000 in 2019.

Other taxes increased $154,000 to $1.7 million for 2020 compared to 2019. The increase was due to a $157,000 increase in State of Louisiana bank stock tax resulting from higher deposit account balances and higher net income for the applicable tax years.

Occupancy and equipment expenses increased $130,000 to $5.1 million for 2020 compared to 2019. This increase was mainly due to the recent expansion in our Northshore, Southwest, and Acadiana markets, as well as increased supplies and services needed in all banking centers as a result of the COVID-19 pandemic.

Other operating expenses decreased $357,000 to $3.3 million for 2020 compared to 2019. This decrease was primarily a result of a $311,000 nonrecurring expense reduction related to the dissolution of an acquired subsidiary in the first quarter of 2020, combined with reduced travel and event expenses due to the COVID-19 pandemic.

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. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for

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the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Our effective income tax rates have differed from the U.S. statutory rate due to the effect of tax-exempt income from loans, securities, life insurance policies, and the income tax effects associated with stock-based compensation. The CARES Act and Families First Coronavirus Response Act passed in March of 2020 did not have a material impact on our income tax expense or our effective tax rate for the year ended December 31, 2020.

For the years ended December 31, 2020 and 2019, income tax expense totaled $6.3 million and $5.6 million, respectively. The increase in income tax expense was primarily due to the increase in pre-tax income. The effective income tax rate for 2020 was 18.3%, compared to 18.5% for 2019.

FINANCIAL CONDITION

General

As of December 31, 2020, total assets were $2.64 billion which was $654.4 million, or 32.9%, higher than total assets of $1.99 billion as of December 31, 2019. Within total assets, compared to December 31, 2019, interest-bearing deposits in other banks increased by $310.3 million, securities AFS increased by $162.6 million, and loans HFI increased by $149.5 million. For liabilities, compared to December 31, 2019, noninterest-bearing deposits increased $358.7 million, and interest-bearing deposits increased $260.5. As of December 31, 2020, the loans HFI to deposits ratio was 67.87%, compared to 83.60% as of December 31, 2019, and the noninterest-bearing deposits to total deposits ratio was 40.32%, compared to 33.98% as of December 31, 2019. Stockholders' equity increased $33.6 million from $251.9 million as of December 31, 2019, to $285.5 million as of December 31, 2020.

Securities

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. As of December 31, 2020, our securities portfolio was 19.0% of total assets. It is designed primarily to provide and maintain liquidity, generate a favorable return on investments without incurring unnecessary interest rate and credit risk, and to complement our lending activities. We may invest in various types of liquid assets that are permissible under governing regulations and approved by our investment policy, which include U.S. Treasury obligations, U.S. government agency obligations, certificates of deposit of insured domestic banks, mortgage-backed and mortgage-related securities, corporate notes having an investment rating of "A" or better, municipal bonds, and certain equity securities.

Securities AFS were $498.2 million as of December 31, 2020, an increase of $162.6 million, or 48.5%, from $335.6 million as of December 31, 2019. Investment activity for the twelve months ended December 31, 2020, included $419.4 million of securities purchased, partially offset by $151.3 million in sales and $112.6 million in maturities, principal repayments, and calls. The net unrealized gain of the securities AFS portfolio increased $8.8 million for the year ended December 31, 2020.

Equity securities were $4.0 million and $3.9 million as of December 31, 2020 and 2019, respectively. There were no purchases or sales of equity securities for the twelve months ended December 31, 2020.

In 2020, we sold $151.3 million of securities, consisting of a mix across various sectors that had lower yields and short average lives, along with a strategic group of higher yielding municipal securities which also had short average lives. A large portion of the securities sold were mortgage-backed securities which had faster prepayment speeds or were owned at higher book prices, and due to higher amortization expense from accelerated prepayment speeds, the yields had declined. We were able to obtain a gain of $1.4 million on these transactions due to timing and favorable pricing within the market. We reinvested the proceeds into securities with improved structure for the current rate environment. These transactions reduced the amount of securities repricing in the short-term, rebalanced cash flows for the portfolio, partially mitigated higher amortization expense for the mortgage-backed sector, and are expected to partially offset our exposure to a lower net interest margin and the low rate environment.

During the twelve months ended December 31, 2020, due to the low interest rate environment, we reallocated $259.9 million from federal funds sold yielding 0.30% to securities AFS yielding 1.55%. Although this reallocation has negatively impacted the overall securities portfolio yield, we expect it to improve future interest income by moving these funds from federal funds sold to a higher yielding investment.

The securities portfolio tax-equivalent yield was 2.02% for the year ended December 31, 2020, compared to 2.32% for the year ended December 31, 2019. This decrease was due to accelerated prepayment speeds which increased amortization expense on our mortgage-backed securities, combined with the $259.9 million in funds reallocated from federal funds sold to securities with lower yields than the portfolio yield as of December 31, 2019.

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

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securities and collateralized mortgage obligations are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly pay downs on mortgage-backed securities may cause the average lives of the securities to be much different than the stated contractual maturity. During a period of rising interest rates, fixed rate mortgage-backed securities are not likely to experience heavy prepayments of principal, and, consequently, the average lives of these securities are typically lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated average lives of these securities. As of December 31, 2020, the average life of our securities portfolio was 3.9 years with an estimated modified duration of 3.6 years.

The carrying values of our securities AFS are adjusted for unrealized gain or loss, and any unrealized gain or loss is reported on an after-tax basis as a component of accumulated other comprehensive income (loss) in stockholders’ equity. As of December 31, 2020, the unrealized gain of the securities AFS portfolio was $8.8 million, compared to an unrealized loss of $30,000 as of December 31, 2019.

The $4.0 million in equity securities as of December 31, 2020, is an investment in the CRA Qualified Investment Fund which is managed by Community Capital Management, Inc. We invested in the CRA Qualified Investment Fund as part of our strategy to meet our obligations described within the Community Reinvestment Act, which encourages financial institutions to help meet the credit needs of their entire market area, including low and moderate income neighborhoods, consistent with safe and sound banking principles. Through this fund, mortgage-backed securities are purchased according to our allocations, with their underlying collateral located in our market areas, which strengthens our efforts to meet our CRA obligations.

Equity securities, consisting of a mutual fund, are carried at fair value on the consolidated balance sheets with periodic changes in value recorded through the consolidated statements of income. The fair value of our equity securities was $4.0 million as of December 31, 2020, with a recognized gain of $85,000 for the year ended December 31, 2020, compared to a fair value of $3.9 million as of December 31, 2019, with a recognized gain of $115,000 for the year ended December 31, 2019.

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The following tables summarize the amortized cost and estimated fair value of our securities by type as of the dates indicated. As of December 31, 2020, 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.

Securities AFS:

The following table shows the fair value of securities AFS which mature during each of the periods indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.

Contractual Maturity as of December 31, 2020

Securities AFS:

(1)Tax equivalent projected book yield as of December 31, 2020.

Loan Portfolio

Our loan portfolio is our largest category of earning assets, and interest income earned on our loan portfolio is our primary source of income. We maintain a diversified loan portfolio with a focus on commercial real estate, one-to-four family residential, and commercial and industrial loans. As of December 31, 2020, loans HFI were $1.59 billion, an increase of $149.5 million, or 10.4%, compared to $1.44 billion as of December 31, 2019. The increase in loans HFI was primarily due to the issuance of SBA PPP loans in 2020.

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In the second quarter of 2020, Red River Bank originated 1,384 PPP loans totaling $199.0 million, with an average PPP loan size of $144,000. We began accepting PPP loan forgiveness applications on September 14, 2020, and in the fourth quarter of 2020, the SBA began approving PPP loan forgiveness applications. As of December 31, 2020, 48.0% of the 1,384 PPP loans and 39.4% of the $199.0 million originated were forgiven by the SBA, and we received SBA forgiveness and borrower payments of $77.8 million. As of December 31, 2020, PPP loans were $118.4 million, net of $2.8 million of deferred income, or 7.5% of loans HFI. Through February 28, 2021, 70.1% of the 1,384 PPP loans and 59.8% of the $199.0 million originated were forgiven by the SBA, and we received $118.9 million in SBA forgiveness and borrower payments.

On December 27, 2020, the SBA and U.S. Treasury, through the Economic Aid Act, authorized a streamlined PPP loan forgiveness application process for PPP loans of $150,000 or less. As of February 28, 2021, approximately 76.9% of the 414 remaining PPP loans and 17.5% of the $80.1 million remaining PPP loan balance may be eligible for the streamlined process. Additionally, the Economic Aid Act allows for certain businesses, who previously received a PPP loan, to apply for a PPP Second Draw loan. Red River Bank is participating in the PPP Second Draw program, and as of February 28, 2021, 339 borrower applications totaling $40.3 million have been approved by the SBA.

As of December 31, 2020, loans HFI excluding $118.4 million of PPP loans (non-GAAP), net of deferred income, were $1.47 billion, an increase of $31.1 million, or 2.2%, from December 31, 2019. The increase in non-PPP loans was attributable to new loan activity in our newer markets. For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

Loans HFI by Category

Loans HFI by category, non-PPP loans HFI (non-GAAP), and loans HFS are summarized below as of the dates indicated:

December 31,

Real estate:

SBA PPP, net of deferred income 118,447 7.5 % — — % — — % — — % — — %

(1)Non-GAAP financial measure. For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

Commercial Real Estate Loans. Commercial real estate loans are primarily made for commercial property that is owner occupied as well as commercial property owned by real estate investors. Real estate securing these loans includes many property types, such as retail centers, nursing homes, offices and office buildings, medical facilities, warehouses, churches and related facilities, production facilities, and multifamily properties. Commercial real estate loans increased $24.8 million, or 4.7%, to $556.8 million as of December 31, 2020, from $532.0 million as of December 31, 2019.

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Non-owner occupied commercial real estate loans were $237.0 million, or 14.9%, of loans HFI, and represented 87.4% of the Bank’s total risk-based capital as of December 31, 2020. The owner occupied and non-owner occupied components of the commercial real estate portfolio are summarized below.

Commercial Real Estate

(dollars in thousands) Owner Occupied Non-Owner Occupied Total

One-to-Four Family Residential 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 $22.9 million, or 5.4%, to $442.9 million as of December 31, 2020, compared to $420.0 million as of December 31, 2019.

Construction and Development Loans. The construction and development portfolio includes loans to small and medium-sized businesses to construct owner occupied facilities, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single-family homes. Construction and development loans decreased $5.1 million, or 3.9%, to $127.3 million as of December 31, 2020, compared to $132.5 million as of December 31, 2019.

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. 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 $17.5 million, or 6.5%, to $250.4 million as of December 31, 2020, from $267.9 million as of December 31, 2019.

SBA PPP, Net of Deferred Income. SBA PPP loans are made to small businesses and other entities and individuals according to the criteria set forth by the CARES Act in March 2020. These loans are guaranteed by the SBA, have a 24 month term at an interest rate of 1.0%, and are subject to forgiveness by the SBA dependent upon meeting eligibility requirements.

Tax-Exempt Loans. Tax-exempt loans are made to political subdivisions of the State of Louisiana including parishes, municipalities, utility districts, school districts, and development authorities. These loans are typically secured by and paid for by ad valorem taxes. Tax-exempt loans increased $12.2 million, or 21.5%, to $68.7 million as of December 31, 2020, compared to $56.5 million as of December 31, 2019.

Consumer Loans. Consumer loans are made to individuals for personal, family, and household purposes and include secured and unsecured installment and term loans. Consumer loans are offered as an accommodation to existing customers and are not marketed to persons without a pre-existing relationship with us.

Loan Payment Deferments

During 2020, we granted loan payment deferments for requesting borrowers impacted by pandemic-related economic shutdowns. As of December 31, 2020, $12.5 million, or 0.8% of non-PPP loans HFI (non-GAAP), remained on active deferral and were deferrals of principal payments only. For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

In accordance with interagency regulatory guidance issued in March 2020 and revised in April 2020, these short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance.

Industry Concentrations

As of December 31, 2020, the health care sector was the only concentration of loans within any single industry in excess of 10.0% of non-PPP loans HFI (non-GAAP) as segregated by the North American Industry Classification System

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(“NAICS”). NAICS is an industry classification system used to categorize loans by the borrower’s type of business. Industry concentrations stated as a percentage of non-PPP loans HFI (non-GAAP) are presented below:

Health care 10.2 %

Construction 4.6 %

Retail trade 3.8 %

Investor one-to-four family and multifamily 4.0 %

Hospitality services 4.0 %

Religious and other nonprofit 2.4 %

Public administration 3.3 %

Energy 1.4 %

Finance and insurance 1.6 %

Manufacturing 1.7 %

All other 63.0 %

Total non-PPP loans HFI (non-GAAP) by industry concentration 100.0 %

Our health care loans are made up of a diversified portfolio of health care providers. As of December 31, 2020, health care credits were $149.4 million, or 10.2% of non-PPP loans HFI (non-GAAP), compared to $133.4 million, or 9.3% of non-PPP loans HFI as of December 31, 2019. The average health care loan size was $305,000 as of December 31, 2020, and $274,000 as of December 31, 2019. Within the health care sector, nursing and residential care loans were 4.4% of non-PPP loans HFI (non-GAAP) as of December 31, 2020, and 5.3% as of December 31, 2019. Loans to physician and dental practices were 5.7% of non-PPP loans HFI (non-GAAP) as of December 31, 2020, and 3.9% as of December 31, 2019. As of December 31, 2020, the health care sector had no active deferrals.

We have identified certain sectors within our loan portfolio that we believe have a heightened overall level of risk due to pandemic-related macro-economic conditions. The following table shows non-PPP loans HFI (non-GAAP) in these sectors as of the date indicated:

Hospitality services:

Retail trade:

Loan payment deferments in the hospitality services sector represents 65.0% of our active deferrals. As of December 31, 2020, active deferrals in the hospitality services were $8.1 million, or 0.6% of non-PPP loans HFI (non-GAAP). As of December 31, 2020, there were no active deferrals in the retail trade or energy sectors. For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

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Other Portfolio Sectors

The following table shows non-PPP loans HFI (non-GAAP) in other non-industry specific areas that we believe may be affected by the pandemic:

(dollars in thousands) Amount Percent of Non-PPP Loans HFI (non-GAAP)

Credit card loans:

Total credit card loans $ 2,457 0.2 %

None of the markets in which we directly operate are characterized by a high degree of tourism-driven hospitality services. Likewise, our geographic footprint is not closely aligned with the bulk of Louisiana’s energy-concentrated local economies. We believe this provides our portfolio with some degree of insulation against the current stress in both of those segments.

The following table summarizes non-PPP loans HFI (non-GAAP) by market of origin:

(dollars in thousands) Amount Percent of Non-PPP Loans HFI (non-GAAP)

For further information on non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

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Loan Portfolio Maturity Analysis

The maturity distribution for non-PPP loans HFI (non-GAAP) and the amount of such loans with fixed and floating interest rates are summarized below:

Real estate:

Variable rate percent 9.2 % 4.0 % 2.6 % 15.8 %

Nonperforming Assets

NPAs consist of nonperforming loans and property acquired through foreclosures or repossession. Nonperforming loans include loans that are contractually past due 90 days or more and loans that are on nonaccrual status. Loans are considered past due when principal and interest payments have not been received as of the date such payments are due.

Asset quality is managed through disciplined underwriting policies, continual monitoring of loan performance, and focused management of NPAs. There can be no assurance, however, that the loan portfolio will not become subject to losses due to declines in economic conditions, deterioration in the financial condition of our borrowers, or a decline in the value of collateral.

NPAs totaled $4.2 million as of December 31, 2020, down $2.3 million, or 34.9%, from $6.5 million as of December 31, 2019. Our ratio of NPAs to total assets was 0.16% as of December 31, 2020, compared to 0.33% as of December 31, 2019. The change was largely due to the charge-off of nonaccrual loans and the sale of foreclosed assets.

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Nonperforming loan and asset information is summarized below:

December 31,

Nonperforming loans:

Foreclosed assets:

Other — 18 — — —

Troubled debt restructurings:(1,2)

Accruing loans 90 or more days past due — — — 792 —

(1)Troubled debt restructurings – nonaccrual and accruing loans 90 or more days past due are included in the respective components of nonperforming loans.

(2)In accordance with interagency regulatory guidance issued in March 2020 and revised in April 2020, COVID-19 pandemic-related short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance.

(3)Non-GAAP financial measure. For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

Nonaccrual loans are summarized below by category:

December 31,

Real estate:

SBA PPP — — — — —

Tax-exempt — — — — —

Potential Problem Loans

From a credit risk standpoint, we classify loans in one of five categories: pass, special mention, substandard, doubtful, or loss. Loan classifications reflect a judgment about the risk of default and loss associated with the loans. Classifications are reviewed periodically and adjusted to reflect the degree of risk and loss believed to be inherent in each loan. The methodology is structured so that specific reserve allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).

Loans classified as pass are of satisfactory quality and do not require a more severe classification.

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Loans classified as special mention have potential weaknesses that deserve management’s close attention. If these weaknesses are not corrected, repayment possibilities for the loan may deteriorate. However, the loss potential does not warrant substandard classification.

Loans classified as substandard have well defined weaknesses which jeopardize normal repayment of principal and interest. Prompt corrective action is required to reduce exposure and to assure adequate remedial actions are taken by the borrower. If these weaknesses do not improve, loss is possible. Loans classified as doubtful have well defined weaknesses that make full collection improbable. Loans classified as loss are considered uncollectible and charged-off to the allowance for loan losses.

Loans HFI are summarized below by risk category:

(dollars in thousands) Pass SpecialMention Substandard Doubtful Loss Total

Real estate:

Allowance for Loan Losses

In connection with the review of the loan portfolio, risk elements attributable to particular loan types or categories are considered in assessing the quality of individual loans. Some of the risk elements considered include:

• for commercial real estate loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements); operating results of the owner in the case of owner occupied properties; the loan to value ratio; the age and condition of the collateral; and the volatility of income, property value, and future operating results typical of properties of that type;

• for one-to-four family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability; the loan-to-value ratio; and the age, condition, and marketability of the collateral;

• for construction and development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease; the quality and nature of contracts for presale or prelease, if any; experience and ability of the developer; and the loan to value ratio; and

• for commercial and industrial loans, the debt service coverage ratio; the operating results of the commercial, industrial, or professional enterprise; the borrower’s business, professional, and financial ability and expertise; the specific risks and volatility of income and operating results typical for businesses in that category; the value, nature, and marketability of collateral; and the financial resources of the guarantor(s), if any.

When effective, the CECL allowance model, prescribed by ASU No. 2016-13, will require measurement of expected credit losses based on historical experience, current conditions, and reasonable supportable forecasts. This model will replace the existing incurred loss model. As an SEC registrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for us on January 1, 2023. Refer to "Item 8. Financial Statements and Supplementary Data - Note 1 - Business and Summary of Significant Accounting Policies - Issued but Not Adopted Accounting Standards" for more information on ASU No. 2016-13.

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As of December 31, 2020, the allowance for loan losses totaled $18.0 million, or 1.13%, of loans HFI, and 1.22% of non-PPP loans HFI (non-GAAP). As of December 31, 2019, the allowance for loan losses totaled $13.9 million, or 0.97%, of loans HFI. The $4.0 million increase in the allowance for loan losses for the twelve months ended December 31, 2020, was due to $6.3 million from the provision for loan losses, partially offset by $2.3 million of net charge-offs on loans.

The provision for loan losses for the year ended December 31, 2020, was $6.3 million, an increase of $4.5 million from $1.8 million for the year ended December 31, 2019. The increase in provision for loan losses was due to expected economic pressures relating to the continuing COVID-19 pandemic.

Net charge-offs for the year ended December 31, 2020, were $2.3 million, an increase of $1.9 million from $397,000 for the year ended December 31, 2019. The increase in charge-offs resulted from the charge-off of $1.7 million in energy related loans in 2020. The ratio of net charge-offs to average loans was 0.14% and 0.03% for the years ended December 31, 2020 and December 31, 2019, respectively.

The following table displays activity in the allowance for loan losses for the periods shown:

As of and for the Years Ended December 31,

Charge-offs:

Real estate:

Commercial real estate — — (27) — (26)

One-to-four family residential — (44) (4) (181) (240)

Construction and development (14) — — (101) (206)

Recoveries:

Real estate:

Commercial real estate — — 27 1 —

Construction and development 1 88 — — —

(1)Non-GAAP financial measure. For calculations and reconciliations to GAAP and non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Annual Report on Form 10-K.

We believe the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above. Future provisions for loan losses are subject to ongoing evaluations of the factors and loan portfolio risks described above, including economic pressures related to the COVID-19 pandemic affecting the state of Louisiana. A decline in market area economic conditions, deterioration of asset quality, or growth in portfolio size could cause the

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allowance to become inadequate and material additional provisions for loan losses could be required. Due to economic uncertainties related to the pandemic shutdowns and future risks associated with the continuing COVID-19 pandemic, we are closely monitoring asset quality and will adjust the provision for loan losses as needed in 2021.

The following table displays the allocation of the allowance for loan losses among the loan classifications for the dates indicated. The allocations shown below should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in the future will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan classification.

December 31,

Real estate:

SBA PPP 318 1.8 % — — % — — % — — % — — %

Deposits

Deposits are the primary funding source for loans and investments. We offer a variety of deposit products designed to attract and retain consumer, commercial, and public entity customers. These products consist of noninterest and interest-bearing checking accounts, savings accounts, money market accounts, and time deposit accounts. Deposits are gathered from individuals, partnerships, corporations, and public entities located primarily in our market areas. We do not have any internet-sourced or brokered deposits.

Total deposits increased $619.2 million, or 36.0%, to $2.34 billion as of December 31, 2020, from $1.72 billion as of December 31, 2019. Noninterest-bearing deposits increased $358.7 million, or 61.3%, during 2020 to $943.6 million as of December 31, 2020. Noninterest-bearing deposits as a percentage of total deposits were 40.32% as of December 31, 2020, compared to 33.98% as of December 31, 2019. Interest-bearing deposits increased $260.5 million, or 22.9%, during 2020 to $1.40 billion as of December 31, 2020, with the largest increase in money market accounts. The increase in deposits was a result of customers receiving funds from various government stimulus programs, customers depositing the proceeds from their PPP loans, strong deposit account opening activity, and customers maintaining larger deposit balances.

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

(dollars in thousands) Balance % of Total Balance % of Total Balance % of Total

Interest-bearing deposits:

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

(dollars in thousands) Balance % of Total Balance % of Total Balance % of Total

We manage our interest expense on deposits through a deposit pricing strategy that is based on competitive pricing, economic conditions, and current or anticipated funding needs. We adjust deposit rates in part based upon our anticipated funding needs and liquidity position. We also consider the potential interest rate risk caused by extended maturities of time deposits when adjusting deposit rates.

Our average deposit balance was $2.02 billion for the year ended December 31, 2020, an increase of $366.3 million, or 22.2%, from $1.65 billion for the year ended December 31, 2019. For 2020, average public entity deposits were 7.1% of average total deposits. The average cost of interest-bearing deposits and total deposits for 2020 was 0.69% and 0.41% compared to 0.90% and 0.59% for 2019. The decrease in the average cost of interest-bearing deposits and total deposits in 2020 as compared to 2019 was a result of lowering deposit rates in 2020 due to the low interest rate environment and our liquidity position. Also, 5.5% of interest-bearing transaction deposits have floating rates which adjust with market rates.

The following schedule presents our average deposits by account type and the average rate paid for the periods indicated:

For the Years Ended December 31,

Interest-bearing deposits:

The maturity distribution of our time deposits of $100,000 or more are summarized below:

(in thousands) December 31, 2020

Three months or less $ 37,347

Over three months through six months 42,208

Over six months through 12 months 81,148

Over 12 months through three years 51,139

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.

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The following table presents the outstanding balance of borrowings as of the dates indicated:

December 31,

Short-term borrowings $ — $ — $ —

Long-term borrowings: — — —

FHLB long-term advances — — —

Junior subordinated debentures — — 11,341

Total borrowings $ — $ — $ 11,341

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, 2020 and 2019, total borrowing capacity was $6.0 million under this arrangement. The Company had no outstanding balances on this line during 2020 and 2019.

Federal Home Loan Bank Advances. We utilize the FHLB as needed as a funding source. As of December 31, 2020 and 2019, our total FHLB line availability was $680.5 million and $647.6 million, respectively. This line is secured by a blanket floating lien on selected Red River Bank loans which meet FHLB collateral requirements. At various times, we may obtain letters of credit from the FHLB as collateral for our public entity deposits. As of December 31, 2020 and 2019, we held unfunded letters of credit from the FHLB in the amount of $169.7 million and $109.5 million, respectively. As of December 31, 2020 and 2019, we had net borrowing capacity of $510.8 million and $538.1 million, respectively, under this arrangement.

On April 15, 2020, in order to fund PPP loans, the Company borrowed $50.0 million from the FHLB for 90 days at a rate of 0.35% under its existing line of credit. Due to having adequate liquidity, the $50.0 million was paid off on May 19, 2020.

Other Borrowings. We may also utilize federal funds from various correspondent financial institutions as a source of short-term funding. As of December 31, 2020 and 2019, we had $95.0 million in federal funds lines available from these funding sources. We had no outstanding balances on these lines as of December 31, 2020 and 2019.

Stockholders' Equity

Total stockholders’ equity as of December 31, 2020, was $285.5 million, compared to $251.9 million as of December 31, 2019, an increase of $33.6 million, or 13.3%. This increase was attributable to $28.1 million of net income, a $6.9 million, net of tax, market adjustment to accumulated other comprehensive income related to securities AFS, and $371,000 of stock compensation, partially offset by $1.8 million in cash dividends and $122,000 for the repurchase of shares.

Our common stock began trading on May 3, 2019, on the Nasdaq Global Select Market under the symbol "RRBI." On May 7, 2019, we completed an IPO of our common stock at a public offering price of $45.00 per share. A total of 690,000 shares of our common stock was sold in the IPO, of which we sold 663,320 shares (including 90,000 shares sold pursuant to the exercise of the underwriters' option to purchase additional shares) and certain shareholders sold 26,680 shares. We received net proceeds of $26.8 million in the offering.

Taking into consideration our performance and capital levels, dividends were paid in both 2019 and 2020. In February 2019, the Company paid our second annual cash dividend of $0.20 per share. During 2020, a quarterly cash dividend of $0.06 per share was paid, resulting in $0.24 per share in cash dividends for the year ended December 31, 2020.

On August 27, 2020, the Company's Board of Directors approved a stock repurchase program. The repurchase program authorizes the Company to purchase up to $3.0 million of our outstanding shares of common stock through August 27, 2021. Repurchases may be made from time to time in the open market at prevailing prices and based on market conditions or in privately negotiated transactions. For the year ended December 31, 2020, the Company repurchased 2,824 shares at an aggregate cost of $122,000.

Regulatory Capital Requirements

Capital management consists of maintaining equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions are required to maintain minimum capital relative to the amount and types of assets they hold.

For additional information on regulatory capital guidelines and limits for Red River Bank and Red River Bancshares, Inc., see "Item 8. Financial Statements and Supplementary Data - Note 14. Regulatory Capital Requirements."

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Red River Bank is subject to various capital requirements administered by the FDIC, including Basel III capital guidelines. It is management's belief that, as of December 31, 2020 and December 31, 2019, the Bank met all capital adequacy requirements.

In May 2018, the Economic Growth Act increased the asset threshold for "small bank holding companies" from $1.0 billion to $3.0 billion. Because we have less than $3.0 billion in assets, we are not subject to capital adequacy guidelines on a consolidated basis. However, we calculate capital ratios for planning and monitoring purposes.

As we deploy our capital and continue to grow our operations, our capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.

The following table presents our regulatory capital ratios, as well as those for Red River Bank, as of the dates indicated:

(dollars in thousands) Amount Ratio Amount Ratio

Red River Bancshares, Inc.

Red River Bank

As part of the directive under the Economic Growth Act, on September 17, 2019, the FDIC and other federal bank regulatory agencies approved the CBLR framework. This optional framework became effective January 1, 2020, and is available as an alternative to the Basel III risk-based capital framework. The CBLR framework provides for a simple measure of capital adequacy for certain community banking organizations. Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier I leverage ratio of greater than 9.00% (subsequently temporarily reduced to 8.00% as a COVID-19 relief measure), are considered qualifying community banking organizations and are eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements.

As of December 31, 2020, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework.

LIQUIDITY AND ASSET-LIABILITY MANAGEMENT

Liquidity

Liquidity involves our ability to raise funds to support asset growth and potential acquisitions or to reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements, and otherwise to operate on an ongoing basis and manage unexpected events. For the years ended December 31, 2020 and December 31, 2019, liquidity needs were primarily met by core deposits, security and loan maturities, and cash flows from amortizing security and loan portfolios. While maturities and scheduled amortization of loans are predictable sources of funds, deposit outflows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and the competitive environment in which we operate, and therefore, these cash flows are monitored regularly. Management continually monitors our liquidity and non-core dependency ratios to ensure compliance with targets established by the Bank’s Asset-Liability Management Committee.

Our most liquid assets are cash and short-term investments that include both interest-earning demand deposits and securities AFS. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. Access to purchased funds from correspondent banks and overnight advances from the FHLB and the Federal Reserve Bank of Atlanta are also available. Purchased funds from correspondent banks and overnight advances have been utilized on occasion to meet funding obligations, although we do not generally rely on these external funding sources.

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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. In 2020, deposit growth exceeded loan growth which created excess liquidity. During 2020, this excess liquidity was deployed into interest-bearing deposits in other banks, as well as securities. Our average total loans, including average loans held for sale, increased $198.6 million, or 14.3%, for the year ended December 31, 2020, compared to the year ended December 31, 2019. The increase in average total loans is primarily due to $199.0 million of PPP loans originated during the second quarter of 2020. Our average deposits increased $366.3 million, or 22.2%, for the year ended December 31, 2020, compared to the year ended December 31, 2019. This increase was a result of customers receiving funds from various government stimulus programs, customers depositing the proceeds from their PPP loans, strong deposit account opening activity, and customers maintaining larger deposit balances.

Core deposits, which are total deposits excluding time deposits greater than $250,000, are a major source of funds used to meet cash flow needs. Maintaining the ability to acquire these funds as needed in each of our markets is vital to assuring our liquidity.

Our securities portfolio is another alternative source for meeting liquidity needs. Securities generate cash flow through principal repayments, maturities, and calls, and they generally have readily available markets that allow for their conversion to cash. As of December 31, 2020, securities AFS were $498.2 million compared to $335.6 million as of December 31, 2019. However, certain investments within our securities portfolio are also used to secure specific deposit types, such as public entities, which impacts their liquidity. As of December 31, 2020, securities with a carrying value of $105.1 million, or 21.1% of the securities AFS portfolio, were pledged to secure public entity deposits as compared to securities with a carrying value of $89.8 million, or 26.8% of the securities AFS portfolio, similarly pledged as of December 31, 2019. This increase of $15.3 million, or 17.0%, was primarily due to several large public entity deposit accounts having higher balances as of December 31, 2020 compared to December 31, 2019.

Other sources available for meeting liquidity needs include federal funds lines, FHLB advances, 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, 2020 and 2019. FHLB advances may also be used to meet short-term liquidity needs, particularly if the prevailing interest rate on an FHLB advance compares favorably to the rates that would be required to attract the necessary deposits. As of December 31, 2020 and 2019, our net borrowing capacity from the FHLB was $510.8 million and $538.1 million, respectively. We also maintain an additional $6.0 million revolving line of credit at one of our correspondent banks. As of December 31, 2020 and 2019, we had total borrowing capacity of $611.8 and $639.1 million, respectively, through these combined funding sources. We had no outstanding balances from any of these funding sources as of December 31, 2020 and 2019.

For the years ended December 31, 2020 and 2019, we had no exposure to known future cash requirements or capital expenditures of a material nature. As of December 31, 2020, we had cash and cash equivalents of $447.2 million compared to $133.3 million as of December 31, 2019. The increase of $313.9 million was a result of deposit growth exceeding loan growth.

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. 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. 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, see "Item 8. Financial Statements and Supplementary Data - Note 5. Deposits,” “ - Note 7. Leases,” and “ - Note 12. Off-Balance Sheet Contractual Obligations and Contingencies - Investment Commitment,” respectively.

Interest Rate Sensitivity and Market Risk

As a financial institution, our primary component of market risk is interest rate volatility. Our asset-liability management policies provide management with guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our rate sensitivity position within our established policy guidelines.

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes.

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These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage exposure to interest rates by structuring the balance sheet appropriately during the ordinary course of business. We have the ability to enter into interest rate swaps to mitigate interest rate risk in limited circumstances, but it is not our policy to enter into such transactions on a regular basis. We do not enter into instruments such as financial options, financial futures contracts, or forward delivery contracts for the purpose of reducing interest rate risk. We are not subject to foreign exchange risk, and our commodity price risk is immaterial, as the percentage of our agricultural loans to loans HFI was only 0.30% as of December 31, 2020.

Our exposure to interest rate risk is managed by Red River Bank’s Asset-Liability Management Committee. The committee formulates strategies based on appropriate levels of interest rate risk and monitors the results of those strategies. In determining the appropriate level of interest rate risk, the committee considers the impact on both earnings and capital given the current outlook on interest rates, regional economies, liquidity, business strategies, and other related factors.

The committee meets quarterly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and economic values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans, and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits, and consumer and commercial deposit activity. We employ methodologies to manage interest rate risk which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, as well as an interest rate shock simulation model.

We use interest rate risk simulation models and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity and the impact of changes in interest rates on other financial metrics. Contractual maturities and repricing opportunities of loans are incorporated into the model, as are prepayment assumptions and maturity data and call options within the securities portfolio. The average life of non-maturity deposit accounts are based on assumptions developed from a non-maturity deposit decay study performed by our asset-liability management advisors, which calculates average lives using historic closure rates. The assumptions used are inherently uncertain, and as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and the application and timing of various management strategies.

In conjunction with our interest rate risk management process, on a quarterly basis we run various simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic growth models, rates are shocked instantaneously and ramped rates change over a 12-month and 24-month horizon based upon parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Our nonparallel rate shock model involves analysis of interest income and expense under various changes in the shape of the yield curve.

Bank policy regarding interest rate risk simulations performed by our risk model currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 10.0% for a 100 bp shift and 15.0% for a 200 bp shift. Bank policy regarding economic value at risk simulations performed by our risk model currently specifies that for instantaneous parallel shifts of the yield curve, estimated fair value of equity for the subsequent one-year period should not decline by more than 20.0% for a 100 bp shift and 25.0% for a 200 bp shift.

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

Change in Interest Rates (bps)

The results above, as of December 31, 2020 and 2019, demonstrate that our balance sheet is asset sensitive, which means our assets have the opportunity to reprice at a faster pace than our liabilities, over the 12-month horizon. We have also observed that, historically, our deposit interest rates have changed more slowly than the change in the federal funds rate. This assumption is incorporated into the simulation model and is generally not reflected in a gap analysis, which is the process by which we measure the repricing gap between interest rate-sensitive assets versus interest rate-sensitive liabilities. As of December 31, 2020, the net interest income changes in the down 100 and down 200 rate scenarios remained constant. This was primarily because as of December 30, 2020, loan yields, most securities yields, and most deposit rates were at their effective floors within the model's down 100 rate scenario, which resulted in interest income remaining relatively stable with rates down 200 basis points.

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, 2020, floating rate loans were 14.6% of the loan's HFI and floating rate transaction deposits were 5.5% of the interest-bearing transaction deposits.

The assumptions incorporated into the model are inherently uncertain, and as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and the application and timing of various management strategies and the slope of the yield curve.

Impact of Inflation

Our consolidated financial statements and related notes included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K have been prepared in accordance with GAAP. GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession. The primary effect of inflation on our operations is reflected in increased operating costs. Changes in interest rates affect the financial condition of a financial institution to a much greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or by the same level as the inflation rate.

NON-GAAP FINANCIAL MEASURES

Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. Certain financial measures used by management to evaluate our operating performance are discussed in this Annual Report on Form 10-K 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 PPP-adjusted metrics as part of managing operating performance. However, these non-GAAP financial measures that we discuss in this report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that are discussed in this Annual Report on Form 10-K may differ from that of other companies reporting measures with similar names. It is important to understand how such other banking organizations calculate and

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name their financial measures similar to the non-GAAP financial measures discussed in this Annual Report on Form 10-K when comparing such non-GAAP financial measures.

Tangible Assets, Tangible Equity, and Tangible Book Value

Tangible Book Value Per Common Share. Tangible book value per common share is a non-GAAP measure commonly used by investors, financial analysts, and 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 common share exclusive of changes in intangible assets. We calculate tangible book value per common share as total stockholders’ equity, less intangible assets, divided by the outstanding number of shares of our common stock at the end of the relevant period. Intangible assets have the effect of increasing total book value while not increasing tangible book value. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share.

Tangible Common Equity to Tangible Assets. Tangible common equity to tangible assets is a non-GAAP measure generally used by investors, financial analysts, and investment bankers to evaluate financial institutions. We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets. Intangible assets have the effect of increasing both total stockholders’ equity and assets while not increasing our tangible common equity or tangible assets. We calculate tangible common equity as total stockholders’ equity, less intangible assets, net of accumulated amortization and we calculate tangible assets as total assets less, intangible assets, net of accumulated amortization. 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, 2020, total intangible assets were $1.5 million, which is less than 1.0% of total assets.

The following table reconciles, as of the dates set forth below, stockholders’ equity to tangible common equity, and assets to tangible assets, and presents related resulting ratios.

December 31,

Tangible common equity

Adjustments:

Tangible assets

Adjustments:

(1)Share amounts have been adjusted to give effect to the 2018 2-for-1 stock split.

PPP-Adjusted Metrics

In the second quarter of 2020, Red River Bank originated 1,384 PPP loans totaling $199.0 million. As of December 31, 2020, unamortized PPP origination fees were $2.8 million, resulting in $118.4 million of PPP loans, net of deferred income, or 7.5% of loans HFI.

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PPP loans were implemented as a response to the COVID-19 pandemic and have characteristics that are different than the rest of our loan portfolio, including being short-term in nature (24 months or less depending on loan forgiveness) and having a lower than market interest rate. Because of these factors, management believes that PPP-adjusted metrics provide a more accurate portrayal of certain aspects of the Company's financial condition and performance. Accordingly, we believe it is important to investors to see certain of our metrics with PPP loans excluded. The most directly comparable GAAP financial measure for PPP-adjusted metrics is total loans HFI.

The following table reconciles, as of the dates set forth below, non-PPP loans to total loans HFI and presents certain ratios using non-PPP loans:

December 31,

Non-PPP loans HFI

Adjustments:

PPP loans, net (118,447) — — — —

Assets excluding PPP loans, net

Adjustments:

PPP loans, net (118,447) — — — —

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.

The following discussion presents an overview of our accounting policies that require difficult, subjective, or complex judgments and assumptions that are inherent in our policies and estimates and the potential sensitivity of the financial statements. Due to the complexity of these judgments and assumptions, an understanding of our financial condition and results of operations is critical. We believe that the judgments, estimates, and assumptions used in the preparation of the consolidated financial statements are appropriate. Refer to "Item 8. Financial Statements and Supplementary Data - Note 1. Business and Summary of Significant Accounting Policies" for details on the significant accounting principles and practices we follow.

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Allowance for Loan Losses

The allowance for loan losses is established for known and inherent losses in the loan portfolio based upon management’s best assessment of the loan portfolio at each balance sheet date. It is maintained at a level estimated to be adequate to absorb potential losses through periodic changes to loan losses. Red River Bank currently utilizes the incurred loss methodology to estimate the allowance for loan losses. The CECL model is not effective for Red River Bank until January 1, 2023.

The allowance for loan losses consists of specific and general reserves. Each of these reserves undergoes a separate analysis in order to estimate the total allowance for loan losses. Specific reserves relate to loans classified as impaired. Loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due in accordance with the contractual terms of the loan. Impaired loans include TDRs and performing and nonperforming loans. Impaired loans are reviewed individually, and a specific allowance is allocated, if necessary. The amount of the specific allowance provided is estimated by calculating the difference between the loan value and the Bank's exposure. The loan value is determined based on either the fair value of the collateral underlying the loan, if the loan is collateral dependent, or the present value of the loan's future cash flows calculated using the loan's existing interest rate. Either of these determinations are highly subjective and based on information available at the time of valuation.

General reserves relate to the remainder of the loan portfolio, including overdrawn deposit accounts. General reserves are estimated using historical loss rates adjusted for qualitative risk factors both internal and external to us. The qualitative factors considered include changes in economic conditions that impact loan portfolio repayment and collateral values, changes in the quality and composition of the loan portfolio, changes in lending policies and procedures, and other relevant factors. The qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss rates. For purposes of determining the general reserves, the loan portfolio, less cash secured loans and impaired loans, is multiplied by our historical loss rates adjusted for qualitative risk factors. The qualitative component of the allowance for loan losses reflects the stress in the economy related to the COVID-19 pandemic.

The determination of the allowance for loan losses is, in a large part, based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. Because of the uncertainties associated with economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of loan losses in the loan portfolio and the amount of the allowance needed may change in the future.

RECENT ACCOUNTING PRONOUNCEMENTS

See "Item 8. Financial Statements and Supplementary Data - Note 1. Business and Summary of Significant Accounting Policies - Accounting Standards Adopted in 2020" and " - Issued but Not Adopted Accounting Standards."

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information required for this item is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Asset-Liability Management - Interest Rate Sensitivity and Market Risk" and is incorporated herein by reference.

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Red River Bancshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Red River Bancshares, Inc. and its subsidiaries (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Postlethwaite & Netterville

We have served as the Company's auditor since 1998.

Baton Rouge, Louisiana

March 19, 2021

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RED RIVER BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts) December 31,

ASSETS

Nonmarketable equity securities 3,447 1,350

LIABILITIES

Accrued expenses and other liabilities 10,789 8,382

COMMITMENTS AND CONTINGENCIES — —

STOCKHOLDERS' EQUITY

Accumulated other comprehensive income (loss) 6,921 (24)

The accompanying notes are an integral part of these consolidated financial statements.

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data) Years Ended December 31,

INTEREST AND DIVIDEND INCOME

Interest on federal funds sold 207 753

Interest on deposits in other banks 322 1,127

Dividends on stock 20 34

INTEREST EXPENSE

Interest on other borrowed funds 16 —

Interest on junior subordinated debentures — 385

Net Interest Income After Provision for Loan Losses 62,707 61,829

NONINTEREST INCOME

Service charges on deposit accounts 4,108 4,573

Bank-owned life insurance income 568 544

Gain (Loss) on equity securities 85 115

Gain (Loss) on sale of securities 1,441 18

OPERATING EXPENSES

Occupancy and equipment expenses 5,106 4,976

Other business development expenses 1,020 1,107

Legal and professional expenses 2,141 1,541

Regulatory assessment expenses 538 351

EARNINGS PER SHARE

The accompanying notes are an integral part of these consolidated financial statements.

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands) Years Ended December 31,

Other comprehensive income (loss):

Unrealized net gain (loss) on securities arising during period 10,232 9,489

(Gain) loss on sale of securities included in net income (1,441) (18)

Total change in other comprehensive income (loss) 6,945 7,482

The accompanying notes are an integral part of these consolidated financial statements.

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Stock incentive plan — — 227 — — 227

Issuance of shares of common stock as board compensation 2,368 96 — — — 96

Other comprehensive income (loss) — — — — 7,482 7,482

Stock incentive plan — — 276 — — 276

Issuance of shares of common stock as board compensation 1,591 87 — — — 87

Other comprehensive income (loss) — — — — 6,945 6,945

The accompanying notes are an integral part of these consolidated financial statements.

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Share-based compensation earned 276 227

Share-based board compensation earned 62 87

(Gain) Loss on other assets owned 22 (18)

Net (accretion) amortization on securities AFS 3,144 1,380

Gain on sale of securities AFS (1,441) (18)

Deferred income tax (benefit) expense 130 (556)

Net (increase) decrease in loans HFS (24,027) (2,185)

Net (increase) decrease in accrued interest receivable (1,629) (238)

Net (increase) decrease in BOLI (568) (544)

Net increase (decrease) in accrued interest payable (448) 465

Net increase (decrease) in accrued income taxes payable (4) (114)

Other operating activities, net 429 (1,029)

Net cash provided by (used in) operating activities 12,798 26,443

CASH FLOWS FROM INVESTING ACTIVITIES

Activity in securities AFS:

Maturities, principal repayments, and calls 112,605 67,144

Purchase of nonmarketable equity securities (2,097) (51)

Proceeds from sales of foreclosed assets 330 1,164

Purchases of premises and equipment (7,035) (3,772)

Net cash provided by (used in) investing activities (316,256) (134,819)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from other borrowed funds 50,000 —

Repayments of other borrowed funds (50,000) —

Redemption of junior subordinated debentures — (11,341)

Repurchase of common stock (122) —

Proceeds from exercise of stock options 8 80

Proceeds from initial public offering, net — 26,812

Net cash provided by (used in) financing activities 617,367 89,762

Net change in cash and cash equivalents 313,909 (18,614)

Cash and cash equivalents - beginning of year 133,292 151,906

The accompanying notes are an integral part of these consolidated financial statements.

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands) Years Ended December 31,

SUPPLEMENTAL DISCLOSURES

Cash paid during the year for:

SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES

Assets acquired in settlement of loans 108 1,691

The accompanying notes are an integral part of these consolidated financial statements.

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RED RIVER BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Business and Summary of Significant Accounting Policies

The accounting and reporting policies of the Company conform to GAAP and the prevailing practices within the banking industry. A summary of significant accounting policies is as follows:

Business

The Company is a bank holding company headquartered in Alexandria, Louisiana. The Company's wholly owned bank subsidiary, Red River Bank, is a Louisiana state-chartered bank 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 25 banking centers throughout Louisiana and one combined loan and deposit production office in Lafayette, Louisiana. Banking centers are located in the following Louisiana markets: Central, which includes the Alexandria MSA; Northwest, which includes the Shreveport-Bossier City MSA; Capital, which includes the Baton Rouge MSA; Southwest, which includes the Lake Charles MSA; and the Northshore, which includes Covington.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and all other entities in which the Company has controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation.

Non-Bank Subsidiaries

The Company's consolidated financial statements include Red River Bank's wholly owned subsidiaries Rivermark Properties, LLC and Source BIDCO. The Bank dissolved Source BIDCO in the first quarter of 2020. The Company sponsored three trusts that were not consolidated. These trusts were utilized for the issuance of trust preferred securities. The three trusts were terminated during 2019.

Operating Segments

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a company-wide basis.

Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Use of Estimates

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. These estimates also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Acquisition Accounting

The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. Purchased assets, including loans, and assumed liabilities are recorded at their respective acquisition date fair values. Fair values are subject to refinement up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASCTopic 820, Fair Value Measurements and Disclosures. The fair value estimates associated with acquired loans include estimates related to expected prepayments and the amount and timing of expected principal, interest, and other cash flows.

Acquired loans, for which all contractual cash flows are expected to be received, are accounted for under the accounting guidance found in ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs. Acquired loans, with evidence of credit deterioration, are accounted for under the accounting guidance found in ASC Topic 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality.

There is no carryover of related allowance for loan losses at the acquisition date as assumptions regarding credit risk are incorporated in the valuation process. However, subsequent to acquisition, the acquired loan portfolio is reviewed, and an allowance for loan losses is established for probable losses incurred after the acquisition date.

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Interest-Bearing Deposits in Other Banks

Interest-bearing deposits in other banks consist of money market and checking accounts and are carried at cost.

Securities

All debt securities of the Company as of December 31, 2020 and 2019, were classified as AFS and are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of tax. Realized gains and losses on the sale of securities are determined using the specific-identification method. Purchased premiums and discounts are recognized in interest income using the interest method over the term of the securities.

Equity securities include a CRA mutual fund owned by the Company, which is carried at fair value with any periodic changes in value recorded through the statements of income.

Declines in the fair value of HTM and AFS debt securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses to the extent the losses are credit related. FASB issued accounting guidance related to the recognition and presentation of OTTI. The accounting guidance specifies that if (a) a company does not have the intent to sell a debt security prior to recovery; and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis, the entity will recognize the credit component of an OTTI of a debt security in earnings and the remaining portion in other comprehensive income. For HTM debt securities, the amount of OTTI recorded in other comprehensive income for the noncredit portion of an OTTI should be amortized over the remaining life of the security based on the timing of its future estimated cash flows.

Nonmarketable Equity Securities

Nonmarketable equity securities, which include investments in the FHLB and First National Banker’s Bank, are carried at cost.

Loans Held for Sale

Residential mortgage loans originated and intended for sale are carried at the lower of cost or estimated fair value on an individual basis. These mortgage loans are pre-sold prior to funding.

Loans Held for Investment

Loans that management has the intent and ability to hold, for the foreseeable future or until maturity or payoff, are held for investment and carried at their principal amount outstanding, net of deferred loan fees. Interest income on loans is accrued on the principal amount outstanding except for those loans that are classified as nonaccrual. Loan origination fees, net of certain direct costs, are deferred and recognized over the estimated lives of the related loans as an adjustment to the loans’ effective yield.

Loans are placed on nonaccrual when management determines that a borrower may be unable to meet future contractual payments as they become due or when such loans become 90 days past due, unless they are well secured and in the process of collection. When a loan is placed on nonaccrual, uncollected accrued interest is reversed, reducing interest income, and future income accrual is discontinued. Subsequent payments, if any, of interest and fees are applied as reductions to the loan’s outstanding principal balance. Once the principal balance of a loan placed on nonaccrual has been fully recovered, subsequent payments received are recognized as income on a cash basis. Loans are returned to accrual status when the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

A loan is charged-off to the allowance for loan losses in full when management is relatively certain that principal and interest will be uncollectible. Management may elect to partially charge-off a loan to adjust the principal balance to the net realizable value of the collateral that secures the loan. When a partial charge-off is made, the remaining balance of the loan is placed on nonaccrual. Recoveries of amounts previously charged-off, if any, are credited to the allowance for loan losses until the principal balance of the loan is fully recovered. Any subsequent payments are recognized as income.

Allowance for Loan Losses

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The allowance for loan losses consists of specific and general reserves. Specific reserves relate to loans classified as impaired. Loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due in accordance with the contractual terms of the loan. Impaired loans include TDRs and performing and nonperforming loans. Impaired loans are reviewed individually, and a specific allowance is allocated, if necessary, based on evaluation of either the fair value of the collateral underlying the loan or the present value of future cash flows calculated using the loan’s existing interest rate. General reserves relate to the remainder of the loan portfolio, including overdrawn deposit accounts, and are based on evaluation of a number of factors, such as current economic conditions, the quality and composition of the loan portfolio, loss history, and other relevant factors.

The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a substantial portion of its borrowers’ ability to honor their contractual repayment obligations is dependent on changing economic conditions. Because of the uncertainties associated with economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of loan losses in the loan portfolio and the amount of the allowance needed may change in the future. The determination of the allowance for loan losses is, in a large part, based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In situations where the repayment of a loan is dependent on the value of the underlying collateral, an independent appraisal of the collateral’s current market value is customarily obtained and used in the determination of the allowance for loan losses.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in economic conditions. Also, regulatory agencies, as an integral part of their examination process, periodically review management’s assessments of the adequacy of the allowance for loan losses. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Foreclosed assets are included in other assets on the consolidated balance sheets. The balance of foreclosed assets was $896,000 and $1.1 million as of December 31, 2020 and 2019, respectively.

Credit Related Financial Information

In the ordinary course of business, the Bank has entered into commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded.

Premises and Equipment, Net

Premises and equipment are stated at cost less accumulated depreciation, which is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 39 years.

Intangible Assets

Intangible assets consist of goodwill. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. Goodwill is not amortized but rather evaluated for impairment annually. The Company performed its annual impairment test of goodwill for 2020 and 2019 as required by ASC 350, Intangibles - Goodwill and Other. The evaluation indicated no impairment of the Company’s goodwill.

Stock-Based Compensation Plans

The Company has adopted stock incentive plans that provide for the granting of stock-based payment arrangements for key employees and non-employee members of the Company’s Board of Directors. The Company accounts for the stock incentive plans in accordance with applicable accounting guidance. Under the fair value recognition provisions of this guidance, stock-based compensation cost is measured at the grant date based on the fair value of the award and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. The options granted under these plans are to purchase common stock at an exercise price not less than the fair market value of the common stock at the date of the grant. The options vest and become exercisable in twenty percent increments over a five-year period. No options were outstanding as of December 31, 2020. The restricted stock granted under these plans provide common stock to recipients at the grant date. The restrictions vest in twenty percent increments over a five-year period. The Company recognizes forfeitures as they occur.

The Company has a Director Compensation Program which allows directors the option of receiving payment for director fees in Company stock. Board compensation expense is recorded when board service is rendered.

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Income Tax

The provision for income tax is based on taxes payable or receivable for the current year and deferred taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company has adopted the provisions of accounting guidance related to accounting for uncertainty in income taxes. This interpretation clarifies that the benefit of a position taken or expected to be taken in a tax return should be recognized in a company’s financial statements when it is more likely than not that the position will be sustained based on technical merits. The Company recognizes interest and penalties on income taxes as a component of income tax expense. The effect on deferred tax assets of a change in tax rate is recognized in income as part of income tax expense for the period that includes the enactment date. Deferred tax assets and liabilities have been measured as of December 31, 2020 and 2019, using the 21.0% corporate tax rate. For more information, see "Note 8. Income Tax Expense."

Earnings per Common Share

Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock splits. Diluted EPS includes accrued but unissued shares relating to the Director Compensation Program, stock options, and restricted stock determined using the treasury stock method. A reconciliation of the weighted-average shares used in calculating basic EPS and diluted EPS for the reported periods is provided in "Note 16. Earnings Per Common Share."

Treasury Stock

On January 1, 2015, the Louisiana Business Corporation Act ("the LBCA") became effective. Under provisions of the LBCA, there is no concept of “Treasury Shares.” Rather, shares purchased by the Company constitute authorized but unissued shares. Accordingly, the Company’s consolidated balance sheets reflect the cost of shares purchased by the Company within common stock.

Comprehensive Income

Comprehensive income is the change in stockholders’ equity during the period from transactions and other events and circumstances from non-owner sources. Other comprehensive income includes net gains (losses), net of taxes, on AFS securities.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and due from banks and interest-bearing deposits in other banks.

Advertising Costs

Advertising costs are expensed as incurred.

Revenue Recognition

The Company has identified certain recurring revenue streams related to noninterest income which are within the scope of Topic 606, Revenue from Contracts with Customers. In-scope revenue streams are summarized based on the timing of revenue recognition as follows:

•Revenue earned at a point in time - Fee income (including wire transfer, check ordering, and other transactional fees), NSF/OD Charges, ATM/Card Fee Income (including ATM transaction fees and credit and debit card interchange income), and brokerage transaction income. Revenue is recorded as transactions occur or services are provided to customers. Revenue recognized under these contracts totaled approximately $12.3 million and $12.5 million for the years ended December 31, 2020 and 2019, respectively. The Company is the principal in each of these contracts with the exception of credit and debit card interchange fees, online transaction interchange fees, sweep income, and brokerage services income, in which case the Company is acting as the agent and records revenue net of expenses paid.

•Revenue earned over time (generally under a monthly contract) - Debit card agreement, safe deposit box fees, and brokerage agreement income. Revenue is recorded in the period transactions occur or services are rendered to the customer. The Company is the principal in each of these contracts. Revenue recognized under these contracts totaled approximately $542,000 and $319,000 for the period ended December 31, 2020 and 2019, respectively.

RRBI US Equity

RRBI · 10-K · period ended 2020-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

RRBI US Equity☆

RRBI · 10-K · period ended 2020-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

RRBI US Equity