RRBI · Read the filing

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, 2021 and selected prior periods. This discussion and analysis should be read in conjunction with information presented elsewhere in this Report, including 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 the risk factors and other cautionary statements described in “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” in this Report. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

CORPORATE SUMMARY

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

Our priority is to drive shareholder value through the establishment of a market-leading commercial banking franchise based in Louisiana. We provide services through relationship-oriented bankers who are committed to their customers and the communities where we offer our products and services. Our strategy is to expand market share in existing markets and engage in opportunistic new market de novo expansion, supplemented by strategic acquisitions of financial institutions with customer-oriented, compatible philosophies and in desirable geographic areas.

COVID-19 UPDATE

Due to the COVID-19 pandemic and executive orders by the governor of Louisiana, the residents, businesses, and non-profit organizations of Louisiana have been subject to the following limitations during 2021:

•Louisiana began 2021 in modified Phase Two restrictions. During this phase, which lasted until March 2, 2021, most non-essential businesses, including restaurants, were limited to 50% occupancy, although places of worship were allowed to continue to operate at 75% occupancy. Other businesses remained closed.

•Effective March 3, 2021, Louisiana moved to modified Phase Three restriction status. Most non-essential businesses, including restaurants, were permitted to operate at 75% occupancy. Other businesses were permitted to operate at 50% occupancy, with certain other restrictions.

•Effective March 31, 2021, certain Phase Three restrictions were lifted. Most non-essential businesses, including restaurants, were allowed to operate at 100% capacity. The statewide mask mandate remained in place.

•Effective April 28, 2021, the statewide mask mandate was lifted.

•On May 26, 2021, remaining limits on occupancy restrictions for businesses were lifted.

•In the first quarter of 2021, COVID-19 vaccinations became widely available. As of December 31, 2021, approximately 50.3% of Louisiana’s population was fully vaccinated.

•During the third quarter of 2021, Louisiana experienced a significant increase in COVID-19 pandemic cases and hospitalizations, resulting in the reinstatement of some pandemic-related restrictions such as mask mandates and vaccination requirements for certain activities. Capacity restrictions were not reinstated. Effective August 4, 2021, a temporary statewide indoor mask mandate was instated and later extended until October 27, 2021, when it was lifted in all settings except for K-12 schools. Schools are permitted to opt out of the mask mandate as long as they comply with existing quarantine guidelines recommended by the U.S. Department of Health and Human Services, Centers for Disease Control and Prevention.

•The fourth quarter of 2021 began with a declining trend of COVID-19 cases and hospitalizations in the Louisiana markets served by Red River Bank. However, as a result of the emergence of the Omicron variant in December 2021, the number of cases and hospitalizations increased toward the end of the quarter.

•Economic activity in Louisiana improved during 2021, although the economy is still impacted by supply chain disruptions and labor shortages.

Table of Contents

As an essential business and to support our customers, Red River Bank has provided full banking services throughout the pandemic.

OVERVIEW

2021 was a year of continued organic expansion, operational improvements, and solid financial results. During 2021, we participated in the SBA PPP program, coordinated the forgiveness of most PPP loans, opened a new banking center, entered the New Orleans market, improved our digital banking systems, had executive management changes, repurchased stock, and had strong balance sheet growth and earnings.

2021 Financial and Operational Highlights

•Net income for the year ended December 31, 2021, was $33.0 million, or $4.51 diluted EPS, an increase of $4.8 million, or 17.1%, compared to $28.1 million, or $3.83 diluted EPS, for the year ended December 31, 2020.

•The return on average assets was 1.13% for 2021 and 1.22% for 2020.

•The return on average equity was 11.21% for 2021 and 10.39% for 2020.

•Assets increased $582.1 million, or 22.0%, to $3.22 billion as of December 31, 2021, compared to $2.64 billion as of December 31, 2020. This increase was driven by a $570.0 million, or 24.4%, increase in deposits for the same period. The deposit growth in 2021 was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining higher deposit balances.

•Non-PPP loans HFI (non-GAAP) increased $196.3 million, or 13.4%, to $1.67 billion as of December 31, 2021, compared to $1.47 billion as of December 31, 2020. The increase in loans was mainly due to increased loan activity across all of our markets with our newer markets experiencing the most growth. For additional information on non-GAAP financial measures, see “ -Non-GAAP Financial Measures” in this Report.

•Red River Bank is participating in the SBA PPP. During 2021, forgiveness payments on PPP loans exceeded the origination of PPP2 loans which resulted in a $100.9 million, or 85.2%, decrease in PPP loans. As of December 31, 2021, PPP loans were $17.6 million, net of $626,000 of deferred income, or 1.0% of loans HFI. PPP loan income for 2021 was $5.8 million, compared to $5.6 million for 2020.

• The Company had a high level of liquidity in 2021. Average short-term liquid assets totaled $619.4 million, or 22.2% of average earning assets for 2021.

•The net interest margin FTE for 2021 was 2.60%, compared to 3.14% for the prior year. The net interest margin FTE for 2021 was negatively impacted by the higher level of low-yielding short-term liquid assets, combined with the impact of a full year of low interest rates. The high level of low-yielding short-term liquid assets, on a standalone basis, had a 70 bp dilutive impact to the net interest margin FTE in 2021.

•Mortgage loan production and income in 2021 were at record high levels for the Company. Mortgage loan income was $8.7 million for 2021, compared to $8.4 million for 2020.

•NPAs decreased $3.2 million in 2021 and were $979,000, or 0.03% of assets as of December 31, 2021. As of December 31, 2021, the allowance for loan losses was $19.2 million, or 1.14% of loans HFI and 1.15% of non-PPP loans HFI (non-GAAP). Due to improved economic activity in Louisiana and the Bank’s favorable asset quality metrics, the provision for loan losses for 2021 was $1.9 million, compared to $6.3 million for 2020. For additional information on non-GAAP financial measures, see “ -Non-GAAP Financial Measures” in this Report.

•We expanded organically throughout Louisiana with the following events:

◦In our Southwest market, renovations were completed on a new banking center location that we purchased in 2020. This property was remodeled and opened as a full-service banking center in Lake Charles, Louisiana in the third quarter of 2021. Red River Bank has three banking center locations in the Southwest market.

◦We began operations in our newest market, New Orleans, Louisiana. In the third quarter of 2021, we hired a New Orleans market president. In the fourth quarter, we hired seven additional bankers and opened a combined LDPO in downtown New Orleans.

◦In the fourth quarter of 2021, we hired an experienced commercial lender in the Northshore market.

◦In our Acadiana market, renovations were completed on a new banking center location that we purchased in 2020. This location opened as the first Red River Bank full-service banking center in Lafayette, Louisiana on January 26, 2022. Red River Bank also has an LDPO in the Acadiana market.

Table of Contents

•In 2021, we paid a quarterly cash dividend of $0.07 per share, resulting in cash dividends of $0.28 per share for 2021, compared to $0.24 per share for 2020.

•In accordance with the Company’s stock repurchase programs, during 2021, the Company repurchased 153,553 shares of its common stock at an aggregate cost of $7.9 million.

•Various management changes occurred in 2021. Bridges Hall was appointed Chief Credit Policy Officer of the Bank, and Tammi Salazar was appointed Chief Operating Officer of the Bank.

•During 2021, the Company invested in the JAM FINTOP Banktech, L.P. fund to strategically develop technology partnerships as we expand the Bank’s digital offerings. Also, we selected and implemented various new, digital banking systems that are expected to improve efficiency, minimize costs, and provide our customers with up-to-date digital banking services and products.

•In August 2021, Hurricane Ida made landfall in southeast Louisiana between New Orleans and Baton Rouge. Red River Bank did not sustain any damage to its locations, and our employees and customers had no significant issues.

The following tables set forth selected historical consolidated financial information for each of the periods indicated. The historical financial information as of and for the years ended December 31, 2021 and 2020, except for the selected ratios, is derived from our audited consolidated financial statements included elsewhere in this Report. The historical financial information as of and for the year ended December 31, 2019, except for the selected ratios, is derived from our audited consolidated financial statements that are not included in this Report. Our historical results may not be indicative of our future performance.

As of December 31,

Selected Period End Balance Sheet Data:

Table of Contents

As of and for the Years Ended December 31,

Per Common Share Data:

Earnings per share, basic $ 4.53 $ 3.84 $ 3.51

Earnings per share, diluted $ 4.51 $ 3.83 $ 3.49

Summary Performance Ratios:

Noninterest-bearing deposits to deposits ratio 39.50 % 40.32 % 33.98 %

Noninterest income to average assets 0.84 % 1.00 % 0.84 %

Operating expense to average assets 1.87 % 2.22 % 2.49 %

Summary Credit Quality Ratios:

Nonperforming loans to loans HFI 0.02 % 0.21 % 0.37 %

Allowance for loan losses to loans HFI 1.14 % 1.13 % 0.97 %

Net charge-offs to average loans 0.04 % 0.14 % 0.03 %

Capital Ratios:

Total stockholders’ equity to total assets 9.25 % 10.80 % 12.67 %

Tangible common equity to tangible assets(1,5) 9.20 % 10.75 % 12.60 %

Total risk-based capital to risk-weighted assets 17.83 % 18.68 % 18.02 %

Tier I risk-based capital to risk-weighted assets 16.76 % 17.55 % 17.07 %

Common equity Tier I capital to risk-weighted assets 16.76 % 17.55 % 17.07 %

Tier I risk-based capital to average assets 9.67 % 10.92 % 12.82 %

(1)Non-GAAP financial measure. For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

(2)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.

(3)Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.

(4)Efficiency ratio represents operating expenses divided by the sum of net interest income and noninterest income.

(5)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.

Table of Contents

RESULTS OF OPERATIONS

Net income for the year ended December 31, 2021, was $33.0 million, or $4.51 diluted EPS, an increase of $4.8 million, or 17.1%, compared to $28.1 million, or $3.83 diluted EPS, for the year ended December 31, 2020. The increase in net income was primarily due to a $4.4 million decrease in provision expense, a $2.7 million increase in net interest income, and a $1.3 million increase in noninterest income, partially offset by a $2.8 million increase in operating expenses. The return on average assets for the year ended December 31, 2021, was 1.13%, compared to 1.22% for the prior year. The return on average equity was 11.21% for the year ended December 31, 2021, compared to 10.39% for the prior year. Our efficiency ratio for the year ended December 31, 2021, was 56.39%, compared to 55.77% for the year ended December 31, 2020.

Net Interest Income and Net Interest Margin

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

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. Since March 2020, we have been in a low interest rate environment that has impacted both the net interest income and net interest margin FTE. In March 2020, the target federal funds rate decreased 150 bps to 0.25% and has remained at this rate through December 31, 2021. The average effective federal funds rate was 0.08% for 2021 and 0.38% for 2020.

Net interest income for the year ended December 31, 2021, totaled $71.7 million, a $2.7 million, or 3.9%, increase from the year ended December 31, 2020. Net interest income increased due to a $2.8 million decrease in interest expense, partially offset by a $39,000 decrease in interest and dividend income.

Interest expense decreased as deposits continued to price downward as we adjusted rates on interest-bearing deposits since the start of the COVID-19 pandemic. This decrease was partially offset by higher interest-bearing deposit balances. For the year ended December 31, 2021, average interest-bearing deposits increased $341.4 million, or 28.2%, compared to the year ended December 31, 2020.

Interest and dividend income decreased primarily due to a $1.5 million decrease in non-PPP loan income, partially offset by a $1.2 million increase in tax-exempt securities income and a $211,000 increase in PPP loan income. The decrease in non-PPP loan income was driven mainly by the lower rate environment. Tax-exempt securities income increased due to a $73.8 million, or 57.5%, growth in average tax-exempt securities compared to 2020, partially offset by the impact of lower yields compared to the prior year. PPP loan income increased primarily due to the forgiveness of PPP loans by the SBA and the resulting acceleration of loan origination fees.

Net interest margin FTE decreased 54 bps to 2.60% for the year ended December 31, 2021, compared to 3.14% for the year ended December 31, 2020, mainly due to a higher level of low-yielding short-term liquid assets maintained during 2021 and the Federal Reserve lowering interest rates 150 bps in March 2020. Because deposit growth exceeded loan growth during 2021, excess liquidity was deployed into short-term liquid assets and securities. For the year ended December 31, 2021, average short-term liquid assets totaled $619.4 million, which was 215.4% higher than the prior year and were 22.2% of average earning assets. For the year ended December 31, 2021, on a stand-alone basis, this level of liquidity had a 70 bp dilutive impact to the net interest margin FTE. The yield on interest-bearing balances due from banks and the yield on federal funds sold decreased 13 bps and 17 bps, respectively, due to the Federal Reserve lowering interest rates in March 2020. For the year ended December 31, 2021, the yield on taxable securities decreased 30 bps to 1.30%, compared to 1.60% for the year ended December 31, 2020. The yield on tax-exempt securities decreased 28 bps to 2.06%, compared to 2.34% for the prior year. The decrease in yield, for both taxable and tax-exempt securities, was due to the securities purchased during 2021 having lower yields than the portfolio yield as of December 31, 2020, as a result of the low rate environment. The yield on loans decreased 16 bps to 4.14% for the year ended December 31, 2021, compared to the prior year, due to the impact of the lower interest rate environment on new, renewed, and floating rate non-PPP loans, partially offset by a higher yield on PPP loans. As of December 31, 2021, floating rate loans were 15.0% of loans HFI. The resulting yield on interest-earning assets was 2.74% for the year ended December 31, 2021, a decrease of 73 bps, compared to 3.47%, for the year ended December 31, 2020. The cost of deposits was 0.22% for the year ended December 31, 2021, a decrease of 19 bps, compared to 0.41% for the year ended December 31, 2020. The cost of deposits was lower for 2021 due to a 33 bp decrease in the rate on interest-bearing deposits when compared to 2020 as a

Table of Contents

result of our adjustments to deposit rates, combined with average noninterest-bearing deposits increasing $233.7 million, or 28.9%.

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:

Accrued interest and other liabilities 17,507 18,192

Net interest spread 2.38 % 2.78 %

Net interest margin 2.54 % 3.09 %

Net interest margin FTE(3) 2.60 % 3.14 %

(1)Includes average outstanding balances of loans HFS of $8.6 million and $14.2 million for the years ended December 31, 2021 and 2020, respectively.

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

(3)Net interest margin FTE includes an FTE adjustment using a 21.0% federal income tax rate on tax-exempt securities and tax-exempt loans.

In 2020 and 2021, Red River Bank participated in the SBA PPP and originated 1,888 PPP loans totaling $260.8 million. Under the terms of the PPP, we receive loan origination fees from the SBA ranging from 1.0% to 5.0% of the initial principal amount of the loans, and PPP loans have a 1.0% interest rate. PPP origination fees totaled $9.8 million, or 3.76%, of originated PPP loans and are recorded to interest income over the 24- or 60-month loan term or until the loans are forgiven by the SBA or repaid by the borrower. As PPP loan forgiveness or borrower payments are received, the remaining portion of origination fees are recorded to income. For 2021, PPP loan income totaled $5.8 million, resulting in a 7.46% yield, compared to PPP loan income of $5.6 million, resulting in a 4.35% yield for 2020.

Excluding PPP loan income, net interest income (non-GAAP) for the year ended December 31, 2021, was $65.9 million, which was $2.5 million, or 4.0%, higher than the prior year. Also, with PPP loans excluded for the year ended December 31, 2021, the yield on non-PPP loans (non-GAAP) was 3.97%, and the net interest margin FTE (non-GAAP) was 2.46%. For the year ended December 31, 2021, PPP loans had a 17 bp accretive impact to the yield on loans and a

Table of Contents

14 bp accretive impact to the net interest margin FTE. For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

The following table presents interest income for total loans, PPP loans, total non-PPP loans (non-GAAP), as well as net interest income and net interest ratios excluding PPP loans (non-GAAP) for the years ended December 31, 2021 and 2020.

For the Years Ended December 31,

Less: PPP loans, net

Net interest income, excluding PPP loan income (non-GAAP)

Net interest income, excluding PPP loan income (non-GAAP)(3) $ 65,949 $ 63,438

Ratios excluding PPP loans, net (non-GAAP)(3)

Net interest spread 2.25 % 2.72 %

Net interest margin 2.40 % 3.01 %

Net interest margin FTE(4) 2.46 % 3.07 %

(1)Includes average outstanding balances of loans HFS of $8.6 million and $14.2 million for the years ended December 31, 2021 and 2020, respectively.

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

(3)Non-GAAP financial measure. See also “ - Non-GAAP Financial Measures” in this Report.

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

The Federal Reserve is expected to raise the target federal funds rate several times in 2022. Our balance sheet is asset sensitive, and historically, our deposit interest rates have adjusted more slowly than the change in the federal funds rate. Dependent upon balance sheet activity and excluding PPP loans, we expect an increasing rate environment to have a positive effect on our net interest income and net interest margin FTE in 2022.

Table of Contents

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.

Increase (Decrease)Due to Change in TotalIncrease

(in thousands) Volume Rate (Decrease)

Interest-earning assets:

Interest-bearing balances due from banks 967 (631) 336

Nonmarketable equity securities 4 (14) (10)

Total interest-earning assets $ 5,110 $ (5,149) $ (39)

Interest-bearing liabilities:

Interest-bearing transaction deposits $ 1,110 $ (2,286) $ (1,176)

Other borrowings (16) — (16)

Total interest-bearing liabilities $ 1,238 $ (3,999) $ (2,761)

Increase (decrease) in net interest income $ 3,872 $ (1,150) $ 2,722

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, 2021, was $1.9 million, a decrease of $4.4 million from $6.3 million for the year ended December 31, 2020. The provision for loan losses was lower in 2021 since the economic activity in Louisiana and our asset quality metrics improved during the year. The provision for loan losses was higher in 2020 due to economic pressures relating to the COVID-19 pandemic.

Noninterest Income

Our primary sources of noninterest income are fees related to the sale of mortgage loans, service charges on deposit accounts, debit card fees, brokerage income from advisory services, and other loan and deposit fees.

Noninterest income increased $1.3 million to $24.5 million for the year ended December 31, 2021, compared to $23.2 million for the prior year. The increase in noninterest income was mainly due to higher brokerage income, net debit card income, service charges on deposit accounts, mortgage loan income, and gains on sales of properties. These increases were partially offset by a lower gain on sale and call of securities, a loss on equity securities, and reduced income from an SBIC limited partnership of which Red River Bank is a member.

Table of Contents

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

For the Years Ended December 31,

(dollars in thousands) 2021 2020 Increase/(Decrease)

Noninterest income:

Brokerage income increased $973,000 to $3.3 million for 2021, when compared to 2020. This increase was primarily due to the growth in assets under management combined with beneficial changes resulting from the investment broker-dealer partner conversion in the second quarter of 2020. Assets under management were $787.1 million and $647.8 million as of December 31, 2021 and 2020, respectively.

Debit card income, net, increased $774,000 to $4.4 million for 2021, when compared to 2020 due to an increase in the number of debit card transactions.

Service charges on deposit accounts increased $667,000 to $4.8 million for 2021, when compared to 2020. This increase was due to higher customer transaction activity in 2021 as the economy reopened and customer spending habits returned to pre-COVID-19 levels. 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.

Mortgage loan income increased $278,000 to $8.7 million for 2021, compared to $8.4 million for 2020. In 2021, mortgage loan activity and income benefited from a continued low mortgage interest rate environment and adjusted mortgage loan fees.

Other income was $271,000 for 2021, when compared to $126,000 for 2020. In 2021, OREO properties and a bank property were sold, resulting in a nonrecurring $219,000 net gain on sale.

The gain on the sale and call of securities was $194,000 for 2021 as a result of portfolio restructuring transactions to improve the structure and yield of the portfolio. In 2020, the gain on the sale and call of securities was $1.4 million, a result of proactive portfolio restructuring transactions in response to the changed and lower interest rate environment.

The gain or loss on equity securities is a mark-to-market adjustment primarily driven by changes in the interest rate environment. Due to fluctuations in market rates between periods, equity securities had a mark-to-market loss of $175,000 in 2021, compared to an $85,000 gain in 2020. An additional $4.0 million investment into equity securities in the third quarter of 2021 also affected the amount of mark-to-market adjustment in 2021.

SBIC income decreased $121,000 to $654,000 for 2021, compared to $775,000 for 2020. This decrease was a result of lower operating income being distributed by the SBIC in 2021, partially offset by a dividend received in the second quarter of 2021.

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.

Operating expenses increased $2.8 million to $54.3 million for the year ended December 31, 2021, compared to $51.4 million for the year ended December 31, 2020. The increase in operating expenses was mainly due to higher personnel expenses, other operating expenses, regulatory assessment expense, other taxes, occupancy and equipment expenses, and technology expenses. These increases were partially offset by lower legal and professional expenses.

Table of Contents

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

For the Years Ended December 31,

(dollars in thousands) 2021 2020 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 $32.4 million for 2021, an increase of $1.3 million compared to 2020. As of December 31, 2021 and 2020, we had 358 and 335 employees, respectively. The increase in personnel expenses was primarily related to additional staff resulting from our expansion in the New Orleans, Southwest, and Acadiana markets.

Other operating expenses increased $491,000 to $3.8 million for 2021 compared to the prior year. This increase was primarily the result of a $311,000 nonrecurring expense reduction related to the dissolution of an acquired subsidiary in the first quarter of 2020.

Regulatory assessment expense increased $395,000 to $933,000 for 2021 compared to 2020. The Bank was notified by the FDIC that it did not have an FDIC insurance assessment for the first quarter of 2020; however, it would have an assessment starting in the second quarter of 2020. Since the second quarter of 2020, the FDIC insurance assessment has increased as a result of increasing deposit account balances. Therefore, the FDIC insurance assessment expense increased $361,000 for 2021 compared to the prior year.

Other taxes increased $349,000 to $2.1 million for 2021 compared to 2020. This increase was due to an increase in State of Louisiana bank stock tax resulting from higher deposit account balances and higher net income for the applicable tax years.

Occupancy and equipment expenses increased $337,000 to $5.4 million for 2021 compared to 2020. This increase was primarily a result of our expansion in our newer markets throughout 2020 and the second half of 2021, partially offset by a reduction in COVID-19 pandemic occupancy-related expenses in 2021.

Technology expenses increased $268,000 to $2.8 million for 2021 compared to the prior year. This increase was attributed to new computer hardware and communication systems to support the expansion in our newer markets and for business continuity planning purposes. The increase was also due to the implementation of a new loan processing system and additional technology support services.

Legal and professional expenses decreased $458,000 to $1.7 million for 2021 compared to 2020. This decrease was due to lower attorney fees as a result of the completion of various legal matters in late 2020.

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 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.

Table of Contents

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 years ended December 31, 2021 and 2020.

For the years ended December 31, 2021 and 2020, income tax expense totaled $7.1 million and $6.3 million, respectively. The increase in income tax expense was primarily due to the increase in pre-tax income. The effective income tax rate for 2021 was 17.7%, compared to 18.3% for 2020.

FINANCIAL CONDITION

General

As of December 31, 2021, total assets were $3.22 billion, which was $582.1 million, or 22.0%, higher than total assets of $2.64 billion as of December 31, 2020. Within total assets, compared to December 31, 2020, interest-bearing deposits in other banks increased by $344.1 million, securities AFS increased by $161.0 million, and loans HFI increased by $95.4 million. For liabilities, compared to December 31, 2020, interest-bearing deposits increased by $363.9 million, and noninterest-bearing deposits increased by $206.1 million. As of December 31, 2021, the loans HFI to deposits ratio was 57.86%, compared to 67.87% as of December 31, 2020, and the noninterest-bearing deposits to total deposits ratio was 39.50%, compared to 40.32% as of December 31, 2020. Stockholders’ equity increased $12.7 million during 2021 to $298.2 million as of December 31, 2021.

Interest-Bearing Deposits in Other Banks

Interest-bearing deposits in other banks are the second largest component of earning assets. As of December 31, 2021, interest-bearing deposits in other banks were 23.6% of total assets. Historically, interest-bearing deposits in other banks were a much smaller portion of our total assets. Excess liquidity that is not being deployed into loans or securities is placed in these accounts. Interest-bearing deposits in other banks increased $344.1 million, or 82.4%, in 2021 to $761.7 million as of December 31, 2021. This increase was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining higher deposit balances.

Securities

Our securities portfolio is the third largest component of earning assets and provides a significant source of revenue. As of December 31, 2021, our securities portfolio was 20.7% 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

Securities AFS were $659.2 million as of December 31, 2021, an increase of $161.0 million, or 32.3%, from $498.2 million as of December 31, 2020. Investment activity for the year ended December 31, 2021, included $389.5 million of securities purchased, partially offset by $113.5 million in sales and $99.2 million in maturities, principal repayments, and calls. The unrealized gain/loss of the securities AFS portfolio decreased $13.5 million for the year ended December 31, 2021.

In 2021, we sold $113.5 million of securities AFS as part of restructuring transactions. A large portion of the securities sold were mortgage-backed securities that had accelerated prepayment speeds and were owned at higher book prices. Due to these accelerated prepayment speeds, the yields had declined. We reinvested the proceeds into securities with improved structure, which rebalanced the cash flows for the portfolio, reduced amortization expense for the mortgage-backed sector, reduced extension risk, and improved the portfolio yield.

In 2021, due to the low interest rate environment, we also reallocated $222.9 million from overnight funds yielding 0.12% to securities AFS yielding 1.15%. Although this reallocation negatively impacted the overall securities portfolio yield, we expect it to improve future interest income by moving these funds from overnight funds to a higher yielding investment.

The securities AFS portfolio tax-equivalent yield was 1.79% for the year ended December 31, 2021, compared to 2.02% for the year ended December 31, 2020. The decrease in yield for 2021, compared to 2020, was due to purchasing a significant amount of securities during 2021 with lower yields than the portfolio yield as of December 31, 2020, as a result of the low rate environment.

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

Table of Contents

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, 2021, the average life of our securities portfolio was 4.9 years with an estimated modified duration of 4.5 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 AOCI in stockholders’ equity. As of December 31, 2021, the unrealized loss of the securities AFS portfolio was $4.8 million, a decrease of $13.5 million, compared to an unrealized gain of $8.8 million as of December 31, 2020. This change is attributed to an increase in market rates, which resulted in lower prices on securities and, therefore, an overall lower market value of the portfolio.

The following tables summarize the amortized cost and estimated fair value of our securities AFS by type as of the dates indicated. As of December 31, 2021, 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:

U.S. Treasury securities — — — —

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 the last underlying mortgage matures. Yields are weighted-average tax equivalent yields that are calculated by dividing projected annual income by the average amortized cost of the applicable securities while using a 21.0% federal income tax rate, when applicable.

Contractual Maturity as of December 31, 2021

Securities AFS:

(1)Tax equivalent projected book yield as of December 31, 2021.

Table of Contents

Equity Securities

Equity securities are an investment in a CRA mutual fund. We invest in the mutual fund as part of our strategy to meet our obligations described within the CRA, 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 are carried at fair value on the consolidated balance sheets with periodic changes in value recorded through the consolidated statements of income. The fair value of our equity securities was $7.8 million as of December 31, 2021, with a recognized loss of $175,000 for the year ended December 31, 2021, compared to a fair value of $4.0 million as of December 31, 2020, with a recognized gain of $85,000 for the year ended December 31, 2020. In the third quarter of 2021, we invested an additional $4.0 million into the CRA mutual fund. This additional investment was allocated to the assessment areas in our markets, including our newer markets, and other areas of Louisiana to further strengthen our efforts to meet our CRA obligations. There were no sales of equity securities for the year ended December 31, 2021.

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, 2021, loans HFI were $1.68 billion, an increase of $95.4 million, or 6.0%, compared to $1.59 billion as of December 31, 2020.

Red River Bank began participating in the SBA PPP in the second quarter of 2020. Through December 31, 2021, we had received $198.6 million in SBA forgiveness and borrower payments on 99.9% of the PPP1 loans originated. In 2021, we originated 488 PPP2 loans totaling $58.3 million with an average size of $119,000. PPP2 loan origination fees totaled $2.7 million, or 4.65% of PPP2 loans. Through December 31, 2021, we had received $40.6 million in SBA forgiveness and borrower payments on 78.7% of the PPP2 loans originated. As of December 31, 2021, PPP loans totaled $17.6 million, net of $626,000 of deferred income, or 1.0% of loans HFI. As of December 31, 2020, PPP loans totaled $118.4 million, net of $2.8 million of deferred income, or 7.5% of loans HFI.

As of December 31, 2021, non-PPP loans HFI (non-GAAP) were $1.67 billion, an increase of $196.3 million, or 13.4%, from December 31, 2020. The increase in non-PPP loans HFI (non-GAAP) was due to increased loan activity across all of our markets with our newer markets experiencing the most growth. For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Loans by Category

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

December 31,

(dollars in thousands) Amount Percent Amount Percent

Real estate:

(1)Non-GAAP financial measure. For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

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

Table of Contents

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 $113.5 million, or 20.4%, to $670.3 million as of December 31, 2021, from $556.8 million as of December 31, 2020.

Non-owner occupied commercial real estate loans were $339.1 million, or 20.1% of loans HFI, and represented 110.9% of the Bank’s total risk-based capital as of December 31, 2021. The owner occupied and non-owner occupied components of the commercial real estate portfolio are summarized below.

December 31,

(dollars in thousands) Amount Percent of Loans HFI Amount Percent of Loans HFI

Commercial real estate

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 $31.5 million, or 7.1%, to $474.4 million as of December 31, 2021, compared to $442.9 million as of December 31, 2020.

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 $21.0 million, or 16.5%, to $106.3 million as of December 31, 2021, compared to $127.3 million as of December 31, 2020.

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 increased $60.9 million, or 24.3%, to $311.4 million as of December 31, 2021, from $250.4 million as of December 31, 2020.

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- or 60-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 $12.1 million, or 17.6%, to $80.7 million as of December 31, 2021, compared to $68.7 million as of December 31, 2020.

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.

Table of Contents

Industry Concentrations

The North American Industry Classification System (“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 8.3 %

Construction 4.6 %

Investor one-to-four family and multifamily 4.2 %

Hospitality services 4.1 %

Retail trade 4.0 %

Public administration 3.4 %

Religious and other nonprofit 1.9 %

Manufacturing 1.6 %

Finance and insurance 1.6 %

Energy 1.2 %

All other 65.1 %

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

Health care loans are our largest loan industry concentration and are made up of a diversified portfolio of health care providers. As of December 31, 2021, health care loans were $138.1 million, or 8.3% of non-PPP loans HFI (non-GAAP), compared to $149.4 million, or 10.2% of non-PPP loans HFI (non-GAAP) as of December 31, 2020. The average health care loan size was $295,000 as of December 31, 2021, and $305,000 as of December 31, 2020. Within the health care sector, loans to physician and dental practices were 4.6% of non-PPP loans HFI (non-GAAP) as of December 31, 2021, and 5.7% as of December 31, 2020. Nursing and residential care loans were 3.6% of non-PPP loans HFI (non-GAAP) as of December 31, 2021, and 4.4% as of December 31, 2020. For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Geographic Markets

As of December 31, 2021, Red River Bank currently operates in seven geographic markets throughout the state of Louisiana. We entered the Acadiana market in the fourth quarter of 2020 and the New Orleans market in the fourth quarter of 2021. The following table summarizes non-PPP loans HFI (non-GAAP) by market of origin:

(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 Report.

Table of Contents

Loan Portfolio Maturity Analysis

The maturity distribution for non-PPP loans HFI (non-GAAP) are summarized below:

Real estate:

For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Fixed and Floating Rate Loans

The dollar amount, as of December 31, 2021, of fixed and floating rate non-PPP loans HFI (non-GAAP) that mature after December 31, 2022, are presented in the following table:

(dollars in thousands) Fixed Rate Loans Floating Rate Loans Total

Real estate:

For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

LIBOR

In July 2017, the United Kingdom Financial Conduct Authority, the authority that regulates LIBOR, announced its intent to stop compelling banks to submit rates for the calculation of LIBOR after 2021. Subsequently, on March 5, 2021, it was announced that certain U.S. Dollar LIBOR rates would cease to be published after June 30, 2023. As of December 31, 2021, 3.6% of our non-PPP loans HFI (non-GAAP) were LIBOR-based with a setting that expires June 30, 2023. Alternative rate language is present in each credit agreement with a LIBOR-based rate. We do not anticipate any issue with transitioning each loan to a non-LIBOR-based rate. For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Nonperforming Assets

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

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

Table of Contents

NPAs totaled $979,000 as of December 31, 2021, down $3.2 million, or 76.7%, from $4.2 million as of December 31, 2020. Our ratio of NPAs to total assets was 0.03% as of December 31, 2021, compared to 0.16% as of December 31, 2020. These improvements were primarily due to the payoff and charge-off of nonaccrual loans and the sale of OREO during 2021.

Nonperforming loan and asset information is summarized below:

December 31,

Nonperforming loans:

Accruing loans 90 or more days past due 39 3

Foreclosed assets:

Total foreclosed assets 660 896

Troubled debt restructurings:(1,2)

Nonaccrual loans $ — $ 1,217

Nonaccrual loans to loans HFI 0.02 % 0.21 %

Nonperforming loans to loans HFI(1) 0.02 % 0.21 %

Nonperforming loans to non-PPP loans HFI (non-GAAP)(1,3) 0.02% 0.23%

NPAs to total assets 0.03 % 0.16 %

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

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

(3)Non-GAAP financial measure. For calculations and reconciliations to GAAP of non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

Nonaccrual loans are summarized below by category:

December 31,

Real estate:

Commercial real estate $ 51 $ 1,846

One-to-four family residential 216 574

Construction and development — —

Commercial and industrial 13 882

SBA PPP — —

Tax-exempt — —

Consumer — 5

Total nonaccrual loans $ 280 $ 3,307

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).

Table of Contents

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

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

Loans classified as substandard have well defined weaknesses that jeopardize normal repayment of principal and interest. Prompt corrective action is required to reduce exposure and to assure adequate remedial actions are taken by the borrower. If these weaknesses do not improve, loss is possible.

Loans classified as doubtful have well defined weaknesses that make full collection improbable.

Loans classified as loss are considered uncollectible and charged-off to the allowance for loan losses.

Loans HFI are summarized below by risk category:

(dollars in thousands) Pass SpecialMention Substandard Doubtful Loss Total

Real estate:

Allowance for Loan Losses

The allowance for loan losses is established for known and inherent losses in the loan portfolio based upon management’s best assessment of the loan portfolio at each balance sheet date. It is maintained at a level estimated to be adequate to absorb potential losses through periodic changes to loan losses.

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

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

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

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

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

As an SEC registrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for us on January 1, 2023. When effective, the CECL allowance model, prescribed by ASU No. 2016-13, will require measurement of expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts. This model will replace the existing incurred loss model. Refer to “Item 8. Financial Statements and

Table of Contents

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.

As of December 31, 2021, the allowance for loan losses totaled $19.2 million, or 1.14%, of loans HFI, and 1.15% of non-PPP loans HFI (non-GAAP). As of December 31, 2020, the allowance for loan losses totaled $18.0 million, or 1.13%, of loans HFI. The $1.2 million increase in the allowance for loan losses for the year ended December 31, 2021, was due to $1.9 million from the provision for loan losses, partially offset by $675,000 of net charge-offs. For further information on non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

The provision for loan losses for the year ended December 31, 2021, was $1.9 million, a decrease of $4.4 million from $6.3 million for the year ended December 31, 2020. The provision for loan losses was lower in 2021 since the economic activity in Louisiana and our asset quality metrics improved during the year. The provision for loan losses was higher in 2020 due to economic pressures relating to the COVID-19 pandemic.

Net charge-offs for the year ended December 31, 2021, were $675,000, a decrease of $1.6 million from $2.3 million for the year ended December 31, 2020. The ratio of net charge-offs to average loans was 0.04% and 0.14% for the years ended December 31, 2021 and December 31, 2020, respectively. The 2021 results were primarily due to the charge-off of $515,000 of nonaccrual loans. The 2020 results were primarily due to the charge-off of $1.7 million in energy related loans.

Table of Contents

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

As of and for the Years Ended December 31,

Allowance for loan losses at beginning of period $ 17,951 $ 13,937

Charge-offs:

Real estate:

Commercial real estate (450) —

One-to-four family residential (10) —

Construction and development — (14)

Commercial and industrial (74) (2,184)

Recoveries:

Real estate:

Commercial real estate — —

One-to-four family residential 18 10

Construction and development 2 1

Commercial and industrial 27 89

Net (charge-offs)/recoveries (675) (2,279)

Allowance for loan losses at end of period $ 19,176 $ 17,951

Allowance for loan losses to loans HFI 1.14 % 1.13 %

Allowance for loan losses to non-PPP loans HFI (non-GAAP)(1) 1.15 % 1.22 %

Allowance for loan losses to nonaccrual loans 6,848.57 % 542.82%

(1)Non-GAAP financial measure. For calculations and reconciliations to GAAP and non-GAAP financial measures, see “ - Non-GAAP Financial Measures” in this Report.

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

Table of Contents

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 for loan losses is available to absorb losses from any loan classification.

December 31,

(dollars in thousands) Amount Percent Amount Percent

Real estate:

The following table displays the ratio of net charge-offs to average loans outstanding for loans HFI by category for the periods shown:

As of December 31,

Real estate:

Commercial real estate 0.03% —%

One-to-four family residential —% —%

Construction and development —% —%

Commercial and industrial —% 0.13%

SBA PPP —% —%

Tax-exempt —% —%

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 $570.0 million, or 24.4%, to $2.91 billion as of December 31, 2021, from $2.34 billion as of December 31, 2020. Noninterest-bearing deposits increased $206.1 million, or 21.8%, during 2021 to $1.15 billion as of December 31, 2021. Noninterest-bearing deposits as a percentage of total deposits were 39.50% as of December 31, 2021, compared to 40.32% as of December 31, 2020. Interest-bearing deposits increased $363.9 million, or 26.1%, during 2021 to $1.76 billion as of December 31, 2021, with the largest increase in money market accounts. The increase in deposits was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining higher deposit balances.

Table of Contents

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

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

Interest-bearing deposits:

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

(dollars in thousands) 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 $2.59 billion for the year ended December 31, 2021, an increase of $575.2 million, or 28.5%, from $2.02 billion for the year ended December 31, 2020. For 2021, average public entity deposits were 6.5% of average total deposits. The average cost of interest-bearing deposits and total deposits for 2021 was 0.36% and 0.22% compared to 0.69% and 0.41% for 2020. The decrease in the average cost of interest-bearing deposits and total deposits in 2021 as compared to 2020 was a result of lowering deposit rates in 2021 due to the low interest rate environment and our liquidity position. Also, as of December 31, 2021, 4.4% of interest-bearing transaction deposits had floating rates which adjust with market rates.

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

For the Years Ended December 31,

(dollars in thousands) AverageBalance AverageRate AverageBalance AverageRate

Interest-bearing deposits:

Our uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), were approximately $1.22 billion and $855.6 million at December 31, 2021 and 2020, respectively. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.

Table of Contents

The following table presents the amount of time deposits, by account, that are in excess of the FDIC insurance limit (currently $250,000) by time remaining until maturity for the period indicated:

(in thousands) December 31, 2021

Three months or less $ 5,606

Over three months through six months 9,813

Over six months through 12 months 13,947

Borrowings

Although deposits are our primary source of funds, we may, from time to time, utilize borrowings as a cost-effective source of funds when such borrowings can then be invested at a positive interest rate spread for additional capacity to fund loan demand or to meet our liquidity needs. We had no outstanding borrowings as of December 31, 2021 and 2020.

Federal Home Loan Bank Advances. We utilize the FHLB of Dallas as needed as a funding source. As of December 31, 2021 and 2020, our total FHLB of Dallas line availability was $748.6 million and $680.5 million, respectively. This line is secured by a blanket floating lien on selected Red River Bank loans that meet FHLB of Dallas collateral requirements. At various times, we may obtain letters of credit from the FHLB of Dallas as collateral for our public entity deposits. As of December 31, 2021 and 2020, we held unfunded letters of credit from the FHLB of Dallas in the amount of $143.8 million and $169.7 million, respectively. As of December 31, 2021 and 2020, we had net borrowing capacity of $604.8 million and $510.8 million, respectively, under this arrangement.

Other Borrowings. We may also utilize federal funds from various correspondent financial institutions as a source of short-term funding. As of December 31, 2021 and 2020, we had $95.0 million in federal funds lines available from these funding sources. We had no outstanding balances on these lines during 2021 and 2020.

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, 2021 and 2020, total borrowing capacity was $6.0 million under this arrangement. The Company had no outstanding balances on this line during 2021 and 2020.

Stockholders’ Equity

Total stockholders’ equity as of December 31, 2021, was $298.2 million, compared to $285.5 million as of December 31, 2020, an increase of $12.7 million, or 4.4%. This increase was attributable to $33.0 million of net income and $325,000 of stock compensation, partially offset by a $10.7 million, net of tax, market adjustment to AOCI related to securities AFS, $7.9 million for the repurchase of shares, and $2.0 million in cash dividends.

Taking into consideration our performance and capital levels, dividends were paid in both 2021 and 2020. During 2021, a quarterly cash dividend of $0.07 per share was paid, resulting in $0.28 per share in cash dividends for the year ended December 31, 2021. 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.

In the third quarter of 2021, the $3.0 million stock repurchase program that was approved in August 2020 was completed after reaching the purchase limit. Also in the third quarter of 2021, our Board of Directors approved the renewal of the stock repurchase program. The renewed repurchase program authorized us to purchase up to $5.0 million of our outstanding shares of common stock between September 1, 2021 and August 31, 2022, from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions. In the fourth quarter of 2021, we entered into a privately negotiated stock repurchase agreement and repurchased 96,245 shares of common stock for $4.9 million, resulting in the purchase of the full amount authorized by that repurchase program. For the year ended December 31, 2021, we repurchased 153,553 shares of our common stock at an aggregate cost of $7.9 million.

On February 4, 2022, our Board of Directors approved the renewal of the stock repurchase program. The renewed repurchase program authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from February 4, 2022 through December 31, 2022. Repurchases may be made from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions.

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.

Table of Contents

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.”

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, 2021 and December 31, 2020, 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 had less than $3.0 billion in assets as of June 30, 2020, the last applicable measurement date, we were not subject to capital adequacy guidelines on a consolidated basis as of December 31, 2021. 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% for 2020 and 8.50% for 2021 as a COVID-19 relief measure), are considered qualifying community banking organizations and are eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements.

As of December 31, 2021, 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, 2021 and December 31, 2020, liquidity needs were primarily met by core deposits, security and loan maturities, and cash flows from amortizing security and loan portfolios. While maturities and scheduled amortization of loans are predictable sources of funds, deposit outflows, mortgage prepayments, and prepayments on amortizing securities are greatly influenced by market interest rates, economic conditions, and the competitive environment in which we operate, and therefore, these cash flows are monitored regularly.

Our most liquid assets are cash and short-term investments that include both interest-earning demand deposits and securities AFS. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. Access to purchased funds from correspondent banks and overnight advances from the FHLB of

Table of Contents

Dallas 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.

Our primary source of funds is deposits, and our primary use of funds is the funding of loans. We invest excess deposits in interest-earning deposits at other banks or at the Federal Reserve, federal funds sold, securities, or other short-term liquid investments until the deposits are needed to fund loan growth or other obligations. Our average deposits increased $575.2 million, or 28.5%, for the year ended December 31, 2021, compared to the average deposits for the year ended December 31, 2020. The increase in average total deposits was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining higher deposit balances. Our average total loans increased $34.3 million, or 2.2%, for the year ended December 31, 2021, compared to the average total loans for the year ended December 31, 2020.

As of December 31, 2021, our cash and cash equivalents were our second largest component of earning assets. Cash and cash equivalents were $784.9 million as of December 31, 2021, compared to $447.2 million as of December 31, 2020. The increase of $337.7 million, or 75.5%, was a result of deposit growth exceeding loan growth that created additional liquidity, which was primarily deployed into interest-bearing deposits in other banks.

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, 2021, securities AFS were $659.2 million compared to $498.2 million as of December 31, 2020. 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, 2021, securities with a carrying value of $118.6 million, or 18.0% of the securities AFS portfolio, were pledged to secure public entity deposits as compared to securities with a carrying value of $105.1 million, or 21.1% of the securities AFS portfolio, similarly pledged as of December 31, 2020. This increase of $13.5 million, or 12.8%, was primarily due to several large public entity deposit accounts having higher balances as of December 31, 2021 compared to December 31, 2020. Public entity account balances generally fluctuate throughout the year.

We also utilize the FHLB of Dallas as needed as a viable funding source. FHLB of Dallas advances may be used to meet short-term liquidity needs, particularly if the prevailing interest rate on an FHLB of Dallas advance compares favorably to the rates that would be required to attract the necessary deposits. As of December 31, 2021 and 2020, our total borrowing availability from the FHLB of Dallas was $748.6 million and $680.5 million, respectively. At various times, we may obtain letters of credit from the FHLB of Dallas as collateral for our public entity deposits. As of December 31, 2021 and 2020, we held unfunded letters of credit from the FHLB of Dallas in the amount of $143.8 million and $169.7 million, respectively. As of December 31, 2021 and 2020, our net borrowing capacity from the FHLB of Dallas was $604.8 million and $510.8 million, respectively.

Other sources available for meeting liquidity needs include federal funds lines, repurchase agreements, and other lines of credit. We maintain four federal funds lines of credit with commercial banks that provided for the availability to borrow up to an aggregate of $95.0 million in federal funds as of December 31, 2021 and 2020. We also maintain an additional $6.0 million revolving line of credit at one of our correspondent banks. As of December 31, 2021 and 2020, we had total borrowing capacity of $101.0 million through these combined funding sources. We had no outstanding balances from either of these funding sources as of December 31, 2021 and 2020.

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, purchase commitments, and construction commitments, 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.

Table of Contents

Interest Rate Sensitivity and Market Risk

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

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, other than those that have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage exposure to interest rates by structuring the balance sheet appropriately during the ordinary course of business. We have the ability to enter into interest rate swaps to mitigate interest rate risk in limited circumstances, but it is not our policy to enter into such transactions on a regular basis. We do not enter into instruments such as financial options, financial futures contracts, or forward delivery contracts for the purpose of reducing interest rate risk. We are not subject to foreign exchange risk, and our commodity price risk is immaterial, as the percentage of our agricultural loans to loans HFI was only 0.32% as of December 31, 2021.

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.

Table of Contents

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, 2021 and 2020, 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.

The percentage of change in the fair value of equity exceeds the policy threshold in the down 200 bp scenario as of December 31, 2021, due to the very low interest rate environment and current yield curve shapes. These values will be reported at the next quarterly Asset-Liability Committee meeting, and these metrics will continue to be monitored.

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, 2021, floating rate loans were 15.0% of the loans HFI and floating rate transaction deposits were 4.4% 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 Report 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 Report as supplemental non-GAAP performance measures. In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the U.S.

Management and the board of directors review tangible book value per share, tangible common equity to tangible assets, 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 Report may differ from that of other companies reporting measures with similar names. It is important to understand how such other banking organizations calculate and name their financial

Table of Contents

measures similar to the non-GAAP financial measures discussed in this Report 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, and we calculate tangible assets as total assets less, intangible assets. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common stockholders’ equity to total assets.

As a result of previous acquisitions, we have a small amount of intangible assets. As of December 31, 2021, 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 book value per common share (non-GAAP) $ 41.31 $ 38.76 $ 34.27

Tangible assets

Adjustments:

Total stockholder’s equity to assets 9.25 % 10.80 % 12.67 %

Tangible common equity to tangible assets (non-GAAP) 9.20 % 10.75 % 12.60 %

PPP-Adjusted Metrics

In 2020 and 2021, Red River Bank participated in the SBA PPP and originated 1,888 PPP loans totaling $260.8 million. PPP loan originations were concluded in the second quarter of 2021. Through December 31, 2021, we had received $242.7 million in SBA forgiveness and borrower payments on 94.4% of the PPP loans originated. As of December 31, 2021, PPP loans totaled $17.6 million, net of $626,000 of deferred income, and were 1.0% of loans HFI.

PPP loans were implemented as a response to the COVID-19 pandemic and have characteristics that are different than the rest of our loan portfolio, including being short-term in nature (24 or 60 months or less depending on loan forgiveness timing), having a lower than market interest rate, and only being originated during specified time periods during the COVID-19 pandemic. Because of these factors, management believes that PPP-adjusted metrics provide a more accurate

Table of Contents

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:

Assets excluding PPP loans, net

Adjustments:

Non-PPP loans HFI to deposits ratio (non-GAAP) 57.25 % 62.81 % 83.60 %

Allowance for loan losses to loans HFI 1.14 % 1.13 % 0.97 %

Allowance for loan losses to non-PPP loans HFI (non-GAAP) 1.15 % 1.22 % 0.97 %

Nonperforming loans to loans HFI 0.02 % 0.21 % 0.37 %

Nonperforming loans to non-PPP loans HFI (non-GAAP) 0.02 % 0.23 % 0.37 %

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.

Allowance for Loan Losses

Table of Contents

incurred loss methodology to estimate the allowance for loan losses. The CECL model is effective for Red River Bank on 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 2021” 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.

Table of Contents

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

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, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, 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 18, 2022

Table of Contents

RED RIVER BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts) December 31,

ASSETS

Nonmarketable equity securities 3,450 3,447

LIABILITIES

Accrued expenses and other liabilities 11,060 10,789

COMMITMENTS AND CONTINGENCIES — —

STOCKHOLDERS’ EQUITY

Accumulated other comprehensive income (loss) (3,773) 6,921

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

Table of Contents

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 88 207

Interest on deposits in other banks 658 322

Dividends on stock 10 20

INTEREST EXPENSE

Interest on other borrowed funds — 16

Net Interest Income After Provision for Loan Losses 69,822 62,707

NONINTEREST INCOME

Service charges on deposit accounts 4,775 4,108

Bank-owned life insurance income 648 568

Gain (Loss) on equity securities (175) 85

Gain (Loss) on sale and call of securities 194 1,441

OPERATING EXPENSES

Occupancy and equipment expenses 5,443 5,106

Other business development expenses 1,169 1,020

Legal and professional expenses 1,683 2,141

Regulatory assessment expenses 933 538

EARNINGS PER SHARE

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

Table of Contents

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 (13,343) 10,232

(Gain) loss on sale and call of securities included in net income (194) (1,441)

Total other comprehensive income (loss) (10,694) 6,945

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

Table of Contents

RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

Stock incentive plan — — 269 — — 269

Forfeiture of restricted shares of common stock (100) — — — —

Issuance of shares of common stock as board compensation 1,075 56 — — — 56

Other comprehensive income (loss) — — — — (10,694) (10,694)

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

Table of Contents

RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Share-based compensation earned 269 276

Share-based board compensation earned 50 62

(Gain) Loss on other assets owned (184) 22

Net (accretion) amortization on securities AFS 2,479 3,144

(Gain) Loss on sale and call of securities (194) (1,441)

Deferred income tax (benefit) expense (773) 130

Net (increase) decrease in loans HFS 24,826 (24,027)

Net (increase) decrease in accrued interest receivable 635 (1,629)

Net (increase) decrease in BOLI (648) (568)

Net increase (decrease) in accrued interest payable (464) (448)

Net increase (decrease) in accrued income taxes payable (70) (4)

Other operating activities, net (1,066) 429

Net cash provided by (used in) operating activities 62,264 12,798

CASH FLOWS FROM INVESTING ACTIVITIES

Activity in securities AFS:

Maturities, principal repayments, and calls 99,175 112,605

Purchase of equity securities (4,000) —

Purchase of nonmarketable equity securities (3) (2,097)

Capital contribution in partnerships (173) —

RRBI US Equity

RRBI · 10-K · period ended 2021-12-31

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 2021-12-31

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