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

The purpose of this discussion and analysis is to focus on significant changes in financial condition and results of operations of Red River Bancshares, Inc. on a consolidated basis during the year ended December 31, 2022 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. As of December 31, 2022, Red River Bank operated from a network of 28 banking centers throughout Louisiana and one combined LDPO in New Orleans, Louisiana. 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; Acadiana, which includes the Lafayette MSA; and New Orleans.

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

2022 FINANCIAL AND OPERATIONAL HIGHLIGHTS

2022 was a year of unusual interest rate increases and a changing economic environment. Higher market interest rates helped us achieve net interest margin expansion and record-high earnings; however, they also created deposit pressures. In addition, we opened full-service banking centers in both New Orleans and Lafayette, substantially completed the SBA PPP, and achieved solid loan growth.

•Net income for the year ended December 31, 2022, was $36.9 million, or $5.13 diluted EPS, an increase of $4.0 million, or 12.0%, compared to $33.0 million, or $4.51 diluted EPS, for the year ended December 31, 2021.

•The return on assets was 1.18% for 2022 and 1.13% for 2021.

•The return on equity was 13.98% for 2022 and 11.21% for 2021.

•Assets decreased $142.0 million, or 4.4%, to $3.08 billion as of December 31, 2022, compared to $3.22 billion as of December 31, 2021. This decrease was primarily driven by a $111.4 million, or 3.8%, decrease in deposits for the same period due to customer deposit activity in response to the changing interest rate environment.

•Non-PPP loans HFI (non-GAAP) increased $250.0 million, or 15.0%, to $1.92 billion as of December 31, 2022, compared to $1.67 billion as of December 31, 2021. The increase in loans was due to loan activity in various markets across Louisiana. For additional information on non-GAAP financial measures, see “-Non-GAAP Financial Measures” in this Report.

•As of December 31, 2022, our participation in the SBA PPP was materially complete, and PPP loans were $14,000, which was less than 0.1% of loans HFI. 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 2022 was $670,000, compared to $5.8 million for 2021.

•The net interest income and net interest margin FTE increased in 2022 compared to 2021. Net interest income for 2022 was $86.6 million compared to $71.7 million for 2021. Net interest margin FTE for 2022 was 2.86% compared to 2.60% for the prior year. The net interest income and net interest margin FTE for 2022 were positively impacted by the higher interest rate environment in 2022 and an improved asset mix.

•As of December 31, 2022, total securities were $776.1 million, or 25.2% of assets, compared to $667.0 million, or 20.7% of assets, as of December 31, 2021. During the first and second quarters of 2022, we restructured the securities portfolio, which resulted in higher interest income and an improved securities yield.

•During the second quarter of 2022, management reclassified 20.5% of the securities portfolio from AFS to HTM.

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•NPAs were $2.4 million, or 0.08% of assets as of December 31, 2022. As of December 31, 2022, the ALL was $20.6 million, or 1.08% of loans HFI.

•The board of directors approved changes to the 401(k) Plan. Effective April 1, 2022, employees have the opportunity to invest a portion of their 401(k) Plan funds in our common stock through a unitized fund.

•We expanded organically throughout Louisiana with the following events:

◦In our Acadiana market, in the first quarter of 2022, we opened our first Red River Bank full-service banking center in Lafayette, Louisiana. In the second quarter of 2022, we relocated the staff and services from the Lafayette LDPO to the new banking center and closed the LDPO located there.

◦In the first quarter of 2022, we purchased property in Metairie, Louisiana, a New Orleans suburb. Plans to construct a full-service banking center are in process.

◦In our New Orleans market, we remodeled and received regulatory approval on a leased banking center location in downtown New Orleans, which we opened as the Bank’s first full-service banking center in New Orleans on August 1, 2022.

◦In the fourth quarter of 2022, we finished remodeling and opened the new Red River Bank operations center building. This remodeled 21,000 square foot building is located adjacent to the Red River Bank headquarters building in Alexandria, Louisiana. This building was designed to provide an efficient and modern facility for Red River Bank operations and support departments and to improve the Red River Bank business continuity plan.

•In 2022, we paid a quarterly cash dividend of $0.07 per share, resulting in cash dividends of $0.28 per share for 2022, which was consistent with 2021. In the first quarter of 2023, we paid a quarterly cash dividend of $0.08 per share.

•In accordance with our stock repurchase program, during 2022, we repurchased 4,465 shares of our common stock at an aggregate cost of $218,000. The 2022 stock repurchase program began February 4, 2022, and expired on December 31, 2022. On November 4, 2022, our board of directors approved the renewal of our stock repurchase program for 2023. The 2023 stock repurchase program authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2023 through December 31, 2023.

•Various changes occurred in 2022 with the boards of directors of the Company and the Bank. John C. Simpson, Chair Emeritus, and founding director, retired from the board of directors of the Company and the Bank at the end of his term at the Company’s 2022 annual shareholder meeting on May 5, 2022. Michael D. Crowell was appointed to the boards of the Company and the Bank on February 24, 2022.

The following tables set forth selected historical consolidated financial information for each of the periods indicated. The historical financial information as of and for the years ended December 31, 2022 and 2021, except for the selected ratios, is derived from our audited consolidated financial statements included elsewhere in this Report. The historical financial information as of and for the year ended December 31, 2020, 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:

Securities held-to-maturity, at amortized cost $ 151,683 $ — $ —

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As of and for the Years Ended December 31,

Per Common Share Data:

Earnings per share, basic $ 5.14 $ 4.53 $ 3.84

Earnings per share, diluted $ 5.13 $ 4.51 $ 3.83

Summary Performance Ratios:

Noninterest-bearing deposits to deposits ratio 38.96 % 39.50 % 40.32 %

Noninterest income to average assets 0.60 % 0.84 % 1.00 %

Operating expense to average assets 1.87 % 1.87 % 2.22 %

Summary Credit Quality Ratios:

Nonperforming loans to loans HFI 0.12 % 0.02 % 0.21 %

Allowance for loan losses to loans HFI 1.08 % 1.14 % 1.13 %

Net charge-offs to average loans 0.02 % 0.04 % 0.14 %

Capital Ratios:

Total stockholders’ equity to total assets 8.62 % 9.25 % 10.80 %

Tangible common equity to tangible assets(1,6) 8.57 % 9.20 % 10.75 %

Total risk-based capital to risk-weighted assets 17.39 % 17.83 % 18.68 %

Tier I risk-based capital to risk-weighted assets 16.38 % 16.76 % 17.55 %

Common equity Tier I capital to risk-weighted assets 16.38 % 16.76 % 17.55 %

Tier I risk-based capital to average assets 10.71 % 9.67 % 10.92 %

(1)Non-GAAP financial measure. Calculations of this measure and reconciliations to GAAP are included in “- Non-GAAP Financial Measures” in this Report. This measure has not been audited.

(2)We calculate tangible book value per share as total stockholders’ equity, less intangible assets, divided by the outstanding number of shares of our common stock at the end of the relevant period.

(3)We calculate realized book value per share as total stockholders’ equity, less AOCI, divided by the outstanding number of shares of our common stock at the end of the relevant period.

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

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

(6)We calculate tangible common equity as total stockholders’ equity, less intangible assets, net of accumulated amortization, and we calculate tangible assets as total assets, less intangible assets, net of accumulated amortization.

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RESULTS OF OPERATIONS

Net income for the year ended December 31, 2022, was $36.9 million, or $5.13 diluted EPS, an increase of $4.0 million, or 12.0%, compared to $33.0 million, or $4.51 diluted EPS, for the year ended December 31, 2021. The increase in net income was primarily due to a $14.9 million increase in net interest income, partially offset by a $5.7 million decrease in noninterest income and a $4.4 million increase in operating expenses. The return on average assets for the year ended December 31, 2022, was 1.18%, compared to 1.13% for the prior year. The return on average equity was 13.98% for the year ended December 31, 2022, compared to 11.21% for the prior year. Our efficiency ratio for the year ended December 31, 2022, was 56.60%, compared to 56.39% for the year ended December 31, 2021.

Net Interest Income and Net Interest Margin

Our operating results depend primarily on our net interest income. 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. Beginning March 2020, we were in a low interest rate environment that impacted both the net interest income and net interest margin FTE. In March 2020, the target federal funds rate decreased 150 bps to a range of 0.00% to 0.25% and remained at that rate until March 2022, when the FOMC began increasing the target federal funds rate. The FOMC increased the target federal funds rate by 25 bps in March 2022; 50 bps in May 2022; 75 bps in each of June, July, September, and November 2022; and 50 bps in December 2022, resulting in a range of 4.25% to 4.50% as of December 31, 2022. The average effective federal funds rate was 1.68% for 2022 and 0.08% for 2021. The 2022 net interest income and net interest margin FTE were positively impacted by the higher interest rate environment in 2022 and an improved asset mix.

Net interest income for the year ended December 31, 2022, was $86.6 million, which was $14.9 million, or 20.8%, higher than $71.7 million for the year ended December 31, 2021. Net interest income increased due to a $17.0 million increase in interest and dividend income, partially offset by a $2.1 million increase in interest expense.

The increase in interest and dividend income for 2022 when compared to 2021 was primarily due to an increase in non-PPP loan income, an increase in taxable securities income, and an increase in income on short-term liquid assets, partially offset by a decrease in PPP loan income. Non-PPP loan income increased $13.0 million in 2022 primarily due to a $267.8 million, or 17.3%, increase in the average balance of non-PPP loans, when compared to 2021. Taxable securities income increased $5.0 million primarily due to a $292.3 million, or 84.8%, increase in the average balance of taxable securities to $637.2 million in 2022 from $344.9 million in 2021, due to our deployment of lower-yielding short-term liquid assets into higher-yielding taxable securities during the first half of 2022. Income on short-term liquid assets increased $4.0 million due to the FOMC’s increases to the target federal funds rate in 2022. PPP loan income decreased $5.1 million due to lower average PPP loan balances outstanding and lower fees recognized to income on PPP loans.

Interest expense increased in 2022 when compared to 2021, primarily due to an increase in the rates on interest-bearing transaction deposits. However, interest expense on time deposits decreased due to time deposits being priced downward as we adjusted rates on new and renewed time deposits in 2021.

Net interest margin FTE increased 26 bps to 2.86% for the year ended December 31, 2022, from 2.60% for the year ended December 31, 2021, primarily due to the higher interest rate environment and an improved asset mix. The FOMC’s increases to the target federal funds rate during 2022 increased the yield on short-term liquid assets by 110 bps when compared to 2021. Our deployment of lower-yielding short-term liquid assets into higher-yielding non-PPP loans and securities in 2022 also benefited the net interest margin FTE. The yield on non-PPP loans increased 12 bps due to higher loan rates on new, renewed, and floating rate loans during 2022 when compared to 2021. The yield on taxable securities also benefited from higher market interest rates on securities purchased during 2022, compared to the interest rate on taxable securities during 2021. The yield on taxable securities increased 19 bps for the year ended December 31, 2022, when compared to the year ended December 31, 2021. These increases were partially offset by a decrease in PPP loan income and a ten bp increase in the rate on interest-bearing deposits. PPP loan income decreased $5.1 million due to lower fees recognized to income on PPP loans and a lower average balance of PPP loans outstanding. The rate on interest-bearing transaction deposits increased due to rate competition for deposits that began in the second half of 2022.

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

For the Years Ended December 31,

Assets

Interest-earning assets:

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Other borrowings — — — % — — — %

Noninterest-bearing liabilities:

Accrued interest and other liabilities 18,111 17,507

Net interest spread 2.60 % 2.38 %

Net interest margin 2.80 % 2.54 %

Net interest margin FTE(3) 2.86 % 2.60 %

(1)Includes average outstanding balances of loans HFS of $3.3 million and $8.6 million for the years ended December 31, 2022 and 2021, respectively.

(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.

Excluding PPP loan income, net interest income (non-GAAP) for the year ended December 31, 2022, was $86.0 million, which was $20.0 million, or 30.4%, higher than the prior year. Also, with PPP loans excluded for the year ended December 31, 2022, the yield on non-PPP loans (non-GAAP) was 4.09%, and the net interest margin FTE (non-GAAP) was 2.84%. For the year ended December 31, 2022, PPP loans had a three bp accretive impact to the yield on loans and a two 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.

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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 presented:

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) $ 85,969 $ 65,949

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

Net interest spread 2.58 % 2.25 %

Net interest margin 2.79 % 2.40 %

Net interest margin FTE(4) 2.84 % 2.46 %

(1)Includes average outstanding balances of loans HFS of $3.3 million and $8.6 million for the years ended December 31, 2022 and 2021, respectively.

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

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

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

The Federal Reserve is expected to raise the target federal funds rate several more times in the first half of 2023. Our balance sheet is asset sensitive and interest income on earning assets generally improves in a higher rate environment. However, we also expect additional pressure on deposit rates due to the higher rate environment and competition for deposits. As of December 31, 2022, floating rate loans were 14.5% of loans HFI, and floating rate transaction deposits were 2.6% of interest-bearing transaction deposits. In the first half of 2023, dependent upon balance sheet activity and deposit rate pressure, we expect the net interest margin and net interest income to decrease slightly.

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Rate/Volume Analysis

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

Increase (Decrease)Due to Change in TotalIncrease

(in thousands) Volume Rate (Decrease)

Interest-earning assets:

Interest-bearing deposits in other banks (262) 3,286 3,024

Nonmarketable equity securities — 30 30

Interest-bearing liabilities:

Interest-bearing transaction deposits $ 204 $ 2,219 $ 2,423

Other borrowings — — —

Total interest-bearing liabilities $ 62 $ 2,057 $ 2,119

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, 2022, was $1.8 million, a decrease of $150,000 from $1.9 million for the year ended December 31, 2021. The provision for loan losses for 2022 was due to the current inflationary environment, changing monetary policy, and loan growth. The provision for loan losses in 2021 was due to the anticipated adverse effects of the COVID-19 pandemic at that time.

Noninterest Income

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

Noninterest income decreased $5.7 million to $18.7 million for the year ended December 31, 2022, compared to $24.5 million for the prior year. The decrease in noninterest income was due to lower mortgage loan income, lower net debit card income, higher losses on equity securities, and the loss on sale and call of securities. These decreases were partially offset by an increase in service charges on deposit accounts and brokerage income.

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

For the Years Ended December 31,

(dollars in thousands) 2022 2021 Increase/(Decrease)

Noninterest income:

Gain (Loss) on sale and call of securities (59) 194 (253) (130.4) %

Mortgage loan income decreased $5.6 million to $3.1 million for 2022, compared to $8.7 million for 2021 due to rising mortgage interest rates and home prices, as well as limited housing stock available for purchase in 2022. In 2021, mortgage loan activity and income benefited from a low mortgage interest rate environment and adjusted mortgage loan fees.

Debit card income, net, decreased $518,000 to $3.9 million for 2022, compared to $4.4 million for 2021. The decrease was primarily related to higher debit card expense as a result of upgrading our debit card stock in the first quarter of 2022 and higher debit card processing expenses.

Equity securities are an investment in a CRA mutual fund consisting primarily of bonds. The gain or loss on equity securities is a fair value adjustment primarily driven by changes in the interest rate environment. Due to fluctuations in market rates between periods, equity securities had a loss of $468,000 in 2022, compared to a $175,000 loss in 2021.

The loss on the sale and call of securities was $59,000 for 2022. This consisted of a net loss of $114,000 as a result of portfolio restructuring transactions to improve the structure and yield of the portfolio, offset by a $55,000 gain from municipal securities being called in 2022. In 2021, the gain on the sale and call of securities was $194,000, as a result of portfolio restructuring transactions to improve the structure and yield of the portfolio.

Service charges on deposit accounts increased $790,000 to $5.6 million for 2022, compared to $4.8 million for 2021. The increase was due to a larger number of non-sufficient fund transactions and related fee income in 2022.

Brokerage income increased $252,000 to $3.5 million for 2022, compared to $3.3 million for 2021. The increase was primarily due to funds invested by new clients. Assets under management were $915.1 million and $787.1 million as of December 31, 2022 and 2021, respectively.

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 $4.4 million to $58.7 million for the year ended December 31, 2022, compared to $54.3 million for the year ended December 31, 2021. The increase in operating expenses was mainly due to higher personnel expenses, occupancy and equipment expenses, other taxes, other business development expenses, and legal and professional expenses. These increases were partially offset by lower loan and deposit expenses.

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

For the Years Ended December 31,

(dollars in thousands) 2022 2021 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 increased $2.1 million to $34.6 million for 2022 compared to $32.4 million for 2021. This increase was primarily due to having a full year of expenses for new staff added in the fourth quarter of 2021 in our New Orleans market, as well as additional staff in our existing markets. This increase was partially offset by lower commission compensation in 2022 due to lower mortgage loan activity, when compared to 2021. Due to an increase in open positions in late 2022, we had 351 and 358 total employees as of December 31, 2022 and 2021, respectively.

Occupancy and equipment expenses increased $666,000 to $6.1 million for 2022 compared to $5.4 million for 2021. This increase was primarily the result of expansion in our newer markets in the second half of 2021 and throughout 2022.

Other taxes increased $632,000 to $2.7 million for 2022 compared to $2.1 million for 2021. This increase was due to a $635,000 increase in the State of Louisiana’s bank stock tax resulting from higher deposit account balances, higher net income for the applicable tax years, and a higher tax rate. This new rate will also be applicable for 2023.

Other business development expenses increased $476,000 to $1.6 million for 2022 compared to $1.2 million for 2021. This increase was primarily the result of higher CRA related contributions and community sponsorships combined with a full year of business development expense in our New Orleans market.

Legal and professional expenses increased $314,000 to $2.0 million for 2022 compared to $1.7 million for 2021. This increase was primarily due to higher professional fees, auditing fees, and public company expenses due to organizational growth, partially offset by lower attorney fees as a result of the completion of various legal matters.

Loan and deposit expenses decreased $357,000 to $659,000 for 2022 compared to $1.0 million for 2021. The decrease in loan expenses was primarily due to lower mortgage loan activity as well as lower loan expenses, which were impacted by the higher interest rate environment in 2022. Deposit expenses decreased due to receipt of a $122,000 negotiated, variable rebate from a vendor in the first quarter of 2022.

Income Tax Expense

The amount of income tax expense is influenced by the amounts of our pre-tax income, tax-exempt income, and other nondeductible expenses. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Our effective income tax rates have differed from the U.S. statutory rate due to the effect of tax-exempt income from loans, securities, life insurance policies, and the income tax effects associated with stock-based compensation. The CARES Act passed in March of 2020, with certain provisions expiring in 2021 and 2022, did not have a material impact on our income tax expense or our effective tax rate for the years ended December 31, 2022 and 2021.

For the years ended December 31, 2022 and 2021, income tax expense totaled $8.1 million and $7.1 million, respectively. The increase in income tax expense was primarily due to the increase in pre-tax income. The effective income tax rate for 2022 was 17.9%, compared to 17.7% for 2021.

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FINANCIAL CONDITION

General

As of December 31, 2022, assets were $3.08 billion, which was $142.0 million, or 4.4%, lower than assets of $3.22 billion as of December 31, 2021, primarily due to a decrease in deposits. Total deposits decreased $111.4 million, or 3.8%, to $2.80 billion as of December 31, 2022, from $2.91 billion as of December 31, 2021. During 2022, we made several changes to the asset mix, including deploying short-term liquid assets into loans and the securities portfolio, as well as restructuring the securities portfolio. Loans HFI increased $232.4 million, or 13.8%, which included a $250.0 million, or 15.0%, increase in non-PPP loans compared to December 31, 2021. Due to securities purchased in the first half of 2022, total securities increased $109.0 million, or 16.3%, to $776.1 million, and were 25.2% of assets as of December 31, 2022. As a result of the increase in loans and securities, interest-bearing deposits in other banks decreased $521.2 million, or 68.4%, to $240.6 million and were 7.8% of assets as of December 31, 2022. Stockholders’ equity decreased $32.4 million during 2022 to $265.8 million as of December 31, 2022, primarily due to a $67.4 million decrease in AOCI related to securities partially offset by $36.9 million of net income. As of December 31, 2022, the loans HFI to deposits ratio was 68.46%, compared to 57.86% as of December 31, 2021, and the noninterest-bearing deposits to total deposits ratio was 38.96%, compared to 39.50% as of December 31, 2021.

Interest-Bearing Deposits in Other Banks

Interest-bearing deposits in other banks were the third-largest component of earning assets as of December 31, 2022. Excess liquidity that is not being deployed into loans or securities is placed in these accounts. Starting during the COVID-19 pandemic, which began in the first quarter of 2020, and continuing into the first quarter of 2022, interest-bearing deposits in other banks had become the second-largest component of earning assets as deposit growth exceeded loan growth. During 2022, we deployed excess liquidity into loans and securities, with most securities purchases and sales occurring during the first half of 2022. As of December 31, 2022, interest-bearing deposits in other banks were $240.6 million and were 7.8% of assets, a decrease of $521.2 million, or 68.4%, compared to $761.7 million and 23.6% of assets as of December 31, 2021.

Securities

Our securities portfolio is the second-largest component of earning assets and provides a significant source of revenue. Securities are classified as AFS, HTM, and equity securities. As of December 31, 2022, our total securities portfolio was 25.2% of assets. It is designed primarily to provide and maintain liquidity, generate a favorable return on investments without incurring unnecessary interest rate and credit risk, and complement our lending activities. We may invest in various types of liquid assets that are permissible under governing regulations and approved by our investment policy, which include U.S. Treasury obligations, U.S. government agency obligations, certificates of deposit of insured domestic banks, mortgage-backed and mortgage-related securities, corporate notes having an investment rating of “A” or better, municipal bonds, and certain equity securities.

Securities AFS and Securities HTM

Securities AFS and securities HTM are debt securities. Total debt securities were $766.1 million as of December 31, 2022, an increase of $106.9 million, or 16.2%, from $659.2 million as of December 31, 2021.

Securities AFS are held for indefinite periods of time and are carried at estimated fair value. As of December 31, 2022, the estimated fair value of securities AFS was $614.4 million. The net unrealized loss on securities AFS increased $69.4 million for the year ended December 31, 2022, resulting in a net unrealized loss of $74.1 million as of December 31, 2022.

Over the past year, due to the increase in our securities portfolio size, the current and projected balance sheet mix and growth, cash flows, and available liquidity sources, we evaluated transferring selected securities from AFS to HTM. In the second quarter of 2022, we reclassified $166.3 million, net of $17.9 million of unrealized loss, or 20.5% of the securities portfolio, from AFS to HTM. Securities HTM, which we have the intent and ability to hold until maturity, are carried at amortized cost. As of December 31, 2022, the amortized cost of securities HTM was $151.7 million.

Investment activity for the year ended December 31, 2022, included $313.5 million of securities purchased, partially offset by $31.8 million in sales and $87.1 million in maturities, principal repayments, and calls. There were no purchases or sales of securities HTM for the same period.

Securities AFS purchased for the year ended December 31, 2022, primarily consisted of $159.8 million in U.S. Treasury securities and $139.1 million in mortgage-backed securities. The U.S. Treasury securities purchased had a yield of 1.78% and an average life of 1.85 years, and the mortgage-backed securities had a yield of 1.78% and an average life of 3.63 years. As of December 31, 2022, the overall price risk of the securities AFS and securities HTM portfolio in the applicable scenario decreased 190 bps, compared to December 31, 2021, primarily due to the short-term U.S. Treasury securities purchased in the first and second quarters of 2022.

During the first six months of 2022, we reallocated $260.5 million from overnight funds yielding 0.39% to securities AFS yielding 1.80% and purchased $53.0 million of securities yielding 1.91% as we reinvested cash flows from the securities

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portfolio. In the third and fourth quarters of 2022, we did not engage in any purchases or sales transactions; however, we will continue to evaluate future transactions.

The securities AFS portfolio tax-equivalent yield was 1.75% for the year ended December 31, 2022, compared to 1.79% for the year ended December 31, 2021. The yield remained fairly consistent due to the timing of purchases in 2022.

The contractual maturity of mortgage-backed securities and collateralized mortgage obligations is not a reliable indicator of their expected lives because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities and collateralized mortgage obligations are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly pay downs on mortgage-backed securities may cause the average lives of the securities to be much different than the stated contractual maturity. During a period of rising interest rates, fixed rate mortgage-backed securities are not likely to experience heavy prepayments of principal, and consequently, the average lives of these securities are typically lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated average lives of these securities. As of December 31, 2022, the average life of our securities portfolio was 6.8 years with an estimated effective duration of 5.0 years. As of December 31, 2021, the average life of our securities portfolio was 4.9 years with an estimated effective duration of 4.1 years. Both the average life and the effective duration increased due to the increase in market rates and the resulting impact on mortgage-backed securities and our callable municipal securities.

The carrying values of our securities AFS are adjusted for unrealized gain or loss, and any unrealized gain or loss is reported on an after-tax basis as a component of AOCI in stockholders’ equity. As of December 31, 2022, the net unrealized loss of the securities AFS portfolio was $74.1 million, an increase of $69.4 million, compared to a net unrealized loss of $4.8 million as of December 31, 2021. This change is attributed to a significant increase in market rates, which resulted in lower prices on securities and therefore an overall lower market value of the portfolio.

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The following tables summarize the amortized cost and estimated fair value of our securities by type as of the dates indicated. As of December 31, 2022, other than securities issued by U.S. government agencies or government-sponsored enterprises, our securities portfolio did not contain securities of any one issuer with an aggregate book value in excess of 10.0% of our stockholders’ equity.

Securities AFS:

Securities HTM:

Securities AFS:

Securities HTM:

Mortgage-backed securities $ — $ — $ — $ —

U.S. agency securities — — — —

Total Securities HTM $ — $ — $ — $ —

The following table shows the fair value of securities AFS that mature during each of the periods indicated. The contractual maturity of a mortgage-backed security is the date the last underlying mortgage matures. Yields are weighted-average tax equivalent yields that are calculated by dividing projected annual income by the average amortized cost of the applicable securities while using a 21.0% federal income tax rate, when applicable.

Contractual Maturity as of December 31, 2022

Securities AFS:

(1)Tax equivalent projected book yield as of December 31, 2022.

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The following table shows the amortized cost of securities HTM that mature during each of the periods indicated. The contractual maturity of a mortgage-backed security is the date the last underlying mortgage matures. Yields are weighted-average tax equivalent yields that are calculated by dividing projected annual income by the average amortized cost of the applicable securities while using a 21.0% federal income tax rate, when applicable.

Contractual Maturity as of December 31, 2022

Securities HTM:

U.S. agency securities — — % — — % 912 2.61 % — — % 912 2.61 %

Equity Securities

Equity securities are an investment in a CRA mutual fund, consisting primarily of bonds. 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. As of December 31, 2021, equity securities had a fair value of $7.8 million with a recognized loss of $175,000 for the year ended December 31, 2021. In April 2022, we liquidated all shares invested in this fund and recorded a loss of $447,000 from January 1, 2022, through the date of liquidation. In December 2022, we purchased shares in this fund. As of December 31, 2022, equity securities had a fair value of $10.0 million with a recognized loss of $468,000 for the year ended December 31, 2022.

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, 2022, loans HFI were $1.92 billion, an increase of $232.4 million, or 13.8%, compared to $1.68 billion as of December 31, 2021.

As of December 31, 2022, our participation in the SBA PPP was materially complete, and PPP loans totaled $14,000.

As of December 31, 2022, non-PPP loans HFI (non-GAAP) were $1.92 billion, an increase of $250.0 million, or 15.0%, from December 31, 2021. The increase in non-PPP loans HFI (non-GAAP) was due to loan activity in various markets across Louisiana. For calculations and reconciliations to GAAP of non-GAAP financial measures, see “- Non-GAAP Financial Measures” in this Report.

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Loans by Category

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

December 31,

(dollars in thousands) Amount Percent Amount Percent

Real estate:

SBA PPP, net of deferred income 14 — % 17,550 1.0 %

(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 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 $124.4 million, or 18.6%, to $794.7 million as of December 31, 2022, from $670.3 million as of December 31, 2021.

Non-owner occupied commercial real estate loans were $401.3 million, or 20.9% of loans HFI, and represented 116.4% of the Bank’s total risk-based capital as of December 31, 2022. 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 $69.1 million, or 14.6%, to $543.5 million as of December 31, 2022, compared to $474.4 million as of December 31, 2021.

Construction and Development Loans. 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 increased $51.0 million, or 48.0%, to $157.4 million as of December 31, 2022, compared to $106.3 million as of December 31, 2021.

Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including, but not limited to, inventory, equipment, capital expansion, and working capital enhancement. Collateral typically includes a lien on general business assets including, among other things, accounts receivable, inventory, equipment, and available real estate. A personal guaranty is generally obtained from the borrower or principal. Commercial and industrial loans decreased $1.3 million, or 0.4%, to $310.1 million as of December 31, 2022, from $311.4 million as of December 31, 2021.

SBA PPP, Net of Deferred Income. SBA PPP loans were made to small businesses and other entities and individuals according to the criteria set forth by the CARES Act in March 2020. These loans were guaranteed by the SBA, had a 24-

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or 60-month term at an interest rate of 1.0%, and were 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 $2.4 million, or 3.0%, to $83.2 million as of December 31, 2022, compared to $80.7 million as of December 31, 2021.

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

Industry Concentrations

The North American Industry Classification System is an industry classification system used to categorize loans by the borrower’s type of business. Industry concentrations stated as a percentage of loans HFI are presented below:

Health care 8.4 %

Investor one-to-four family and multifamily 4.8 %

Retail trade 4.0 %

Construction 3.8 %

Hospitality services 3.4 %

Public administration 2.8 %

Finance and insurance 2.2 %

Energy 1.9 %

Religious and other nonprofit 1.5 %

Manufacturing 1.2 %

All other 66.0 %

Total loans HFI by industry concentration 100.0 %

Health care loans are our largest loan industry concentration and are made up of a diversified portfolio of health care providers. As of December 31, 2022, health care loans were $160.3 million, or 8.4% of loans HFI, compared to $141.0 million, or 8.4% of loans HFI, as of December 31, 2021. The average health care loan size was $338,000 as of December 31, 2022, and $288,000 as of December 31, 2021. Within the health care sector, loans to nursing and residential care facilities were 4.4% of loans HFI as of December 31, 2022, and 3.6% as of December 31, 2021. Loans to physician and dental practices were 3.9% of loans HFI as of December 31, 2022, and 4.7% as of December 31, 2021.

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Geographic Markets

As of December 31, 2022, Red River Bank operated in seven geographic markets throughout the state of Louisiana. The following table summarizes loans HFI by market of origin:

(dollars in thousands) Amount Percent of Loans HFI

Loan Portfolio Maturity Analysis

The maturity distribution for loans HFI are summarized below:

Real estate:

SBA PPP, net of deferred income — 14 — — 14

Fixed and Floating Rate Loans

The dollar amount, as of December 31, 2022, of fixed and floating rate loans HFI that mature after December 31, 2023, are presented in the following table:

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

Real estate:

SBA PPP, net of deferred income 14 — 14

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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, 2022, 2.1% of our loans HFI 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.

Nonperforming Assets

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

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

NPAs totaled $2.4 million as of December 31, 2022, an increase of $1.4 million, or 141.7%, from $979,000 as of December 31, 2021. The increase was primarily due to additional loans placed on nonaccrual status, offset by payments on nonaccrual loans, the sale of foreclosed assets during the year, and a loan that returned to accrual status. The ratio of NPAs to assets was 0.08% as of December 31, 2022, compared to 0.03% as of December 31, 2021.

Nonperforming loan and asset information is summarized below:

December 31,

Nonperforming loans:

Accruing loans 90 or more days past due 2 39

Foreclosed assets:

Real estate — 660

Total foreclosed assets — 660

Troubled debt restructurings:(1)

Nonaccrual loans $ 165 $ —

Nonaccrual loans to loans HFI 0.12 % 0.02 %

Nonperforming loans to loans HFI(1) 0.12 % 0.02 %

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

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Nonaccrual loans are summarized below by category:

December 31,

Real estate:

Commercial real estate $ 720 $ 51

One-to-four family residential 243 216

Construction and development 9 —

Commercial and industrial 1,291 13

SBA PPP, net of deferred income — —

Tax-exempt — —

Total nonaccrual loans $ 2,364 $ 280

Potential Problem Loans

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

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

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

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

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

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

Loans HFI are summarized below by risk category:

(dollars in thousands) Pass SpecialMention Substandard Doubtful Loss Total

Real estate:

SBA PPP, net of deferred income 14 — — — — 14

Allowance for Loan Losses

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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 of December 31, 2022, the allowance for loan losses was $20.6 million, or 1.08%, of loans HFI. As of December 31, 2021, the allowance for loan losses was $19.2 million, or 1.14%, of loans HFI. The $1.5 million increase in the allowance for loan losses for the year ended December 31, 2022, was due to $1.8 million from the provision for loan losses, partially offset by $298,000 of net charge-offs.

The provision for loan losses for the year ended December 31, 2022, was $1.8 million, a decrease of $150,000 from $1.9 million for the year ended December 31, 2021. The provision for loan losses for 2022 was due to the current inflationary environment, changing monetary policy, and loan growth. The provision for loan losses in 2021 was due to the anticipated adverse effects of the COVID-19 pandemic at that time.

Net charge-offs for the year ended December 31, 2022, were $298,000, a decrease of $377,000 from $675,000 for the year ended December 31, 2021. The ratio of net charge-offs to average loans HFI was 0.02% and 0.04% for the years ended December 31, 2022 and 2021, respectively. The 2022 results were primarily due to the charge-off of $433,000 of consumer overdrafts. The 2021 results were primarily due to the charge-off of $515,000 of nonaccrual loans.

CECL was effective for us on January 1, 2023. The CECL allowance model, prescribed by ASU No. 2016-13, requires measurement of expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts. This model replaced the incurred loss model. We expect the adoption of CECL on January 1, 2023, to result in a combined 3.5% increase in our allowance for credit losses and allowance for unfunded commitments. Refer to “Item 8. Financial Statements and Supplementary Data - Note 1 - Significant Accounting Policies - Recent Accounting Pronouncements” for more information on ASU No. 2016-13.

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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 $ 19,176 $ 17,951

Charge-offs:

Real estate:

Commercial real estate — (450)

One-to-four family residential — (10)

Construction and development (18) —

Commercial and industrial (39) (74)

Recoveries:

Real estate:

Commercial real estate 1 —

One-to-four family residential 11 18

Construction and development 18 2

Commercial and industrial 86 27

Net (charge-offs)/recoveries (298) (675)

Allowance for loan losses at end of period $ 20,628 $ 19,176

Allowance for loan losses to loans HFI 1.08 % 1.14 %

Allowance for loan losses to nonaccrual loans 872.59 % 6,848.57%

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 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.

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The following table displays the allocation of the allowance for loan losses among the loan classifications as of 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:

SBA PPP, net of deferred income — 0.0 % 25 0.1 %

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

For the Years Ended December 31,

Real estate:

Commercial real estate —% 0.03%

One-to-four family residential —% —%

Construction and development —% —%

Commercial and industrial —% —%

SBA PPP, net of deferred income —% —%

Tax-exempt —% —%

Total net charge-offs to average loans HFI 0.02% 0.04%

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 decreased $111.4 million, or 3.8%, to $2.80 billion as of December 31, 2022, from $2.91 billion as of December 31, 2021. The decrease in deposits was primarily a result of expected customer deposit account activity and customer response to the changing interest rate environment. Noninterest-bearing deposits decreased $59.1 million, or 5.1%, during 2022 to $1.09 billion as of December 31, 2022. Noninterest-bearing deposits as a percentage of total deposits were 38.96% as of December 31, 2022, compared to 39.50% as of December 31, 2021. Interest-bearing deposits decreased $52.3 million, or 3.0%, during 2022 to $1.71 billion as of December 31, 2022, with the largest decrease in money market accounts.

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

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

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 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 $2.85 billion for the year ended December 31, 2022, an increase of $258.3 million, or 10.0%, from $2.59 billion for the year ended December 31, 2021. For 2022, average public entity deposits were 6.5% of average total deposits. The average cost of interest-bearing deposits and total deposits for 2022 was 0.46% and 0.27%, respectively, compared to 0.36% and 0.22% for 2021, respectively. The increase in the average cost of interest-bearing deposits and total deposits in 2022 as compared to 2021 was due to rate competition for deposits that began in the second half of 2022. Also, as of December 31, 2022, 2.6% 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:

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Our uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), were approximately $975.1 million and $1.22 billion at December 31, 2022 and 2021, respectively. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.

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

(in thousands) December 31, 2022

Three months or less $ 4,084

Over three months through six months 15,628

Over six months through 12 months 13,662

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, 2022 or 2021.

Federal Home Loan Bank Advances. We utilize the FHLB of Dallas as needed as a funding source. As of December 31, 2022 and 2021, our total FHLB of Dallas line availability was $875.8 million and $748.6 million, respectively. 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, 2022 and 2021, we held unfunded letters of credit from the FHLB of Dallas in the amount of $100.9 million and $143.8 million, respectively. As of December 31, 2022 and 2021, we had net borrowing capacity of $774.9 million and $604.8 million, respectively, under this arrangement.

Other Borrowings. We may also utilize federal funds from various correspondent financial institutions as a source of short-term funding. As of December 31, 2022 and 2021, we had $95.0 million in federal funds lines available from these funding sources. We had no outstanding balances on these lines during 2022 or 2021.

Hancock Whitney Bank Line of Credit. We maintain a revolving line of credit at Hancock Whitney Bank collateralized by 100.0% of the stock of Red River Bank. As of December 31, 2022 and 2021, total borrowing capacity was $6.0 million under this arrangement. We had no outstanding balances on this line during 2022 or 2021.

Stockholders’ Equity

Total stockholders’ equity as of December 31, 2022, was $265.8 million, compared to $298.2 million as of December 31, 2021, a decrease of $32.4 million, or 10.9%. This decrease was attributable to a $67.4 million, net of tax, market adjustment to AOCI related to securities, $2.0 million in cash dividends, and the repurchase of 4,465 shares of common stock for $218,000, partially offset by $36.9 million of net income for the year ended December 31, 2022, and $274,000 of stock compensation.

During the second quarter of 2022, we reclassified certain securities from AFS to HTM. Such transfers are made at fair value on the date of transfer. The net unrealized holding loss on the date of transfer is retained, net of tax, in AOCI, with no immediate change to the total balance in AOCI. The unrealized holding loss will be amortized over the remaining life of the securities.

At the date of transfer, the net unamortized, unrealized loss on the transferred securities included in the consolidated balance sheets totaled $17.9 million, of which $14.2 million, net of tax, was included in AOCI. As of December 31, 2022, the net unamortized, unrealized loss remaining on the transferred securities included in the consolidated balance sheets totaled $16.0 million, of which $12.6 million, net of tax, was included in AOCI.

On February 4, 2022, our board of directors approved the renewal of the stock repurchase program that was completed in the fourth quarter of 2021 after reaching the purchase limit. The renewed repurchase program, the 2022 Program, authorized us to purchase up to $5.0 million of our outstanding shares of common stock from February 4, 2022 through December 31, 2022. For the year ended December 31, 2022, we repurchased 4,465 shares of our common stock at an aggregate cost of $218,000. Repurchases were made from time to time in the open market at prevailing prices and based on market conditions.

On November 4, 2022, our board of directors approved the renewal of the 2022 Program that expired on December 31, 2022. The renewed repurchase program, the 2023 Program, authorizes us to purchase up to $5.0 million of our outstanding shares of common stock from January 1, 2023 through December 31, 2023. 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. Repurchases may be subject to a nondeductible excise tax under the Inflation Reduction Act of 2022 equal

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to 1.0% of the fair market value of the shares repurchased, subject to certain limitations. While we may complete transactions subject to the new excise tax, we do not expect a material impact to our financial condition or results of operations.

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, bank holding companies and FDIC-insured depository institutions are required to maintain minimum capital relative to the amount and types of assets they hold.

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

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, 2022 and 2021, the Bank met all capital adequacy requirements.

The Economic Growth Act, which was signed into law in May 2018, provides, among other items, certain targeted modifications to prior financial services reform regulatory requirements. One of the Economic Growth Act’s highlights, with implications for us, was the asset threshold under the Policy Statement being increased from $1.0 billion to $3.0 billion, which benefits bank holding companies by, among various other items, allowing for an 18-month safety and soundness examination cycle as opposed to a 12-month examination cycle, changing to scaled biannual regulatory reporting requirements as opposed to quarterly regulatory reporting requirements, and not subjecting bank holding companies to capital adequacy guidelines on a consolidated basis. Because we had less than $3.0 billion in assets as of each of the June 30th measurement dates starting with the Economic Growth Act’s enactment and going through June 30, 2021, we have received benefits under the Policy Statement through 2022, except with regard to the timing of the Red River Bank safety and soundness exam by the FDIC and the OFI. Due to the timing of the asset balance determination for the Red River Bank safety and soundness examination, a 12-month examination cycle began in the second half of 2022. As of June 30, 2022, the last applicable measurement date, we had more than $3.0 billion in assets. Therefore, effective January 1, 2023, we expect to no longer receive any benefits under the Policy Statement and will be subject to the same Basel III minimum capital requirements on a consolidated basis that Red River Bank is subject to.

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

Another significant provision of the Economic Growth Act was the directive that federal bank regulatory agencies adopt a threshold for a CBLR framework. As part of the directive under the Economic Growth Act, in September 2019, the FDIC and other federal bank regulatory agencies approved the CBLR framework. This optional framework became effective January 1, 2020, and is available 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.

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As of December 31, 2022, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework.

LIQUIDITY AND ASSET-LIABILITY MANAGEMENT

Liquidity

Liquidity involves our ability to raise funds to support asset growth and potential acquisitions or to reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements, and otherwise to operate on an ongoing basis and manage unexpected events. For the years ended December 31, 2022 and 2021, liquidity needs were primarily met by core deposits, security and loan maturities, and cash flows from amortizing security and loan portfolios. 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; 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 Dallas and the Federal Reserve Bank of Atlanta are also available. Purchased funds from correspondent banks and overnight advances can be utilized to meet funding obligations, although we do not generally rely on these external funding sources.

Our primary source of funds is deposits, and our primary use of funds is the funding of loans. We invest excess deposits in interest-earning deposits at other banks or at the Federal Reserve, federal funds sold, securities, or other short-term liquid investments until the deposits are needed to fund loan growth or other obligations. Our average deposits increased $258.3 million, or 10.0%, for the year ended December 31, 2022, compared to the average deposits for the year ended December 31, 2021. Our average total loans increased $194.9 million, or 12.0%, for the year ended December 31, 2022, compared to average total loans for the year ended December 31, 2021.

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 AFS portfolio is an alternative source for meeting liquidity needs and was our second-largest component of assets as of December 31, 2022. Securities generate cash flow through principal repayments, calls, and maturities, and they generally have readily available markets that allow for their conversion to cash. As of December 31, 2022, securities AFS totaled $614.4 million, or 19.9% of assets, compared to $659.2 million, or 20.4% of assets as of December 31, 2021. However, certain investments within our securities AFS portfolio are also used to secure specific deposit types, such as public entity deposits, which impacts their liquidity. As of December 31, 2022, securities AFS with a carrying value of $156.7 million, or 25.5% of the securities AFS portfolio, were pledged to secure public entity deposits as compared to securities AFS with a carrying value of $118.6 million, or 18.0% of the securities AFS portfolio, similarly pledged as of December 31, 2021. This increase of $38.1 million, or 32.1%, was primarily the result of utilizing securities to replace FHLB of Dallas letters of credit as pledged collateral, combined with an increase in several public entity deposit accounts that occurred during 2022. During the second quarter of 2022, we reclassified $166.3 million, or 20.5% of the securities portfolio, from AFS to HTM. Significant limitations exist for selling debt securities classified as HTM; therefore, they are excluded from liquidity sources. For additional information, see “Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2. Securities - Securities AFS and Securities HTM.”

Interest-bearing deposits in other banks are our main source of meeting daily liquidity needs and were our third-largest component of assets as of December 31, 2022. Interest-bearing deposits in other banks were $240.6 million, or 7.8% of assets, as of December 31, 2022, compared to $761.7 million, or 23.6% of assets, as of December 31, 2021. The decrease of $521.2 million, or 68.4%, was primarily a result of deploying funds into securities and loans, combined with an outflow of deposits, during 2022.

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, 2022 and 2021, our total borrowing availability from the FHLB of Dallas was $875.8 million and $748.6 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, 2022 and 2021, we held unfunded letters of credit in the amount of $100.9 million and $143.8 million, respectively. As of December 31, 2022 and 2021, our net borrowing capacity from the FHLB of Dallas was $774.9 million and $604.8 million, respectively.

Other sources available for meeting liquidity needs include federal funds lines, repurchase agreements, and other lines of credit. We maintain four federal funds lines of credit with commercial banks that provided for the availability to borrow up to an aggregate of $95.0 million in federal funds as of December 31, 2022 and 2021. We also maintain an additional $6.0 million revolving line of credit at one of our correspondent banks. As of December 31, 2022 and 2021, we had total

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borrowing capacity of $101.0 million through these combined funding sources. We had no outstanding balances from either of these funding sources as of December 31, 2022 or 2021.

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 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.

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 0.56% as of December 31, 2022.

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

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

We use an interest rate risk simulation model 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, which calculates average lives using historic closure rates.

In conjunction with our interest rate risk management process, on a quarterly basis, we run various simulations within a static balance sheet. This model tests the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. 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 simulation 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

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simulations performed by our risk model currently specifies that for instantaneous parallel shifts of the yield curve, estimated fair value of equity for the subsequent one-year period should not decline by more than 20.0% for a 100 bp shift and 25.0% for a 200 bp shift.

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

Change in Interest Rates (bps)

The results above, as of December 31, 2022 and 2021, demonstrate that our balance sheet is asset sensitive, which means our assets have the opportunity to reprice at a faster pace than our liabilities, over the 12-month horizon. We have also observed that, historically, our deposit interest rates have adjusted more slowly than the change in the federal funds rate. This assumption is incorporated into the risk simulation model and is generally not reflected in a gap analysis, which is the process by which we measure the repricing gap between interest rate-sensitive assets versus interest rate-sensitive liabilities.

As of December 31, 2022, the reported percentage of changes in net interest income and fair value of equity remained within the policy thresholds. These values are reported at each quarterly Asset-Liability Committee meeting. The net interest income at risk and the fair value of equity will continue to be monitored, and appropriate mitigating action will be taken if needed.

The impact of our floating rate loans and floating rate transaction deposits are also reflected in the results shown in the above table. As of December 31, 2022, floating rate loans were 14.5% of loans HFI, and floating rate transaction deposits were 2.6% of interest-bearing transaction deposits.

The 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. 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. The primary effect of inflation on our operations is our ability to manage the impact of changes in interest rates. In addition, inflation could also increase our operating costs related to our products and services.

NON-GAAP FINANCIAL MEASURES

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

Management and the board of directors review tangible book value per share, tangible common equity to tangible assets, realized book value per share, and PPP-adjusted metrics as part of managing operating performance. However, these non-GAAP financial measures that we discuss in this Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner that

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we calculate the non-GAAP financial measures that are discussed in this Report may differ from that of other companies’ reporting measures with similar names. It is important to understand how such other banking organizations calculate and name their financial measures similar to the non-GAAP financial measures discussed in this Report when comparing such non-GAAP financial measures.

Tangible Assets, Tangible Equity, Tangible Book Value, and Realized Book Value

Tangible Book Value Per Share. Tangible book value per share is a non-GAAP measure commonly used by investors, financial analysts, and investment bankers to evaluate financial institutions. We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per share exclusive of changes in intangible assets. We calculate tangible book value per share as total stockholders’ equity, less intangible assets, divided by the outstanding number of shares of our common stock at the end of the relevant period. Intangible assets have the effect of increasing total book value while not increasing tangible book value. The most directly comparable GAAP financial measure for tangible book value per share is book value per share.

Tangible Common Equity to Tangible Assets. Tangible common equity to tangible assets is a non-GAAP measure generally used by investors, financial analysts, and investment bankers to evaluate financial institutions. We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets. Intangible assets have the effect of increasing both total stockholders’ equity and assets while not increasing our tangible common equity or tangible assets. We calculate tangible common equity as total stockholders’ equity less intangible assets, and we calculate tangible assets as total assets less intangible assets. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common stockholders’ equity to total assets.

As a result of previous acquisitions, we have a small amount of intangible assets. As of December 31, 2022, total intangible assets were $1.5 million, which is less than 1.0% of total assets.

Realized Book Value Per Share. Realized book value per share is a non-GAAP measure that we use to evaluate our operating performance. We believe that this measure is important because it allows us to monitor changes from period to period in book value per share exclusive of changes in AOCI. Our AOCI is impacted primarily by the unrealized gains and losses on securities AFS. These unrealized gains or losses on securities AFS are driven by market factors and may also be temporary and vary greatly from period to period. Due to the possibly temporary and greatly variable nature of these changes, we find it useful to monitor realized book value per share. We calculate realized book value per share as total stockholders’ equity less AOCI, divided by the outstanding number of shares of our common stock at the end of the relevant period. AOCI has the effect of increasing or decreasing total book value while not increasing or decreasing realized book value. The most directly comparable GAAP financial measure for realized book value per share is book value per share.

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

December 31,

Tangible common equity

Adjustments:

Realized common equity

Adjustments:

Accumulated other comprehensive (income) loss 71,166 3,773 (6,921)

Tangible book value per share (non-GAAP) $ 36.78 $ 41.31 $ 38.76

Realized book value per share (non-GAAP) $ 46.90 $ 42.05 $ 38.03

Tangible assets

Adjustments:

Total stockholders’ equity to assets 8.62 % 9.25 % 10.80 %

Tangible common equity to tangible assets (non-GAAP) 8.57 % 9.20 % 10.75 %

PPP-Adjusted Metrics

Red River Bank participated in the SBA PPP and originated 1,888 PPP loans totaling $260.8 million. PPP loan originations were concluded in the second quarter of 2021. Through December 31, 2022, we had received SBA forgiveness or borrower payments on all of the PPP loans originated except for $14,000. As of December 31, 2022, PPP loans totaled $14,000 and were less than 0.1% of loans HFI.

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

December 31,

Non-PPP loans HFI

Adjustments:

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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. Significant Accounting Policies” for details on the significant accounting principles and practices we follow.

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. Through December 31, 2022, Red River Bank utilized the incurred loss methodology to estimate the allowance for loan losses. The CECL model was 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 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. Significant Accounting Policies - Accounting Standards Adopted in 2022” and “- Recent Accounting Pronouncements.”

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, 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 16, 2023

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RED RIVER BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts) December 31,

ASSETS

Securities held-to-maturity, at amortized cost 151,683 —

Equity securities, at fair value 9,979 7,846

Nonmarketable equity securities 3,478 3,450

LIABILITIES

Accrued expenses and other liabilities 12,176 11,060

COMMITMENTS AND CONTINGENCIES — —

STOCKHOLDERS’ EQUITY

Accumulated other comprehensive income (loss) (71,166) (3,773)

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

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

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

INTEREST AND DIVIDEND INCOME

Interest on federal funds sold 1,091 88

Interest on deposits in other banks 3,682 658

Dividends on stock 40 10

INTEREST EXPENSE

Net Interest Income After Provision for Loan Losses 84,889 69,822

NONINTEREST INCOME

Service charges on deposit accounts 5,565 4,775

Bank-owned life insurance income 713 648

Gain (Loss) on equity securities (468) (175)

Gain (Loss) on sale and call of securities (59) 194

OPERATING EXPENSES

Occupancy and equipment expenses 6,109 5,443

Other business development expenses 1,645 1,169

Legal and professional expenses 1,997 1,683

Regulatory assessment expenses 1,058 933

EARNINGS PER SHARE

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

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands) Years Ended December 31,

Other comprehensive income (loss):

Unrealized net gain (loss) on securities arising during period (87,342) (13,343)

(Gain) Loss on sale and call of securities included in net income 59 (194)

Tax effect (414) —

Total other comprehensive income (loss) (67,393) (10,694)

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

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Stock incentive plan — — 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)

Stock incentive plan — — 274 — — 274

Issuance of shares of common stock as board compensation 675 35 — — — 35

Other comprehensive income (loss) — — — — (67,393) (67,393)

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

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Share-based compensation earned 274 269

Share-based board compensation earned 85 50

(Gain) Loss on other assets owned 60 (184)

Net (accretion) amortization on securities AFS 2,339 2,479

Net (accretion) amortization on securities HTM (1,953) —

(Gain) Loss on sale and call of securities 59 (194)

(Gain) Loss on equity securities 468 175

Deferred income tax (benefit) expense 313 (773)

Net (increase) decrease in loans HFS 3,772 24,826

Net (increase) decrease in accrued interest receivable (2,585) 635

Net (increase) decrease in BOLI (714) (648)

Net increase (decrease) in accrued interest payable 253 (464)

Net increase (decrease) in accrued income taxes payable 374 (70)

Other operating activities, net 1,847 (1,241)

Net cash provided by (used in) operating activities 45,867 62,264

CASH FLOWS FROM INVESTING ACTIVITIES

Activity in securities AFS:

Maturities, principal repayments, and calls 70,531 99,175

Activity in securities HTM:

Maturities, principal repayments, and calls 16,580 —

Sale of equity securities 7,399 —

Purchase of equity securities (10,000) (4,000)

Purchase of nonmarketable equity securities (28) (3)

Capital contribution in partnerships (892) (173)

Purchase of bank owned life insurance — (5,000)

Proceeds from sales of foreclosed assets 641 563

Proceeds from sales of premises and equipment — 483

Purchases of premises and equipment (8,444) (3,427)

Net cash provided by (used in) investing activities (438,698) (284,678)

RRBI US Equity

RRBI · 10-K · period ended 2022-12-31

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 2022-12-31

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