Executive Summary / Key Takeaways

• Red River Bancshares, Inc. (RRBI) demonstrated strong financial performance in Q1 2025, driven by significant net interest margin expansion and net income growth, reflecting effective balance sheet management in a dynamic rate environment.
• The company achieved solid loan growth, particularly in construction and commercial segments, while maintaining stable asset quality metrics, though nonperforming assets saw a temporary increase early in the quarter.
• RRBI maintains a stable and granular deposit base, with growth in noninterest-bearing accounts contributing to lower funding costs and robust liquidity coverage relative to uninsured deposits.
• Commitment to shareholder value is evident through a substantial dividend increase and an active share repurchase program, supported by strong capital ratios well above regulatory minimums.
• Strategic focus on Louisiana market share expansion, operational efficiency enhancements including digital banking upgrades, and disciplined risk management underpin the company's outlook for consistent net interest income and margin performance.

A Louisiana Foundation: Strategy Meets Market Dynamics

Red River Bancshares, Inc., through its wholly-owned subsidiary Red River Bank, has carved out a significant presence in Louisiana's banking landscape since its establishment in 1999. Operating across 28 banking centers and one loan and deposit production office, the bank focuses on providing a comprehensive suite of banking products and services tailored to both commercial and retail customers. This strategy is deeply rooted in a relationship-oriented banking model, emphasizing strong ties with customers and the communities it serves across key Louisiana markets, including Alexandria, Shreveport-Bossier City, Baton Rouge, Lake Charles, Covington, Lafayette, and New Orleans.

The company's overarching strategy is centered on driving shareholder value through organic market share expansion in existing territories, pursuing opportunistic de novo growth in new areas, and selectively considering strategic acquisitions of financial institutions that align with its customer-centric philosophy and geographic focus. This approach positions RRBI as a regional player competing directly with larger institutions like Regions Financial Corporation (RF), Hancock Whitney Corporation (HWC), and First Horizon Corporation (FHN), as well as other regional banks such as Origin Bancorp, Inc. (OBNK).

In this competitive arena, RRBI leverages its local network and relationship focus as key differentiators. While larger competitors often boast greater scale and more extensive digital capabilities, RRBI's localized decision-making and operational structure contribute to a more cost-efficient model, potentially offering advantages in specific areas like loan processing speed for local businesses. However, the banking industry is increasingly influenced by technological innovation, and the competitive landscape includes indirect threats from fintech firms offering streamlined, lower-cost alternatives. Adapting to these trends and investing in technology is crucial for maintaining relevance and efficiency.

Recognizing the importance of digital capabilities, RRBI completed significant upgrades to its online, mobile banking, and bill payment systems in the first quarter of 2025. The stated goal of these enhancements is to improve digital services for all customers. While the immediate quantifiable benefits of these specific upgrades are not detailed, such investments are strategically important for meeting evolving customer expectations and enhancing operational efficiency in the face of competitors who may already possess more advanced digital platforms. The company's R&D investment, while not detailed with specific programs or targets, is implicitly linked to these technology enhancements aimed at supporting its relationship banking model with modern tools.

Financial Momentum: Margin Expansion Fuels Profit Growth

The first quarter of 2025 marked a period of strong financial performance for RRBI, highlighted by significant growth in net income and expansion of the net interest margin. Net income for the quarter reached $10.352 million, or $1.52 per diluted share. This represents an increase of 11.2% compared to $9.306 million ($1.37 per diluted share) in the fourth quarter of 2024, and a substantial 26.4% increase from $8.188 million ($1.16 per diluted share) in the first quarter of 2024.

This improved profitability translated into stronger efficiency and returns. The return on average assets rose to 1.32% in Q1 2025, up from 1.18% in the prior quarter and 1.07% in the same period last year. Similarly, the return on average equity increased to 12.85% from 11.46% in Q4 2024 and 10.77% in Q1 2024. The efficiency ratio, a key measure of operational effectiveness, improved to 55.51% in Q1 2025, down from 58.71% in Q4 2024 and 60.37% in Q1 2024. This indicates the company is becoming more efficient in managing its operating expenses relative to its revenue generation.

The primary driver behind this performance was a notable increase in net interest income and net interest margin (FTE). Net interest income grew to $24.610 million in Q1 2025, a 3.9% increase from $23.687 million in Q4 2024 and a 15.2% increase from $21.363 million in Q1 2024. The net interest margin (FTE) expanded by 13 basis points quarter-over-quarter to 3.22% and by 39 basis points year-over-year from 2.83%.

This margin expansion was a result of both improving asset yields and decreasing funding costs. The yield on the loan portfolio increased to 5.41% in Q1 2025 from 5.34% in Q4 2024 and 5.09% in Q1 2024, reflecting higher rates on new and renewed loans compared to the existing portfolio yield. The yield on the securities portfolio also saw improvement, rising to 2.77% for taxable securities in Q1 2025 from 2.62% in Q4 2024 and 2.14% in Q1 2024. This was primarily attributed to reinvesting lower-yielding securities cash flows into higher-yielding instruments.

On the funding side, the cost of deposits decreased to 1.61% in Q1 2025, down from 1.71% in Q4 2024 and 1.70% in Q1 2024. This reduction was mainly due to strategically lowering selected time deposit rates in response to the Federal Open Market Committee's (FOMC) rate decreases in the latter half of 2024 and further adjustments in Q1 2025.

Noninterest income also contributed positively, increasing by $277,000 quarter-over-quarter and $344,000 year-over-year to $5.272 million in Q1 2025. This was primarily driven by higher brokerage income, reflecting increased client investing activity. Mortgage loan income saw a decrease quarter-over-quarter due to lower purchase activity, while SBIC income also declined and is expected to be lower in future quarters due to fund value fluctuations.

Operating expenses decreased slightly quarter-over-quarter to $16.588 million, benefiting from periodic items such as a data processing refund and a vendor rebate, which collectively reduced expenses by approximately $620,000 and contributed about $0.07 to EPS in the quarter. However, operating expenses were higher year-over-year, mainly due to increased personnel costs (driven by headcount growth and commission compensation), occupancy and equipment expenses (including costs from a new banking center and renovations), and technology expenses related to ongoing software enhancements.

Balance Sheet Strength and Capital Management

RRBI's balance sheet demonstrated continued growth and stability. Total assets increased by $36.8 million, or 1.2%, to $3.19 billion as of March 31, 2025, compared to $3.15 billion at December 31, 2024. This growth was primarily funded by an increase in deposits.

Loans held for investment grew by $39.7 million, or 1.9%, reaching $2.11 billion as of March 31, 2025. This growth was fueled by steady new loan closing activity and the funding of construction commitments, particularly in the construction and development (13.1% increase), commercial and industrial (3.7% increase), and commercial real estate (0.9% increase) categories.

Asset quality metrics remained generally stable, though nonperforming assets (NPAs) saw an increase to $5.20 million (0.16% of assets) as of March 31, 2025, from $3.30 million (0.10% of assets) at December 31, 2024. This increase was primarily attributed to a single past-due loan. However, the company noted that this loan was brought current in early April 2025, and subsequent principal payments on other nonaccrual loans further reduced NPAs. The allowance for credit losses (ACL) stood at $21.8 million, representing 1.03% of loans HFI, a slight decrease from 1.05% at year-end 2024. The provision for credit losses increased to $450,000 in Q1 2025, up from $300,000 in the prior quarter and the same period last year, reflecting loan growth and ongoing economic uncertainties, including those related to tariffs and trade.

Deposits, the company's primary funding source, increased by $20.6 million, or 0.7%, to $2.83 billion as of March 31, 2025. This growth was mainly driven by higher balances in consumer and commercial accounts, partially offset by seasonal outflows from public entity customers. Notably, noninterest-bearing deposits grew by 4.6% to $906.5 million, increasing their share of total deposits to 32.08% from 30.89% at year-end 2024. This shift towards lower-cost funding sources is a key factor in the improving net interest margin.

RRBI maintains a strong liquidity position. As of March 31, 2025, cash and cash equivalents totaled $252.2 million. The company also has significant accessible liquidity through borrowing capacity with the Federal Home Loan Bank (FHLB), the Federal Reserve's Discount Window, and correspondent banks, totaling $1.66 billion. This combined liquidity of over $1.9 billion provides robust coverage for estimated uninsured deposits, equaling 218.40% of total estimated uninsured deposits and 277.10% when excluding collateralized public entity deposits. The company had no outstanding borrowings from these sources as of March 31, 2025.

Capital management remains a priority, with RRBI maintaining capital ratios well above regulatory requirements. Total stockholders' equity increased by $13.6 million, or 4.2%, in Q1 2025 to $333.3 million. This increase was driven by net income and a positive market adjustment to accumulated other comprehensive income (AOCI) related to securities, partially offset by cash dividends. The net unrealized loss on available-for-sale securities decreased by $4.6 million in the quarter, reducing the impact on AOCI. The company also continues to return capital to shareholders through dividends and share repurchases. The quarterly cash dividend was increased by 33.3% to $0.12 per share for Q1 2025. The 2025 stock repurchase program authorizes the purchase of up to $5.0 million in common stock through year-end, with the full amount remaining available as of March 31, 2025. A private repurchase of 100,000 shares for $5.1 million was completed shortly after the quarter ended, further demonstrating this commitment.

Outlook and Competitive Dynamics

Looking ahead, management anticipates that net interest income and net interest margin (FTE) will remain fairly consistent for the remainder of 2025. This outlook is contingent on balance sheet activity, the trajectory of interest rates, and the broader economic environment. The company expects to benefit from the reinvestment of approximately $80.0 million in securities cash flows (average yield 3.28%) and the maturity of about $162.2 million in fixed-rate loans (average yield 6.15%) through year-end into potentially slightly higher-yielding assets. Additionally, the maturity of $253.6 million in time deposits (average rate 4.06%) in the second quarter of 2025 is expected to reprice into slightly lower-cost deposits, further supporting the margin. SBIC income is projected to be lower in future quarters due to expected fund value fluctuations.

While management provides this qualitative outlook, analyst projections offer a more quantitative view. Recent analyst estimates suggest EPS of $1.42 for Q2 2025 and $5.71 for the full year 2025, indicating expectations for continued earnings growth.

In the competitive landscape, RRBI's performance metrics offer insights into its positioning. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, RRBI's focus on relationship banking and local markets helps it maintain customer loyalty, with regional surveys suggesting higher retention rates in certain segments compared to larger banks. Its operational structure contributes to cost efficiency, with estimates indicating lower operating costs per branch and faster loan processing for small businesses compared to some rivals. This cost leadership provides a tangible advantage, translating into potentially better margins and cash flow generation relative to its scale.

However, larger competitors like RF and FHN benefit from superior scale, enabling greater investment in technology and potentially faster digital adoption rates. FHN, for instance, has highlighted faster processing speeds on its digital platforms, an area where RRBI's recent upgrades aim to narrow the gap but may still lag. These technological differences can impact customer acquisition costs and overall operational efficiency. Furthermore, RRBI's geographic concentration in Louisiana makes it more susceptible to regional economic downturns or natural disasters compared to more geographically diversified institutions.

Despite these challenges, RRBI's strong capital position, improving profitability metrics, and disciplined approach to loan growth and funding position it well to compete effectively within its chosen markets. The company's asset-sensitive balance sheet suggests it is reasonably positioned to benefit if interest rates rise, although the current market expectation leans towards potential rate decreases, which could pressure asset yields. The company's interest rate sensitivity analysis indicates that while net interest income is sensitive to rate changes, the impact remains within policy thresholds for moderate shifts.

Conclusion

Red River Bancshares is demonstrating solid execution on its strategy, leveraging its regional focus and relationship banking model to drive meaningful financial improvements. The significant expansion in net interest margin and strong net income growth in the first quarter of 2025 underscore the company's operational resilience and effective balance sheet management in the current interest rate environment. Coupled with disciplined loan growth, stable asset quality (notwithstanding temporary fluctuations), robust liquidity, and a clear commitment to returning capital through dividends and buybacks, RRBI presents a compelling picture of a regional bank successfully navigating its market. While facing competition from larger, technologically advanced institutions and inherent risks from geographic concentration and interest rate volatility, RRBI's focus on efficiency, local relationships, and strategic digital enhancements positions it to continue delivering value to shareholders. The outlook for consistent margin performance and ongoing capital returns suggests that RRBI's story of regional strength and operational discipline is far from over.