RED RIVER BANCSHARES INC (RRBI) stock intrinsic value fair value estimate & owner earnings analysis

Red River Bancshares is the holding company for Red River Bank, a Louisiana community bank established in 1999 that has grown to about $3.3 billion of assets and 28 banking centers across Louisiana: Alexandria and Central Louisiana, Shreveport-Bossier City, Baton Rouge, Lake Charles, Lafayette, New Orleans and the Northshore. It lends to local businesses, professionals and households and funds that lending almost entirely with customer deposits, about 31% of which pay no interest. Its largest industry concentration is health care (nursing and residential care facilities and physician and dental practices), $194 million or 8.6% of loans at the end of 2025; direct energy lending is small, $27.7 million or 1.2% of loans, although the Louisiana economy still feels oil and gas cycles indirectly. How we measure earnings. For a bank the cash it produces for owners is close to its profit: branches and equipment cost a few million dollars a year. The one adjustment that matters is the pipeline of mortgages the bank makes and sells; building or running down that pipeline swings reported operating cash flow by tens of millions of dollars (reported operating cash flow was $12.8 million in 2020 and $62.3 million in 2021) without any change in earning power, so we strip it out. On that basis owner earnings rose from $25.0 million ($3.51 a share) in 2019 to $35.1 million ($5.07) in 2024 and $42.9 million ($6.40) in 2025. Setting the starting point. Because the bank's earnings scale with the size of its balance sheet, which has almost doubled since 2018, a simple median of past per-share results would understate what today's larger bank earns. We therefore measured owner earnings as a return on average assets across a full interest-rate cycle, 2019 to 2025: near-zero rates and surplus pandemic deposits in 2020-2022, the sharp rate rises of 2022-2023 and the cuts of 2024-2025. That return ranged from 1.07% (2022) to 1.32% (2025), with a median of 1.19%. Applied to 2025's average assets, that gives normalized owner earnings of about $38.6 million, or roughly $5.76 a share. The bank is currently earning well above that: net interest margin reached 3.38% for 2025 and 3.61% in the second quarter of 2026, and first-half 2026 profit was $23.7 million ($3.59 a share, up from $3.03). That is not unprecedented for this bank; its margin was 3.44% in 2018 and 3.52% in 2019, before the pandemic flood of low-yielding deposits, so the recent level is partly a return to normal. But it depends on where interest rates settle, which nobody can evidence a decade ahead, so our central case lets it fade back to the full-cycle median by 2030 rather than assuming it lasts. Owner earnings grew 22% in 2025 (26% per share); our central case assumes they slip about 2-3% in 2027 from the 2026 run rate, so it builds in no acceleration. What is and is not counted as growth. The bank has grown for 27 years mainly by opening new banking centers in new Louisiana markets (its stated strategy is de novo expansion) and funding that growth from its own retained earnings; assets grew about 9% a year from 2018 to 2025 but only about 1% a year from 2021 to 2025. Every dollar of growth must be backed by capital, so in every case we hold back about 10 cents of each dollar of new assets from what owners can take out. We gave no credit to the higher-rate environment persisting, to new markets beyond the existing footprint, or to share buybacks, which simply return cash already counted. Debt. For a bank, deposits are the raw material of the business rather than borrowing, and the interest it pays on them is already charged against the earnings we value, so no debt is subtracted in any case. The company has no other borrowings: its only such debt, $11.3 million of junior subordinated debentures, was repaid in 2019, and at the end of 2025 its liabilities were customer deposits of $2.96 billion plus about $22 million of accrued interest, leases and other payables. Shareholders' equity was $384.6 million (11.6% of assets) at June 30, 2026; we treat about $53 million above a 10% capital level as surplus that could be returned to owners in the central and optimistic cases, but not in the pessimistic case, where it is kept as a cushion against losses. Unrealized losses of $43 million on its bond portfolio at the end of 2025 are not a debt; they reflect bonds bought at low pandemic-era yields that are maturing and being reinvested at higher rates ($125 million of securities cash flows at 3.69% scheduled for 2026, reinvested near 4.9% in 2025). Central case: margins stay elevated for 2027 and 2028 as maturing low-rate loans and bonds are repriced, then return on assets fades to the full-cycle 1.19% by 2030; assets grow 3% a year, between the recent 1% and the long-run 9%; after 2036 the deposit franchise keeps earning at that level with no further growth. The business is worth about $778 million plus $53 million of surplus capital, against no debt, or about $832 million, which is $125.74 a share. Pessimistic case: rates fall back toward pandemic-era levels, deposit competition returns and credit costs, unusually low recently (nonperforming assets were only 0.08% of assets in mid-2026), return to normal; return on assets falls to 1.00% by 2029, below any year since 2019, and assets grow only 1% a year. The business is worth about $601 million against no debt, with the surplus capital held back as a buffer, or $90.91 a share. Optimistic case: the margin holds near today's level, as it did before 2020, keeping return on assets around 1.38% from 2029; branch expansion drives 5% asset growth through 2031, tapering to 3% by 2036 and 1.5% thereafter. The business is worth about $1,106 million plus $53 million of surplus capital, against no debt, or about $1,160 million, which is $175.32 a share. Roughly 60% of the central-case value comes from years after 2036. That is appropriate for a deposit franchise that renews itself loan by loan and has no expiry date, but it means the value depends on the bank still being a healthy, independent lender a decade from now. Changes since our previous estimate. Our central value falls from about $145 to $126 and our margin-of-safety price from about $105 to $88, mainly because we now charge for the capital the bank must retain to grow, and after 2036 we assume no further growth in the central and pessimistic cases rather than about 1% a year. Offsetting part of that, we now measure the starting point from the bank's return on its current balance sheet rather than older per-share results. The pessimistic value rises from about $84 to $91 because the filings show direct energy lending is only 1.2% of loans, smaller than we previously allowed for. The treatment of debt did not move the value: the bank has no borrowings. Margin-of-safety price. This is a conservatively financed, predictable bank, but its earnings depend on interest rates and most of its value lies far in the future, so the estimate calls for a margin of about 30% below the central value. The margin-of-safety price of about $88 sits below the pessimistic value; from that price, the central case implies a strong return from a modest recovery toward the central value, plus dividends.