Investar Holding Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; balance-sheet comparisons are with December 31, 2022. Investar is a Louisiana-based bank holding company operating in Louisiana, southeast Texas and Alabama. Figures below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | Q3 / September 30, 2023 | Comparison |
|---|---|---|
| Interest income | $33.2 for the quarter | Up from $27.0 in Q3 2022 |
| Net interest income | $17.5 for the quarter; $56.0 for nine months | Down 25.6% and 16.7%, respectively, year over year |
| Net income / diluted EPS | $2.8 / $0.28 for the quarter; $13.1 / $1.33 for nine months | Q3 2022: $7.3 / $0.73; nine-month 2022: $26.8 / $2.62 |
| Net interest margin | 2.66% for the quarter; 2.87% for nine months | Down from 3.77% and 3.73%, respectively |
| Total assets | $2,789.5 | Up from $2,753.8 at year-end 2022 |
| Total loans / allowance | $2,103.0 / $29.8 | Loans down slightly from $2,104.8; allowance up from $24.4 |
| Total deposits | $2,209.4 | Up $127.1, or 6.1%, from year-end 2022 |
| Cash and cash equivalents | $63.7 | Up from $40.3 at year-end 2022 |
| Total stockholders’ equity | $208.7 | Down from $215.8 at year-end 2022 |
For the first nine months, operating cash flow was $26.0, investing cash outflow was $25.1, and financing cash inflow was $22.6. Cash and cash equivalents increased $23.4 over the period. The filing does not present a single conventional “revenue” line; interest income and net interest income are the principal operating measures for this bank.
Material changes and notable items
- Rising rates drove substantial funding-cost increases: nine-month interest expense rose $32.6, more than offsetting a $21.3 increase in interest income. Deposit costs rose to 2.24% for nine months from 0.28%; net interest margin compressed.
- Deposit balances grew, but the mix shifted toward higher-cost funding. Noninterest-bearing deposits fell $121.2, while time and brokered time deposits increased. Estimated uninsured deposits were 34% of total deposits, or $744.2.
- Borrowings included $235.8 under the Federal Reserve Bank Term Funding Program (BTFP), $23.5 of FHLB advances and $13.9 of repurchase agreements. The company reported approximately $1.03 billion of available funding across FHLB, BTFP and correspondent-bank lines, in addition to cash; it stated these sources equaled 147% of uninsured deposits.
- The company acquired the first tranche of a commercial and industrial revolving-credit portfolio on September 15: $35.8 of unpaid principal and $61.1 of commitments. The second tranche, $127.0 of principal and $176.7 of commitments, closed October 3, 2023, after quarter-end. The acquired lines are variable-rate and short-term, with varying renewal terms.
- Investar decided to exit consumer mortgage originations, while retaining and servicing its existing portfolio, reported at approximately $264.1. It also closed a Louisiana branch, ceased operating 14 ATMs, and continued branch-network cost and efficiency initiatives.
- Noninterest income for nine months was $4.8, down from $14.9, largely because 2022 included $8.1 of swap termination income. 2023 also included $1.3 of losses on fixed-asset sales or dispositions, primarily related to branch and ATM actions.
- Accumulated other comprehensive loss increased to $60.5, mainly from unrealized losses on available-for-sale securities. The AFS portfolio had $77.1 of gross unrealized losses; management attributed declines primarily to market interest rates, not credit losses, and said it intended to hold securities to recovery or maturity.
- CECL adoption on January 1 increased the allowance by $5.9 and reduced retained earnings by $4.3 after tax. The nine-month income statement reported a $2.5 negative provision, principally reflecting $2.2 of net loan recoveries, largely tied to a Hurricane Ida-affected relationship.
Credit, liquidity, capital and outlook
Credit indicators improved: nonperforming loans were 0.27% of loans at September 30, versus 0.54% at December 31, 2022; nonaccrual loans were $5.3, or 0.25% of loans. The allowance was 1.42% of loans. Commercial real estate was 44.8% of loans, and total real-estate loans were 79.8%; these concentrations make property-market and borrower performance relevant risks. Other real estate owned rose to $4.4 from $0.7 at year-end.
The Bank reported regulatory capital ratios above “well-capitalized” thresholds: 10.05% Tier 1 leverage, 11.53% common equity Tier 1 and Tier 1 capital, and 12.78% total capital. Management said it was pivoting from a primarily growth-oriented strategy toward consistent, quality earnings through balance-sheet optimization, while maintaining long-term organic and acquisition growth ambitions. The filing provides no specific earnings, margin or growth guidance.
Key risks cited include deposit outflows and higher funding costs, further margin compression, interest-rate and securities-value changes, credit deterioration, inflation and economic conditions, geographic and credit concentrations, and operational, cyber, regulatory and weather-related risks. Management’s interest-rate simulation estimated net interest income declines of 3.3% under an immediate +100-basis-point scenario and 7.0% under +200 basis points; actual results may differ because the simulations depend on assumptions. The BTFP program was scheduled to end March 11, 2024.
Most important facts for investors to verify
- Whether deposit retention and pricing stabilize, particularly given the 34% estimated uninsured-deposit share and increased reliance on time and brokered deposits.
- How quickly funding costs and net interest margin respond to market rates, and how the BTFP borrowings are repaid or replaced before the program ends.
- The credit quality, renewal terms, realized yields and concentration implications of the purchased revolving-credit portfolio, including the October 3 second tranche.
- Whether the $77.1 of AFS unrealized losses remain manageable without securities sales, and how further rate changes affect capital and liquidity.
- Whether asset-quality improvement persists, including recoveries from the Hurricane Ida-related relationship, and whether the CECL allowance remains adequate.
- Execution and financial effects of the mortgage-origination exit, branch and ATM reductions, and the stated shift toward earnings consistency.