Investar Holding Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter earnings filing. Investar is a Louisiana bank holding company operating primarily in Louisiana, southeast Texas, and Alabama through Investar Bank.
Financial results and condition
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets, year-end | $2.754 billion | $2.513 billion |
| Gross loans, year-end | $2.105 billion | $1.872 billion |
| Deposits, year-end | $2.082 billion | $2.120 billion |
| Net interest income | $89.8 million | $83.8 million |
| Net interest margin | 3.67% | 3.53% |
| Net income | $35.7 million | $8.0 million |
| Diluted earnings per share | $3.50 | $0.76 |
| Noninterest income | $18.4 million | $12.0 million |
| Noninterest expense | $60.9 million | $63.1 million |
| Operating cash flow | $42.7 million | $33.5 million |
- Earnings and margins: Net income rose 346.4%, while return on average assets was 1.37% and return on average equity was 15.63%. The efficiency ratio improved to 56.29% from 65.79%. Net interest margin increased year over year, but fell to 3.50% in the fourth quarter from 3.57% a year earlier as funding costs rose faster late in the year.
- Credit: The provision for loan losses fell to $2.9 million from $22.9 million, which included a $21.6 million charge tied to a Hurricane Ida-affected relationship in 2021. The allowance was $24.4 million, or 1.16% of loans. Nonaccrual loans declined to $10.0 million, or 0.47% of loans, from $29.5 million, or 1.58%.
- Funding and liquidity: Deposits declined 1.8%; time deposits rose while demand, money-market, and savings balances fell. Cash and cash equivalents decreased to $40.3 million from $97.0 million. FHLB advances increased to $387.0 million from $78.5 million; $533.1 million of additional FHLB capacity and $60 million in unused unsecured credit lines were reported. Estimated uninsured deposits were $701.1 million.
- Debt and capital: The company issued $20 million of 5.125% subordinated notes due 2032 and redeemed $18.6 million of 6.00% notes due 2027. The Bank’s total risk-based capital ratio was 12.92%, and it met the regulatory “well-capitalized” standard. Consolidated stockholders’ equity declined to $215.8 million from $242.6 million.
- Cash flows: Investing activities used $351.0 million, principally reflecting loan growth and securities purchases; financing activities provided $251.5 million, including increased FHLB advances. These movements contributed to the decline in cash balances.
Material changes and unusual items
- Loan balances grew 12.4%, led by commercial and industrial lending and nonowner-occupied commercial real estate. Commercial real estate represented about 45.5% of loans; approximately 79% of the portfolio had real estate as a primary or secondary component of collateral.
- Net income benefited from lower credit provisioning, $8.1 million of swap termination fee income, and $1.4 million of insurance proceeds. The insurance proceeds related to a policy associated with the former CFO. These items contributed to year-over-year earnings growth and may not recur at comparable levels.
- Rising rates drove investment portfolio unrealized losses of $62.5 million at year-end. The after-tax AFS securities loss contributed to accumulated other comprehensive loss of $48.9 million and the reduction in reported equity.
- On January 27, 2023, the Bank sold assets, deposits, and other liabilities associated with its Alice and Victoria, Texas branches, including $13.9 million of loans and $14.5 million of deposits. It recorded a $0.8 million loss on disposal, $0.3 million of lease-termination occupancy expense, and $0.3 million of other expenses.
- Investar repurchased $10.5 million of shares and paid $3.6 million in dividends during 2022. It reported 386,714 shares remaining authorized for repurchase at year-end.
Outlook, risks, and contingencies
- No numerical earnings or growth guidance is provided. Management expects possible further net interest margin pressure in 2023 if funding costs rise faster than asset yields. It did not expect to open de novo branches in 2023 and planned to consolidate another Louisiana branch while continuing to pursue organic growth and selective acquisitions.
- Investar adopted CECL on January 1, 2023. Management estimated a one-time $4.8 million to $7.2 million increase in the allowance, or approximately 20% to 30%, with an after-tax reduction to retained earnings and no initial income-statement impact. The estimate was subject to refinement.
- Key exposures include interest-rate and deposit competition, unrealized securities losses and potential sale losses, commercial real estate and business credit risk, regional economic concentration, inflation, severe weather, cybersecurity and third-party service providers, and the LIBOR transition. Approximately $30.9 million of loans and certain other instruments remained directly or indirectly LIBOR-dependent at year-end.
- Loan commitments totaled $333.0 million and standby letters of credit $11.4 million; these are not necessarily future cash outflows. Management reported no legal proceedings expected to have a material adverse effect and said reasonably possible losses from legal proceedings were not material.
- The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether 2022 earnings strength persists after the unusually low provision and nonrecurring swap and insurance income.
- Actual 2023 deposit trends, deposit pricing, FHLB borrowing levels, funding costs, and quarterly net interest margin.
- The realized CECL adoption adjustment versus the estimated $4.8 million to $7.2 million increase, and subsequent allowance adequacy and credit performance.
- Whether unrealized securities losses deepen or require asset sales, and how AOCI affects reported equity and capital measures.
- Performance of commercial real estate and commercial and industrial loans, including concentrations, criticized assets, nonaccruals, and collateral values.
- The final financial impact of the Texas branch sale and planned branch consolidation, along with the sustainability of capital distributions and share repurchases.