Investar Holding Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 9, 2022. This is an annual report, not a standalone fourth-quarter report. Investar is a Louisiana-based bank holding company operating through Investar Bank in Louisiana, Texas and Alabama. The company acquired Cheaha Bank in Alabama on April 1, 2021.
Financial performance and position
| Metric | FY2021 / Dec. 31, 2021 | Comparison |
|---|---|---|
| Total interest income | $95.5 million | $93.8 million in 2020 |
| Net interest income | $83.8 million | Up 14.0% from $73.5 million |
| Noninterest income | $12.0 million | $12.1 million in 2020 |
| Net income / diluted EPS | $8.0 million / $0.76 | $13.9 million / $1.27 in 2020 |
| Net interest margin | 3.53% | 3.49% in 2020 |
| Total assets | $2.51 billion | Up 8.3% year over year |
| Loans, net of allowance | $1.85 billion | Up about $11 million |
| Deposits | $2.12 billion | Up 12.3% from $1.89 billion |
| Stockholders’ equity | $242.6 million | $243.3 million in 2020 |
Return on average assets was 0.31% (0.61% in 2020), and return on average equity was 3.22% (5.77%). The non-GAAP efficiency ratio improved to 65.79% from 66.72%. The $5.9 million decline in earnings primarily reflected higher credit costs, including a $21.6 million Hurricane Ida-related impairment, and increased operating and acquisition expenses. The provision for loan losses was $22.9 million, versus $11.2 million in 2020.
Cash flow: Operating activities provided $33.5 million; investing activities provided $53.4 million; financing activities used $25.2 million. Cash and cash equivalents increased $61.7 million to $97.0 million.
Debt and liquidity: Year-end borrowings included $78.5 million of FHLB advances, $5.8 million of repurchase agreements, $43.0 million of subordinated debt and $8.4 million of junior subordinated debt. No unsecured credit lines were drawn; $60 million of such lines remained available, and the company reported $845.9 million of additional FHLB capacity. Core deposits funded 81% of assets, versus 69% in 2020. Estimated uninsured deposits were $719.8 million.
The Bank reported regulatory capital ratios of 11.72% CET1, 11.72% Tier 1 risk-based capital, 12.75% total risk-based capital and 9.60% leverage, and was categorized as well capitalized.
Material changes and unusual items
- Cheaha added approximately $240.8 million of assets and $207.0 million of deposits at acquisition; $11.9 million of goodwill was recorded.
- Hurricane Ida damaged a borrower’s operations and collateral, leading to a $21.6 million impairment and charge-off. Net charge-offs rose to $22.4 million, or 1.18% of average loans, from $1.5 million, or 0.08%, in 2020.
- Nonaccrual loans increased to $29.5 million, or 1.58% of loans, from $13.5 million, or 0.73%. The allowance was $20.9 million, 1.11% of loans and 71% of nonaccrual loans.
- Deposits grew partly through the Cheaha acquisition and organic growth; noninterest-bearing deposits rose 30.6% to $585.5 million. Time deposits declined, and brokered deposits fell to zero from $80.0 million.
- The company recorded $1.8 million of swap termination fee income after terminating swaps with $150 million notional value. It also recorded a $1.9 million Employee Retention Credit benefit in salaries and benefits.
Outlook, risks and contingencies
No specific earnings or balance-sheet guidance is provided. Management said it did not expect to open de novo branches in 2022 and anticipated Federal Reserve rate increases amid elevated inflation. Its year-end rate sensitivity analysis estimated that a 100-basis-point increase would raise 12-month net interest income by 1.8%, while a 100-basis-point decrease would reduce it by 4.5%; these are modeled scenarios, not guidance.
Management identified credit quality, the lasting effects of COVID-19, Hurricane Ida, inflation and interest-rate changes, regional economic concentration, real estate collateral values, deposit competition, acquisitions, cybersecurity and the LIBOR transition as key risks. Approximately 77% of deposits were in Louisiana; approximately 82% of loans had real estate as a primary or secondary collateral component. The company had $186.4 million of outstanding loans linked directly or indirectly to LIBOR and had stopped originating LIBOR-based loans at year-end, with SOFR identified as its preferred replacement index.
CECL was scheduled for adoption on January 1, 2023; management expected an increase in the allowance but could not reasonably estimate the impact. Loan commitments totaled $349.7 million and standby letters of credit $18.3 million. Management said reasonably possible losses from legal proceedings were not material as of the filing date. The independent auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective.
Most important facts for investors to verify
- Whether the Ida-affected borrower’s recovery, collateral values and related nonaccrual exposure support the recorded loss and current allowance.
- How credit quality, charge-offs and problem loans evolve after the sharp 2021 deterioration.
- Whether deposit growth is durable, including the effect of uninsured deposits, acquisition-related balances and deposit repricing.
- How net interest income responds to rate changes and whether LIBOR-linked contracts transition smoothly to replacement rates.
- The ultimate CECL adoption impact, acquisition integration costs and ability to sustain earnings and capital while continuing dividends and repurchases.