Investar Holding Corporation (Nasdaq: ISTR) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 10, 2021. Investar is a Louisiana-based bank holding company operating through Investar Bank, with 31 full-service branches across Louisiana, Texas and Alabama. The company reports one operating segment.
Financial results and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets at year-end | $2.321 billion | $2.149 billion |
| Loans, gross | $1.860 billion | $1.692 billion |
| Deposits | $1.888 billion | $1.708 billion |
| Stockholders’ equity | $243.3 million | $242.0 million |
| Net interest income | $73.5 million | $64.8 million |
| Noninterest income | $12.1 million | $6.2 million |
| Provision for loan losses | $11.2 million | $1.9 million |
| Net income | $13.9 million | $16.8 million |
| Diluted earnings per share | $1.27 | $1.66 |
| Net interest margin | 3.49% | 3.51% |
| Return on average assets | 0.61% | 0.85% |
| Return on average equity | 5.77% | 8.21% |
| Efficiency ratio | 66.72% | 67.81% |
Cash flow: Operating activities provided $17.7 million; investing activities used $148.1 million; financing activities provided $121.1 million. Cash and cash equivalents decreased $9.3 million to $35.4 million at year-end.
Credit and capital: The allowance for loan losses was $20.4 million, or 1.09% of loans, versus $10.7 million, or 0.63%, in 2019. Nonperforming loans rose to $13.8 million (0.74% of loans) from $6.3 million (0.37%). The Bank remained well capitalized; its year-end total risk-based capital ratio was 13.62%, and its leverage ratio was 10.47%.
Funding and debt: Deposits funded 69% of assets through core deposits. Year-end borrowings included $120.5 million of Federal Home Loan Bank advances, $5.7 million of repurchase agreements, $42.9 million of subordinated debt and $5.9 million of junior subordinated debt. The company reported $654.9 million of additional FHLB borrowing capacity and $60 million of unused unsecured credit lines.
Changes versus 2019
- Net income declined 17.5%, primarily as the provision for loan losses increased amid pandemic-related economic uncertainty; noninterest expense also rose 18.6% to $57.1 million, reflecting growth, staffing, technology and branch costs.
- Net interest income increased 13.4%, supported by asset growth and lower deposit funding costs. Net interest margin edged down two basis points as asset yields fell, including from 1% PPP loans.
- Noninterest income nearly doubled, primarily from $2.3 million of securities-sale gains and higher other operating income, including derivative fee income.
- Loans grew 9.9%; excluding $94.5 million of PPP loans, growth was 4.4%. Deposits rose 10.5%, including $80.0 million of brokered deposits. Noninterest-bearing deposits increased 27.4% to $448.2 million.
- Investar acquired two PlainsCapital branches in Texas in February 2020. In January 2021, it agreed to acquire Cheaha Financial Group for approximately $41.1 million cash, subject to approvals and other closing conditions.
Outlook, risks and notable items
- The filing provides no quantified earnings or financial guidance. Management said it did not expect to open de novo branches in 2021 and continued to pursue organic growth and acquisitions.
- COVID-19 remains a key uncertainty. The Bank had $5.9 million of loans in its 90-day deferral program at year-end; qualifying modifications were generally not classified as troubled debt restructurings or nonaccrual. The company warned of potential further credit losses, weaker demand, deposit instability and operating or cyber risks.
- Credit quality indicators worsened: special-mention, substandard and doubtful loans totaled $37.9 million, versus $13.2 million in 2019; TDRs totaled $14.7 million, versus $1.5 million. Management said it had not yet experienced charge-offs directly related to the pandemic.
- Concentration and collateral risks include real estate securing approximately 78% of loans and geographic exposure concentrated in south Louisiana. Energy-related loans were 2.6% of loans excluding PPP balances; pandemic-sensitive industries listed by the company represented 5.7% excluding PPP loans.
- Other risks include interest-rate sensitivity, LIBOR transition, severe weather, competition, acquisition integration, cybersecurity and the possibility that the allowance for loan losses or goodwill valuations may prove inadequate. The expected January 1, 2023 CECL adoption may increase the allowance, but the company said the effect was not yet estimable.
- The company repurchased $11.1 million of stock and paid $2.7 million in dividends during 2020. The independent auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether pandemic-related borrower stress leads to additional delinquencies, nonperforming loans, charge-offs or allowance increases after year-end.
- PPP loan forgiveness, fee recognition and SBA guarantee compliance, as well as the credit performance of modified loans.
- The sustainability of deposit growth and funding costs, particularly given brokered deposits and potentially temporary pandemic-related customer balances.
- Whether net interest margin and earnings recover as low rates, asset repricing and the loan mix affect yields and costs.
- Cheaha acquisition approvals, closing conditions, purchase price and integration plans; the transaction was pending at the filing date.
- Actual liquidity and capital needs after planned growth, dividends and share repurchases, including the impact of future credit conditions and CECL implementation.