Investar Holding Corporation — Q3 2015 Form 10-Q
Business context and reporting period. This unaudited filing covers the quarter and nine months ended September 30, 2015; balance-sheet comparisons are to December 31, 2014. Investar is a Louisiana bank holding company operating 11 branches in South Louisiana, focused on individuals and small and midsize businesses. Amounts below are U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance and condition
- Profitability: Q3 net income was $1.86 million ($0.26 basic and diluted EPS), up from $1.44 million ($0.20 per share) a year earlier. Nine-month net income was $5.62 million, versus $3.39 million; EPS was $0.78 basic and diluted, compared with $0.68 basic and $0.65 diluted.
- Revenue and margins: Q3 net interest income increased 13.6% to $7.95 million; nine-month net interest income rose 21.5% to $23.23 million. Q3 net interest margin declined to 3.52% from 3.86%; the nine-month margin fell to 3.64% from 3.85%. Nine-month noninterest income increased 49.4% to $6.77 million, including $3.83 million of net loan-sale gains.
- Expenses and credit costs: Q3 noninterest expense rose 11.1% to $7.01 million; nine-month expense increased 15.4% to $20.12 million. Provision for loan losses was $0.40 million in Q3 and $1.50 million for nine months, versus $0.51 million and $1.20 million, respectively, in 2014.
- Growth and asset quality: Total loans, excluding loans held for sale, grew 14.1% from year-end to $710.6 million; deposits grew 16.3% to $730.4 million. Nonperforming loans were $2.61 million, or 0.37% of loans, down from $3.34 million, or 0.54%, at year-end. The allowance was $5.91 million, 0.83% of loans. Eleven TDR credits totaled about $2.1 million; two were in default of modified terms and on nonaccrual.
- Cash flow and liquidity: Nine-month operating cash flow was $62.2 million, compared with a use of $39.6 million in 2014; investing used $108.1 million and financing provided $46.3 million. Cash and cash equivalents ended at $19.9 million. Management reported FHLB borrowing availability of $231.6 million and $35 million of unsecured, uncommitted bank lines. Core deposits funded 65% of assets.
- Debt and capital: FHLB advances declined to $47.9 million from $125.8 million, while repurchase agreements increased to $34.6 million from $12.3 million. The note payable was $3.6 million. The Bank’s September 30 total risk-based capital ratio was 13.44%; management said the Bank was “well-capitalized” and both the Bank and holding company met regulatory capital requirements.
Material changes, outlook and risks
- Loan and deposit growth drove higher net interest income, but lower loan yields—particularly from indirect auto lending—and margin compression reduced net interest margin. Management said consumer-loan fees are now generally recorded in noninterest income as the company sells most newly originated consumer loans.
- Management described a strategic shift from transaction-oriented indirect lending toward relationship-based banking. Q3 included about $0.3 million of restructuring costs related to downsizing the indirect lending platform. The company also recorded a $54,000 impairment on a tax-credit investment and recognized a $72,000 tax credit.
- The company had no quantified earnings or growth guidance in the supplied filing text. Management cited organic growth, deposit expansion, and potential acquisitions as strategic priorities; a Gonzales branch was under construction and land and a building for another New Orleans branch had been acquired.
- Interest-rate exposure remains material: the company’s model estimated a 2.59% decrease in 12-month net interest income under an immediate 100-basis-point rate increase and a 12.50% decrease under a 400-basis-point increase. Management cautioned that modeled results depend on uncertain assumptions.
- Other items to monitor include geographic concentration in South Louisiana; credit quality and allowance estimates; $100.0 million in loan commitments and $0.4 million in standby letters of credit; and a $20 million interest-rate swap position with a negative fair value of approximately $1.0 million. The filing reported no material change in risk factors or market risk since year-end.
- Share repurchases totaled 36,856 shares under the announced program during Q3. The filing notes that dividends are subject to regulatory and subsidiary-funding constraints and that junior subordinated debenture payments rank ahead of common dividends.
Most important facts for investors to verify
- Whether loan and deposit growth can continue without further net interest margin compression or deterioration in credit quality.
- Loan-sale volumes, gains, and servicing income, including the effects of the indirect-lending strategy change on recurring earnings.
- Trends in nonperforming loans, TDRs, charge-offs, and the adequacy of the allowance as the portfolio expands.
- Deposit mix, funding costs, QwikRate deposit balances, and the company’s ability to manage liquidity and borrowing needs.
- Execution costs and expected returns from branch expansion, alongside repurchases, capital levels, and the limits on common dividends.