Investar Holding Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results. Investar is a regional bank holding company serving Louisiana, Texas and Alabama.
Business context and material changes
On April 1, 2021, Investar completed its acquisition of Cheaha Financial Group, adding approximately $240.7 million of assets, including $120.4 million of loans, and $207.0 million of deposits. The transaction expanded the company’s Alabama footprint and added four branches. Investar recorded $11.4 million of goodwill and incurred $2.0 million of acquisition expense in the first half, including integration and system-conversion costs.
Financial and operating metrics
Dollar amounts below are in millions, except per-share data. Comparisons are with the corresponding 2020 period unless stated otherwise.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $21.2 | $18.3 | $40.8 | $35.7 |
| Provision for loan losses | $0.1 | $2.5 | $0.5 | $6.3 |
| Noninterest income | $4.1 | $3.9 | $6.4 | $5.0 |
| Noninterest expense | $18.0 | $14.5 | $32.8 | $28.4 |
| Net income | $5.7 | $4.3 | $11.0 | $4.9 |
| Diluted EPS | $0.53 | $0.39 | $1.04 | $0.44 |
| Net interest margin | 3.48% | 3.46% | 3.56% | 3.47% |
Q2 net income rose about 33%; first-half net income more than doubled. Management attributed the improvement mainly to substantially lower loan-loss provisions than in 2020 and reduced deposit funding costs. First-half return on average assets was 0.89% (0.44% in 2020), and return on average equity was 8.93% (4.09%). Lower funding costs supported margin, while yields on interest-earning assets declined: first-half asset yield was 4.12%, versus 4.61%.
- Balance sheet at June 30: Total assets were $2.67 billion, up from $2.32 billion at year-end 2020. Loans were $1.95 billion, up 4.7%; deposits were $2.26 billion, up 19.7%. The Cheaha acquisition contributed to both increases.
- Liquidity and cash flow: Cash and cash equivalents were $266.8 million, compared with $35.4 million at December 31, 2020. First-half operating cash flow was $21.1 million; investing activities provided $87.4 million and financing activities provided $122.8 million. The company reported $726.0 million of remaining FHLB borrowing capacity and $60.0 million of unused unsecured bank lines.
- Debt and capital: FHLB advances were $82.5 million, down from $120.5 million at year-end. Subordinated debt was $42.9 million and junior subordinated debt was $8.3 million. The Bank reported a 9.49% leverage ratio, 12.10% common equity tier 1 ratio and 13.11% total capital ratio; it remained “well-capitalized” under regulatory standards.
- Credit quality: The allowance for loan losses was $20.4 million, or 1.05% of loans. Nonperforming loans were $20.9 million, 1.07% of loans, versus $13.8 million and 0.74% at year-end. Substandard loans increased to $42.2 million from $20.1 million; management cited energy-sector commercial relationships and owner-occupied commercial real estate. Net charge-offs were $0.4 million for the first half.
- Shareholder returns: First-half dividends declared were $0.15 per share, compared with $0.12 in 2020. The company repurchased 249,590 shares for $4.5 million during the first half.
Outlook, risks and unusual items
The filing provides no specific earnings or growth guidance. Management said it did not expect to open de novo branches in 2021. It noted that pandemic-related excess deposits and customer balances could be temporary, and described uncertainty from COVID-19 resurgence and variants, inflation, economic conditions, interest rates, and the ending of government support programs. The company also cited regional concentration, oil-and-gas exposure, credit quality, acquisition integration, liquidity, cybersecurity and the transition away from LIBOR as risks.
COVID-related 90-day loan deferrals had fallen to $0.3 million, or 0.01% of loans, from $5.9 million at year-end. PPP loans totaled $73.0 million, down from $94.5 million; approximately 57% of originated PPP balances had been forgiven or paid off. The allowance estimate remains sensitive to economic conditions, and management cautioned that actual losses could exceed reserves.
Interest-rate simulations estimated net interest income would increase 5.0% under an immediate 100-basis-point rise and decrease 4.2% under a 100-basis-point decline, assuming a static balance sheet. These are model estimates, not forecasts. The company used cash-flow hedges tied to LIBOR, with $265.0 million total notional amount of swaps at quarter-end.
Most important facts for investors to verify
- Whether Cheaha integration costs, acquired assets and deposits, and the $11.4 million of acquisition goodwill produce the expected benefits.
- Whether loan quality stabilizes, particularly substandard energy and commercial real estate exposures, and whether the allowance remains adequate.
- How much of the elevated cash and deposit balances persist, and the effect of deposit mix and funding costs on future net interest margin.
- Whether reported earnings are sustained without the unusually low loan-loss provision relative to 2020, and how acquisition-related costs trend.
- The company’s exposure to LIBOR transition, interest-rate movements, and pandemic-related economic risks in its regional markets.