Investar Holding Corporation — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021; balance-sheet comparisons are with December 31, 2021. Investar is a regional bank holding company serving Louisiana, Texas, and Alabama. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless indicated otherwise.
Key financial metrics
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior date |
|---|---|---|
| Total assets | $2.573 billion | $2.513 billion at December 31, 2021 |
| Total loans | $1.877 billion | $1.872 billion at December 31, 2021 |
| Total deposits | $2.186 billion | $2.120 billion at December 31, 2021 |
| Net interest income | $21.8 million | $19.6 million in Q1 2021 |
| Net interest margin | 3.75% | 3.64% in Q1 2021 |
| Net income | $10.1 million; diluted EPS $0.97 | $5.4 million; diluted EPS $0.51 in Q1 2021 |
| Cash flows | $20.2 million operating; $(84.4) million investing; $58.8 million financing | Cash and equivalents ended at $91.6 million, down $5.4 million from year-end |
| Debt and borrowings | $78.5 million FHLB advances; $43.0 million subordinated debt; $8.4 million junior subordinated debt | Balances were broadly unchanged from year-end; repurchase agreements declined to $1.3 million from $5.8 million |
| Capital and liquidity | Bank total capital ratio 13.04%; tier 1 leverage ratio 10.03%. Core deposits funded 83% of assets; unused FHLB capacity was $791.3 million | Bank remained well-capitalized under regulatory requirements |
Interest income was $23.9 million and interest expense was $2.0 million. Noninterest income was $5.9 million, including $3.3 million of swap termination income; noninterest expense was $15.4 million. The filing does not provide a single overall operating-margin figure.
Material changes versus prior comparable period
- Net income rose 88% year over year, principally reflecting lower deposit interest costs, higher noninterest income from swap terminations, and a $0.4 million negative provision for loan losses versus a $0.4 million provision in Q1 2021.
- Net interest income increased 11.1%; the cost of deposits fell 38 basis points to 0.25%, while net interest margin rose 11 basis points. The yield on interest-earning assets declined to 4.10% from 4.26%.
- Noninterest income increased $3.5 million, mainly due to $3.3 million of swap termination fees. Q1 2021 included a $0.6 million gain on investment securities, compared with $0.006 million in Q1 2022.
- At March 31, loans increased $5.4 million from year-end; excluding Paycheck Protection Program loans, they grew $15.6 million. Deposits increased $65.7 million, and the noninterest-bearing share of deposits rose to 28.1% from 27.6%.
- Available-for-sale securities had $23.5 million of gross unrealized losses at quarter-end, compared with $3.1 million at year-end, primarily attributed by management to interest-rate changes. This contributed to a $16.7 million other comprehensive loss and reduced stockholders’ equity to $233.7 million from $242.6 million, despite quarterly net income.
- Nonaccrual loans were $25.6 million, or 1.37% of loans, versus $13.2 million, or 0.71%, at March 31, 2021. Management attributed the increase primarily to one relationship affected by Hurricane Ida. The allowance was $21.1 million, or 1.12% of loans.
Outlook, commentary, risks, and unusual items
- No quantitative earnings or growth guidance is provided. Management cited potential continued interest-rate increases, inflation, supply and labor constraints, pandemic-related uncertainty, and the war in Ukraine as relevant economic factors. The Federal Reserve raised its target rate by 25 basis points in March 2022.
- Management expects to close two additional branches in Q2 2022 and does not expect to open de novo branches during the remainder of 2022. It plans to continue organic lending, relationship banking, technology development, and review of acquisition opportunities.
- In Q1, Investar voluntarily terminated swaps with $55 million notional in response to market conditions and excess liquidity. A $2.6 million after-tax gain was reclassified from accumulated other comprehensive income into swap termination fee income. $60 million notional of forward-starting swaps remained at quarter-end.
- After quarter-end, the company issued $20 million of 5.125% fixed-to-floating subordinated notes due 2032. Proceeds are expected to refinance 2017 subordinated debt, support possible share repurchases, and serve general corporate purposes. The notes are intended to qualify as Tier 2 capital.
- Risks include credit deterioration and uncertainty in loan-loss estimates, geographic and industry exposure, interest-rate and liquidity sensitivity, inflation, cyber and operational risks, and the effects of natural disasters. The filing notes that actual results may differ from interest-rate simulations and that COVID-19-related estimates remain uncertain.
- Loan commitments were $368.1 million and standby letters of credit were $16.0 million at March 31, 2022; these off-balance-sheet commitments do not necessarily represent future cash needs. Unfunded commitments to qualified small-business investment funds were $1.9 million. The reserve for unfunded lending commitments was $0.7 million.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reports no significant change in risk factors from the 2021 Form 10-K.
Important facts for investors to verify
- Whether the elevated nonaccrual balance and the Hurricane Ida-related credit relationship improve, and how that affects future provisions, charge-offs, and recoveries.
- Whether the $23.5 million unrealized loss in available-for-sale securities changes further as rates move, and the resulting effect on equity and liquidity.
- Whether deposit growth and mix remain favorable as interest rates rise, and how deposit costs compare with asset yields.
- How the $20 million note issuance is used, including the refinancing of 2017 debt and any subsequent share repurchases; the board authorized an additional 400,000 shares for repurchase on April 21, 2022.
- The effect of adopting the expected-credit-loss standard (CECL), scheduled for January 1, 2023; management stated the impact could not yet be reasonably estimated and may increase the allowance.