Investar Holding Corporation (Nasdaq: ISTR) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter results report. Investar is a bank holding company operating primarily through Investar Bank in south Louisiana, southeast Texas and Alabama.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets | $2.82 billion | $2.75 billion |
| Total loans | $2.21 billion | $2.10 billion |
| Total deposits | $2.26 billion | $2.08 billion |
| Net interest income | $74.5 million | $89.8 million |
| Net interest margin | 2.83% | 3.67% |
| Net income | $16.7 million | $35.7 million |
| Diluted earnings per share | $1.69 | $3.50 |
| Return on average assets / equity | 0.60% / 7.63% | 1.37% / 15.63% |
| Stockholders’ equity | $226.8 million | $215.8 million |
- Revenue and expenses: Net interest income plus noninterest income was $81.1 million, versus $108.1 million in 2022. Interest income rose $28.6 million, but interest expense increased $43.9 million. Noninterest income fell $11.8 million to $6.5 million; 2022 included $8.1 million of swap termination fees and $1.4 million of insurance proceeds. Noninterest expense was $62.6 million, up 2.9%.
- Credit: Provision for credit losses was a negative $2.0 million in 2023, compared with an expense of $2.9 million in 2022, reflecting $2.3 million of net loan recoveries, primarily on a Hurricane Ida-affected relationship. Nonaccrual loans declined to $5.8 million, or 0.26% of loans, from $10.0 million, or 0.47%. The allowance was $30.5 million, or 1.38% of loans.
- Cash flow: Operating cash flow was $26.2 million; investing cash outflow was $73.5 million, including the $163.8 million loan purchase, partly offset by securities maturities and loan cash flows; financing cash flow was $39.0 million. Cash and cash equivalents declined $8.3 million to $32.0 million.
- Funding and debt: Noninterest-bearing deposits fell $132.0 million to $448.8 million, while time and brokered time deposits grew. Brokered time deposits reached $269.1 million, with a 5.18% weighted-average rate and approximately 12-month weighted-average duration. Borrowings included $212.5 million under the Bank Term Funding Program (BTFP), $23.5 million of FHLB advances, $8.6 million of repurchase agreements, $44.3 million of subordinated debt and $8.6 million of junior subordinated debt. Cash plus reported available funding of about $1.04 billion equaled 149% of estimated uninsured deposits of $720.1 million.
- Securities and capital: Investment securities totaled $382.4 million. AFS securities had $57.7 million of gross unrealized losses; management attributed declines primarily to interest rates and stated it did not expect to need to sell before recovery. The Bank’s year-end capital ratios were 9.81% leverage, 11.64% CET1 and 12.89% total risk-based capital; it met well-capitalized requirements.
Material changes versus 2022
- Net income declined 53.3%, principally from margin compression and lower noninterest income. Net interest margin contracted 84 basis points as funding costs rose faster than asset yields.
- Cost of interest-bearing deposits increased to 2.49% from 0.42%; short-term borrowing cost rose to 4.93% from 3.05%.
- Loans increased 5.0% overall, but excluding the acquired revolving credit lines and loans sold with the Texas branches, loans declined 2.1%. The acquired consumer-finance-company lines had $162.7 million outstanding at purchase and total commitments of $237.8 million.
- Estimated uninsured deposits were about 32% of deposits. Funding mix shifted away from noninterest-bearing and other transaction accounts toward time deposits and borrowings.
- Investar adopted CECL on January 1, 2023, increasing the allowance by $5.9 million and reducing retained earnings, net of tax, by $4.3 million. Prior-year figures were not restated.
- Investar exited consumer mortgage origination in the third quarter, sold two Texas branches in January 2023, closed a Louisiana branch and ceased operating 14 ATMs during 2023. It repurchased 222,448 shares at an average $13.47 and increased the annual dividend per share to $0.395 from $0.365.
Outlook, risks and unusual items
- Management’s near-term focus shifted from growth to consistent, quality earnings through balance-sheet optimization. The company said it may face further margin pressure in 2024 if funding costs rise faster than asset yields. It did not provide specific earnings or revenue guidance and does not expect to open de novo branches in 2024.
- The BTFP was scheduled to stop making new loans on March 11, 2024. Investar had refinanced its BTFP borrowings at more favorable rates, but continued access to the program was time-limited; monitor replacement funding and borrowing costs.
- Key risks include deposit competition and rapid deposit outflows, reliance on higher-cost brokered/time deposits and borrowings, interest-rate sensitivity, unrealized securities losses, credit deterioration and the allowance estimate, and concentrations in regional markets and real estate-related lending. Approximately 75% of loans had real estate as a primary or secondary collateral component; commercial and industrial loans were 24.6% of total loans.
- Investar’s interest-rate simulation estimated net interest income would decline 2.4% for an immediate +100-basis-point shock and rise 2.8% for a −100-basis-point shock, based on a static balance sheet and stated assumptions; actual outcomes may differ.
- Other notable items: the 2023 negative credit-loss provision benefited from recoveries tied to the 2021 Hurricane Ida loan impairment; the allowance estimate was identified as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. No material legal proceedings were reported.
Most important facts for investors to verify
- Whether deposit mix stabilizes, especially noninterest-bearing balances, and whether brokered/time-deposit costs and uninsured-deposit levels remain manageable.
- How the BTFP borrowing is replaced or repaid after the program’s new-lending cutoff, and the resulting effect on funding costs and liquidity.
- Whether net interest margin stabilizes and earnings recover without relying on one-off income or loan recoveries.
- Credit performance and concentrations in commercial real estate, commercial and industrial lending, and the acquired consumer-finance-company revolving lines; reassess the adequacy of the $30.5 million CECL allowance.
- Whether securities losses remain unrealized and whether liquidity needs could require sales before recovery; also track capital ratios, dividends and repurchases against earnings and regulatory constraints.