Investar Holding Corporation — Q3 2021 Form 10-Q
Business context and period. Investar is a Louisiana-based bank holding company serving individuals and small and midsize businesses in Louisiana, Texas, and Alabama. This unaudited report covers the three and nine months ended September 30, 2021; balance-sheet comparisons are to December 31, 2020. Results were materially affected by the April 1 acquisition of Cheaha Financial Group and Hurricane Ida.
Financial performance and condition
| Metric | Q3 2021 / September 30, 2021 | Comparison |
|---|---|---|
| Interest income | $24.5 million | $23.4 million in Q3 2020 |
| Net interest income | $21.5 million; net interest margin 3.44% | $18.7 million and 3.46% in Q3 2020 |
| Provision for loan losses | $21.7 million | $2.5 million in Q3 2020; includes $21.6 million related to one Hurricane Ida-affected borrower relationship |
| Net income (loss) | $(10.0) million; diluted EPS $(0.95) | $4.5 million; diluted EPS $0.41 in Q3 2020 |
| Nine-month net income | $1.1 million; diluted EPS $0.09 | $9.3 million; diluted EPS $0.85 in 2020 |
| Assets / loans | $2.70 billion / $1.88 billion gross loans | Assets increased from $2.32 billion; loans increased 1.1% from $1.86 billion |
| Deposits | $2.30 billion | Up 22.0% from $1.89 billion; includes approximately $207 million acquired from Cheaha |
| Cash and cash equivalents | $350.5 million | $35.4 million at December 31, 2020 |
| Debt and borrowings | $78.5 million FHLB advances; $6.6 million repurchase agreements; $43.0 million subordinated debt; $8.4 million junior subordinated debt | FHLB advances down from $120.5 million; no unsecured line balances |
| Stockholders’ equity | $236.3 million | $243.3 million at December 31, 2020 |
Cash flow. For the nine months, operating cash flow was $28.6 million, investing cash flow was $126.8 million, and financing cash flow was $159.7 million. Cash and cash equivalents increased by $315.1 million. The filing attributes substantial deposit growth and excess liquidity partly to pandemic-related customer balances and reduced spending; cash-flow figures should be read in the context of banking balance-sheet activity.
Material changes and management commentary
- Cheaha added approximately $240.8 million of assets, $120.4 million of loans, and $207.0 million of deposits at acquisition; Investar recorded $11.9 million of goodwill. Acquisition and integration expenses were $2.4 million for the first nine months.
- Hurricane Ida caused a $21.6 million impairment and charge-off on one borrower relationship. Net charge-offs were $21.6 million in Q3; nonperforming loans rose to $32.9 million, or 1.75% of total loans, from $13.8 million, or 0.74%, at year-end 2020. The allowance was $20.6 million, or 1.09% of loans.
- Despite lower net income, nine-month net interest income rose 14.7% to $62.3 million as interest expense fell $7.0 million, primarily from lower deposit costs. Nine-month net interest margin was 3.52%, up from 3.46%; Q3 margin was slightly lower year over year amid low-yielding excess cash balances.
- Management reported the Company and Bank met regulatory capital requirements at September 30; the Bank was “well-capitalized.” Bank ratios included 8.99% Tier 1 leverage, 11.50% common equity Tier 1, and 12.53% total capital.
- Management said it did not expect to open de novo branches during the remainder of 2021 or in 2022. No earnings or revenue guidance is provided.
Outlook, risks, and contingencies
- Management cautioned that pandemic developments, Delta-variant effects, inflation, supply-chain disruption, labor shortages, and possible changes in government support could affect customers and results; their future impact was uncertain.
- Credit and reserve estimates remain sensitive to local economic conditions, Hurricane Ida impacts, borrower-specific developments, and the pandemic. Management considered the allowance adequate but warned it may not cover future losses.
- Interest-rate simulation estimated net interest income changes of +9.0% for a 300-basis-point increase, +3.5% for a 100-basis-point increase, and (5.0)% for a 100-basis-point decrease. Actual results may differ because assumptions are uncertain.
- Liquidity sources included $848.8 million of remaining FHLB borrowing capacity and $60.0 million of unused unsecured lines. Brokered deposits were $125.0 million. The Company terminated $150 million notional of swaps in September, recognizing $1.8 million of termination income, and said it planned to reduce brokered-deposit use in Q4.
- Loan commitments were $346.9 million and standby letters of credit were $18.3 million. These off-balance-sheet amounts do not necessarily represent future cash needs. The filing also identifies risks from geographic and credit concentrations, oil and gas volatility, acquisitions, cyber incidents, regulation, and severe weather.
- The Company expected adoption of the current expected credit loss standard (CECL) on January 1, 2023 and anticipated that it would likely increase the allowance; the amount was not yet estimable.
Important facts for investors to verify
- Review the borrower-level facts, collateral valuation, charge-off, and recovery prospects behind the $21.6 million Hurricane Ida loss and the increase in nonperforming loans.
- Assess whether deposit growth and excess liquidity are sustainable, including the mix of noninterest-bearing, brokered, and time deposits and the planned Q4 reduction in brokered deposits.
- Track post-acquisition performance, integration costs, loan quality, and realization of the expected Cheaha synergies and goodwill value.
- Monitor loan trends excluding acquired and PPP balances, PPP forgiveness, and the remaining $0.9 million of COVID-related deferrals and $47.7 million of Ida-related deferrals reported for Q3.
- Evaluate capital, dividends, and repurchases alongside the quarterly loss, equity decline, and potential future credit-loss and CECL requirements.