Investar Holding Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed March 31, 2015. Investar is a Louisiana bank holding company operating through Investar Bank, serving individuals and small and midsize businesses in southern Louisiana. 2014 and 2013 figures are consolidated; the Bank became a wholly owned subsidiary in November 2013, and the 2013 comparison also includes the May 2013 First Community Bank acquisition for only part of the year.
Financial performance and condition
| Metric | 2014 | 2013 | Change or context |
|---|---|---|---|
| Total assets, year-end | $879.4 million | $634.9 million | Up 38% |
| Net loans, excluding loans held for sale, year-end | $618.2 million | $500.7 million | Up 24% on a reported gross-loan basis; organic growth was the main driver |
| Deposits, year-end | $628.1 million | $532.6 million | Up 18% |
| Stockholders’ equity, year-end | $103.4 million | $55.5 million | Includes $41.7 million net IPO proceeds |
| Net interest income | $26.7 million | $19.0 million | Up 40% |
| Net interest margin | 3.85% | 4.10% | Down 25 basis points |
| Net income | $5.4 million | $3.2 million | Up 70%; diluted EPS $0.93 vs. $0.81 |
| Return on average assets / equity | 0.73% / 6.80% | 0.64% / 6.10% | Both improved |
| Efficiency ratio | 74.90% | 78.07% | Improved; non-GAAP measure |
| Cash and cash equivalents, year-end | $19.5 million | $28.2 million | Down $8.7 million |
- Quarterly result: Fourth-quarter net income was $2.0 million, versus $0.2 million in fourth-quarter 2013. Fourth-quarter 2014 included a $491,000 income tax benefit; quarterly earnings also varied with loan-loss provisioning and noninterest income.
- Cash flow: Operating cash flow was negative $87.6 million, investing cash flow negative $155.6 million, and financing cash flow positive $234.5 million. Operating cash use was substantially associated with consumer loan originations for sale and delayed pool sales; financing included deposit growth, increased FHLB advances, and IPO proceeds.
- Debt and liquidity: FHLB advances rose to $125.8 million from $30.8 million, partly to fund consumer loans awaiting sale. Repurchase agreements were $12.3 million and junior subordinated debt $3.6 million. The Bank reported $142.3 million of remaining FHLB capacity and $33.6 million in unused correspondent-bank lines. Time deposits were $310.3 million, nearly half of deposits; $190.9 million mature in 2015.
- Capital and asset quality: Bank capital ratios at year-end were 9.00% leverage, 9.86% Tier 1 risk-based, and 10.48% total risk-based; the Bank met the then-applicable “well-capitalized” standards. Nonperforming loans increased to $3.34 million, or 0.54% of loans, from $1.49 million, or 0.30%. Allowance for loan losses was $4.63 million, 0.74% of loans and 139% of nonperforming loans. Net charge-offs were 0.07% of average loans.
Material changes and unusual items
- Loan growth, new branches, and the FCB acquisition expanded the balance sheet and interest income. Total loans held for sale surged to $103.4 million, including $99.7 million of consumer loans awaiting sale after buyers postponed approximately $52 million of pool sales from late 2014 to first-quarter 2015; the filing says the delayed sales were subsequently completed.
- Consumer loan sale gains increased to $1.7 million from $0.2 million. Mortgage loan sale fee income declined to $2.1 million from $2.8 million as higher mortgage rates reduced originations.
- Noninterest expense rose 28% to $24.4 million, reflecting expansion, staffing, acquired operations, and new branches. The company recorded a $690,000 impairment on its investment in a historic rehabilitation tax-credit partnership; it recognized $1.0 million of related tax credits in 2014 and expected to recover the investment through use of tax credits.
- The July 2014 IPO raised $41.7 million net from 3,285,300 shares sold at $14 per share. Stockholders’ equity increased substantially; diluted weighted-average shares also rose to 5.78 million from 3.92 million.
- The 2013 comparison included a $906,000 bargain-purchase gain from the FCB acquisition and approximately $300,000 of merger-related expenses, limiting direct comparability.
Outlook, commentary, and risks
- No numerical earnings or growth guidance is provided. Management emphasized continued organic growth and evaluation of disciplined acquisitions, while expecting operating expenses to rise as the franchise expands.
- Management expected mortgage originations and related fee income to remain flat or potentially decline in 2015. It expected to launch its own credit card product before the end of 2015 and planned a new Baton Rouge-area branch, subject to regulatory approval.
- Interest-rate exposure is material: management described the position as somewhat liability-sensitive. At December 31, 2014, the model estimated a 5.38% decline in 12-month net interest income under an immediate 100-basis-point rate increase, outside the Bank’s policy limit; management said the estimate would have been a 3.77% decline if the delayed consumer loan sales had occurred by year-end.
- Key risks include geographic concentration in southern Louisiana, real-estate collateral exposure, commercial real estate and consumer/indirect auto credit risk, a relatively unseasoned loan portfolio, deposit retention and funding costs, interest-rate changes, acquisition integration, regulatory and compliance costs, and hurricanes or other regional disruptions. Approximately 98% of secured loans were backed by Louisiana collateral.
- Basel III capital rules took effect January 1, 2015 and phase in over time. Management believed the Company and Bank would have met the new requirements on a fully phased-in basis at year-end 2014; this was a management assessment, not a 2014 test under rules then in force.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls were effective; neither management’s internal-control assessment nor an auditor attestation was included under the newly public company transition relief. No material legal proceedings or subsequent events requiring disclosure were reported.
Important facts for investors to verify
- Whether consumer loan pool sales remained timely and profitable after the year-end backlog, and the effect of loan-sale volumes on reported income and cash flows.
- Whether the rise in nonperforming loans, particularly acquired and real-estate-related credits, leads to higher provisions or charge-offs; assess allowance adequacy against the growing portfolio.
- How the Bank’s liability-sensitive interest-rate position, deposit pricing, large 2015 time-deposit maturities, and increased FHLB borrowing affect net interest margin and liquidity.
- Whether the tax-credit partnership investment is recoverable as expected and whether the historic tax credits continue to reduce the effective tax rate.
- Actual capital ratios under Basel III, branch expansion costs and returns, and progress on planned products and any future acquisitions.
- Underlying earnings trends excluding the 2013 bargain-purchase gain and 2014 tax-credit-related impairment and tax benefit; confirm the causes of fourth-quarter earnings and tax variation.