Investar Holding Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Investar is a Louisiana-based bank holding company serving Louisiana, southeast Texas and Alabama.
Financial performance
- Net income: $4.7 million, up from $3.8 million in Q1 2023; diluted EPS was $0.48 versus $0.38. Return on average assets was 0.68% versus 0.57%, and return on average equity was 8.28% versus 7.04%.
- Interest income and margin: Interest income rose to $35.7 million from $31.0 million, but interest expense increased to $18.5 million from $10.8 million. Net interest income declined 14.7% to $17.2 million; net interest margin fell to 2.59% from 3.13%.
- Credit provision and noninterest items: A $1.4 million negative provision for credit losses compared with a $0.4 million provision in Q1 2023. Noninterest income rose to $2.7 million from $1.1 million, substantially reflecting a $0.4 million gain on fixed-asset dispositions in Q1 2024 versus a $0.9 million loss in Q1 2023. Noninterest expense fell 5.4% to $15.3 million.
- Cash flow: Operating activities provided $7.8 million, down from $12.4 million. Investing activities provided $35.9 million, compared with $11.0 million used in Q1 2023; financing activities used $33.9 million versus $10.3 million. Cash and cash equivalents increased $9.8 million to $41.8 million.
- Balance sheet and liquidity: Total assets were $2.79 billion. Deposits declined 2.1% to $2.21 billion; loans declined 1.4% to $2.18 billion. Estimated uninsured deposits were 31% of deposits ($681.4 million). Cash plus available FHLB and correspondent-bank funding was approximately $988 million, or 145% of uninsured deposits.
- Debt and capital: Borrowings included $229.0 million under the Bank Term Funding Program (BTFP), $23.5 million of FHLB advances, $7.9 million of repurchase agreements, $43.4 million of subordinated debt and $8.7 million of junior subordinated debt. The Bank was classified as well-capitalized; its total capital ratio was 13.04% and Tier 1 leverage ratio was 10.01%.
- Credit quality and securities: Nonaccrual loans were $5.6 million, or 0.26% of loans; the allowance for credit losses was $29.1 million, or 1.34% of loans. AFS securities had $62.5 million of gross unrealized losses; accumulated other comprehensive loss increased to $49.0 million.
Material changes and unusual items
- Net income improved despite lower net interest income, primarily due to the negative credit-loss provision, higher noninterest income and lower expenses. Management attributed margin pressure to higher deposit costs and a greater mix of time and brokered deposits.
- Substandard loans increased to $20.8 million from $12.0 million at year-end, primarily because a $10.1 million construction-and-development relationship was downgraded; those loans remained accruing. Nonperforming loans remained 0.26% of total loans.
- Investar surrendered approximately $8.4 million of bank-owned life insurance (BOLI) and reinvested the proceeds in higher-yielding policies. The surrender contributed $0.3 million of tax expense; management estimated an earn-back period of just over one year.
- The company repurchased $1.0 million principal amount of its 2032 subordinated notes and recorded a $0.2 million gain on early extinguishment. It also closed an Alabama branch, recording a $0.4 million fixed-asset gain, and recorded a $0.2 million write-down of other real estate owned.
- Interest-rate-driven AFS securities losses increased during the quarter. Management said the declines were not attributable to credit losses and stated it was more likely than not the securities would not need to be sold before recovery of amortized cost.
Outlook, commentary and risks
- Management described a shift from a primarily growth-focused near-term strategy to optimizing the balance sheet and pursuing consistent, quality earnings. It is emphasizing high-margin loans and managing branch efficiency; it also retains a long-term focus on organic growth and acquisitions.
- The filing provides no specific earnings or full-year financial guidance. Management noted that margin could face further pressure if funding costs rise faster than asset yields, and said higher rates had constrained loan demand.
- Key risks include deposit outflows and reliance on higher-cost funding, interest-rate changes, sizeable unrealized securities losses, commercial real estate and other borrower credit risks, inflation, and economic or industry disruption. The filing also cites geographic concentration, cybersecurity, fraud, operational, regulatory and severe-weather risks.
- The BTFP stopped making new loans on March 11, 2024. Investar reported that it refinanced its BTFP borrowings during Q1 at more favorable rates; investors should assess the funding plan as those borrowings mature.
Important facts for investors to verify
- Whether deposit pricing and funding mix stabilize sufficiently to halt the decline in net interest margin.
- Trends in deposits, uninsured deposits and brokered funding, including liquidity after BTFP borrowings mature.
- Performance of the downgraded construction loans and broader commercial real estate portfolio, and whether the allowance remains adequate.
- Whether the BOLI restructuring achieves the stated earn-back period and whether the reported earnings benefit from the negative provision and asset-sale gain recurs.
- How AFS securities losses, interest-rate movements and any need to sell securities affect liquidity, capital and reported equity.