Investar Holding Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited. Investar is a regional bank holding company serving individuals and small and medium-sized businesses in Louisiana, Texas and Alabama.
Financial performance and position
- Earnings: Net income was $5.36 million, or $0.51 per diluted share, versus $0.61 million, or $0.05 per share, in Q1 2020. Total interest and noninterest income was $25.33 million, compared with $24.71 million; net interest income was $19.63 million versus $17.34 million.
- Margins and costs: Net interest margin increased to 3.64% from 3.46%. Interest expense fell to $3.34 million from $6.29 million, primarily as deposit costs declined. The cost of deposits was 0.63%, down from 1.47%; the yield on interest-earning assets declined to 4.26% from 4.71%.
- Profitability: Return on average assets was 0.92% versus 0.11%; return on average equity was 8.79% versus 1.00%.
- Cash flow: Operating activities provided $9.45 million, compared with $0.78 million in Q1 2020. Investing activities used $23.48 million and financing activities provided $78.12 million. Cash and cash equivalents ended the quarter at $99.47 million, up from $35.37 million at year-end 2020, largely alongside deposit growth.
- Balance sheet and liquidity: Total assets were $2.41 billion, up from $2.32 billion at December 31, 2020. Deposits rose 6.5% to $2.01 billion; loans declined 0.8% to $1.85 billion. Noninterest-bearing deposits were $515.5 million, or 25.6% of deposits. The Bank had $82.5 million of FHLB advances, $4.3 million of repurchase agreements, and no balances drawn on $60 million of unsecured credit lines; remaining FHLB capacity was $718.8 million.
- Debt and capital: Subordinated debt was $43.6 million and junior subordinated debt was $6.0 million. The Bank’s regulatory capital ratios included 12.86% common equity Tier 1 and 13.95% total capital; it was considered well-capitalized. The company declared a $0.07-per-share dividend and repurchased 225,950 shares for $4.0 million during the quarter.
Changes versus comparable periods
- Net income rose substantially year over year, mainly reflecting a $0.4 million loan-loss provision versus $3.8 million in Q1 2020, and lower funding costs. Noninterest income increased to $2.37 million from $1.09 million, including higher securities-sale gains and a favorable change in equity-security values versus a loss in the prior-year quarter.
- Noninterest expense increased 6.5% to $14.81 million, including higher salaries and employee benefits and costs associated with branches opened in 2020.
- Compared with year-end 2020, deposits increased $122.1 million and loans decreased $14.3 million. Excluding PPP loans, loans decreased $26.5 million. The securities portfolio increased to $313.4 million, principally from purchases of residential mortgage-backed securities; FHLB advances declined $38.0 million.
- Asset-quality indicators were mixed: substandard loans rose to $37.8 million from $20.1 million at year-end, primarily due to commercial and industrial relationships in the energy sector. Nonperforming loans were $14.9 million, or 0.81% of loans, versus $13.8 million, or 0.74%, at year-end. The allowance was $20.4 million, or 1.11% of loans.
Outlook, risks and unusual items
- Management reported improved market conditions and record quarterly net income, but provided no specific full-year earnings or growth guidance. It said the pandemic’s future effects remained uncertain and depended in part on developments including vaccine efficacy and availability, economic conditions and government actions.
- COVID-related 90-day payment deferrals totaled $11.2 million, or 0.6% of loans, versus $5.9 million at year-end. These qualifying loans were not classified as troubled debt restructurings, past due or nonaccrual under applicable relief guidance. PPP loans totaled $106.6 million; approximately 31% of originated PPP balances had been forgiven or paid off.
- Other principal risks identified include credit deterioration, exposure to the regional economy and oil and gas industry, interest-rate and liquidity risk, competition, cyber and systems risks, regulatory changes, and acquisition execution. Management stated that the allowance was adequate but cautioned that pandemic-related or other adverse developments could make it insufficient.
- The Company’s modeled 12-month net interest income sensitivity was +3.2% for a 100-basis-point rate increase and −3.7% for a 100-basis-point decrease. It also disclosed exposure to the transition away from LIBOR.
- After quarter-end, on April 1, 2021, Investar completed its acquisition of Cheaha Financial Group for approximately $41.1 million in cash. At March 31, Cheaha had approximately $238 million of assets, $120 million of net loans and $206 million of deposits. Q1 included $0.4 million of acquisition expense related to Cheaha. The Company also reported that one Louisiana branch closed on April 30.
- The Company expects adoption of the current expected credit loss standard (CECL) on January 1, 2023 and anticipates it may increase the allowance; it could not yet reasonably estimate the impact.
Investor facts to verify
- Whether lower loan-loss provisioning and deposit costs are sustainable drivers of earnings, and how earnings perform as PPP loans are forgiven or repaid.
- Trends in criticized loans, nonperforming loans, charge-offs, payment deferrals and energy-sector credits, including whether the allowance remains adequate.
- Whether the pandemic-driven deposit increase persists and how deposit mix, funding costs and liquidity change.
- Cheaha’s post-close integration, purchase accounting, realized costs and contribution to earnings and capital.
- The eventual CECL adoption impact and the Company’s plans for LIBOR-linked loans, debt and hedges.