Investar Holding Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Investar is a Louisiana bank holding company operating through Investar Bank, with 20 full-service branches focused primarily on South Louisiana. Results include the Citizens and BOJ acquisitions completed in 2017, limiting year-over-year comparability.
Financial and operating results
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Interest income | $17.2 million | $11.1 million |
| Net interest income | $13.9 million | $8.9 million |
| Net interest margin | 3.70% | 3.27% |
| Noninterest income | $1.1 million | $0.9 million |
| Noninterest expense | $10.6 million | $6.7 million |
| Provision for loan losses | $0.6 million | $0.4 million |
| Net income | $2.4 million | $1.9 million |
| Diluted EPS | $0.25 | $0.26 |
| Return on average assets / equity | 0.60% / 5.62% | 0.65% / 6.44% |
| Total assets at quarter end | $1.644 billion | $1.623 billion at Dec. 31, 2017 |
| Total loans / deposits at quarter end | $1.273 billion / $1.227 billion | $1.259 billion / $1.225 billion at Dec. 31, 2017 |
Net interest income rose 56.4% year over year, reflecting larger average loan and securities balances and higher asset yields; acquisitions contributed to growth. The loan yield increased to 5.03% from 4.55%. Interest expense also rose, to $3.3 million from $2.2 million, as interest-bearing liabilities and borrowing costs increased. The increase in noninterest expense included $1.1 million of acquisition costs and higher staffing and operating costs. Net income grew, but EPS and returns declined, with management citing acquisition expense and a $0.6 million Tax Act-related charge.
Cash flow: Operating activities provided $4.0 million, versus $9.1 million in Q1 2017. Investing activities used $33.5 million, including net loan growth and securities purchases; financing activities provided $20.2 million, including net FHLB funding. Cash and cash equivalents fell to $21.1 million from $30.4 million at year-end.
Debt and liquidity: At March 31, FHLB advances were $187.1 million, repurchase agreements $21.1 million, subordinated debt carrying value $18.2 million, and junior subordinated debt $5.8 million. The Bank reported $458.2 million of remaining FHLB credit availability, $55.0 million in unsecured bank lines and a $20.0 million secured revolving line; none of the latter lines was drawn. Core deposits funded 64% of assets. The filing states the Company and Bank met regulatory capital requirements and the Bank was well-capitalized; Bank ratios included 11.06% Tier 1 leverage and 13.92% total capital.
Material changes and credit quality
- Loans increased $14.2 million, or 1.1%, from year-end; deposits increased $1.4 million, or 0.1%. Consumer loans declined $9.0 million, largely from scheduled paydowns of the former indirect auto portfolio.
- Nonperforming loans rose to $5.5 million, or 0.44% of loans, from $3.7 million, or 0.29%, at year-end. Management attributed the increase in doubtful loans to one legacy commercial and industrial relationship; acquired nonperforming loans also affected comparisons.
- The allowance for loan losses was $8.1 million, or 0.64% of loans; net charge-offs were $0.4 million. Sixteen troubled debt restructurings totaling $1.6 million were performing under modified terms.
- Available-for-sale securities had $5.0 million of gross unrealized losses at quarter-end, which management attributed primarily to interest rates and considered temporary. The resulting securities-related loss contributed to a $1.5 million quarterly other comprehensive loss.
- Citizens and BOJ contributed approximately $0.3 million to Q1 net income combined, according to the filing. Acquisition fair-value allocations remained subject to refinement.
Outlook, risks, and unusual items
- Management expected the effective tax rate to approximate 20% for the remainder of 2018, mainly due to the Tax Act. Q1’s 35.8% effective rate included the $0.6 million deferred-tax remeasurement charge; management did not expect further Tax Act remeasurement charges, subject to final analysis.
- No earnings or revenue guidance was provided. Management described organic loan and deposit growth and acquisitions as parts of its strategy.
- Interest-rate sensitivity modeling estimated net interest income changes over 12 months of -0.6% for a 100-basis-point increase and +1.8% for a 100-basis-point decrease. These estimates depend on assumptions and actual results may differ.
- Key risks include credit losses, borrower and local economic conditions in Louisiana, interest-rate and funding costs, deposit competition, acquisition integration, and the accuracy of loan-loss and other estimates. The company reported $182.0 million of loan commitments and $7.9 million of standby letters of credit; these are not necessarily expected cash outflows.
- The $50 million interest-rate swap portfolio hedged forecasted funding exposure, with a maximum hedge horizon of approximately 2.4 years. Management expected the hedges to remain effective.
Important facts for investors to verify
- Whether acquired-bank integration costs subside and acquired operations deliver expected earnings and deposit benefits.
- Whether loan growth and asset yields sustain the improved net interest margin as deposit and borrowing costs rise.
- Trends in nonperforming loans, doubtful credits, charge-offs, acquired-loan performance, and allowance adequacy.
- Whether deposits remain stable and funding reliance on FHLB advances and other borrowings remains manageable.
- The final tax accounting and the effective tax rate after the provisional Tax Act adjustments.
- Capital, liquidity, and interest-rate sensitivity under changing economic conditions; the filing provides no specific earnings or revenue forecast.