Investar Holding Corporation — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. Investar provides banking services primarily in South Louisiana through 11 offices. Amounts below are in millions unless stated otherwise. Financial statements are unaudited.
Financial performance
- Q3 earnings: Net income was $1.44 million, versus $0.67 million in Q3 2013. Diluted EPS was $0.20 versus $0.16; basic EPS was $0.20 versus $0.17.
- First nine months: Net income was $3.39 million, versus $2.99 million. Diluted EPS was $0.65 versus $0.78 and basic EPS was $0.68 versus $0.84. The company attributed lower nine-month EPS to the increased share count following its July IPO.
- Net interest: Q3 net interest income increased 32% to $7.00 million; nine-month net interest income rose 43% to $19.12 million. Net interest margin declined to 3.86% from 4.15% in Q3, and to 3.85% from 4.11% for the nine-month period.
- Other income and expenses: Q3 noninterest income was $1.96 million, up from $1.02 million, including $0.71 million of loan-sale gains. Noninterest expense increased to $6.31 million from $5.22 million. Nine-month noninterest income was $4.54 million, including $1.43 million of loan-sale gains; noninterest expense was $17.43 million.
- Credit costs: The Q3 loan-loss provision was $0.51 million versus $0.11 million; the nine-month provision was $1.20 million versus $0.34 million. Net charge-offs were $0.25 million for the nine months.
Financial position, funding and liquidity
- Total assets were $784.6 million at September 30, up 23.6% from $634.9 million at year-end 2013. Loans excluding loans held for sale were $581.4 million, up 15.3%; deposits were $621.6 million, up 16.7%.
- Loans held for sale rose to $53.3 million from $5.0 million, primarily because approximately $50 million of consumer loans, mainly indirect auto loans, were classified as held for sale. Investment securities totaled $92.8 million, up from $62.8 million.
- Cash and cash equivalents were $19.2 million, down from $28.2 million at year-end. Operating cash flow was negative $39.6 million for the nine months, compared with positive $14.3 million in 2013; investing cash flow was negative $110.7 million and financing cash flow positive $141.3 million, including IPO proceeds.
- Deposits funded 79.1% of assets, according to management. FHLB advances were $38.4 million, repurchase agreements $12.1 million and notes payable $3.6 million. The company reported no funds drawn on its FNBB credit line; remaining FHLB capacity was $224.3 million and other bank lines totaled $33.6 million.
- Stockholders’ equity was $102.2 million versus $55.5 million at year-end, reflecting the IPO and retained earnings. Investar Bank reported capital ratios of 9.04% leverage, 10.53% Tier 1 risk-based and 11.20% total risk-based, and was classified as well-capitalized.
Changes, outlook and risks
- The July 2014 IPO sold 3,285,300 shares at $14 per share. The company reported $41.6 million in net proceeds and used approximately $5.0 million to repay its line of credit. The share issuance increased weighted-average shares and contributed to lower nine-month EPS despite higher net income.
- Management cited organic loan and deposit growth, prior FCB acquisition effects, and investment in branches and infrastructure as key drivers of asset and expense growth. The company opened a Baton Rouge branch in Q3 and had expanded into Lafayette.
- Management said higher mortgage rates had reduced mortgage originations and did not expect significant growth in mortgage originations while rates remained elevated. It expected to continue quarterly sales of consumer-loan pools to manage consumer-loan concentration and generate liquidity. Management also anticipated further expense increases as the franchise grows.
- Credit indicators included $1.46 million of nonaccrual loans, no loans 90 days past due and accruing, and $4.85 million of substandard loans at September 30. The $0.90 million of troubled debt restructurings were acquired from FCB and were performing under modified terms. The allowance was $4.33 million, or 0.74% of loans.
- Interest-rate risk remains material: management reported that a modeled +100-basis-point shock would reduce 12-month net interest income by 2.20%, while a −100-basis-point shock would increase it by 1.10%. The filing cautions that assumptions make these estimates uncertain. The Bank entered a $10 million forward-starting interest-rate swap; its September 30 fair value was a $5,000 liability.
- Other considerations include South Louisiana economic and borrower concentration risk, unrealized securities losses that management considered temporary, $93.9 million of commitments to extend credit, and restrictions on common dividends related to subordinated debentures, bank-subsidiary distributions and regulatory requirements. No material changes to previously disclosed risk factors were reported. Management stated that disclosure controls were effective and there were no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether consumer-loan held-for-sale balances and pool-sale gains are sustainable, and how sales affect recurring earnings and liquidity.
- Loan growth, the rising provision, commercial real estate exposure and subsequent trends in nonaccrual, substandard and acquired loans.
- Net interest margin and funding costs as interest rates, deposit competition and loan yields change.
- Cash-flow presentation and funding needs, including loan growth, deposit stability, FHLB borrowing and available credit facilities.
- Post-IPO per-share performance, dilution, capital deployment and the company’s capacity to pay dividends under applicable restrictions.