Investar Holding Corporation — Q2 2023 Form 10-Q
Business context and reporting period. Unaudited results cover the three and six months ended June 30, 2023, compared with the same periods in 2022. Investar is a Louisiana-based financial holding company operating a community bank in Louisiana, southeast Texas and Alabama. It reported 28 branches and 338 full-time equivalent employees at quarter-end.
Financial performance and position
| Metric | Q2 2023 / June 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Total interest income | $32.4 million for Q2 | $24.3 million for Q2 2022 |
| Net interest income | $18.4 million for Q2; $38.6 million for first half | $22.0 million and $43.8 million, respectively, in 2022 |
| Net interest margin | 2.82% for Q2; 2.98% for first half | 3.70% and 3.72%, respectively, in 2022 |
| Net income / diluted EPS | $6.5 million / $0.67 for Q2; $10.4 million / $1.05 for first half | $9.4 million / $0.92 for Q2; $19.5 million / $1.89 for first half in 2022 |
| Total assets | $2.754 billion | $2.754 billion at December 31, 2022 |
| Loans / allowance for credit losses | $2.085 billion / $30.0 million | $2.105 billion / $24.4 million at December 31, 2022 |
| Deposits | $2.181 billion | $2.082 billion at December 31, 2022 |
| Cash and cash equivalents | $65.9 million | $40.3 million at December 31, 2022 |
| Stockholders’ equity | $218.4 million | $215.8 million at December 31, 2022 |
Cash flow, first half: Operating activities provided $15.3 million; investing activities provided $23.5 million; financing activities used $13.2 million. Cash and cash equivalents increased $25.6 million from the start of the year.
Credit and capital: Nonperforming loans were 0.34% of total loans at June 30, versus 0.54% at December 31, 2022. The allowance was 1.44% of loans. The Bank reported regulatory capital ratios of 9.96% Tier 1 leverage, 12.11% common equity Tier 1 and 13.36% total capital, and remained “well-capitalized.”
Material changes versus prior comparable periods
- Q2 net income fell about 30% year over year; first-half net income fell about 47%. First-half net interest income declined 12%, as rising funding costs outpaced higher asset yields.
- Interest expense rose to $14.0 million in Q2 from $2.4 million a year earlier. The six-month expense rose to $24.8 million from $4.4 million. Deposit costs and short-term borrowing costs increased substantially.
- Noninterest income was $2.1 million in Q2, down from $6.4 million, and $3.1 million for the first half, down from $12.2 million. The prior-year periods included $4.7 million and $8.1 million, respectively, of swap termination fee income.
- Deposits increased 4.7% from year-end, but the mix shifted toward higher-cost funding: noninterest-bearing deposits fell $92.4 million, while time and brokered time deposits increased. Noninterest-bearing balances were 22.4% of deposits, down from 27.9%.
- Loans declined 0.9% from year-end, including approximately $13.9 million of loans sold with the Alice and Victoria, Texas branch transaction. Excluding those loans, the company reported a 0.3% decline.
- The company adopted CECL on January 1, 2023. The adoption increased the allowance by $5.9 million and reduced retained earnings by $4.3 million after tax. The first-half credit-loss provision was a benefit of $2.5 million, including recoveries primarily tied to a Hurricane Ida-affected loan relationship.
Liquidity, debt and other significant items
- At June 30, borrowings included $235.8 million under the Federal Reserve’s Bank Term Funding Program (BTFP), $23.5 million of FHLB advances and $5.2 million of repurchase agreements. BTFP proceeds were used to replace short-term FHLB funding; the company cited the lower rate, fixed one-year funding and ability to prepay without penalty.
- Management reported $998.0 million of available funding from FHLB advances, BTFP and correspondent-bank lines, in addition to $65.9 million of cash and cash equivalents. These sources represented 145% of estimated uninsured deposits of $731.2 million. Uninsured deposits were approximately 34% of total deposits.
- Available-for-sale securities had $62.8 million of gross unrealized losses and $0.3 million of gross unrealized gains. Management attributed the losses primarily to interest rates, stated it intended to hold securities until maturity or recovery, and said it was more likely than not it would not need to sell them before recovery. A forced or necessary sale could realize losses.
- Other real estate owned rose to $4.1 million from $0.7 million at year-end, principally following transfers related to the Hurricane Ida-affected relationship and a closed branch property.
- The January 2023 sale of the Alice and Victoria branches generated $0.9 million of first-half fixed-asset disposition losses and related costs. The company also closed a Louisiana branch in March 2023 and said it did not expect to open de novo branches during the remainder of 2023.
- For a hypothetical immediate rate increase of 100 basis points, the Bank estimated a 2.2% decrease in 12-month net interest income; a 100-basis-point decrease was estimated to increase it 2.8%. Actual results may differ from these simulations.
- No earnings or financial guidance was provided in the filing. Management cautioned that margin pressure could continue if funding costs rise faster than yields on earning assets. The Federal Reserve raised its target rate again in July 2023, after quarter-end.
Key investor verification points
- Track deposit retention and pricing, particularly the decline in noninterest-bearing deposits, growth in time and brokered deposits, and the 34% estimated uninsured-deposit share.
- Assess the sustainability of net interest margin and earnings as deposit and borrowing costs reset, alongside loan yields and interest-rate sensitivity.
- Review BTFP repayment and replacement funding plans, remaining borrowing capacity, pledged collateral and liquidity after the program’s scheduled March 2024 end.
- Monitor credit quality, commercial real estate and business-loan exposures, charge-offs, recoveries, OREO and the assumptions underlying the CECL allowance.
- Evaluate the potential effect of unrealized securities losses if liquidity needs require sales before recovery, and confirm securities’ pledged status.
- Confirm subsequent capital, dividend and repurchase developments; the company announced authorization to repurchase an additional 350,000 shares on July 19, 2023.