Investar Holding Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; income and cash-flow comparisons are against Q1 2014, while balance-sheet comparisons are against December 31, 2014. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted. Investar is a Louisiana bank holding company operating through Investar Bank, with 11 full-service offices focused on South Louisiana.
Financial performance
| Metric | Q1 2015 | Comparable | Change / context |
|---|---|---|---|
| Interest income | $8.80 | $6.96 | Up 26.5% |
| Net interest income | $7.50 | $5.87 | Up 27.8% |
| Net interest margin | 3.71% | 3.93% | Down 22 basis points |
| Provision for loan losses | $0.70 | $0.25 | Higher provision amid loan growth |
| Noninterest income | $2.54 | $1.07 | Higher mainly from loan-sale gains |
| Noninterest expense | $6.42 | $5.39 | Up 19.3% |
| Net income | $1.95 | $0.88 | Up 121.8% |
| EPS, basic / diluted | $0.27 / $0.27 | $0.23 / $0.21 | — |
| Return on average assets / equity | 0.91% / 7.54% | 0.55% / 6.32% | Higher year over year |
Loan-sale gains were $1.73 million versus $0.62 million a year earlier, including $1.2 million of gains on consumer-loan sales. Management said two consumer-loan sales delayed from Q4 2014 contributed to the Q1 increase. Lower earning-asset yields partly offset loan growth: asset yield was 4.35% versus 4.65%, while the loan yield was 4.71% versus 5.08%. The effective tax rate was 33.1% versus 32.5%.
Financial position, funding and cash flow
- Assets and loans: Total assets were $868.1 million, down from $881.2 million at year-end. Portfolio loans, excluding loans held for sale, rose 3.8% to $646.4 million. Loans held for sale declined to $64.3 million from $103.4 million, mainly reflecting completion of delayed consumer-loan sales.
- Deposits and borrowings: Deposits increased 11.3% to $698.9 million, including growth in demand, NOW and time deposits. FHLB advances fell to $34.9 million from $125.8 million as excess cash was used to repay advances. Repurchase agreements were $12.9 million; the $3.6 million note payable comprised junior subordinated debentures. The company reported no drawn balance on its FNBB line of credit.
- Liquidity: Cash and cash equivalents were $20.7 million, up from $19.5 million at year-end. The bank reported $238.4 million of remaining FHLB borrowing capacity and $33.6 million of lines of credit with other banks. Core deposits funded 65% of assets, versus 67% at year-end. QwikRate deposits were $80.5 million, up from $52.7 million.
- Cash flow: Operating activities provided $47.4 million versus using $17.9 million in Q1 2014; investing used $26.6 million and financing used $19.6 million. Operating cash flow included substantial loan originations and sale proceeds, so it should not be read as recurring earnings-based cash generation.
- Capital and dividends: Investar Bank was reported well-capitalized and both company and bank complied with regulatory capital requirements. At March 31, the bank’s Basel III ratios were 11.80% Tier 1 leverage, 13.43% common equity Tier 1 and Tier 1 risk-based capital, and 14.14% total capital. The quarterly dividend was $0.01 per share. The filing notes dividend capacity is constrained by regulatory requirements, subsidiary distributions and payments on junior subordinated debentures.
Material changes, outlook and risks
- Loan growth was organic; portfolio loans increased $23.6 million during the quarter. Commercial real estate was the largest loan category at $237.6 million.
- The allowance for loan losses increased to $5.38 million from $4.63 million; it was 0.83% of total loans. Nonperforming loans were $3.02 million, or 0.47% of loans, compared with $3.34 million at year-end. There were no loans classified as doubtful or loss.
- Troubled debt restructurings increased to 10 credits totaling about $1.5 million from seven credits totaling about $0.6 million. Nine were performing under modified terms; one was in default and on nonaccrual.
- Management expects to continue selling pools of consumer loans as part of portfolio management. It also expects expenses to increase as the company grows and adds employees and locations. No quantified earnings or revenue guidance was provided.
- Interest-rate sensitivity modeling estimated a 2.00% decline in 12-month net interest income for an immediate 100-basis-point rate increase and an 8.63% decline for a 400-basis-point increase. These are modeled scenarios, not forecasts; management said the bank remained within policy guidelines.
- Key risks include credit deterioration in the South Louisiana market, the adequacy of loan-loss reserves, changing interest rates and funding costs, and deposit and liquidity competition. Commitments to extend credit were $121.8 million at quarter-end, versus $91.5 million at year-end. Management identified no material change in previously disclosed risk factors or market risk.
Important facts for investors to verify
- How much of Q1’s higher loan-sale income is repeatable, given the delayed consumer-loan sales and the stated plan to keep selling consumer-loan pools?
- Whether loan growth, commercial real estate exposure, past-due loans and the increase in TDRs warrant changes to credit-loss assumptions or provisioning.
- Whether deposit growth—particularly time deposits and QwikRate deposits—and the reduced FHLB borrowing balance remain sustainable at acceptable funding costs.
- How a falling or rising rate environment could affect net interest margin and earnings, in light of the filing’s modeled sensitivity and lower asset yields.
- Whether capital, liquidity and subsidiary dividend capacity support planned growth, the announced authorization to repurchase up to 250,000 shares, and future shareholder dividends. No shares were repurchased under that program during Q1.