Investar Holding Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022 unless noted. Investar is a bank holding company operating through Investar Bank, serving individuals and businesses in Louisiana, southeast Texas and Alabama. The unaudited results are not necessarily indicative of full-year results. Amounts below are in millions except per-share data and ratios.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior date |
|---|---|---|
| Interest income | $31.0 | $23.9 in Q1 2022 |
| Interest expense | $10.8 | $2.0 in Q1 2022 |
| Net interest income | $20.2 | $21.8 in Q1 2022 |
| Net interest margin | 3.13% | 3.75% in Q1 2022 |
| Provision for credit losses | $0.4 | Negative provision of $0.4 in Q1 2022 |
| Noninterest income | $1.1 | $5.9 in Q1 2022 |
| Noninterest expense | $16.2 | $15.4 in Q1 2022 |
| Net income / diluted EPS | $3.8 / $0.38 | $10.1 / $0.97 in Q1 2022 |
| Return on average assets / equity | 0.57% / 7.04% | 1.60% / 16.64% in Q1 2022 |
| Total assets | $2,751.7 | $2,753.8 |
| Total loans / allowance for credit losses | $2,109.0 / $30.5 | $2,104.8 / $24.4 |
| Total deposits | $2,145.6 | $2,082.4 |
| Cash and cash equivalents | $31.3 | $40.3 |
| Stockholders’ equity | $218.5 | $215.8 |
Cash flow: Operating activities provided $12.4 million, versus $20.2 million in Q1 2022. Investing activities used $11.0 million, versus $84.4 million; financing activities used $10.3 million, versus providing $58.8 million. Cash and cash equivalents declined $9.0 million during the quarter.
Debt and liquidity: FHLB advances totaled $300.1 million, down from $387.0 million at year-end; federal funds purchased were $0.4 million. Subordinated and junior subordinated debt were $44.2 million and $8.5 million, respectively. Investar reported $899.3 million in available funding from FHLB capacity, the Federal Reserve’s Bank Term Funding Program (BTFP) and correspondent-bank lines, in addition to cash. Together these sources equaled 136% of estimated uninsured deposits of $682.9 million. Estimated uninsured deposits were 32% of total deposits.
Material changes and drivers
- Net income fell $6.3 million year over year. Net interest income declined 7.6% as interest expense rose $8.8 million, partly offset by $7.1 million higher interest income. Deposit and borrowing costs increased faster than asset yields, compressing net interest margin by 62 basis points.
- Noninterest income fell $4.8 million, chiefly because Q1 2022 included $3.3 million of swap termination fee income. Q1 2023 also included a $0.9 million loss on disposal of fixed assets related to the Alice and Victoria, Texas branch sale; Q1 2022 had a $0.4 million gain on fixed-asset sales.
- Noninterest expense increased $0.7 million, including approximately $0.7 million of costs related to the Texas branch sale, such as lease termination, severance, legal and consulting, and accelerated intangible amortization.
- Loans grew $4.3 million from year-end; excluding loans sold with the Texas branches, management reported growth of $18.2 million. Deposits grew $63.3 million, but noninterest-bearing deposits decreased $72.5 million. Time deposits and brokered time deposits increased, including $146.3 million of brokered time deposits at quarter-end.
- Nonperforming loans decreased to 0.27% of loans from 0.54% at year-end, primarily following paydowns on a loan relationship affected by Hurricane Ida. Net charge-offs were $0.3 million in Q1 2023; Q1 2022 had net recoveries of $0.7 million.
- Accumulated other comprehensive loss improved to $44.3 million from $48.9 million, principally reflecting higher fair value of available-for-sale securities.
Outlook, risks and unusual items
- No specific earnings or balance-sheet guidance is provided. Management said it does not expect to open de novo branches during the remainder of 2023 and is emphasizing higher-margin loan originations. It cautioned that margin pressure could continue if funding costs rise faster than yields on interest-earning assets.
- Investar adopted CECL on January 1, 2023. The transition increased the allowance for credit losses by $5.9 million and reduced retained earnings by $4.3 million after tax. The reported allowance was $30.5 million, or 1.45% of loans. Management considers it adequate but notes it may prove insufficient if economic or borrower conditions deteriorate.
- Available-for-sale securities had $56.7 million of gross unrealized losses and $0.5 million of gross unrealized gains at quarter-end, largely attributed by management to interest-rate changes rather than credit losses. Management stated it intends to hold affected securities until maturity or recovery and believes a sale before recovery is unlikely; a required or chosen sale could realize losses.
- Management described heightened banking-sector liquidity and deposit-retention risks following bank failures and related market concerns. It formed a liquidity task force and qualified for the BTFP; it said it did not plan to use the program. The filing also cites inflation, higher rates, competition for deposits, credit quality, geographic and industry concentrations, cyber and operational risks, weather events, and regulatory changes.
- At March 31, the Bank was considered well-capitalized and both the Company and Bank reported compliance with regulatory capital requirements. The Bank’s net interest income simulation estimated a 3.1% decrease under an immediate 100-basis-point rate increase and a 2.1% increase under a 100-basis-point decrease; actual outcomes may differ from modeled results.
- The January 27 sale of the Alice and Victoria branches to First Community Bank included approximately $13.9 million of loans and $14.5 million of deposits. The quarter also included $0.9 million of common-stock repurchases and a declared dividend of $0.095 per share.
Important facts for investors to verify
- Whether deposit retention and funding costs stabilize, particularly given the 32% uninsured-deposit share and increased reliance on time and brokered deposits.
- How net interest margin, deposit pricing and borrowing costs evolve as interest rates change.
- Whether loan quality remains sound and the CECL allowance adequately reflects changing economic forecasts; review commercial real estate and business-lending exposures.
- Whether liquidity sources remain available as represented and whether unrealized securities losses could lead to sales or realized losses.
- The recurring earnings outlook after excluding Q1 2022 swap termination income and Q1 2023 branch-sale-related gains, losses and expenses.