Investar Holding Corporation — FY2015 Form 10-K
Reporting period: Year ended December 31, 2015; audited consolidated results for the company and Investar Bank. The filing also presents unaudited quarterly results. Investar is a Louisiana community bank serving southern Louisiana; it reported 11 full-service branches at year-end.
Financial performance and position
| Metric | FY2015 / Dec. 31, 2015 | FY2014 / Dec. 31, 2014 |
|---|---|---|
| Total assets | $1.032 billion | $879.4 million |
| Net loans, excluding loans held for sale | $739.3 million | $618.2 million |
| Total deposits | $737.4 million | $628.1 million |
| Net interest income | $31.5 million | $26.7 million |
| Net interest margin | 3.61% | 3.85% |
| Net income | $7.1 million | $5.4 million |
| Diluted earnings per share | $0.97 | $0.93 |
| Return on average assets / equity | 0.77% / 6.60% | 0.73% / 6.80% |
| Allowance for loan losses | $6.1 million; 0.82% of loans | $4.6 million; 0.74% of loans |
- Total revenue, measured as net interest income plus noninterest income, was $39.8 million, up 22% from $32.6 million. Noninterest income rose 42% to $8.3 million, including $4.4 million in loan-sale gains.
- Noninterest expense increased 12% to $27.4 million. The efficiency ratio improved to 68.72% from 74.90%.
- Net charge-offs were $0.4 million, or 0.05% of average loans. Nonperforming loans were $2.4 million, or 0.32% of loans, compared with $3.3 million, or 0.54%, a year earlier. Troubled debt restructurings increased to $2.2 million from $0.6 million; three restructured loans totaling $0.5 million were on nonaccrual.
- Cash and cash equivalents were $21.0 million. Investment securities totaled $139.8 million, of which $88.1 million were pledged. Deposits funded 69% of assets. The Bank had $174.1 million of remaining FHLB capacity and $35.0 million of unused correspondent-bank lines.
- Year-end funding included $127.5 million of FHLB advances, $39.1 million of repurchase agreements and $3.6 million of junior subordinated debt. Total stockholders’ equity was $109.4 million; the Bank’s total risk-based capital ratio was 12.38%, and it met the well-capitalized standard.
- Operating cash flow was $37.5 million, versus cash used of $87.6 million in 2014. Investing activities used $173.3 million and financing activities provided $137.3 million; cash and cash equivalents increased $1.5 million. Operating cash flow was affected by large consumer-loan originations and sales, so it should not be read as a simple measure of recurring earnings.
Changes versus the prior year
- Assets grew 17%, net loans grew 20%, and deposits grew 17%, primarily through organic expansion and lending-team additions.
- Net income rose 31%, chiefly as higher earning-asset volume lifted net interest income by $4.8 million. Lower asset yields reduced the benefit: net interest margin fell 24 basis points, and loan yield declined to 4.65% from 4.99%.
- Credit indicators improved overall, with nonperforming loans declining, while the allowance increased to support portfolio growth. TDR balances rose substantially.
- Loan-sale gains increased, including $3.1 million from auto-loan pool sales. The Bank stopped accepting indirect auto applications after December 31, 2015; it expected consumer-loan balances and related sale gains to decline over time.
- Income tax expense increased to $3.5 million from $1.1 million; the effective tax rate rose to 33.2% from 17.5%, primarily because the 2014 results benefited from historic rehabilitation tax credits.
Outlook, risks and unusual items
- No specific earnings or financial guidance is provided. Management described continued organic growth, possible acquisitions and branch expansion as strategic priorities. A Gonzales branch was expected to open in the second quarter of 2016, subject to regulatory approval.
- Management cited a liability-sensitive interest-rate position. Its model projected net interest income down 1.0% under an immediate 100-basis-point rate increase and up 3.6% under a 100-basis-point decrease; actual results may differ because estimates depend on behavioral and market assumptions.
- Key exposures include concentration in southern Louisiana, real-estate-backed lending, commercial real estate and construction credit, consumer-credit risk in the remaining auto portfolio, loan growth and portfolio seasoning, funding and deposit competition, interest-rate changes, and hurricanes or other regional disruptions.
- Other notable items: 2015 included $0.2 million of severance expense and higher self-insurance claims costs; a tax-credit investment had $0.1 million of impairment expense in 2015. The interest-rate swap had a $0.6 million negative fair value at year-end.
- The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management concluded controls were effective. The company reported no material legal proceedings and no subsequent events requiring disclosure.
Important facts for investors to verify
- Whether the post-exit auto-loan portfolio, servicing income and loan-sale gains decline as management expects, and how the remaining portfolio performs.
- Whether loan growth is accompanied by stable credit quality; monitor TDRs, nonaccrual loans, charge-offs, allowance adequacy and commercial real estate exposures.
- How deposit costs, reliance on time and internet-sourced deposits, borrowings and available liquidity evolve as the loan book expands.
- Whether net interest margin stabilizes amid rate movements, and whether operating expenses and new-branch investment remain controlled.
- Confirm the timing and regulatory approval of the Gonzales branch opening and assess the company’s capacity to fund further growth or acquisitions while maintaining capital and dividend flexibility.