Investar Holding Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014; unaudited consolidated results. Investar is a Louisiana community bank holding company operating 11 full-service offices in South Louisiana. Amounts below are in millions unless otherwise noted.
Key financial metrics
| Metric | Q2 2014 | Six months 2014 | Comparable 2013 |
|---|---|---|---|
| Net interest income | $6.25 | $12.12 | $4.72 Q2; $8.11 six months |
| Provision for loan losses | $0.45 | $0.69 | $0.14 Q2; $0.23 six months |
| Noninterest income | $1.51 | $2.58 | $2.19 Q2; $3.36 six months |
| Noninterest expense | $5.73 | $11.12 | $4.62 Q2; $8.19 six months |
| Net income | $1.07 | $1.95 | $1.70 Q2; $2.32 six months |
| Diluted EPS | $0.26 | $0.47 | $0.44 Q2; $0.64 six months |
| Net interest margin | 3.85% | 3.89% | 4.28% Q2; 4.10% six months |
- At June 30, total assets were $729.1, up 14.8% from year-end 2013. Gross loans were $564.0, up 11.9%; deposits were $578.7, up 8.7%.
- Cash and cash equivalents were $15.1. Total liabilities were $671.1 and stockholders’ equity was $57.9.
- Borrowings included $68.4 of FHLB advances, $11.4 of repurchase agreements and $8.6 of notes payable. The notes payable included a $5.0 draw on a line of credit, subsequently repaid with IPO proceeds.
- Six-month cash flows: operating activities used $22.4; investing activities used $80.5; financing activities provided $89.9. Cash and cash equivalents declined $13.1 to $15.1.
- The allowance for loan losses was $3.9, or 0.69% of loans. Nonperforming loans were $1.31 (0.23% of loans); six restructured credits totaled $0.88 and were performing under modified terms.
- Investar Bank’s regulatory capital ratios at June 30 were 8.99% leverage, 10.54% Tier 1 risk-based capital and 11.20% total risk-based capital; the Bank was classified as well-capitalized.
Material changes versus comparable periods
- Net income fell 37% in Q2 and 16% for the first half. Management attributed the decline primarily to the $0.91 bargain-purchase gain recognized in Q2 2013 with the First Community Bank acquisition. That gain was not repeated in 2014.
- Net interest income rose 32.5% in Q2 and 49.4% for the first half, reflecting larger average loan and securities balances, including acquisition-related growth. Net interest margin nevertheless declined 43 basis points in Q2 and 21 basis points for the first half, as asset yields fell.
- Noninterest expense increased 24.1% in Q2 and 35.8% for the first half, mainly reflecting expanded operations, acquired branches, the Lafayette branch and organic growth. The loan-loss provision also increased with portfolio growth.
- Loans held for sale rose to $32.1 from $5.0 at year-end, largely because approximately $26.3 of indirect auto loans were classified as held for sale. Investment securities increased to $79.5 from $62.8.
- Loan quality indicators included $4.24 of substandard loans and $0.71 of special-mention loans at quarter-end; there were no loans classified as doubtful or loss. The allowance increased from $3.38 at year-end.
Outlook, risks and unusual items
- Management expected higher mortgage rates to constrain mortgage originations and related fee income, which could remain flat or decline during the rest of 2014. It expected to continue selling auto-loan pools as part of portfolio management.
- Management said operating expenses could continue to rise as the company grows organically and through acquisitions. It reported no formal earnings guidance in the supplied filing text.
- Interest-rate sensitivity modeling estimated a 3.18% decrease in 12-month net interest income under an immediate 100-basis-point rise, and a 0.88% increase under a 100-basis-point decline. The filing cautions that model assumptions are uncertain and actual results may differ.
- Credit risks include South Louisiana economic exposure, commercial real estate lending and potential deterioration in acquired loans. Management considered the allowance adequate but warned that adverse economic or borrower-specific developments could make it insufficient.
- Commitments to extend credit were approximately $50.9. Securities with a carrying value of $57.2 were pledged to secure deposits or borrowings. The company reported no material changes in contractual obligations or market risk from its prior disclosures.
- After quarter-end, the company completed its IPO and the underwriters exercised their additional-share option. The filing reports total net proceeds of $41.6 and says $5.0 was used to repay the line of credit. The Bank remained subject to regulatory, liquidity and interest-rate risks; common dividends are also subject to restrictions, including subordinated-debt payment requirements.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the IPO proceeds and timing: the subsequent-events note describes $37.6 of initial net proceeds before the option exercise, while the later offering disclosure reports $41.6 net proceeds in total.
- Track whether loan growth translates into sustainable earnings as net interest margin remains below the prior-year level and provision expense rises.
- Monitor the concentration and performance of nonfarm, nonresidential real estate and auto loans, acquired impaired loans, substandard loans and restructured credits.
- Assess funding mix and liquidity, including increased FHLB borrowing, time deposits, QwikRate deposits and the use of pledged securities.
- Review subsequent reported capital ratios and share count after the IPO; the filing reports 7,229,924 shares outstanding as of August 8, 2014.