Investar Holding Corporation Announces 2023 Third Quarter Results

BATON ROUGE, LA / ACCESSWIRE / October 19, 2023 / Investar Holding Corporation ("Investar") (NASDAQ:ISTR), the holding company for Investar Bank, National Association (the "Bank"), today announced financial results for the quarter ended September 30, 2023. Investar reported net income of $2.8 million, or $0.28 per diluted common share, for the third quarter of 2023, compared to net income of $6.5 million, or $0.67 per diluted common share, for the quarter ended June 30, 2023, and net income of $7.3 million, or $0.73 per diluted common share, for the quarter ended September 30, 2022.

On a non-GAAP basis, core earnings per diluted common share for the third quarter of 2023 were $0.33 compared to $0.67 for the second quarter of 2023 and $0.71 for the third quarter of 2022. Core earnings exclude certain items including, but not limited to, loss on sale or disposition of fixed assets, net, severance and loan purchase expense (refer to the Reconciliation of Non-GAAP Financial Measures tables for a reconciliation of GAAP to non-GAAP metrics).

Strong Credit Quality

Investar has increased its focus on underwriting high quality credits that are less susceptible to effects from a potential economic downturn and continues to de-risk the portfolio by proactively exiting credit relationships that do not fit this strategy. As a result, credit quality has continued to improve as nonperforming loans were only $5.6 million, or 0.27% of total loans at September 30, 2023 compared to $7.0 million, or 0.34%, at June 30, 2023.

Loan Purchase Agreement

Investar entered into a loan purchase agreement to acquire commercial and industrial revolving lines of credit with an unpaid principal balance of approximately $163 million in two tranches. The purchase of the first tranche, consisting of revolving lines of credit with an unpaid principal balance of approximately $36 million, was completed in the third quarter. The purchase of the second tranche, consisting of revolving lines of credit with an unpaid principal balance of approximately $127 million, closed in the fourth quarter. The revolving lines of credit are variable-rate and short-term in nature with varying renewal terms.

Exit of Consumer Mortgage Origination Business

In an effort to focus more on its core business and optimize profitability, Investar made the strategic decision to exit its consumer mortgage origination business. Investar will retain and continue to service the existing consumer mortgage loan portfolio. Consumer mortgage loan products are generally long-term and fixed-rate and generally require a higher relative allowance for credit losses than other loan products. Consumer mortgage volumes have decreased to historical lows due to the combination of rising housing prices and interest rates and constriction of housing supply. As a result of this decision, Investar further optimized its workforce and will continue to dedicate resources to its more profitable business lines. The consumer mortgage portfolio was approximately $264.1 million at September 30, 2023 and is included in the 1-4 family loan category.

Investar's President and Chief Executive Officer John D'Angelo commented:

"During the third quarter, we made several significant achievements towards our strategic goals. Most notably, we entered into the next phase of our digital transformation by executing on several pillars of our strategic goals.

As a result of our continuous efforts toward product consolidation, we agreed to acquire assets comprised wholly of variable-rate revolving lines of credit. These loans are to consumer finance lending companies that possess a history of high credit quality and provide opportunities to deepen the relationships through our expansive services including treasury management. After a thorough due diligence process, we hand-selected the loans that align with our desired credit profile. Moreover, we hired two new lenders with over 50 years of combined experience within this lending segment. The borrowers primarily consist of seasoned operating companies with tenured management teams who have experience through many economic cycles. Also, importantly, this transaction is accretive to our core financial metrics, immediately increasing expected per share returns to our stockholders. We believe these variable-rate products, combined with new loan production coming on at higher rates, will help to offset the margin pressure of higher funding costs.

Furthermore, as part of our strategy to optimize our balance sheet, we have made the decision to exit from the consumer mortgage origination business. The decision was based on a number of factors, including the steep decline in mortgage volumes and the negative outlook for mortgage lending coupled with our preference for shorter duration and better risk-adjusted return asset classes. We will retain and continue to provide excellent customer service to our existing mortgage customers.

Finally, we continue to execute on the evaluation and optimization of our physical branch and ATM footprint. As a result of our ongoing review, we ceased operation of 14 ATMs which will result in future cost savings while maintaining uninterrupted service to our valued customers.

As always, we remain focused on shareholder value and returning capital to shareholders. We repurchased 52,407 shares of our common stock during the third quarter well below tangible book value at an average price of $12.89 per share.

We believe Investar is well-positioned for a higher-for-longer interest rate environment but also poised to benefit from a potential decrease in rates. As we look forward, we are beginning a pivot from a growth strategy to a focus on consistent, quality earnings through the optimization of our balance sheet."

Third Quarter Highlights

Loans

Total loans were $2.10 billion at September 30, 2023, an increase of $18.2 million, or 0.9%, compared to June 30, 2023, and an increase of $97.3 million, or 4.9%, compared to September 30, 2022.

The following table sets forth the composition of the total loan portfolio as of the dates indicated (dollars in thousands).

At September 30, 2023, the Bank's total business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $851.5 million, an increase of $10.6 million, or 1.3%, compared to the business lending portfolio of $840.9 million at June 30, 2023, and an increase of $8.1 million, or 1.0%, compared to the business lending portfolio of $843.4 million at September 30, 2022. The increase in the business lending portfolio compared to June 30, 2023 and September 30, 2022 is primarily driven by the purchase of commercial and industrial revolving lines of credit described above, partially offset by lower loan demand due to higher rates.

Nonowner-occupied loans totaled $501.6 million at September 30, 2023, a decrease of $29.2 million, or 5.5%, compared to $530.8 million at June 30, 2023, and an increase of $37.1 million, or 8.0%, compared to $464.5 million at September 30, 2022. The decrease in nonowner-occupied loans compared to June 30, 2023 is primarily due to a reclassification of approximately $24.1 million nonowner-occupied loans to multifamily loans due to a change to the primary use of the property. The increase in nonowner-occupied loans compared to September 30, 2022 is due to organic growth.

Credit Quality

Nonperforming loans were $5.6 million, or 0.27% of total loans, at September 30, 2023, a decrease of $1.4 million compared to $7.0 million, or 0.34% of total loans, at June 30, 2023, and a decrease of $7.5 million compared to $13.1 million, or 0.65% of total loans, at September 30, 2022. The decrease in nonperforming loans compared to June 30, 2023 is mainly attributable to paydowns. Included in nonperforming loans are acquired loans with a balance of $1.9 million at September 30, 2023, or 35% of nonperforming loans.

On January 1, 2023, Investar adopted FASB ASC Topic 326 " Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments " Update No. 2016-13 . The ASU, referred to as the Current Expected Credit Loss ("CECL") standard, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption, Investar recorded a one-time, cumulative effect adjustment to increase the allowance for credit losses by $5.9 million and reduce retained earnings, net of tax, by $4.3 million.

The allowance for credit losses was $29.8 million, or 534.1% and 1.42% of nonperforming and total loans, respectively, at September 30, 2023, compared to $30.0 million, or 429.6% and 1.44% of nonperforming and total loans, respectively, at June 30, 2023, and $23.2 million, or 176.6% and 1.15% of nonperforming and total loans, respectively, at September 30, 2022.

Investar recorded a negative provision for credit losses of $34,000 for the quarter ended September 30, 2023 compared to a negative provision for credit losses of $2.8 million and a provision for credit losses of $1.2 million for the quarters ended June 30, 2023 and September 30, 2022, respectively. The negative provision for credit losses in the quarter ended September 30, 2023 was primarily due to net recoveries. The negative provision for credit losses in the quarter ended June 30, 2023 was driven by net recoveries of $2.4 million, primarily attributable to recoveries on one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida. The provision for credit losses for the quarter ended September 30, 2022 was due to organic loan growth.

Deposits

Total deposits at September 30, 2023 were $2.21 billion, an increase of $28.6 million, or 1.3%, compared to $2.18 billion at June 30, 2023, and an increase of $156.8 million, or 7.6%, compared to $2.05 billion at September 30, 2022.

The following table sets forth the composition of deposits as of the dates indicated (dollars in thousands).

The increase in money market deposit accounts at September 30, 2023 compared to June 30, 2023 is primarily due to higher rates offered. The decrease in money market deposit accounts at September 30, 2023 compared to September 30, 2022 is primarily due to customers shifting into higher yielding interest-bearing deposit products as a result of rising interest rates. The increase in time deposits at September 30, 2023 compared to June 30, 2023 is primarily due to existing customer funds migrating from other deposit categories. The increase in time deposits at September 30, 2023 compared to September 30, 2022 is primarily due to organic growth and existing customer funds migrating from other deposit categories. Noninterest-bearing demand deposits and interest-bearing demand deposits decreased over the periods due to shifts by customers into higher yielding interest-bearing deposit products as a result of rising interest rates. Brokered time deposits increased to $197.7 million at September 30, 2023 from $153.4 million at June 30, 2023. Investar utilizes brokered time deposits, entirely in denominations of less than $250,000, to secure fixed cost funding and reduce short-term borrowings. At September 30, 2023, the balance of brokered time deposits remained below 10% of total assets, and the remaining weighted average duration is approximately 13 months with a weighted average rate of 5.02%.

Stockholders' Equity

Stockholders' equity was $208.7 million at September 30, 2023, a decrease of $9.6 million compared to June 30, 2023, and an increase of $3.0 million compared to September 30, 2022. The decrease in stockholders' equity compared to June 30, 2023 is primarily attributable to an increase in accumulated other comprehensive loss due to a decrease in the fair value of the Bank's available for sale securities portfolio, partially offset by net income for the quarter. The increase in stockholders' equity compared to September 30, 2022 is primarily attributable to net income for the last twelve months, partially offset by an increase in accumulated other comprehensive loss due to a decrease in the fair value of the Bank's available for sale securities portfolio and the cumulative effect adjustment as a result of the adoption of the CECL standard, reflected in retained earnings.

Net Interest Income

Net interest income for the third quarter of 2023 totaled $17.5 million, a decrease of $0.9 million, or 5.0%, compared to the second quarter of 2023, and a decrease of $6.0 million, or 25.6%, compared to the third quarter of 2022. Total interest income was $33.2 million, $32.4 million and $27.0 million for the quarters ended September 30, 2023, June 30, 2023 and September 30, 2022, respectively. Total interest expense was $15.7 million, $14.0 million and $3.5 million for the corresponding periods. Included in net interest income for the quarters ended September 30, 2023, June 30, 2023 and September 30, 2022 is $36,000, $47,000, and $0.1 million, respectively, of interest income accretion from the acquisition of loans. Also included in net interest income for each of the quarters ended September 30, 2023 and September 30, 2022 are interest recoveries of $0.1 million. There were no interest recoveries for the quarter ended June 30, 2023.

Investar's net interest margin was 2.66% for the quarter ended September 30, 2023, compared to 2.82% for the quarter ended June 30, 2023 and 3.77% for the quarter ended September 30, 2022. The decrease in net interest margin for the quarter ended September 30, 2023 compared to the quarter ended June 30, 2023 was driven by a 28 basis point increase in the overall cost of funds, partially offset by a seven basis point increase in the yield on interest-earning assets. The decrease in net interest margin for the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022 was driven by a 228 basis point increase in the overall cost of funds, partially offset by a 71 basis point increase in the yield on interest-earning assets.

The yield on interest-earning assets was 5.05% for the quarter ended September 30, 2023, compared to 4.98% for the quarter ended June 30, 2023 and 4.34% for the quarter ended September 30, 2022. The increase in the yield on interest-earning assets compared to the quarter ended June 30, 2023 was primarily attributable to a nine basis point increase in the yield on the loan portfolio, partially offset by a 10 basis point decrease in the yield on the taxable securities portfolio. The increase in the yield on interest-earning assets compared to the quarter ended September 30, 2022 was primarily driven by a 67 basis point increase in the yield on the loan portfolio and a 38 basis point increase in the yield on the taxable securities portfolio.

Exclusive of the interest income accretion from the acquisition of loans, interest recoveries, and accelerated fee income recognized due to the forgiveness or pay-off of Paycheck Protection Program ("PPP") loans, adjusted net interest margin decreased to 2.64% for the quarter ended September 30, 2023, compared to 2.82% for the quarter ended June 30, 2023, and 3.72% for the quarter ended September 30, 2022. The adjusted yield on interest-earning assets was 5.03% for the quarter ended September 30, 2023 compared to 4.97% and 4.29% for the quarters ended June 30, 2023 and September 30, 2022, respectively. Refer to the Reconciliation of Non-GAAP Financial Measures table for a reconciliation of GAAP to non-GAAP metrics.

The cost of deposits increased 42 basis points to 2.73% for the quarter ended September 30, 2023 compared to 2.31% for the quarter ended June 30, 2023 and increased 237 basis points compared to 0.36% for the quarter ended September 30, 2022. The increase in the cost of deposits compared to the quarter ended June 30, 2023 resulted from both a higher average balance and an increase in rates paid on time deposits, a higher average balance of brokered time deposits, and an increase in rates paid on interest-bearing demand deposits and savings deposits. The increase in the cost of deposits compared to the quarter ended September 30, 2022 resulted from both a higher average balance and an increase in rates paid on time deposits, a higher average balance of brokered time deposits, and an increase in rates paid on interest-bearing demand deposits, partially offset by a lower average balance of interest-bearing demand deposits.

The cost of short-term borrowings decreased 12 basis points to 4.97% for the quarter ended September 30, 2023 compared to 5.09% for the quarter ended June 30, 2023 and increased 257 basis points compared to 2.40% for the quarter ended September 30, 2022. Beginning in the second quarter of 2023, the Bank began utilizing the Federal Reserve's Bank Term Funding Program ("BTFP") to secure fixed rate funding for up to a one-year term and reduce short-term Federal Home Loan Bank ("FHLB") advances, which are priced daily. The Bank utilized this source of funding due to its lower rate as compared to FHLB advances, the ability to prepay the obligations without penalty, and as a means to lock in funding. The decrease in the cost of short-term borrowings compared to the quarter ended June 30, 2023 resulted primarily from the reduction of short-term advances from the FHLB and the increased utilization of short-term repurchase agreements. The increase in the cost of short-term borrowings compared to the quarter ended September 30, 2022 resulted from an increase in the Federal Reserve's federal funds rate, which drives the costs of short-term borrowings under the BTFP and short-term advances from the FHLB.

The overall cost of funds for the quarter ended September 30, 2023 increased 28 basis points to 3.07% compared to 2.79% for the quarter ended June 30, 2023 and increased 228 basis points compared to 0.79% for the quarter ended September 30, 2022. The increase in the cost of funds for the quarter ended September 30, 2023 compared to the quarter ended June 30, 2023 resulted from both a higher average balance and an increase in the cost of deposits, partially offset by both a lower average balance and a decrease in the cost of short-term borrowings. The increase in the cost of funds for the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022 resulted from both a higher average balance and an increase in the cost of deposits and both a higher average balance and an increase in the cost of short-term borrowings.

Noninterest Income

Noninterest income for the third quarter of 2023 totaled $1.6 million, a decrease of $0.4 million, or 20.9%, compared to the second quarter of 2023 and a decrease of $1.0 million, or 38.6%, compared to the third quarter of 2022.

The decrease in noninterest income compared to the quarter ended June 30, 2023 is driven by a $0.3 million increase in loss on sale or disposition of fixed assets and a $0.3 million decrease in other operating income, partially offset by a $0.1 million increase in the change in fair value of equity securities and a $0.1 million increase in service charges on deposit accounts. The decrease in other operating income is primarily attributable to a $0.2 million decrease in the change in the net asset value of other investments and a $0.1 million decrease in distributions from investments.

The decrease in noninterest income compared to the quarter ended September 30, 2022 is mainly attributable to a $0.3 million increase in loss on sale or disposition of fixed assets and a $0.7 million decrease in other operating income. The decrease in other operating income is primarily attributable to a $0.4 million decrease in the change in the net asset value of other investments and a $0.3 million decrease in derivative fee income.

Noninterest Expense

Noninterest expense for the third quarter of 2023 totaled $15.8 million, an increase of $0.5 million, or 3.5%, compared to the second quarter of 2023, and a decrease of $0.2 million, or 1.2%, compared to the third quarter of 2022.

The increase in noninterest expense for the quarter ended September 30, 2023 compared to the quarter ended June 30, 2023 was primarily driven by a $0.1 million increase in salaries and employee benefits, a $0.2 million increase in professional fees, and a $0.2 million increase in other operating expenses. The increase in salaries and employee benefits is primarily due to severance related to Investar's exit from its consumer mortgage origination business. Other operating expenses include, among other things, software expense, other real estate expense, FDIC assessments, bank security, and bank shares tax.

The decrease in noninterest expense for the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022 is primarily a result of a $0.2 million decrease in depreciation and amortization and a $0.2 million decrease in occupancy, partially offset by a $0.1 million increase in salaries and employee benefits. The decreases in depreciation and amortization and occupancy are due to the sale of the Alice and Victoria, Texas branches in January 2023 and the closure of one branch location in the first quarter of 2023. The increase in salaries and employee benefits is primarily due to severance related to Investar's exit from its consumer mortgage origination business.

Taxes

Investar recorded an income tax expense of $0.6 million for the quarter ended September 30, 2023, which equates to an effective tax rate of 17.4%, compared to effective tax rates of 18.7% and 18.9% for the quarters ended June 30, 2023 and September 30, 2022, respectively.

Basic and Diluted Earnings Per Common Share

Investar reported basic and diluted earnings per common share of $0.28 for the quarter ended September 30, 2023, compared to basic and diluted earnings per common share of $0.67 for the quarter ended June 30, 2023, and basic and diluted earnings per common share of $0.74 and $0.73, respectively, for the quarter ended September 30, 2022.

About Investar Holding Corporation

Investar, headquartered in Baton Rouge, Louisiana, provides full banking services, excluding trust services, through its wholly-owned banking subsidiary, Investar Bank, National Association. The Bank currently operates 29 branch locations serving Louisiana, Texas, and Alabama. At September 30, 2023, the Bank had 328 full-time equivalent employees and total assets of $2.8 billion.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with generally accepted accounting principles in the United States of America, or GAAP. These measures and ratios include "tangible common equity," "tangible assets," "tangible equity to tangible assets," "tangible book value per common share," "core noninterest income," "core earnings before noninterest expense," "core noninterest expense," "core earnings before income tax expense," "core income tax expense," "core earnings," "core efficiency ratio," "core return on average assets," "core return on average equity," "core basic earnings per share," and "core diluted earnings per share." We also present certain average loan, yield, net interest income and net interest margin data adjusted to show the effects of, accelerated fee income for PPP loans, interest recoveries, and interest income accretion from the acquisition of loans. Management believes these non-GAAP financial measures provide information useful to investors in understanding Investar's financial results, and Investar believes that its presentation, together with the accompanying reconciliations, provide a more complete understanding of factors and trends affecting Investar's business and allow investors to view performance in a manner similar to management, the entire financial services sector, bank stock analysts and bank regulators. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results, and Investar strongly encourages investors to review its consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. A reconciliation of the non-GAAP financial measures disclosed in this press release to the comparable GAAP financial measures is included at the end of the financial statement tables.

Forward-Looking and Cautionary Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect Investar's current views with respect to, among other things, future events and financial performance. Investar generally identifies forward-looking statements by terminology such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "could," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," or the negative version of those words or other comparable words.

Any forward-looking statements contained in this press release are based on the historical performance of Investar and its subsidiaries or on Investar's current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by Investar that the future plans, estimates or expectations by Investar will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to Investar's operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if Investar's underlying assumptions prove to be incorrect, Investar's actual results may vary materially from those indicated in these statements. Investar does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors include, but are not limited to, the following, any one or more of which could materially affect the outcome of future events:

These factors should not be construed as exhaustive. Additional information on these and other risk factors can be found in Part I Item 1A. "Risk Factors" and in the "Special Note Regarding Forward-Looking Statements" in Part II Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Investar's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the "SEC") and in Part II Item 1A. "Risk Factors" in Investar's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023 filed with the SEC.

For further information contact:
Investar Holding Corporation
John Campbell
Executive Vice President and Chief Financial Officer
(225) 227-2215
John.Campbell@investarbank.com