ISTR - Investar Holding Corporation Announces 2022 Third Quarter Results

BATON ROUGE, LA / ACCESSWIRE / October 24, 2022 / 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, 2022. Investar reported net income of $7.3 million, or $0.73 per diluted common share, for the third quarter of 2022, compared to net income of $9.4 million, or $0.92 per diluted common share, for the quarter ended June 30, 2022, and a net loss of $10.0 million, or $0.95 per diluted common share, for the quarter ended September 30, 2021.

On a non-GAAP basis, core earnings (loss) per diluted common share for the third quarter of 2022 were $0.71 compared to $0.62 for the second quarter of 2022 and ($1.06) for the third quarter of 2021. Core earnings (loss) exclude certain non-operating items including, but not limited to, change in the fair value of equity securities, swap termination fee income, and acquisition expense (refer to the Reconciliation of Non-GAAP Financial Measures tables for a reconciliation of GAAP to non-GAAP metrics).

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

"Despite a changing economic environment, our third quarter results were impressive. Our loan portfolio grew to an all-time high of over $2.0 billion as we experienced strong loan growth of 4.7%, or 18.8% annualized, compared to the second quarter. Net interest income increased 6.8% and our net interest margin increased quarter-over-quarter. Credit quality metrics also remained strong as our nonperforming loans decreased almost $4.0 million and now represent only 0.65% of total loans compared to 0.89% in the second quarter as we continue to focus on high quality underwriting and disciplined lending. I am proud of the great progress we have made towards our performance goals. Our new leadership, branch consolidation, and digital delivery strategies are working together to improve our key performance metrics and position the Bank to operate more efficiently.

As always, we remain focused on long-term shareholder value. In September, the board of directors approved an additional 300,000 shares for repurchase. We repurchased 126,861 shares of our common stock at an average price of $21.48 during the third quarter and increased our quarterly dividend by 6% compared to the second quarter dividend."

Third Quarter Highlights

Loans

Total loans were $2.01 billion at September 30, 2022, an increase of $89.3 million, or 4.7%, compared to June 30, 2022, and an increase of $125.0 million, or 6.6%, compared to September 30, 2021.

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

In the second quarter of 2020, the Bank began participating as a lender in the PPP as established by the CARES Act. The PPP loans are generally 100% guaranteed by the Small Business Administration ("SBA"), have an interest rate of 1%, and are eligible to be forgiven based on certain criteria, with the SBA remitting any applicable forgiveness amount to the lender. At September 30, 2022, the balance of the Bank's PPP loans, which is included in the commercial and industrial portfolio, was $1.9 million, compared to $3.5 million at June 30, 2022 and $41.9 million at September 30, 2021. At September 30, 2022, approximately 99% of the total balance of PPP loans originated have been forgiven by the SBA or paid off by the customer.

At September 30, 2022, 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 $843.4 million, an increase of $59.4 million, or 7.6%, compared to the business lending portfolio of $784.1 million at June 30, 2022, and an increase of $75.5 million, or 9.8%, compared to the business lending portfolio of $767.9 million at September 30, 2021. The increase in the business lending portfolio compared to June 30, 2022 and September 30, 2021 is primarily driven by increased loan production by our Commercial and Industrial Division, slightly offset by the forgiveness of PPP loans.

Nonowner-occupied loans totaled $464.5 million at September 30, 2022, an increase of $13.4 million, or 3.0%, compared to $451.1 million at June 30, 2022, and an increase of $28.9 million, or 6.6%, compared to $435.6 million at September 30, 2021. The increase in nonowner-occupied loans compared to June 30, 2022 and September 30, 2021 is due to organic growth.

Credit Quality

Nonperforming loans were $13.1 million, or 0.65% of total loans, at September 30, 2022, a decrease of $3.9 million compared to $17.0 million, or 0.89% of total loans, at June 30, 2022, and a decrease of $19.8 million compared to $32.9 million, or 1.75% of total loans, at September 30, 2021. The decrease in nonperforming loans compared to June 30, 2022 and September 30, 2021 is mainly attributable to large paydowns and a transfer to other real estate owned, net on one loan relationship, discussed further below. Included in nonperforming loans are acquired loans with a balance of $1.7 million at September 30, 2022, or 13% of nonperforming loans.

The allowance for loan losses was $23.2 million, or 176.6% and 1.15% of nonperforming and total loans, respectively, at September 30, 2022, compared to $22.0 million, or 128.9% and 1.15%, respectively, at June 30, 2022, and $20.6 million, or 62.4% and 1.09%, respectively, at September 30, 2021.

We recorded a provision for loan losses of $1.2 million for the quarter ended September 30, 2022 compared to a provision for loan losses of $0.9 million for the quarter ended June 30, 2022 and a provision for loan losses of $21.7 million for the quarter ended September 30, 2021. The increase in the provision for loan losses compared to the quarter ended June 30, 2022, is primarily attributable to organic loan growth. The provision for loan losses for the quarter ended September 30, 2021 includes an impairment charge of $21.6 million related to a loan relationship with related borrowers (collectively, the "Borrower") consisting of multiple loans that are secured by various types of collateral. As a result of Hurricane Ida, which made landfall in Louisiana as a category 4 hurricane on August 29, 2021, the Borrower's business operations were disrupted causing a significant reduction in value of some of the collateral supporting the loan relationship, including real estate, inventory, and equipment.

Deposits

Total deposits at September 30, 2022 were $2.05 billion, a decrease of $10.0 million, or 0.5%, compared to $2.06 billion at June 30, 2022, and a decrease of $251.0 million, or 10.9%, compared to $2.30 billion at September 30, 2021. The decrease in deposits compared to June 30, 2022 is due to increased consumer spending, as customers drew down on their existing deposit accounts. The decrease in deposits compared to September 30, 2021 is driven by management's decision to run-off higher yielding time deposits through the end of the second quarter and the elimination of brokered deposits, which the Bank has historically used to satisfy required borrowings under its interest rate swap agreements.

Beginning in 2020, the COVID-19 pandemic created a significant amount of excess liquidity in the market, and, as a result, we experienced large increases in both noninterest and interest-bearing demand deposits, and in money market deposit accounts and savings accounts during 2020 and 2021. These increases were primarily driven by reduced consumer and business spending related to the COVID-19 pandemic and increases in some PPP borrowers' deposit accounts. As anticipated, these conditions were temporary in nature as the economy has been slowly recovering from the effects of the COVID-19 pandemic.

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

Stockholders' Equity

Stockholders' equity was $205.7 million at September 30, 2022, a decrease of $13.7 million, or 6.2%, compared to June 30, 2022, and a decrease of $30.6 million, or 13.0%, compared to September 30, 2021. The decrease in stockholders' equity compared to June 30, 2022 and September 30, 2021 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.

Net Interest Income

Net interest income for the third quarter of 2022 totaled $23.5 million, an increase of $1.5 million, or 6.8%, compared to the second quarter of 2022, and an increase of $1.9 million, or 8.9%, compared to the third quarter of 2021. Included in net interest income for the quarters ended September 30, 2022, June 30, 2022 and September 30, 2021 is $0.1 million, $0.2 million, and $0.3 million, respectively, of interest income accretion from the acquisition of loans. Also included in net interest income for the quarters ended September 30, 2022, June 30, 2022 and September 30, 2021 are interest recoveries of $0.1 million, $36,000, and $0.2 million, respectively.

Investar's net interest margin was 3.77% for the quarter ended September 30, 2022, compared to 3.70% for the quarter ended June 30, 2022 and 3.44% for the quarter ended September 30, 2021. The increase in net interest margin for the quarter ended September 30, 2022 compared to the quarter ended June 30, 2022 was driven by a 25 basis point increase in the yield on interest-earning assets, partially offset by a 24 basis point increase in the cost of funds. The increase in net interest margin for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was driven by a seven basis point increase in the yield on the loan portfolio and a 92 basis point increase in the yield on the securities portfolio, together resulting in a 43 basis point increase in the yield on interest-earning assets.

The yield on interest-earning assets was 4.34% for the quarter ended September 30, 2022, compared to 4.09% for the quarter ended June 30, 2022 and 3.91% for the quarter ended September 30, 2021. The increase in the yield on interest-earning assets compared to the quarter ended June 30, 2022 was primarily attributable to a 26 basis point increase in the yield on the loan portfolio and a 33 basis point increase in the yield on the taxable securities portfolio. The increase in the yield on interest-earning assets compared to the quarter ended September 30, 2021 was primarily driven by a seven basis point increase in the yield on the loan portfolio and a 101 basis point increase in the yield on the taxable securities portfolio.

Exclusive of PPP loans, which had an average balance of $2.5 million and related interest and fee income of $0.1 million for the quarter ended September 30, 2022, compared to an average balance of $7.7 million and related interest and fee income of $0.3 million for the quarter ended June 30, 2022 and an average balance of $58.5 million and related interest and fee income of $1.3 million for the quarter ended September 30, 2021, adjusted net interest margin was 3.76% for the quarter ended September 30, 2022, compared to an adjusted net interest margin of 3.65% for the quarter ended June 30, 2022 and 3.31% for the quarter ended September 30, 2021. Included in PPP interest and fee income for the quarters ended September 30, 2022, June 30, 2022, and September 30, 2021 is $0.1 million, $0.3 million, and $1.0 million, respectively, of accelerated fee income recognized due to the forgiveness or pay-off of PPP loans. Refer to the Reconciliation of Non-GAAP Financial Measures table for a reconciliation of GAAP to non-GAAP metrics.

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 PPP loans, adjusted net interest margin increased to 3.72% for the quarter ended September 30, 2022, compared to 3.61% for the quarter ended June 30, 2022, and 3.21% for the quarter ended September 30, 2021. The adjusted yield on interest-earning assets was 4.29% for the quarter ended September 30, 2022 compared to 4.01% and 3.67% for the quarters ended June 30, 2022 and September 30, 2021, 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 12 basis points to 0.36% for the quarter ended September 30, 2022 compared to 0.24% for the quarter ended June 30, 2022 and decreased seven basis points compared to 0.43% for the quarter ended September 30, 2021. The increase in the cost of deposits compared to the quarter ended June 30, 2022 reflects the increase in rates paid for interest-bearing demand deposits and time deposits. The decrease in the cost of deposits compared to the quarter ended September 30, 2021 primarily reflects the elimination of brokered deposits and a decrease in average balance and rates paid for time deposits. At September 30, 2022 and June 30, 2022, there was no balance of brokered deposits.

The overall cost of funds for the quarter ended September 30, 2022 increased 24 basis points to 0.79% compared to 0.55% for the quarter ended June 30, 2022 and increased 16 basis points compared to 0.63% for the quarter ended September 30, 2021. The increase in the cost of funds for the quarter ended September 30, 2022 compared to the quarters ended June 30, 2022 and September 30, 2021 resulted primarily from both a higher average balance of and an increased cost of short-term borrowings, the cost of which is driven by the Federal Reserve's federal funds rate.

Noninterest Income

Noninterest income for the third quarter of 2022 totaled $2.7 million, a decrease of $3.7 million, or 58.2%, compared to the second quarter of 2022 and a decrease of $1.2 million, or 31.9%, compared to the third quarter of 2021.

The decrease in noninterest income compared to the quarter ended June 30, 2022 was driven by a $4.7 million decrease in swap termination fees. This decrease was partially offset by a decrease in the loss on sale or disposition of fixed assets of $0.4 million and an increase in other operating income of $0.5 million. The decrease in noninterest income compared to the quarter ended September 30, 2021 is mainly attributable to a $1.8 million decrease in swap termination fees, partially offset by a $0.6 million increase in other operating income. The increase in other operating income compared to the quarters ended June 30, 2022 and September 30, 2021 is attributable to increases in derivative fee income and the change in the net asset value of other investments.

Swap termination fees of $4.7 million and $1.8 million were recorded for the quarters ended June 30, 2022 and September 30, 2021, respectively, when the Bank voluntarily terminated a number of its interest rate swap agreements in response to market conditions. The Bank had no current or forward starting interest rate swap contracts as of September 30, 2022.

Noninterest Expense

Noninterest expense for the third quarter of 2022 totaled $16.0 million, an increase of $0.4 million, or 2.7%, compared to the second quarter of 2022, and a decrease of $0.4 million, or 2.5%, compared to the third quarter of 2021.

The increase in noninterest expense for the quarter ended September 30, 2022 compared to the quarter ended June 30, 2022 was driven by a $0.3 million increase in salaries and employee benefits due to an increase in full-time equivalent employees and an increase of $0.2 million in other operating expense primarily attributable to higher FDIC assessment fees and change in the provision for unfunded loan commitments. The increases are partially offset by $0.2 million in loss on early extinguishment of subordinated debt resulting from the early redemption of our 6.00% Fixed-to-Floating Rate Subordinated Notes due 2027 recorded in the second quarter of 2022. Included in noninterest expense for the quarters ended September 30, 2022 and June 30, 2022 are collection and repossession expenses of $0.5 million and $0.4 million, respectively, related to the impaired loan relationship discussed in "Loans - Credit Quality" above.

The decrease in noninterest expense for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 is primarily a result of a $0.4 million decrease in salaries and employee benefits and $0.4 million in acquisition expenses related to the April 2021 acquisition of Cheaha Financial Group recorded in the third quarter of 2021, partially offset by increases in occupancy expense of $0.2 million and other operating expenses of $0.2 million, respectively. The decrease in salaries and employee benefits compared to the third quarter of 2021 is primarily due to a decrease in health insurance claims. The increase in other operating expenses is driven by an increase in collection and repossession expenses, the majority of which is related to the impaired loan relationship discussed in "Loans - Credit Quality" above.

Taxes

Investar recorded an income tax expense of $1.7 million for the quarter ended September 30, 2022, which equates to an effective tax rate of 18.9%, compared to effective tax rates of 20.7% and 21.0% for the quarters ended June 30, 2022 and September 30, 2021, respectively.

Basic and Diluted Earnings (Loss) Per Common Share

Investar reported basic and diluted earnings per common share of $0.74 and $0.73, respectively, for the quarter ended September 30, 2022, compared to basic and diluted earnings per common share of $0.92 for the quarter ended June 30, 2022, and basic and diluted loss per common share of $0.95 for the quarter ended September 30, 2021.

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 31 branch locations serving Louisiana, Texas, and Alabama. At September 30, 2022, the Bank had 352 full-time equivalent employees and total assets of $2.7 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 (loss) before income tax expense (benefit)," "core income tax expense (benefit)," "core earnings (loss)," "core efficiency ratio," "core return on average assets," "core return on average equity," "core basic earnings (loss) per share," and "core diluted earnings (loss) per share." We also present certain average loan, yield, net interest income and net interest margin data adjusted to show the effects of excluding PPP loans, 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 Item 1A. "Risk Factors" and in the "Special Note Regarding Forward-Looking Statements" in 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, 2021 filed with the Securities and Exchange Commission (the "SEC").

For further information contact:

Investar Holding Corporation
John D'Angelo
President and Chief Executive Officer
(225) 448-5461
John.Dangelo@investarbank.com

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