Investar Holding Corporation Announces 2016 Third Quarter Results

BATON ROUGE, La., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Investar Holding Corporation (NASDAQ:ISTR) (the “Company”), the holding company for Investar Bank (the “Bank”), today announced financial results for the quarter ended September 30, 2016. The Company reported net income of $2.0 million, or $0.29 per diluted share for the third quarter of 2016, compared to $2.0 million, or $0.28 per diluted share for the quarter ended June 30, 2016, and $1.8 million, or $0.26 per diluted share, for the quarter ended September 30, 2015.

Investar Holding Corporation President and Chief Executive Officer John D’Angelo said:

“We are pleased to have had another great quarter. Our focus on relationship banking continues to positively impact noninterest-bearing demand deposit growth, with 24.3% year-to-date growth. Also during the quarter, we repurchased over 80,000 shares of our common stock, delivering on our commitment to increase shareholder value.

Our prayers go out to those families and businesses affected by the record flooding that occurred in the greater Baton Rouge and surrounding areas in August. While none of our branches were significantly affected by the flood waters, some of our employees and their extended families were greatly impacted. As a member of the affected communities, we have set up programs to help employees and customers experiencing financial difficulty as a result of the flood. We will continue to assist the communities in any way that we can as they rebuild.”

Third Quarter Highlights

• Total loans, excluding loans held for sale, increased 13.6% year to date, or 18.1% annualized. Total loans, excluding loans held for sale, increased $29.3 million, or 3.6%, compared to June 30, 2016, and increased $136.3 million, or 19.2%, compared to September 30, 2015, to $846.8 million at September 30, 2016.
• The business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $250.3 million at September 30, 2016, an increase of $23.7 million, or 10.5%, compared to $226.6 million at June 30, 2016, and an increase of $50.2 million, or 25.1%, compared to $200.1 million at September 30, 2015.
• Total noninterest-bearing deposits were $112.4 million at September 30, 2016, an increase of $2.6 million, or 2.4%, compared to June 30, 2016, and an increase of $17.9 million, or 20.7%, compared to September 20, 2015.
• Total interest income increased $0.3 million, or 2.6%, compared to the quarter ended June 30, 2016, and increased $1.5 million, or 16.0%, compared to the quarter ended September 30, 2015, to $11.0 million for the quarter ended September 30, 2016.
• Net charge-offs remain low, averaging 0.02% of total loans for the past eight quarters.
• The Company repurchased 80,773 shares of the Company’s common stock through its stock repurchase program at an average price of $15.34 during the quarter ended September 30, 2016, leaving approximately 29,000 shares available for repurchase. In addition, on October 19, 2016, the board approved an additional 250,000 shares for repurchase under its stock repurchase program.
• The Bank continues to invest in relationship banking through the hiring of an experienced Treasury Management Officer focused on the Baton Rouge market.

Loans

Total loans were $846.8 million at September 30, 2016, an increase of $29.3 million, or 3.6%, compared to June 30, 2016, and an increase of $136.3 million, or 19.2%, compared to September 30, 2015.

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

Consumer loans, including consumer loans held for sale, totaled $126.3 million at September 30, 2016, a decrease of $17.0 million, or 11.9%, compared to $143.3 million at June 30, 2016, and a decrease of $49.4 million, or 28.1%, compared to $175.7 million at September 30, 2015. The decrease compared to the linked quarter is mainly attributable to principal payments on consumer loan balances. Since the Bank discontinued accepting indirect auto loan applications at the end of 2015, which was the primary source of its consumer loan portfolio and consumer loans held for sale, the consumer loan portfolio is expected to decrease over time. The Bank currently has the intent and ability to sell the balance of the consumer loans classified as held for sale at September 30, 2016, however, if this classification were to change, the loans would be transferred to the consumer loan portfolio.

At September 30, 2016, the Company’s total business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $250.3 million, an increase of $23.7 million, or 10.5%, compared to the business lending portfolio of $226.6 million at June 30, 2016 and an increase of $50.2 million, or 25.1%, compared to the business lending portfolio of $200.1 million at September 30, 2015.

Credit Quality

Nonperforming loans were $9.0 million, or 1.06% of total loans, at September 30, 2016, an increase of $3.5 million, or 63.7%, compared to $5.5 million, or 0.67% of total loans, at June 30, 2016, and an increase of $6.4 million, or 243%, compared to $2.6 million, or 0.37% of total loans, at September 30, 2015. The allowance for loan losses was $7.4 million, or 82.4% and 0.87% of nonperforming loans and total loans, respectively, at September 30, 2016, compared to $7.1 million, or 129.6% and 0.87% of nonperforming loans and total loans, respectively, at June 30, 2016, and $5.9 million, or 226.4% and 0.83% of nonperforming loans and total loans, respectively, at September 30, 2015. The allowance for loan losses plus the fair value marks on acquired loans was 0.95% of total loans at September 30, 2016 compared to 0.95% at June 30, 2016 and 0.93% at September 30, 2015. The increase in nonperforming loans and the decrease in the allowance for loan losses as a percentage of nonperforming loans at September 30, 2016 when compared to both June 30, 2016 and September 30, 2015 are mainly attributable to a $4.7 million owner-occupied commercial real estate relationship. Management has evaluated the loan relationship and has recorded a specific reserve of approximately $0.5 million in the allowance for loan losses. Also included in nonperforming loans is a $2.6 million commercial and industrial loan relationship not related to the oil and gas industry that was placed on nonaccrual status in the second quarter of 2016, as mentioned in a prior release. The Company has determined that a specific reserve is no longer required on the loan as it believes sufficient collateral exists after receiving additional cash collateral from the borrower. Subsequent to the end of the third quarter, the Company received a $0.5 million principal pay-down on this loan relationship. A bankruptcy plan was accepted by the borrower’s creditors and the Company does not expect a loss on this loan at this time. As a result of the loan remaining current throughout the bankruptcy process and the additional cash collateral, the Company anticipates the loan to be placed back on accrual during the fourth quarter.

The Company has instituted a 90-day loan deferral program for customers who were impacted by the flood and has allocated a portion of its general reserves to the potential impact as a result of the flood. The Company placed approximately $23.5 million, or 2.8% of the total loan portfolio on a 90-day deferral plan. The Company continues to assess the impact the flooding may have on the region and its loan portfolio to determine the need for specific or additional general reserves.

The provision for loan loss expense was $0.5 million for the third quarter of 2016, a decrease of $0.4 million and an increase of $0.1 million compared to June 30, 2016 and September 30, 2015, respectively. The decrease in the provision for loan loss expense for the third quarter of 2016 when compared to the second quarter of 2016 is attributable to the specific reserve that was recorded during the second quarter for the commercial and industrial loan relationship mentioned above.

Management continues to monitor the Company’s loan portfolio for exposure to potential negative impacts of suppressed oil and gas prices. We consider our exposure to the energy sector not to be significant, at less than one percent of the total loan portfolio at September 30, 2016. However, should the price of oil and gas decline further and/or remain at the current low price for an extended period, the general economic conditions in our south Louisiana markets could be negatively affected and could negatively impact borrowers’ ability to service their debt. Management continually evaluates the allowance for loan losses based on several factors, including economic conditions, and currently believes that any potential negatively affected future cash flows related to these loans would be covered by the current allowance for loan losses.

Deposits

Total deposits at September 30, 2016 were $907.0 million, an increase of $39.8 million, or 4.6%, compared to June 30, 2016 and an increase of $176.6 million, or 25.0%, compared to September 30, 2015. The increase in total deposits was driven by an increase in noninterest-bearing deposits of $17.9 million, or 20.7%, an increase in money market accounts of $27.9 million, or 30.3%, and an increase in time deposits of $115.4 million, or 33.6%, compared to September 30, 2015.

The Company’s focus on relationship banking continues to positively impact noninterest-bearing demand deposit growth.

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

Net Interest Income

Net interest income for the third quarter of 2016 totaled $8.8 million, an increase of $0.1 million, or 1.1 %, compared to the second quarter of 2016, and an increase of $0.8 million, or 10.1%, compared to the third quarter of 2015. The increase was a direct result of continued growth of the Company’s loan portfolio with an increase in net interest income of $1.2 million due to an increase in volume offset by a $0.4 million decrease related to a reduction in yield compared to the third quarter of 2015.

The Company’s net interest margin was 3.23% for the quarter ended September 30, 2016 compared to 3.38% for the second quarter of 2016 and 3.52% for the third quarter of 2015. The yield on interest-earning assets was 4.06% for the quarter ended September 30, 2016 compared to 4.18% for the second quarter of 2016 and 4.20% for the third quarter of 2015. The decrease in net interest margin and yield on interest-earning assets when compared to the second quarter of 2016 is mainly attributable to the increase in nonaccrual loans during the third quarter, as discussed in Credit Quality above, as well as the decline in the yields on investment securities due to an increase in pay-downs of securities with unamortized premiums.

The cost of deposits increased two basis points for the quarter ended September 30, 2016 compared to the second quarter of 2016, and increased thirteen basis points compared to the third quarter of 2015. The increase in the cost of deposits when compared to the third quarter of 2015 is primarily a result of increases in time deposit rates. During the third quarter of 2016, the Company began lowering its rates on time deposits in an effort to begin reducing its cost of funds. Subsequent to the end of the quarter, time deposit rates have been lowered further as we attempt to improve our funding costs.

Noninterest Income

Noninterest income for the third quarter of 2016 totaled $1.0 million, a decrease of $1.2 million, or 54.4%, compared to the second quarter of 2016, and a decrease of $1.1 million, or 52.5%, compared to the third quarter of 2015. The decrease in noninterest income when compared to the quarter ended June 30, 2016 is mainly attributable to the $1.3 million gain on sale of fixed assets recognized for the sale of the land and building of one of the Bank’s branch locations to a healthcare company in the second quarter. The decrease in noninterest income when compared to the third quarter of 2015 is mainly due to the $1.0 million decrease in the gain on sale of loans. Since exiting the indirect auto loan origination business at the end of 2015, the Bank has experienced decreased loan sales and has ceased originations of consumer loans held for sale. The Bank does intend to sell the balance of the consumer loans held for sale at September 30, 2016, however, it expects the gain on sale of loans to diminish over time.

Noninterest Expense

Noninterest expense for the third quarter of 2016 totaled $6.5 million, a decrease of $0.6 million, or 7.8%, compared to the second quarter of 2016, and a decrease of $0.5 million, or 6.6%, compared to the third quarter of 2015. The decrease in noninterest expense compared to the second quarter of 2016 is primarily due to $0.6 million in customer reimbursements that we paid to certain borrowers during the second quarter. The decrease in noninterest expense compared to the third quarter of 2015 is mainly due to a $0.2 million decrease in salaries and benefits and a $0.4 million decrease in other operating expenses.

Along with its normal operating expenses, during the third quarter of 2016 the Company recorded additional expense in other operating expenses of approximately $31,000 related to employee and community assistance as a result of the August flooding.

Basic Earnings Per Share and Diluted Earnings Per Share

The Company reported both basic and diluted earnings per share of $0.29 for the three months ended September 30, 2016, an increase of $0.03, compared to basic and diluted earnings per share of $0.26 for the three months ended September 30, 2015.

Taxes

The Company recorded income tax expense of $0.7 million for the quarter ended September 30, 2016, which equates to an effective tax rate of 26.8%. The Company recorded a $0.1 million tax benefit during the quarter related to the filing of its 2015 tax return which contributed to the lower effective tax rate during the quarter. Management expects the effective income tax rate to approximate 32.5% for the fourth quarter of 2016.

About Investar Holding Corporation

Investar Holding Corporation, headquartered in Baton Rouge, Louisiana, provides full banking services, excluding trust services, through its wholly-owned banking subsidiary, Investar Bank, a state chartered bank. The Company’s primary market is South Louisiana and it currently operates 10 full service banking offices located throughout its market. At September 30, 2016, the Company had 155 full-time equivalent employees.

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,” and “tangible book value per common share.” Management believes these non-GAAP financial measures provide information useful to investors in understanding the Company’s financial results, and the Company believes that its presentation, together with the accompanying reconciliations, provide a more complete understanding of factors and trends affecting the Company’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 the Company 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 Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company’s current views with respect to, among other things, future events and financial performance. The Company 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 the Company and its subsidiaries or on the Company’s current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the Company that the future plans, estimates or expectations by the Company will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to the Company’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 the Company’s underlying assumptions prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. The Company 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:

• business and economic conditions generally and in the financial services industry in particular, whether nationally, regionally or in the markets in which we operate;
• our ability to achieve organic loan and deposit growth, and the composition of that growth;
• changes (or the lack of changes) in interest rates, yield curves and interest rate spread relationships that affect our loan and deposit pricing;
• the extent of continuing client demand for the high level of personalized service that is a key element of our banking approach as well as our ability to execute our strategy generally;
• our dependence on our management team, and our ability to attract and retain qualified personnel;
• changes in the quality or composition of our loan or investment portfolios, including adverse developments in borrower industries or in the repayment ability of individual borrowers and including the potential impact on our borrowers of the August 2016 flooding in Baton Rouge and surrounding areas;
• inaccuracy of the assumptions and estimates we make in establishing reserves for probable loan losses and other estimates;
• the concentration of our business within our geographic areas of operation in Louisiana; and
• concentration of credit exposure.

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 Item 7. “Special Note Regarding Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission.