Investar (US:ISTR)2019-03-15 21:23Financial Performance - Net income for 2018 was $13,606,000, compared to $8,202,000 in 2017, reflecting a growth of 65.5%[210] - Basic earnings per share increased to $1.41 in 2018 from $0.96 in 2017, an increase of 46.9%[210] - Total assets increased to $1,786,469,000 in 2018 from $1,622,734,000 in 2017, representing a growth of 10.1%[209] - Net interest income rose to $57,370,000 in 2018, up from $42,517,000 in 2017, marking a 35.0% increase[209] - Total deposits grew to $1,361,731,000 in 2018, up from $1,225,237,000 in 2017, a rise of 11.1%[209] - Noninterest income was $4,318,000 in 2018, compared to $3,815,000 in 2017, an increase of 13.2%[209] - The efficiency ratio improved to 67.89% in 2018 from 69.80% in 2017, indicating better cost management[210] - Return on average assets increased to 0.81% in 2018 from 0.62% in 2017, showing enhanced asset utilization[210] - The allowance for loan losses was $9,454,000 in 2018, up from $7,891,000 in 2017, reflecting a 19.8% increase[209] - Total stockholders' equity rose to $182,262,000 in 2018 from $172,729,000 in 2017, a growth of 5.3%[209] Loan Portfolio Composition - Approximately 50% of total loans as of December 31, 2018, were commercial real estate loans, with owner-occupied loans making up about 43% of that portfolio[19] - Construction and development loans accounted for approximately 11% of total loans as of December 31, 2018[20] - Commercial and industrial loans represented approximately 15% of total loans as of December 31, 2018[20] - Consumer loans constituted 3% of total loans as of December 31, 2018, with indirect auto loans making up 67% of that category[21] - Nonowner-occupied commercial real estate loans totaled $328.8 million, representing 23% of the total loan portfolio as of December 31, 2018[99] - As of December 31, 2018, approximately 82% of the total loan portfolio had real estate as a primary or secondary component of the collateral securing the loan[98] - The company's exposure to the energy sector comprised approximately 2.6% of total loans at December 31, 2018[97] - A significant portion of the loan portfolio consists of relatively recent origin loans, increasing the risk of future credit defaults[109] Regulatory Environment - The bank is subject to supervision and regulation by the Federal Reserve, Louisiana Office of Financial Institutions, and FDIC, impacting its growth and earnings performance[34] - The Dodd-Frank Act has led to increased regulatory requirements, which may affect the bank's expenses and revenues[38] - The Volcker Rule limits the scope of permissible activities for banks, impacting future engagement in proprietary trading and certain funds[39] - The company is required to maintain anti-money laundering programs, including internal policies and employee training[75] - The company must comply with cybersecurity regulations to enhance risk management against cyber threats[71] - The company is required to adhere to consumer protection laws, including the Dodd-Frank Act, which mandates certain standards for mortgage lending[74] - The regulatory environment is highly stringent, which could restrain growth and profitability, with ongoing changes from the Dodd-Frank Act impacting operations[152][154] - Noncompliance with consumer protection laws, such as the Community Reinvestment Act, could lead to sanctions, including restrictions on mergers and acquisitions[162] - The Bank Secrecy Act and anti-money laundering regulations impose significant compliance requirements, with potential penalties for deficiencies that could adversely affect the company's operations[163] Acquisitions and Growth Strategy - The Company completed the acquisition of Citizens Bancshares, Inc. for a total cash consideration of $45.8 million, acquiring assets with a fair value of approximately $250.7 million[25] - The acquisition of BOJ Bancshares, Inc. was completed for a total consideration of $22.7 million, acquiring assets valued at approximately $152.1 million[26] - The Company acquired Mainland Bank for a total consideration of $18.6 million, with Mainland having approximately $125.5 million in assets at the time of acquisition[27] - The company intends to continue pursuing a growth strategy through de novo branching and evaluating acquisition opportunities[91] - The company expects to continue evaluating merger and acquisition opportunities, which may involve risks such as customer loss and revenue loss[133] - The company may face challenges in completing future announced acquisitions due to regulatory approvals and other conditions[134] - The integration of the acquisition of Mainland may be more difficult and costly than expected, potentially delaying anticipated benefits and cost savings[127] Market and Competition - The company faces significant competition from financial service providers that are not subject to the same level of regulation, potentially affecting its market share[82] - Competition in the industry is intense, with larger competitors having greater resources, which could adversely affect the company's growth and profitability[125] - The company has a geographic concentration risk, with approximately 69% of loans made to borrowers in the Baton Rouge or New Orleans metropolitan area[95] Risks and Challenges - Changes in interest rates could adversely affect net interest income, which is critical for profitability[111] - A downturn in the real estate market could result in losses and negatively impact profitability due to the high percentage of real estate-secured loans[98] - The company may need to increase its provision for loan losses if delinquencies and defaults rise as the loan portfolio becomes more seasoned[109] - Loss of deposits or changes in deposit mix could increase funding costs, reducing the company's net interest margin and net income[117] - The company is exposed to credit and market risk through derivative transactions, which could adversely affect profitability and financial condition[118] - Liquidity risk could adversely affect the company's ability to fund operations and meet obligations, with primary funding sources being customer deposits and loan repayments[139] - The company is exposed to credit risk from counterparties in the financial services industry, which could materially impact its financial condition and results of operations[140] - Cyber-attacks and security breaches pose significant risks, potentially leading to financial loss, reputational damage, and increased costs for protection and remediation[143] - Environmental liability risks are associated with the company's lending activities, particularly if hazardous substances are found on properties securing loans, which could lead to substantial remediation costs[149] - The company faces increased litigation risks that could result in legal liability and damage to its reputation[150] Capital Requirements - As of December 31, 2018, Investar Bank met the requirements to be categorized as well capitalized under the prompt corrective action framework[45] - The Basel III framework requires a minimum common equity Tier 1 capital ratio of at least 6.5% and a total risk-based capital ratio of at least 10.0%[47] - The capital conservation buffer under Basel III requires banking organizations to maintain regulatory capital ratios at least 50 basis points higher than well capitalized levels[50] - The company must meet certain regulatory capital requirements, and may need to raise additional capital in the future to execute its business strategy[123] - The new Basel III capital framework requires banks to maintain a minimum Tier 1 capital risk-based capital ratio and a capital conservation buffer of at least 2.5%[160] - The implementation of the Community Bank Leverage Ratio (CBLR) allows eligible bank holding companies to maintain a simplified capital regime with a leverage ratio of greater than 9%[161] Shareholder Information - As of December 31, 2018, the company had 9,484,219 shares outstanding, with 340,646 shares subject to options under its incentive plan[173] - The company's ability to pay dividends is subject to regulatory restrictions and depends on the financial condition and capital requirements of Investar Bank[176] - The market price of the company's common stock may be volatile due to various factors, including changes in operating results and economic conditions[170] - The company has authorized the issuance of up to 5,000,000 shares of preferred stock, which could adversely affect common stockholders and discourage takeovers[179] - The company declared quarterly dividends on common stock, with amounts per share increasing from $0.0200 in Q1 2017 to $0.0500 in Q4 2018[194] - The stock performance graph shows that the company's stock value increased from $100 at July 3, 2014, to $180.09 by December 31, 2018[202]