Investar (ISTR) - 2020 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section presents Investar Holding Corporation's unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes, for the period ended September 30, 2020 Consolidated Balance Sheets Total assets increased to $2.32 billion, driven by loan growth, while liabilities rose to $2.09 billion, and stockholders' equity slightly decreased Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $2,323,245 | $2,148,916 | | Loans, net | $1,810,636 | $1,681,275 | | Total Deposits | $1,834,449 | $1,707,706 | | Total Liabilities | $2,085,978 | $1,906,940 | | Total Stockholders' Equity | $237,267 | $241,976 | Consolidated Statements of Income Net income for the nine months ended September 30, 2020, decreased to $9.3 million, primarily due to a substantial increase in the provision for loan losses Income Statement Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net Interest Income | $54,380 | $47,853 | | Provision for loan losses | $8,760 | $1,172 | | Total Noninterest Income | $8,421 | $4,641 | | Total Noninterest Expense | $42,438 | $34,539 | | Net Income | $9,349 | $13,508 | | Diluted EPS | $0.85 | $1.34 | Consolidated Statements of Cash Flows Operating activities provided $11.3 million, investing activities used $132.4 million, and financing activities provided $127.0 million, resulting in a $5.9 million net cash increase Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,288 | $13,737 | | Net cash used in investing activities | $(132,390) | $(78,865) | | Net cash provided by financing activities | $126,960 | $76,989 | | Net change in cash and cash equivalents | $5,858 | $11,861 | Notes to the Consolidated Financial Statements This section details accounting policies, including COVID-19 impacts, business combinations, loan portfolio, allowance for loan losses, and fair value measurements - The company adopted accounting for loan modifications pursuant to the CARES Act, allowing it to suspend GAAP for modifications related to the pandemic that would otherwise be categorized as troubled debt restructurings (TDRs)[58] - As of September 30, 2020, the balance of loans participating in the 90-day deferral program due to COVID-19 was $56.5 million, or 3.1% of the total loan portfolio, and these loans are not accounted for as TDRs, past due, or nonaccrual[61] - The company is preparing for the adoption of ASU 2016-13 (CECL model) effective January 1, 2023, which is expected to result in an increase in the allowance for loan losses[62][63][64] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operations, focusing on COVID-19 impacts, PPP, loan deferrals, and acquisitions, noting decreased net income due to higher loan loss provisions - Net income for the nine months ended September 30, 2020, was $9.3 million, down from $13.5 million in the prior-year period, mainly due to an increased provision for loan losses in response to the COVID-19 pandemic[246] - The company participated in the Paycheck Protection Program (PPP), originating $110.3 million in PPP loans as of September 30, 2020, which are included in the commercial and industrial loan portfolio[228][248] - The company terminated its pending acquisition of Cheaha Financial Group, Inc. on June 30, 2020, citing unpredictable economic conditions resulting from the COVID-19 pandemic[240][241] - The allowance for loan losses increased significantly to $19.0 million at September 30, 2020, from $10.7 million at year-end 2019, primarily due to the change in economic conditions from the COVID-19 pandemic[307] Financial Condition Total loans grew 8.1% to $1.83 billion, including PPP loans, while deposits increased 7.4% to $1.8 billion, and FHLB borrowings rose Loan Portfolio Composition (in thousands) | Loan Category | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total mortgage loans on real estate | $1,414,092 | $1,338,743 | | Commercial and industrial | $392,955 | $323,786 | | Consumer | $22,633 | $29,446 | | Total loans | $1,829,680 | $1,691,975 | - The loan portfolio includes exposure to industries significantly affected by the pandemic, such as oil and gas, food services, hospitality, and entertainment, which collectively represented 6.6% of the total loan portfolio (5.6% excluding PPP loans) at September 30, 2020[255][256] - As of September 30, 2020, loans participating in the 90-day deferral program totaled $56.5 million, or 3.1% of the total loan portfolio, a balance that had decreased to $17.9 million by November 2, 2020[256] Results of Operations Net interest income rose 13.6% to $54.4 million, but net interest margin declined; noninterest income and expenses increased, and loan loss provision surged Performance Summary (Nine Months Ended Sep 30) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Income | $9.3 million | $13.5 million | | Diluted EPS | $0.85 | $1.34 | | Return on Average Assets | 0.55% | 0.93% | | Return on Average Equity | 5.20% | 8.99% | | Net Interest Margin | 3.46% | 3.53% | - The cost of deposits decreased 30 basis points to 1.21% for the nine months ended September 30, 2020, compared to the prior year, as management strategically repriced or ran off higher-yielding time deposits[288] Risk Management The company manages credit, interest rate, and liquidity risks; allowance for loan losses increased to $19.0 million, and nonperforming loans rose to $12.4 million Allowance for Loan Losses Activity (in thousands) | | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Beginning Balance | $10,700 | $9,454 | | Provision for loan losses | $8,760 | $1,172 | | Net Charge-offs | $(416) | $(287) | | Ending Balance | $19,044 | $10,339 | - The ratio of allowance for loan losses to total loans increased to 1.04% at September 30, 2020, from 0.65% a year prior, reflecting increased reserves due to the COVID-19 pandemic[316] - Nonperforming loans increased to $12.4 million at September 30, 2020, compared to $6.3 million at December 31, 2019[324] Liquidity and Capital Resources Core deposits are the primary liquidity source, supplemented by investments and FHLB credit; the company maintained strong regulatory capital ratios and repurchased $10.8 million in stock Regulatory Capital Ratios (Investar Bank) | Ratio | Sep 30, 2020 | Minimum to be Well Capitalized | | :--- | :--- | :--- | | Tier 1 leverage capital | 10.23% | 5.00% | | Common equity tier 1 capital | 12.46% | 6.50% | | Tier 1 capital | 12.46% | 8.00% | | Total capital | 13.50% | 10.00% | - During the nine months ended September 30, 2020, the Company paid $10.8 million to repurchase 640,605 shares of its common stock under its authorized share repurchase program[348] Quantitative and Qualitative Disclosures about Market Risk No material changes in market risk since December 31, 2019, with interest rate risk remaining the primary concern - There have been no material changes in the Company's market risk since December 31, 2019, other than those discussed within the MD&A section of this report[362] Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal controls, despite the shift to remote work - Management concluded that disclosure controls and procedures were effective as of September 30, 2020[363] - No material changes were made to the company's internal control over financial reporting during the quarter, and the shift to remote work due to COVID-19 did not have a significant impact on internal controls[364] Part II. Other Information Risk Factors Updated risk factors focus on the uncertain and adverse impacts of the COVID-19 pandemic, including potential loan defaults and operational challenges - The primary updated risk factor relates to the COVID-19 pandemic, which has created significant economic uncertainty and adversely impacted the company's business, financial results, and the financial condition of its customers[367] - Potential future financial losses from the pandemic could stem from higher-than-anticipated loan defaults, reduced demand for loans and services, further increases in the allowance for loan losses, and lower market interest rates[369][370] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 211,469 shares at an average price of $13.92 during Q3 2020, with 285,729 shares remaining authorized Issuer Purchases of Equity Securities (Q3 2020) | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | July 2020 | 213 | $15.21 | | August 2020 | 145,128 | $14.08 | | September 2020 | 66,128 | $13.58 | | Total | 211,469 | $13.92 | - As of September 30, 2020, the company had 285,729 shares remaining for repurchase under its authorized stock repurchase plan[377] Exhibits This section lists exhibits filed with Form 10-Q, including agreements, governance documents, officer certifications, and XBRL data