Investar Holding Corporation Announces 2017 First Quarter Results

BATON ROUGE, La., April 26, 2017 (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 March 31, 2017. The Company reported net income of $1.9 million, or $0.26 per diluted share for the first quarter of 2017, compared to $1.8 million, or $0.26 per diluted share for the quarter ended December 31, 2016, and $2.0 million, or $0.28 per diluted share, for the quarter ended March 31, 2016.

Core earnings, a non-GAAP measure which, for the first quarter of 2017, excludes the after-tax impact of costs associated with a proposed acquisition and a regional management team restructure and consolidation, were $2.0 million, or $0.28 per diluted share, compared to core earnings of $1.8 million, or $0.26 per diluted share for the quarter ended December 31, 2016, and $2.0 million, or $0.28 per diluted share, for the quarter ended March 31, 2016. See calculation of core earnings on the Reconciliation of Non-GAAP Financial Measures.

During the first quarter of 2017, the Company announced that it has entered into a definitive agreement to acquire Citizens Bancshares, Inc. (“Citizens”) and its wholly-owned subsidiary, Citizens Bank, in Ville Platte, Louisiana, which has three branches in Evangeline Parish. The proposed acquisition transactions are expected to be completed in the third quarter of 2017. The Company’s acquisition of Citizens, which would be the first acquisition since the completion of its initial public offering, would expand its branch footprint in Louisiana, further bolstering its core deposit base and positioning the Company to continue to build on its existing record of growth and client service under the leadership of its current management team. Consequently, the Company recognized approximately $145,000 of expenses related to the potential acquisition, which is included in noninterest expense on the statement of operations for the three months ended March 31, 2017.

Shortly after the announcement of the signing of the definitive agreement, the Company announced both a common stock offering and a subordinated debt issuance. The common stock offering generated net proceeds of $32.6 million through the issuance of approximately 1.6 million common shares at a price of $21.25 per share. The Company intends to use the net proceeds from the common stock offering for general corporate purposes and potential strategic acquisitions. The Company also issued $18.6 million in fixed-to-floating rate subordinated notes due in 2027. The Company intends to use the net proceeds from the debt issuance to fund a portion of the proposed acquisition of Citizens Bancshares, Inc. and its wholly-owned subsidiary, Citizens Bank.

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

“I am pleased to announce another successful quarter for Investar, as we continue to demonstrate our emphasis on creating long-term shareholder value. During the quarter, we increased the quarterly dividend payable to shareholders by 65%. We also announced an acquisition of Citizens Bancshares, Inc. and it’s wholly-owned subsidiary, Citizens Bank that we expect to be completed in the third quarter of 2017. The acquisition fits well with our strategy of expanding Investar’s footprint in Louisiana. We see tremendous value in the acquisition of this 40-year-old franchise that includes a loyal customer base and which brings an attractive cost of funds. We look forward to adding Citizens’ customers and branches into the Investar brand and providing enhanced products and services to the customers, employees and communities that we serve.

As we look to 2017, we believe our company is solidly positioned to grow the franchise and increase shareholder value. We continue to focus on quality loans and deposits while controlling noninterest expense and maintaining our focus on improving our return on assets and efficiency ratios.”

First Quarter Highlights

• Excluding indirect auto loans, total loans increased $19.8 million, or 2.5% (10% annualized), to $821.2 million at March 31, 2017 compared to $801.4 million at December 31, 2016.
• The business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $271.9 million at March 31, 2017, an increase of $6.1 million, or 2.3%, compared to the business lending portfolio of $265.8 million at December 31, 2016, and an increase of $55.3 million, or 25.6%, compared to the business lending portfolio of $216.6 million at March 31, 2016.
• Total noninterest-bearing deposits were $112.5 million at March 31, 2017, an increase of $4.1 million, or 3.8%, compared to December 31, 2016.
• Total interest income increased $0.7 million, or 6.9%, for the quarter ended March 31, 2017 compared to the quarter ended March 31, 2016.
• Net interest margin increased to 3.27% for the quarter ended March 31, 2017 compared to 3.20% for the quarter ended December 31, 2016.
• Net charge-offs to average loans decreased to 0.02% for the quarter ended March 31, 2017 compared to the 0.08% for the quarter ended December 31, 2016.
• The dividend payout ratio increased to 7.73% for the quarter ended March 31, 2017 compared to 4.65% for the quarter ended December 31, 2016 and 3.25% for the quarter ended March 31, 2016.
• The Company completed both a common stock offering and a subordinated debt issuance. The common stock offering generated net proceeds of $32.6 million through the issuance of approximately 1.6 million common shares at a price of $21.25 per share. The Company issued $18.6 million in fixed-to-floating rate subordinated notes due in 2027.
• The Company’s common stock had a closing trade price of $21.90 at March 31, 2017, representing 17.4% growth from a closing trade price of $18.65 at December 30, 2016.

Loans

Total loans were $902.1 million at March 31, 2017, an increase of $8.7 million, or 1%, compared to December 31, 2016, and an increase of $104.5 million, or 13.1%, compared to March 31, 2016. Excluding indirect auto loans, total loans increased $19.8 million, or 2.5%, to $821.2 million at March 31, 2017 compared to $801.4 million at December 31, 2016. This represents an annualized growth rate of 10%.

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

Consumer loans, including indirect auto loans of $80.9 million, totaled $95.9 million at March 31, 2017, a decrease of $12.5 million, or 11.6%, compared to $108.4 million, including indirect auto loans of $92.0 million, at December 31, 2016, and a decrease of $13.3 million, or 12.2%, compared to $109.2 million at March 31, 2016. The decrease in consumer loans when compared to the linked quarter is attributable to the scheduled paydowns of the consumer loans. 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.

At December 31, 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 $271.9 million, an increase of $6.1 million, or 2.3%, compared to the business lending portfolio of $265.8 million at December 31, 2016, and an increase of $55.3 million, or 25.6%, compared to the business lending portfolio of $216.6 million at March 31, 2016. The increase in the business lending portfolio is attributable to our focus on relationship banking and growing our commercial loan portfolio.

Credit Quality

Nonperforming loans were $2.1 million, or 0.24% of total loans, at March 31, 2017, an increase of $0.1 million, or 8.2%, compared to $2.0 million, or 0.22% of total loans, at December 31, 2016, and a decrease of $0.2 million, or 7.2%, compared to $2.3 million, or 0.29% of total loans, at March 31, 2016.

The allowance for loan losses was $7.2 million, or 337.95% and 0.80% of nonperforming loans and total loans, respectively, at March 31, 2017, compared to $7.1 million, or 356.16% and 0.79% of nonperforming loans and total loans, respectively, at December 31, 2016, and $6.5 million, or 279.75% and 0.81% of nonperforming loans and total loans, respectively, at March 31, 2016. The allowance for loan losses plus the fair value marks on acquired loans was 0.88% of total loans at March 31, 2017 compared to 0.87% at December 31, 2016 and 0.90% at March 31, 2016. The provision for loan loss expense was $0.4 million for both the first quarter of 2017 and the fourth quarter of 2016, a decrease of $0.1 million compared to provision for loan loss expense of $0.5 million for the quarter ended March 31, 2016.

Management continues to monitor the Company’s loan portfolio for exposure to potential negative impacts of suppressed oil and gas prices. We consider our direct exposure to the energy sector not to be significant, at less than one percent of the total loan portfolio at March 31, 2017. 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 March 31, 2017 were $868.6 million, a decrease of $39.2 million, or 4.3%, compared to December 31, 2016, and an increase of $59.9 million, or 7.4%, compared to March 31, 2016. The decrease in total deposits compared to December 31, 2016 was driven by a $42.0 million decrease in time deposits. 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 and its dependency on certificates of deposit. As a result of this strategy, as time deposits mature, many have not renewed with Investar. The decrease in time deposits is primarily a result of the withdrawal of time deposits by other financial institutions in search of higher rates. Noninterest-bearing demand deposits experienced the greatest growth during the first quarter of 2017 with an increase of $4.1 million, or 3.8%, compared to December 31, 2016. The increase in total deposits compared to March 31, 2016 was driven by large increases in NOW accounts, money market deposit accounts and noninterest-bearing demand deposits. 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 first quarter of 2017 totaled $8.9 million, remaining consistent with the fourth quarter of 2016, and increasing $0.3 million, or 3.7%, compared to the first quarter of 2016. The increase in net interest income was a direct result of continued growth of the Company’s loan portfolio with an increase in net interest income of $0.8 million due to an increase in volume offset by a $0.5 million decrease related to a reduction in yield on loans and an increase in the cost of funds compared to the first quarter of 2016.

The Company’s net interest margin was 3.27% for the quarter ended March 31, 2017 compared to 3.20% for the quarter ended December 31, 2016 and 3.47% for the quarter ended March 31, 2016. The yield on interest-earning assets was 4.10% for the quarter ended March 31, 2017 compared to 4.04% for the quarter ended December 31, 2016 and 4.21% for the quarter ended March 31, 2016. The decrease in net interest margin and yield on interest-earning assets when compared to the first quarter of 2016 is mainly attributable to the decline in the yields on investment securities due to an increase in pay-downs of securities with unamortized premiums. The net interest margin was also affected by increase in the overall cost of funds.

The cost of deposits decreased one basis point to 0.97% for the quarter ended March 31, 2017 compared to 0.98% for the quarter ended December 31, 2016, and increased seven basis points compared to the quarter ended March 31, 2016. The increase in the cost of deposits when compared to the quarter ended March 31, 2016 is primarily a result of increases in time deposit rates. Beginning in the third quarter of 2016 and continuing into the first quarter of 2017, the Company lowered its rates on time deposits in an effort to begin reducing its cost of funds. The rate reductions have resulted in a decrease in time deposits at March 31, 2017 compared to both December 31, 2016 and March 31, 2016, as shown in the Deposit table above.

Noninterest Income

Noninterest income for the first quarter of 2017 totaled $0.9 million, remaining consistent with the fourth quarter of 2016, but a decrease of $0.4 million, or 31.2%, compared to the first quarter of 2016. The decrease in noninterest income when compared to the quarter ended March 31, 2016 is mainly attributable to the $0.3 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 currently holds no loans for sale and does not intend to recognize any gain on sale of loans. The decrease in noninterest income compared to the quarter ended March 31, 2016 can also be attributed to the $0.2 million decrease in servicing fees and fee income on serviced loans. As the Bank’s portfolio of serviced loans ages, and consequently decreases in principal value, the servicing fees earned will continue to decrease.

Noninterest Expense

Noninterest expense for the first quarter of 2017 totaled $6.7 million, an increase of $0.1 million, or 1.2%, compared to the fourth quarter of 2016, and an increase of $0.3 million, or 4.7%, compared to the first quarter of 2016. The increase in noninterest expense compared to the fourth quarter of 2016 is mainly attributable to the $145,000 of acquisition costs recognized during the first quarter of 2017. The increase in noninterest expense compared to the first quarter of 2016 is mainly attributable to the $0.2 million increase in other operating expenses which was driven by increases in FDIC and OFI assessments, bank shares taxes, and expenses related to other real estate owned, as well as the acquisition costs previously mentioned. In addition, included in salaries and employee benefits for the quarter ended March 31, 2017 is approximately $82,000 of severance paid as part of the Company’s restructuring and consolidation of its regional management team. Core noninterest expense, which excludes this severance cost as well as the acquisition costs recognized during the period, was $6.5 million for the first quarter of 2017, a decrease of $0.1 million, or 2.2%, compared to $6.6 million for the quarter ended December 31, 2016, and an increase of $0.1 million, or 1.1%, compared to the quarter ended March 31, 2016.

Basic Earnings Per Share and Diluted Earnings Per Share

The Company reported both basic and diluted earnings per share of $0.26 for the three months ended March 31, 2017, a decrease of $0.02 compared to basic and diluted earnings per share of $0.28 for the three months ended March 31, 2016.

Core basic and diluted earnings per share were $0.28 for both the three month periods ended March 31, 2017 and 2016.

On March 22, 2017, the Company issued approximately 1.6 million common shares as part of a public offering.

Taxes

The Company recorded income tax expense of $0.8 million for the quarter ended March 31, 2017, which equates to an effective tax rate of 31.2%.

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 March 31, 2017, the Company had 152 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,” “tangible book value per common share,” “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.” 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 in the “Special Note Regarding Forward-Looking Statements” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission.