Investar Holding Corporation Announces 2021 Second Quarter Results

BATON ROUGE, LA / ACCESSWIRE / July 22, 2021 / Investar Holding Corporation ("Investar") (NASDAQ:ISTR), the holding company for Investar Bank, National Association (the "Bank"), today announced financial results for the quarter ended June 30, 2021. Investar reported record net income of $5.7 million, or $0.53 per diluted common share, for the second quarter of 2021, compared to $5.4 million, or $0.51 per diluted common share, for the quarter ended March 31, 2021, and $4.3 million, or $0.39 per diluted common share, for the quarter ended June 30, 2020.

On a non-GAAP basis, core earnings per diluted common share for the second quarter of 2021 were $0.53 compared to $0.49 for the first quarter of 2021 and $0.32 for the second quarter of 2020. Core earnings exclude certain non-operating items including, but not limited to, gain on sale of investment securities, change in the fair value of equity securities, and acquisition expense (refer to the Reconciliation of Non-GAAP Financial Measures tables for a reconciliation of GAAP to non-GAAP metrics).

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

"I am pleased to announce another successful quarter for Investar with record net income of $5.7 million. We are excited to have completed the acquisition of Cheaha Bank and operational conversion in the second quarter. In line with our stated strategy, we continued to reduce our cost of funds by 13 basis points through an improved deposit mix. We expanded our owner-occupied commercial real estate portfolio as we remain focused on relationship banking and growing our commercial portfolio. As the economy recovers from the pandemic, we remain confident in the overall credit quality of our loan portfolio and continue to experience minimal loss from charge-offs. Loan yield improved in the second quarter, however, we did experience compression of our net interest margin due to excess liquidity of approximately $230 million. This excess liquidity will continue to put pressure on our net interest margin as we work to deploy it through loan growth and investment opportunities. Investar continues to invest in improved banking technology as we continue to see a shift in customer behavior with the use of technology. We continue to evaluate our branch network and look for opportunities that will further improve our operating efficiency."

Second Quarter Highlights

Loans

Total loans were $1.95 billion at June 30, 2021, an increase of $101.9 million, or 5.5%, compared to March 31, 2021, and an increase of $133.8 million, or 7.4%, compared to June 30, 2020. Excluding the loans acquired from Cheaha on April 1, 2021, or $120.0 million at June 30, 2021, total loans decreased $18.2 million, or 1.0%, compared to March 31, 2021, and increased $13.8 million, or 0.8%, compared to June 30, 2020.

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

In response to the COVID-19 pandemic, in the first quarter of 2020, the Bank instituted a 90-day loan deferral program for customers impacted by the pandemic. As of June 30, 2021, the balance of loans participating in the 90-day deferral program was approximately $0.3 million, or 0.01% of the total loan portfolio, compared to $11.2 million, or 0.6% of the total loan portfolio, at March 31, 2021. As 90-day loan deferrals have expired, most customers have returned to their regular payment schedules.

In the second quarter of 2020, the Bank began participating as a lender in the Paycheck Protection Program ("PPP") as established by the CARES Act. The PPP loans are generally 100% guaranteed by the SBA ("Small Business Administration"), 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 June 30, 2021, the balance of the Bank's PPP loans was $73.0 million, compared to $106.6 million at March 31, 2021 and $109.5 million at June 30, 2020. Eighty-seven percent of the total number of PPP loans we have originated have principal balances of $150,000 or less. At June 30, 2021, approximately 57% of the total balance of PPP loans originated have been forgiven by the SBA or paid off by the customer. Excluding loans acquired from Cheaha on April 1, 2021 with a total balance of $120.0 million at June 30, 2021 and PPP loans with a total balance of $73.0 million ($1.7 million acquired from Cheaha), $106.6 million, and $109.5 million at June 30, 2021, March 31, 2021 and June 30, 2020, respectively, total loans increased $17.2 million, or 1.0% (4.0% annualized), compared to March 31, 2021 and increased $52.1 million, or 3.1%, compared to June 30, 2020.

We experienced the greatest loan growth in the owner-occupied commercial real estate portfolio for the quarter ended June 30, 2021 compared to March 31, 2021 as we remain focused on relationship banking and growing our commercial loan portfolios. We acquired approximately $7.7 million in owner-occupied commercial real estate loans from Cheaha, and the remaining $31.5 million increase is due to organic loan growth.

At June 30, 2021, Investar's total business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $808.8 million, an increase of $28.9 million, or 3.7%, compared to the business lending portfolio of $779.9 million at March 31, 2021, and an increase of $46.9 million, or 6.2%, compared to the business lending portfolio of $761.9 million at June 30, 2020. The increase in the business lending portfolio compared to March 31, 2021 is primarily due to the acquisition of Cheaha, which added approximately $22.3 million in loans. The remaining growth of $6.6 million is due to the growth in the owner-occupied commercial real estate portfolio, as the commercial and industrial loan portfolio decreased during the period driven by payoffs of PPP loans. The increase in the business lending portfolio at June 30, 2021 compared to June 30, 2020 is primarily due to the growth in the owner-occupied commercial real estate portfolio.

Consumer loans totaled $22.6 million at June 30, 2021, an increase of $4.1 million, or 22.1%, compared to $18.5 million at March 31, 2021, and a decrease of $2.8 million, or 10.9%, compared to $25.3 million at June 30, 2020. The increase in consumer loans compared to March 31, 2021 is primarily attributable to the acquisition of Cheaha, which added approximately $6.1 million in consumer loans at June 30, 2021. The decrease in consumer loans compared to June 30, 2020 is mainly attributable to the scheduled paydowns of the indirect auto lending portfolio and is consistent with our business strategy.

Our loan portfolio includes loans to businesses in certain industries that may be more significantly affected by the pandemic than others. These loans, including loans related to oil and gas, food services, hospitality, and entertainment, represent approximately 6.4% of our total portfolio, or 5.9% excluding PPP loans, at June 30, 2021, compared to 6.8% of our total portfolio, or 5.7% excluding PPP loans, at March 31, 2021 and 6.8% of our total portfolio, or 5.8% excluding PPP loans, at June 30, 2020 as shown in the table below.

Credit Quality

Nonperforming loans were $20.9 million, or 1.07% of total loans, at June 30, 2021, an increase of $6.0 million compared to $14.9 million, or 0.81% of total loans, at March 31, 2021, and an increase of $7.8 million compared to $13.1 million, or 0.72% of total loans, at June 30, 2020. The increase in nonperforming loans compared to March 31, 2021 is mainly attributable to two loan relationships totaling $5.7 million at June 30, 2021. Of the $5.7 million, $2.9 million is secured by real estate. Included in nonperforming loans are acquired loans with a balance of $6.2 million at June 30, 2021, or 30% of nonperforming loans.

The allowance for loan losses was $20.4 million, or 97.8% and 1.05% of nonperforming and total loans, respectively, at June 30, 2021, compared to $20.4 million, or 137.3% and 1.11%, respectively, at March 31, 2021, and $16.7 million, or 127.6% and 0.92%, respectively, at June 30, 2020.

The provision for loan losses was $0.1 million for the quarter ended June 30, 2021 compared to $0.4 million and $2.5 million for the quarters ended March 31, 2021 and June 30, 2020, respectively. Additional provision for loan losses was recorded in 2020 primarily as a result of the deterioration of market conditions which have been adversely affected by the COVID-19 pandemic. The Bank continues to assess the impact the pandemic may have on its loan portfolio to determine the need for additional reserves.

Deposits

Total deposits at June 30, 2021 were $2.26 billion, an increase of $250.3 million, or 12.5%, compared to $2.01 billion at March 31, 2021, and an increase of $370.6 million, or 19.6%, compared to $1.89 billion at June 30, 2020. Investar acquired approximately $207.0 million in deposits from Cheaha at the time of acquisition on April 1, 2021.

The COVID-19 pandemic has created a significant amount of excess liquidity in the market, and, as a result, we have experienced large increases in both noninterest and interest-bearing demand deposits, and in money market deposit accounts and savings accounts compared to June 30, 2020. The Bank utilized $100.1 million in brokered deposits in the second quarter of 2021 and $80.0 million in the first quarter of 2021, which are used to satisfy the required borrowings under its interest rate swap agreements, due to more favorable pricing. Our deposit mix has improved and reflects our consistent focus on relationship banking and growing our commercial relationships, as well as the effects of the pandemic on consumer and business spending.

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

Noninterest-bearing and interest-bearing demand deposits experienced the largest increases compared to March 31, 2021 and June 30, 2020. These increases were primarily driven by government stimulus payments, reduced spending by consumer and business customers related to the COVID-19 pandemic, and increases in PPP borrowers' deposit accounts. We believe these factors may be temporary depending on the future economic effects of the COVID-19 pandemic.

Management made a strategic decision to either reprice or run-off higher yielding time deposits and other interest-bearing deposit products during 2020 and the first and second quarters of 2021, which contributed to our decreasing cost of deposits compared to the quarters ended March 31, 2021 and June 30, 2020. The increase in time deposits at June 30, 2021 compared to March 31, 2021 is primarily due to the acquisition of Cheaha.

Net Interest Income

Net interest income for the second quarter of 2021 totaled $21.2 million, an increase of $1.5 million, or 7.8%, compared to the first quarter of 2021, and an increase of $2.8 million, or 15.4%, compared to the second quarter of 2020. Included in net interest income for the quarters ended June 30, 2021, March 31, 2021 and June 30, 2020 is $0.5 million, $0.1 million, and $0.4 million of interest income accretion from the acquisition of loans. Also included in net interest income for the quarters ended June 30, 2021 and March 31, 2021 are interest recoveries of $25,000 and $17,000, respectively, on acquired loans.

Investar's net interest margin was 3.48% for the quarter ended June 30, 2021, compared to 3.64% for the quarter ended March 31, 2021 and 3.46% for the quarter ended June 30, 2020. The decrease in net interest margin for the quarter ended June 30, 2021 compared to the quarter ended March 31, 2021 was driven by excess liquidity. The average balance of interest-bearing balances with banks for the quarter ended June 30, 2021, as shown on our net interest margin table, increased $157.2 million compared to the quarter ended March 31, 2021, and resulted in a 23 basis point decrease in the net interest margin. This decrease in net interest margin was partially offset by a six basis point increase in the yield on the loan portfolio and a 13 basis point decrease in the cost of funds for the quarter ended June 30, 2021 compared to the quarter ended March 31, 2021. The increase in net interest margin for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020 was driven by a 66 basis point decrease in the cost of funds partially offset by a 49 basis point decrease in the yield on interest-earning assets.

The yield on interest-earning assets was 4.00% for the quarter ended June 30, 2021, compared to 4.26% for the quarter ended March 31, 2021 and 4.49% for the quarter ended June 30, 2020. The decrease in the yield on interest-earning assets compared to the quarter ended June 30, 2020 was driven by lower loan yields and a large decrease in the yield earned on investment securities. In response to the pandemic, during March 2020, the Federal Reserve reduced the federal funds rate 150 basis points to 0 to 0.25 percent, which has affected the yields that we earn on our interest-earning assets. In addition, the PPP loans originated have a contractual interest rate of 1% and origination fees based on the loan amount, which impacts the yield on our loan portfolio.

Exclusive of PPP loans, which had an average balance of $96.0 million and related interest and fee income of $1.2 million for the quarter ended June 30, 2021, compared to an average balance of $97.3 million and related interest and fee income of $1.4 million for the quarter ended March 31, 2021 and an average balance of $78.9 million and related interest and fee income of $0.8 million for the quarter ended June 30, 2020, adjusted net interest margin was 3.41% for the quarter ended June 30, 2021, compared to an adjusted net interest margin of 3.54% for the quarter ended March 31, 2021 and 3.44% for the quarter ended June 30, 2020. Included in PPP interest and fee income for the quarters ended June 30, 2021 and March 31, 2021 is $0.6 million and $0.7 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, all discussed above, adjusted net interest margin decreased to 3.29% for the quarter ended June 30, 2021, compared to 3.49% for the quarter ended March 31, 2021, and 3.39% for the quarter ended June 30, 2020. The adjusted yield on interest-earning assets was 3.82% for the quarter ended June 30, 2021 compared to 4.10% and 4.43% for the quarters ended March 31, 2021 and June 30, 2020, respectively. Refer to the Reconciliation of Non-GAAP Financial Measures table for a reconciliation of GAAP to non-GAAP metrics.

The cost of deposits decreased 12 basis points to 0.51% for the quarter ended June 30, 2021 compared to 0.63% for the quarter ended March 31, 2021 and decreased 69 basis points compared to 1.20% for the quarter ended June 30, 2020. The decrease in the cost of deposits compared to the quarters ended March 31, 2021 and June 30, 2020 reflects the decrease in rates paid for all categories of interest-bearing deposits.

The overall costs of funds for the quarter ended June 30, 2021 decreased 13 basis points to 0.70% compared to 0.83% for the quarter ended March 31, 2021 and decreased 66 basis points compared to 1.36% for the quarter ended June 30, 2020. The decrease in the cost of funds for the quarter ended June 30, 2021 compared to the quarters ended March 31, 2021 and June 30, 2020 resulted from both lower cost of deposits and lower average balances of short-term borrowings, the costs of which are driven by the Federal Reserve's federal funds rates.

Noninterest Income

Noninterest income for the second quarter of 2021 totaled $4.1 million, an increase of $1.7 million, or 72.6%, compared to the first quarter of 2021 and an increase of $0.2 million, or 3.8%, compared to the second quarter of 2020. The increase in noninterest income compared to the quarter ended March 31, 2021 was mainly driven by a $1.1 million increase in the gain on sale of investment securities. The increase in noninterest income compared to the quarter ended June 30, 2020 is mainly attributable to a $0.5 million increase in the gain on sale of investment securities and $0.2 million increases in service charges on deposit accounts and interchange fees, partially offset by a $0.7 million decrease in other operating income, compared to the quarter ended June 30, 2020. The decrease in other operating income compared to the quarter ended June 30, 2020 was driven by a $0.6 million decrease in derivative fee income.

Noninterest Expense

Noninterest expense for the second quarter of 2021 totaled $18.0 million, an increase of $3.2 million, or 21.3%, compared to the first quarter of 2021, and an increase of $3.5 million, or 24.0%, compared to the second quarter of 2020. The increase in noninterest expense for the quarter ended June 30, 2021 compared to the quarter ended March 31, 2021 was driven by a $1.3 million increase in acquisition expense and a $1.2 million increase in salaries and benefits, both of which are primarily related to the acquisition of Cheaha. In addition, the Bank is self-insured for employee health insurance and experienced two unfavorable health claims resulting in an increase of $0.3 million in employee benefits compared to the quarter ended March 31, 2021.

The increase in noninterest expense for the second quarter of 2021 compared to the second quarter of 2020 is primarily attributable to the $1.4 million and $1.3 million increases in acquisition expense and salaries and employee benefits, respectively. The increase in salaries and employee benefits is driven by an increase in employees following the acquisition of Cheaha, increase in health insurance claims, and deferred compensation costs.

Taxes

Investar recorded income tax expense of $1.5 million for the quarter ended June 30, 2021, which equates to an effective tax rate of 20.7%, a decrease from the effective tax rate of 21.1% at March 31, 2021 and increase from the effective tax rate of 19.2% for the quarter ended June 30, 2020.

Basic and Diluted Earnings Per Common Share

Investar reported basic and diluted earnings per common share of $0.54 and $0.53, respectively, for the quarter ended June 30, 2021, an increase of $0.03 and $0.02, respectively, compared to basic and diluted earnings per common share of $0.51 for the quarter ended March 31, 2021, and an increase of $0.15 and $0.14, respectively, compared to basic and diluted earnings per common share of $0.39 for the quarter ended June 30, 2020.

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 34 branch locations serving Louisiana, Texas, and Alabama. At June 30, 2021, the Bank had 357 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 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." We also present certain average loan, yield, net interest income and net interest margin data adjusted to show the effects of excluding PPP loans, interest income accretion from the acquisition of loans, and interest recoveries. 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. In addition, any of the following matters related to the pandemic may impact our financial results in future periods, and such impacts may be material depending on the length and severity of the pandemic and government and societal responses to it:

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, 2020 filed with the Securities and Exchange Commission (the "SEC").

For further information contact:

Investar Holding Corporation
Chris Hufft
Chief Financial Officer
(225) 227-2215
Chris.Hufft@investarbank.com

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