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Investar Holding Corporation Announces 2023 Third Quarter Results

BATON ROUGE, LA / ACCESSWIRE / October 19, 2023 / Investar Holding Corporation ("Investar") (NASDAQ:ISTR), the holding company for Investar Bank, National Association (the "Bank"), today announced financial results for the quarter ended September 30, 2023. Investar reported net income of $2.8 million, or $0.28 per diluted common share, for the third quarter of 2023, compared to net income of $6.5 million, or $0.67 per diluted common share, for the quarter ended June 30, 2023, and net income of $7.3 million, or $0.73 per diluted common share, for the quarter ended September 30, 2022.

On a non-GAAP basis, core earnings per diluted common share for the third quarter of 2023 were $0.33 compared to $0.67 for the second quarter of 2023 and $0.71 for the third quarter of 2022. Core earnings exclude certain items including, but not limited to, loss on sale or disposition of fixed assets, net, severance and loan purchase expense (refer to the Reconciliation of Non-GAAP Financial Measures tables for a reconciliation of GAAP to non-GAAP metrics).

Strong Credit Quality

Investar has increased its focus on underwriting high quality credits that are less susceptible to effects from a potential economic downturn and continues to de-risk the portfolio by proactively exiting credit relationships that do not fit this strategy. As a result, credit quality has continued to improve as nonperforming loans were only $5.6 million, or 0.27% of total loans at September 30, 2023 compared to $7.0 million, or 0.34%, at June 30, 2023.

Loan Purchase Agreement

Investar entered into a loan purchase agreement to acquire commercial and industrial revolving lines of credit with an unpaid principal balance of approximately $163 million in two tranches. The purchase of the first tranche, consisting of revolving lines of credit with an unpaid principal balance of approximately $36 million, was completed in the third quarter. The purchase of the second tranche, consisting of revolving lines of credit with an unpaid principal balance of approximately $127 million, closed in the fourth quarter. The revolving lines of credit are variable-rate and short-term in nature with varying renewal terms.

Exit of Consumer Mortgage Origination Business

In an effort to focus more on its core business and optimize profitability, Investar made the strategic decision to exit its consumer mortgage origination business. Investar will retain and continue to service the existing consumer mortgage loan portfolio. Consumer mortgage loan products are generally long-term and fixed-rate and generally require a higher relative allowance for credit losses than other loan products. Consumer mortgage volumes have decreased to historical lows due to the combination of rising housing prices and interest rates and constriction of housing supply. As a result of this decision, Investar further optimized its workforce and will continue to dedicate resources to its more profitable business lines. The consumer mortgage portfolio was approximately $264.1 million at September 30, 2023 and is included in the 1-4 family loan category.

Investar's President and Chief Executive Officer John D'Angelo commented:

"During the third quarter, we made several significant achievements towards our strategic goals. Most notably, we entered into the next phase of our digital transformation by executing on several pillars of our strategic goals.

As a result of our continuous efforts toward product consolidation, we agreed to acquire assets comprised wholly of variable-rate revolving lines of credit. These loans are to consumer finance lending companies that possess a history of high credit quality and provide opportunities to deepen the relationships through our expansive services including treasury management. After a thorough due diligence process, we hand-selected the loans that align with our desired credit profile. Moreover, we hired two new lenders with over 50 years of combined experience within this lending segment. The borrowers primarily consist of seasoned operating companies with tenured management teams who have experience through many economic cycles. Also, importantly, this transaction is accretive to our core financial metrics, immediately increasing expected per share returns to our stockholders. We believe these variable-rate products, combined with new loan production coming on at higher rates, will help to offset the margin pressure of higher funding costs.

Furthermore, as part of our strategy to optimize our balance sheet, we have made the decision to exit from the consumer mortgage origination business. The decision was based on a number of factors, including the steep decline in mortgage volumes and the negative outlook for mortgage lending coupled with our preference for shorter duration and better risk-adjusted return asset classes. We will retain and continue to provide excellent customer service to our existing mortgage customers.

Finally, we continue to execute on the evaluation and optimization of our physical branch and ATM footprint. As a result of our ongoing review, we ceased operation of 14 ATMs which will result in future cost savings while maintaining uninterrupted service to our valued customers.

As always, we remain focused on shareholder value and returning capital to shareholders. We repurchased 52,407 shares of our common stock during the third quarter well below tangible book value at an average price of $12.89 per share.

We believe Investar is well-positioned for a higher-for-longer interest rate environment but also poised to benefit from a potential decrease in rates. As we look forward, we are beginning a pivot from a growth strategy to a focus on consistent, quality earnings through the optimization of our balance sheet."

Third Quarter Highlights

• Credit quality continued to strengthen as nonperforming loans improved to 0.27% of total loans at September 30, 2023 compared to 0.34% at June 30, 2023.
• Total loans increased $18.2 million, or 0.9%, to $2.10 billion at September 30, 2023, compared to $2.08 billion at June 30, 2023. Excluding the revolving lines of credit purchased in the third quarter of 2023, total loans decreased $17.6 million, or 0.8%, to $2.07 billion at September 30, 2023, compared to $2.08 billion at June 30, 2023.
• The yield on the loan portfolio increased to 5.53% for the quarter ended September 30, 2023 compared to 5.44% for the quarter ended June 30, 2023.
• Total revenues, or interest and noninterest income, for the quarter ended September 30, 2023 totaled $34.8 million, an increase of $0.3 million, or 1.0%, compared to the quarter ended June 30, 2023.
• Total deposits increased $28.6 million, or 1.3%, to $2.21 billion at September 30, 2023, compared to $2.18 billion at June 30, 2023. Uninsured deposits were 34% of total deposits at September 30, 2023.
• Investar exited its consumer mortgage origination business to focus more on its core business lines. Related severance expense was $0.1 million.
• Investar converted its existing loan and deposit production office in Tuscaloosa, Alabama to a cashless branch designed to provide a dynamic and streamlined digital banking experience. This is Investar's seventh branch in the Alabama market.
• On July 19, 2023, Investar's Board of Directors approved an additional 350,000 shares for repurchase under Investar's stock repurchase program. Investar repurchased 52,407 shares of its common stock through the program at an average price of $12.89 during the quarter ended September 30, 2023, leaving 546,032 shares authorized for repurchase under the program at September 30, 2023.

Loans

Total loans were $2.10 billion at September 30, 2023, an increase of $18.2 million, or 0.9%, compared to June 30, 2023, and an increase of $97.3 million, or 4.9%, compared to September 30, 2022.

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

Linked Quarter Change Year/Year Change Percentage of Total Loans
9/30/2023 6/30/2023 9/30/2022 $ % $ % 9/30/2023 9/30/2022
Mortgage loans on real estate
Construction and development
$ 211,390 $ 197,850 $ 220,609 $ 13,540 6.8% $ (9,219) (4.2) % 10.0% 11.0 %
1-4 Family
415,162 414,380 391,857 782 0.2 23,305 5.9 19.7 19.5
Multifamily
102,974 80,424 57,306 22,550 28.0 45,668 79.7 4.9 2.9
Farmland
8,259 8,434 14,202 (175) (2.1) (5,943) (41.8) 0.4 0.7
Commercial real estate
Owner-occupied
440,208 441,393 445,671 (1,185) (0.3) (5,463) (1.2) 20.9 22.2
Nonowner-occupied
501,649 530,820 464,520 (29,171) (5.5) 37,129 8.0 23.9 23.2
Commercial and industrial
411,290 399,488 397,759 11,802 3.0 13,531 3.4 19.6 19.8
Consumer
12,090 12,074 13,753 16 0.1 (1,663) (12.1) 0.6 0.7
Total loans
$ 2,103,022 $ 2,084,863 $ 2,005,677 $ 18,159 0.9 $ 97,345 4.9 % 100% 100 %

At September 30, 2023, the Bank's total business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $851.5 million, an increase of $10.6 million, or 1.3%, compared to the business lending portfolio of $840.9 million at June 30, 2023, and an increase of $8.1 million, or 1.0%, compared to the business lending portfolio of $843.4 million at September 30, 2022. The increase in the business lending portfolio compared to June 30, 2023 and September 30, 2022 is primarily driven by the purchase of commercial and industrial revolving lines of credit described above, partially offset by lower loan demand due to higher rates.

Nonowner-occupied loans totaled $501.6 million at September 30, 2023, a decrease of $29.2 million, or 5.5%, compared to $530.8 million at June 30, 2023, and an increase of $37.1 million, or 8.0%, compared to $464.5 million at September 30, 2022. The decrease in nonowner-occupied loans compared to June 30, 2023 is primarily due to a reclassification of approximately $24.1 million nonowner-occupied loans to multifamily loans due to a change to the primary use of the property. The increase in nonowner-occupied loans compared to September 30, 2022 is due to organic growth.

Credit Quality

Nonperforming loans were $5.6 million, or 0.27% of total loans, at September 30, 2023, a decrease of $1.4 million compared to $7.0 million, or 0.34% of total loans, at June 30, 2023, and a decrease of $7.5 million compared to $13.1 million, or 0.65% of total loans, at September 30, 2022. The decrease in nonperforming loans compared to June 30, 2023 is mainly attributable to paydowns. Included in nonperforming loans are acquired loans with a balance of $1.9 million at September 30, 2023, or 35% of nonperforming loans.

On January 1, 2023, Investar adopted FASB ASC Topic 326 " Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments " Update No. 2016-13 . The ASU, referred to as the Current Expected Credit Loss ("CECL") standard, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption, Investar recorded a one-time, cumulative effect adjustment to increase the allowance for credit losses by $5.9 million and reduce retained earnings, net of tax, by $4.3 million.

The allowance for credit losses was $29.8 million, or 534.1% and 1.42% of nonperforming and total loans, respectively, at September 30, 2023, compared to $30.0 million, or 429.6% and 1.44% of nonperforming and total loans, respectively, at June 30, 2023, and $23.2 million, or 176.6% and 1.15% of nonperforming and total loans, respectively, at September 30, 2022.

Investar recorded a negative provision for credit losses of $34,000 for the quarter ended September 30, 2023 compared to a negative provision for credit losses of $2.8 million and a provision for credit losses of $1.2 million for the quarters ended June 30, 2023 and September 30, 2022, respectively. The negative provision for credit losses in the quarter ended September 30, 2023 was primarily due to net recoveries. The negative provision for credit losses in the quarter ended June 30, 2023 was driven by net recoveries of $2.4 million, primarily attributable to recoveries on one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida. The provision for credit losses for the quarter ended September 30, 2022 was due to organic loan growth.

Deposits

Total deposits at September 30, 2023 were $2.21 billion, an increase of $28.6 million, or 1.3%, compared to $2.18 billion at June 30, 2023, and an increase of $156.8 million, or 7.6%, compared to $2.05 billion at September 30, 2022.

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

Linked Quarter Change Year/Year Change Percentage of Total Deposits
9/30/2023 6/30/2023 9/30/2022 $ % $ % 9/30/2023 9/30/2022
Noninterest-bearing demand deposits
$ 459,519 $ 488,311 $ 590,610 $ (28,792) (5.9) % $ (131,091) (22.2) % 20.8 % 28.8 %
Interest-bearing demand deposits
482,706 514,501 624,025 (31,795) (6.2) (141,319) (22.6) 21.8 30.4
Money market deposit accounts
186,478 158,984 251,213 27,494 17.3 (64,735) (25.8) 8.4 12.2
Savings accounts
131,743 125,442 167,131 6,301 5.0 (35,388) (21.2) 6.0 8.1
Brokered time deposits
197,747 153,365 - 44,382 28.9 197,747 - 9.0 -
Time deposits
751,240 740,250 419,704 10,990 1.5 331,536 79.0 34.0 20.5
Total deposits
$ 2,209,433 $ 2,180,853 $ 2,052,683 $ 28,580 1.3 % $ 156,750 7.6 % 100 % 100 %

The increase in money market deposit accounts at September 30, 2023 compared to June 30, 2023 is primarily due to higher rates offered. The decrease in money market deposit accounts at September 30, 2023 compared to September 30, 2022 is primarily due to customers shifting into higher yielding interest-bearing deposit products as a result of rising interest rates. The increase in time deposits at September 30, 2023 compared to June 30, 2023 is primarily due to existing customer funds migrating from other deposit categories. The increase in time deposits at September 30, 2023 compared to September 30, 2022 is primarily due to organic growth and existing customer funds migrating from other deposit categories. Noninterest-bearing demand deposits and interest-bearing demand deposits decreased over the periods due to shifts by customers into higher yielding interest-bearing deposit products as a result of rising interest rates. Brokered time deposits increased to $197.7 million at September 30, 2023 from $153.4 million at June 30, 2023. Investar utilizes brokered time deposits, entirely in denominations of less than $250,000, to secure fixed cost funding and reduce short-term borrowings. At September 30, 2023, the balance of brokered time deposits remained below 10% of total assets, and the remaining weighted average duration is approximately 13 months with a weighted average rate of 5.02%.

Stockholders' Equity

Stockholders' equity was $208.7 million at September 30, 2023, a decrease of $9.6 million compared to June 30, 2023, and an increase of $3.0 million compared to September 30, 2022. The decrease in stockholders' equity compared to June 30, 2023 is primarily attributable to an increase in accumulated other comprehensive loss due to a decrease in the fair value of the Bank's available for sale securities portfolio, partially offset by net income for the quarter. The increase in stockholders' equity compared to September 30, 2022 is primarily attributable to net income for the last twelve months, partially offset by an increase in accumulated other comprehensive loss due to a decrease in the fair value of the Bank's available for sale securities portfolio and the cumulative effect adjustment as a result of the adoption of the CECL standard, reflected in retained earnings.

Net Interest Income

Net interest income for the third quarter of 2023 totaled $17.5 million, a decrease of $0.9 million, or 5.0%, compared to the second quarter of 2023, and a decrease of $6.0 million, or 25.6%, compared to the third quarter of 2022. Total interest income was $33.2 million, $32.4 million and $27.0 million for the quarters ended September 30, 2023, June 30, 2023 and September 30, 2022, respectively. Total interest expense was $15.7 million, $14.0 million and $3.5 million for the corresponding periods. Included in net interest income for the quarters ended September 30, 2023, June 30, 2023 and September 30, 2022 is $36,000, $47,000, and $0.1 million, respectively, of interest income accretion from the acquisition of loans. Also included in net interest income for each of the quarters ended September 30, 2023 and September 30, 2022 are interest recoveries of $0.1 million. There were no interest recoveries for the quarter ended June 30, 2023.

Investar's net interest margin was 2.66% for the quarter ended September 30, 2023, compared to 2.82% for the quarter ended June 30, 2023 and 3.77% for the quarter ended September 30, 2022. The decrease in net interest margin for the quarter ended September 30, 2023 compared to the quarter ended June 30, 2023 was driven by a 28 basis point increase in the overall cost of funds, partially offset by a seven basis point increase in the yield on interest-earning assets. The decrease in net interest margin for the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022 was driven by a 228 basis point increase in the overall cost of funds, partially offset by a 71 basis point increase in the yield on interest-earning assets.

The yield on interest-earning assets was 5.05% for the quarter ended September 30, 2023, compared to 4.98% for the quarter ended June 30, 2023 and 4.34% for the quarter ended September 30, 2022. The increase in the yield on interest-earning assets compared to the quarter ended June 30, 2023 was primarily attributable to a nine basis point increase in the yield on the loan portfolio, partially offset by a 10 basis point decrease in the yield on the taxable securities portfolio. The increase in the yield on interest-earning assets compared to the quarter ended September 30, 2022 was primarily driven by a 67 basis point increase in the yield on the loan portfolio and a 38 basis point increase in the yield on the taxable securities portfolio.

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 Paycheck Protection Program ("PPP") loans, adjusted net interest margin decreased to 2.64% for the quarter ended September 30, 2023, compared to 2.82% for the quarter ended June 30, 2023, and 3.72% for the quarter ended September 30, 2022. The adjusted yield on interest-earning assets was 5.03% for the quarter ended September 30, 2023 compared to 4.97% and 4.29% for the quarters ended June 30, 2023 and September 30, 2022, respectively. Refer to the Reconciliation of Non-GAAP Financial Measures table for a reconciliation of GAAP to non-GAAP metrics.

The cost of deposits increased 42 basis points to 2.73% for the quarter ended September 30, 2023 compared to 2.31% for the quarter ended June 30, 2023 and increased 237 basis points compared to 0.36% for the quarter ended September 30, 2022. The increase in the cost of deposits compared to the quarter ended June 30, 2023 resulted from both a higher average balance and an increase in rates paid on time deposits, a higher average balance of brokered time deposits, and an increase in rates paid on interest-bearing demand deposits and savings deposits. The increase in the cost of deposits compared to the quarter ended September 30, 2022 resulted from both a higher average balance and an increase in rates paid on time deposits, a higher average balance of brokered time deposits, and an increase in rates paid on interest-bearing demand deposits, partially offset by a lower average balance of interest-bearing demand deposits.

The cost of short-term borrowings decreased 12 basis points to 4.97% for the quarter ended September 30, 2023 compared to 5.09% for the quarter ended June 30, 2023 and increased 257 basis points compared to 2.40% for the quarter ended September 30, 2022. Beginning in the second quarter of 2023, the Bank began utilizing the Federal Reserve's Bank Term Funding Program ("BTFP") to secure fixed rate funding for up to a one-year term and reduce short-term Federal Home Loan Bank ("FHLB") advances, which are priced daily. The Bank utilized this source of funding due to its lower rate as compared to FHLB advances, the ability to prepay the obligations without penalty, and as a means to lock in funding. The decrease in the cost of short-term borrowings compared to the quarter ended June 30, 2023 resulted primarily from the reduction of short-term advances from the FHLB and the increased utilization of short-term repurchase agreements. The increase in the cost of short-term borrowings compared to the quarter ended September 30, 2022 resulted from an increase in the Federal Reserve's federal funds rate, which drives the costs of short-term borrowings under the BTFP and short-term advances from the FHLB.

The overall cost of funds for the quarter ended September 30, 2023 increased 28 basis points to 3.07% compared to 2.79% for the quarter ended June 30, 2023 and increased 228 basis points compared to 0.79% for the quarter ended September 30, 2022. The increase in the cost of funds for the quarter ended September 30, 2023 compared to the quarter ended June 30, 2023 resulted from both a higher average balance and an increase in the cost of deposits, partially offset by both a lower average balance and a decrease in the cost of short-term borrowings. The increase in the cost of funds for the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022 resulted from both a higher average balance and an increase in the cost of deposits and both a higher average balance and an increase in the cost of short-term borrowings.

Noninterest Income

Noninterest income for the third quarter of 2023 totaled $1.6 million, a decrease of $0.4 million, or 20.9%, compared to the second quarter of 2023 and a decrease of $1.0 million, or 38.6%, compared to the third quarter of 2022.

The decrease in noninterest income compared to the quarter ended June 30, 2023 is driven by a $0.3 million increase in loss on sale or disposition of fixed assets and a $0.3 million decrease in other operating income, partially offset by a $0.1 million increase in the change in fair value of equity securities and a $0.1 million increase in service charges on deposit accounts. The decrease in other operating income is primarily attributable to a $0.2 million decrease in the change in the net asset value of other investments and a $0.1 million decrease in distributions from investments.

The decrease in noninterest income compared to the quarter ended September 30, 2022 is mainly attributable to a $0.3 million increase in loss on sale or disposition of fixed assets and a $0.7 million decrease in other operating income. The decrease in other operating income is primarily attributable to a $0.4 million decrease in the change in the net asset value of other investments and a $0.3 million decrease in derivative fee income.

Noninterest Expense

Noninterest expense for the third quarter of 2023 totaled $15.8 million, an increase of $0.5 million, or 3.5%, compared to the second quarter of 2023, and a decrease of $0.2 million, or 1.2%, compared to the third quarter of 2022.

The increase in noninterest expense for the quarter ended September 30, 2023 compared to the quarter ended June 30, 2023 was primarily driven by a $0.1 million increase in salaries and employee benefits, a $0.2 million increase in professional fees, and a $0.2 million increase in other operating expenses. The increase in salaries and employee benefits is primarily due to severance related to Investar's exit from its consumer mortgage origination business. Other operating expenses include, among other things, software expense, other real estate expense, FDIC assessments, bank security, and bank shares tax.

The decrease in noninterest expense for the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022 is primarily a result of a $0.2 million decrease in depreciation and amortization and a $0.2 million decrease in occupancy, partially offset by a $0.1 million increase in salaries and employee benefits. The decreases in depreciation and amortization and occupancy are due to the sale of the Alice and Victoria, Texas branches in January 2023 and the closure of one branch location in the first quarter of 2023. The increase in salaries and employee benefits is primarily due to severance related to Investar's exit from its consumer mortgage origination business.

Taxes

Investar recorded an income tax expense of $0.6 million for the quarter ended September 30, 2023, which equates to an effective tax rate of 17.4%, compared to effective tax rates of 18.7% and 18.9% for the quarters ended June 30, 2023 and September 30, 2022, respectively.

Basic and Diluted Earnings Per Common Share

Investar reported basic and diluted earnings per common share of $0.28 for the quarter ended September 30, 2023, compared to basic and diluted earnings per common share of $0.67 for the quarter ended June 30, 2023, and basic and diluted earnings per common share of $0.74 and $0.73, respectively, for the quarter ended September 30, 2022.

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 29 branch locations serving Louisiana, Texas, and Alabama. At September 30, 2023, the Bank had 328 full-time equivalent employees and total assets of $2.8 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, accelerated fee income for PPP loans, interest recoveries, and interest income accretion from the acquisition of loans. 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.

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:

•

the significant risks and uncertainties for our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios and other regulatory requirements caused by business and economic conditions generally and in the financial services industry in particular, whether nationally, regionally or in the markets in which we operate, including risks and uncertainties caused by disruptions in the banking industry earlier this year, potential continued higher inflation and interest rates, supply and labor constraints, the wars in Ukraine and Israel and the ongoing COVID-19 pandemic;

•

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, including potential continued increases in interest rates in 2023;

•

our ability to identify and enter into agreements to combine with attractive acquisition candidates, finance acquisitions, complete acquisitions after definitive agreements are entered into, and successfully integrate and grow acquired operations;

•

our adoption on January 1, 2023 of ASU 2016-13, and inaccuracy of the assumptions and estimates we make in establishing reserves for credit losses and other estimates;

•

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;

•

a reduction in liquidity, including as a result of a reduction in the amount of deposits we hold or other sources of liquidity, which may continue to be adversely impacted by the disruptions in the banking industry earlier this year causing bank depositors to move uninsured deposits to other banks or alternative investments outside the banking industry;

•

changes in the quality and composition of, and changes in unrealized losses in, our investment portfolio, including whether we may have to sell securities before their recovery of amortized cost basis and realize losses;

•

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;

•

the concentration of our business within our geographic areas of operation in Louisiana, Texas and Alabama;

•

concentration of credit exposure;

•

any deterioration in asset quality and higher loan charge-offs, and the time and effort necessary to resolve problem assets;

•

fluctuations in the price of oil and natural gas;

•

data processing system failures and errors;

•

cyberattacks and other security breaches; and

•

hurricanes, tropical storms, tropical depressions, floods, winter storms, droughts and other adverse weather events, all of which have affected Investar's market areas from time to time; other natural disasters; oil spills and other man-made disasters; acts of terrorism, an outbreak or intensifying of hostilities including the wars in Ukraine and Israel or other international or domestic calamities, acts of God and other matters beyond our control.

These factors should not be construed as exhaustive. Additional information on these and other risk factors can be found in Part I Item 1A. "Risk Factors" and in the "Special Note Regarding Forward-Looking Statements" in Part II 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, 2022 filed with the Securities and Exchange Commission (the "SEC") and in Part II Item 1A. "Risk Factors" in Investar's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023 filed with the SEC.

For further information contact:
Investar Holding Corporation
John Campbell
Executive Vice President and Chief Financial Officer
(225) 227-2215
John.Campbell@investarbank.com


INVESTAR HOLDING CORPORATION
SUMMARY FINANCIAL INFORMATION
(Amounts in thousands, except share data)
(Unaudited)

As of and for the three months ended
9/30/2023 6/30/2023 9/30/2022 Linked Quarter Year/Year
EARNINGS DATA
Total interest income
$ 33,160 $ 32,396 $ 27,002 2.4 % 22.8 %
Total interest expense
15,691 14,009 3,535 12.0 343.9
Net interest income
17,469 18,387 23,467 (5.0 ) (25.6 )
Provision for credit losses
(34 ) (2,840 ) 1,162 98.8 (102.9 )
Total noninterest income
1,637 2,070 2,665 (20.9 ) (38.6 )
Total noninterest expense
15,774 15,241 15,967 3.5 (1.2 )
Income before income tax expense
3,366 8,056 9,003 (58.2 ) (62.6 )
Income tax expense
585 1,509 1,699 (61.2 ) (65.6 )
Net income
$ 2,781 $ 6,547 $ 7,304 (57.5 ) (61.9 )
AVERAGE BALANCE SHEET DATA
Total assets
$ 2,736,358 $ 2,748,171 $ 2,621,611 (0.4 )% 4.4
Total interest-earning assets
2,603,837 2,611,172 2,468,357 (0.3 ) 5.5
Total loans
2,072,617 2,100,751 1,954,493 (1.3 ) 6.0
Total interest-bearing deposits
1,707,848 1,655,506 1,456,826 3.2 17.2
Total interest-bearing liabilities
2,026,587 2,013,482 1,772,960 0.7 14.3
Total deposits
2,170,373 2,145,629 2,069,603 1.2 4.9
Total stockholders' equity
220,393 221,528 226,624 (0.5 ) (2.7 )
PER SHARE DATA
Earnings:
Basic earnings per common share
$ 0.28 $ 0.67 $ 0.74 (58.2 )% (62.2 )%
Diluted earnings per common share
0.28 0.67 0.73 (58.2 ) (61.6 )
Core Earnings (1) :
Core basic earnings per common share (1)
0.33 0.67 0.71 (50.7 ) (53.5 )
Core diluted earnings per common share (1)
0.33 0.67 0.71 (50.7 ) (53.5 )
Book value per common share
21.34 22.21 20.78 (3.9 ) 2.7
Tangible book value per common share (1)
17.00 17.87 16.40 (4.9 ) 3.7
Common shares outstanding
9,779,688 9,831,145 9,901,078 (0.5 ) (1.2 )
Weighted average common shares outstanding - basic
9,814,727 9,880,721 9,965,374 (0.7 ) (1.5 )
Weighted average common shares outstanding - diluted
9,817,607 9,881,385 10,086,249 (0.6 ) (2.7 )
PERFORMANCE RATIOS
Return on average assets
0.40 % 0.96 % 1.11 % (58.3 )% (64.0 )%
Core return on average assets (1)
0.47 0.97 1.08 (51.5 ) (56.5 )
Return on average equity
5.01 11.85 12.79 (57.7 ) (60.8 )
Core return on average equity (1)
5.87 11.98 12.46 (51.0 ) (52.9 )
Net interest margin
2.66 2.82 3.77 (5.7 ) (29.4 )
Net interest income to average assets
2.53 2.68 3.55 (5.6 ) (28.7 )
Noninterest expense to average assets
2.29 2.22 2.42 3.2 (5.4 )
Efficiency ratio (2)
82.56 74.50 61.10 10.8 35.1
Core efficiency ratio (1)
79.98 74.21 61.63 7.8 29.8
Dividend payout ratio
35.71 14.93 12.84 139.2 178.1
Net recoveries to average loans
(0.01 ) (0.11 ) - (90.9 ) -

(1) Non-GAAP financial measure. See reconciliation.
(2) Efficiency ratio represents noninterest expense divided by the sum of net interest income (before provision for credit losses) and noninterest income.

INVESTAR HOLDING CORPORATION
SUMMARY FINANCIAL INFORMATION
(Unaudited)

As of and for the three months ended
9/30/2023 6/30/2023 9/30/2022 Linked Quarter Year/Year
ASSET QUALITY RATIOS
Nonperforming assets to total assets
0.36 % 0.40 % 0.58 % (10.0 )% (37.9 )%
Nonperforming loans to total loans
0.27 0.34 0.65 (20.6 ) (58.5 )
Allowance for credit losses to total loans
1.42 1.44 1.15 (1.4 ) 23.5
Allowance for credit losses to nonperforming loans
534.08 429.60 176.63 24.3 202.4
CAPITAL RATIOS
Investar Holding Corporation:
Total equity to total assets
7.48 % 7.93 % 7.73 % (5.7 )% (3.2 )%
Tangible equity to tangible assets (1)
6.05 6.48 6.20 (6.6 ) (2.4 )
Tier 1 leverage ratio
8.53 8.45 8.48 0.9 0.6
Common equity tier 1 capital ratio (2)
9.40 9.86 9.65 (4.7 ) (2.6 )
Tier 1 capital ratio (2)
9.79 10.28 10.08 (4.8 ) (2.9 )
Total capital ratio (2)
12.87 13.49 13.15 (4.6 ) (2.1 )
Investar Bank:
Tier 1 leverage ratio
10.05 9.96 9.84 0.9 2.1
Common equity tier 1 capital ratio (2)
11.53 12.11 11.70 (4.8 ) (1.5 )
Tier 1 capital ratio (2)
11.53 12.11 11.70 (4.8 ) (1.5 )
Total capital ratio (2)
12.78 13.36 12.77 (4.3 ) 0.1

(1) Non-GAAP financial measure. See reconciliation.
(2) Estimated for September 30, 2023 and includes impact of commitments related to the purchase of second tranche of loans, which closed in the fourth quarter, on risk weighted assets.

INVESTAR HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
(Unaudited)

September 30, 2023 June 30, 2023 September 30, 2022
ASSETS
Cash and due from banks
$ 27,084 $ 34,697 $ 31,711
Interest-bearing balances due from other banks
36,584 31,082 4,302
Federal funds sold
- 128 -
Cash and cash equivalents
63,668 65,907 36,013
Available for sale securities at fair value (amortized cost of $481,296, $452,053, and $477,242, respectively)
404,485 389,583 413,186
Held to maturity securities at amortized cost (estimated fair value of $19,815, $17,913, and $8,951, respectively)
20,044 17,812 9,373
Loans
2,103,022 2,084,863 2,005,677
Less: allowance for credit losses
(29,778 ) (30,044 ) (23,164 )
Loans, net
2,073,244 2,054,819 1,982,513
Equity securities
13,334 14,938 26,629
Bank premises and equipment, net of accumulated depreciation of $21,646, $21,886, and $21,421, respectively
44,764 45,925 50,327
Other real estate owned, net
4,438 4,137 2,326
Accrued interest receivable
13,633 12,661 11,915
Deferred tax asset
20,989 17,658 16,587
Goodwill and other intangible assets, net
42,496 42,677 43,360
Bank owned life insurance
58,425 58,068 57,033
Other assets
30,013 29,489 12,432
Total assets
$ 2,789,533 $ 2,753,674 $ 2,661,694
LIABILITIES
Deposits
Noninterest-bearing
$ 459,519 $ 488,311 $ 590,610
Interest-bearing
1,749,914 1,692,542 1,462,073
Total deposits
2,209,433 2,180,853 2,052,683
Advances from Federal Home Loan Bank
23,500 23,500 333,100
Borrowings under Bank Term Funding Program
235,800 235,800 -
Federal funds purchased
- - 168
Repurchase agreements
13,930 5,183 -
Subordinated debt, net of unamortized issuance costs
44,296 44,272 44,201
Junior subordinated debt
8,602 8,574 8,484
Accrued taxes and other liabilities
45,255 37,135 17,358
Total liabilities
2,580,816 2,535,317 2,455,994
STOCKHOLDERS' EQUITY
Preferred stock, no par value per share; 5,000,000 shares authorized
- - -
Common stock, $1.00 par value per share; 40,000,000 shares authorized; 9,779,688, 9,831,145, and 9,901,078 shares issued and outstanding, respectively
9,780 9,831 9,901
Surplus
145,241 145,347 146,155
Retained earnings
114,148 112,344 100,247
Accumulated other comprehensive loss
(60,452 ) (49,165 ) (50,603 )
Total stockholders' equity
208,717 218,357 205,700
Total liabilities and stockholders' equity
$ 2,789,533 $ 2,753,674 $ 2,661,694

INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share data)
(Unaudited)

For the three months ended
September 30, 2023 June 30, 2023 September 30, 2022
INTEREST INCOME
Interest and fees on loans
$ 28,892 $ 28,513 $ 23,924
Interest on investment securities
Taxable
3,055 3,262 2,769
Tax-exempt
216 119 105
Other interest income
997 502 204
Total interest income
33,160 32,396 27,002
INTEREST EXPENSE
Interest on deposits
11,733 9,534 1,315
Interest on borrowings
3,958 4,475 2,220
Total interest expense
15,691 14,009 3,535
Net interest income
17,469 18,387 23,467
Provision for credit losses
(34) (2,840) 1,162
Net interest income after provision for credit losses
17,503 21,227 22,305
NONINTEREST INCOME
Service charges on deposit accounts
806 746 820
Loss on sale or disposition of fixed assets, net
(367) (58) (103)
Gain on sale of other real estate owned, net
23 5 50
Servicing fees and fee income on serviced loans
2 4 17
Interchange fees
399 443 511
Income from bank owned life insurance
357 353 341
Change in the fair value of equity securities
22 (107) (27)
Other operating income
395 684 1,056
Total noninterest income
1,637 2,070 2,665
Income before noninterest expense
19,140 23,297 24,970
NONINTEREST EXPENSE
Depreciation and amortization
900 919 1,087
Salaries and employee benefits
9,463 9,343 9,345
Occupancy
618 646 810
Data processing
888 827 861
Marketing
83 82 84
Professional fees
516 323 460
Other operating expenses
3,306 3,101 3,320
Total noninterest expense
15,774 15,241 15,967
Income before income tax expense
3,366 8,056 9,003
Income tax expense
585 1,509 1,699
Net income
$ 2,781 $ 6,547 $ 7,304
EARNINGS PER SHARE
Basic earnings per common share
$ 0.28 $ 0.67 $ 0.74
Diluted earnings per common share
0.28 0.67 0.73
Cash dividends declared per common share
0.10 0.10 0.095

INVESTAR HOLDING CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEET, INTEREST EARNED AND YIELD ANALYSIS
(Amounts in thousands)
(Unaudited)

For the three months ended
September 30, 2023 June 30, 2023 September 30, 2022
Interest Interest Interest
Average Income/ Average Income/ Average Income/
Balance Expense Yield/ Rate Balance Expense Yield/ Rate Balance Expense Yield/ Rate
Assets
Interest-earning assets:
Loans
$ 2,072,617 $ 28,892 5.53% $ 2,100,751 $ 28,513 5.44% $ 1,954,493 $ 23,924 4.86%
Securities:
Taxable
442,556 3,055 2.74 460,765 3,262 2.84 466,012 2,769 2.36
Tax-exempt
25,493 216 3.35 17,235 119 2.77 16,528 105 2.50
Interest-bearing balances with banks
63,171 997 6.26 32,421 502 6.22 31,324 204 2.58
Total interest-earning assets
2,603,837 33,160 5.05 2,611,172 32,396 4.98 2,468,357 27,002 4.34
Cash and due from banks
27,734 30,326 33,291
Intangible assets
42,595 42,777 43,472
Other assets
92,108 94,467 98,936
Allowance for credit losses
(29,916) (30,571) (22,445)
Total assets
$ 2,736,358 $ 2,748,171 $ 2,621,611
Liabilities and stockholders' equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand deposits
$ 668,732 $ 2,462 1.46% $ 683,016 $ 2,013 1.18% $ 887,040 $ 594 0.27%
Savings deposits
130,262 179 0.54 127,028 22 0.07 173,582 20 0.05
Brokered time deposits
159,244 1,990 4.96 151,370 1,870 4.95 - - -
Time deposits
749,610 7,102 3.76 694,092 5,629 3.25 396,204 701 0.70
Total interest-bearing deposits
1,707,848 11,733 2.73 1,655,506 9,534 2.31 1,456,826 1,315 0.36
Short-term borrowings
242,363 3,039 4.97 281,651 3,572 5.09 191,210 1,156 2.40
Long-term debt
76,376 919 4.77 76,325 903 4.74 124,924 1,064 3.38
Total interest-bearing liabilities
2,026,587 15,691 3.07 2,013,482 14,009 2.79 1,772,960 3,535 0.79
Noninterest-bearing deposits
462,525 490,123 612,777
Other liabilities
26,853 23,038 9,250
Stockholders' equity
220,393 221,528 226,624
Total liability and stockholders' equity
$ 2,736,358 $ 2,748,171 $ 2,621,611
Net interest income/net interest margin
$ 17,469 2.66% $ 18,387 2.82% $ 23,467 3.77%

INVESTAR HOLDING CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
INTEREST EARNED AND YIELD ANALYSIS ADJUSTED FOR ACCELERATED PPP INCOME, INTEREST RECOVERIES, AND ACCRETION
(Amounts in thousands)
(Unaudited)

For the three months ended
September 30, 2023 June 30, 2023 September 30, 2022
Interest Interest Interest
Average Income/ Average Income/ Average Income/
Balance Expense Yield/ Rate Balance Expense Yield/ Rate Balance Expense Yield/ Rate
Interest-earning assets:
Loans
$ 2,072,617 $ 28,892 5.53 % $ 2,100,751 $ 28,513 5.44 % $ 1,954,493 $ 23,924 4.86 %
Adjustments:
Accelerated fee income for forgiven or paid off PPP loans
- - 58
Interest recoveries
118 - 121
Accretion
36 47 142
Adjusted loans
2,072,617 28,738 5.50 2,100,751 28,466 5.44 1,954,493 23,603 4.79
Securities:
Taxable
442,556 3,055 2.74 460,765 3,262 2.84 466,012 2,769 2.36
Tax-exempt
25,493 216 3.35 17,235 119 2.77 16,528 105 2.50
Interest-bearing balances with banks
63,171 997 6.26 32,421 502 6.22 31,324 204 2.58
Adjusted interest-earning assets
2,603,837 33,006 5.03 2,611,172 32,349 4.97 2,468,357 26,681 4.29
Total interest-bearing liabilities
2,026,587 15,691 3.07 2,013,482 14,009 2.79 1,772,960 3,535 0.79
Adjusted net interest income/adjusted net interest margin
$ 17,315 2.64 % $ 18,340 2.82 % $ 23,146 3.72 %

INVESTAR HOLDING CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Amounts in thousands, except share data)
(Unaudited)

September 30, 2023 June 30, 2023 September 30, 2022
Tangible common equity
Total stockholders' equity
$ 208,717 $ 218,357 $ 205,700
Adjustments:
Goodwill
40,088 40,088 40,088
Core deposit intangible
2,308 2,489 3,172
Trademark intangible
100 100 100
Tangible common equity
$ 166,221 $ 175,680 $ 162,340
Tangible assets
Total assets
$ 2,789,533 $ 2,753,674 $ 2,661,694
Adjustments:
Goodwill
40,088 40,088 40,088
Core deposit intangible
2,308 2,489 3,172
Trademark intangible
100 100 100
Tangible assets
$ 2,747,037 $ 2,710,997 $ 2,618,334
Common shares outstanding
9,779,688 9,831,145 9,901,078
Tangible equity to tangible assets
6.05 % 6.48 % 6.20 %
Book value per common share
$ 21.34 $ 22.21 $ 20.78
Tangible book value per common share
17.00 17.87 16.40

INVESTAR HOLDING CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Amounts in thousands, except share data)
(Unaudited)

Three months ended
9/30/2023 6/30/2023 9/30/2022
Net interest income
(a)
$ 17,469 $ 18,387 $ 23,467
Provision for credit losses
(34 ) (2,840 ) 1,162
Net interest income after provision for credit losses
17,503 21,227 22,305
Noninterest income
(b)
1,637 2,070 2,665
Loss on sale or disposition of fixed assets, net
367 58 103
Gain on sale of other real estate owned, net
(23 ) (5 ) (50 )
Change in the fair value of equity securities
(22 ) 107 27
Change in the net asset value of other investments (1)
105 (78 ) (305 )
Core noninterest income
(d)
2,064 2,152 2,440
Core earnings before noninterest expense
19,567 23,379 24,745
Total noninterest expense
(c)
15,774 15,241 15,967
Severance (2)
(123 ) - -
Loan purchase expense (3)
(29 ) - -
Core noninterest expense
(f)
15,622 15,241 15,967
Core earnings before income tax expense
3,945 8,138 8,778
Core income tax expense (4)
686 1,522 1,659
Core earnings
$ 3,259 $ 6,616 $ 7,119
Core basic earnings per common share
0.33 0.67 0.71
Diluted earnings per common share (GAAP)
$ 0.28 $ 0.67 $ 0.73
Loss on sale or disposition of fixed assets, net
0.03 - 0.01
Gain on sale of other real estate owned, net
- - -
Change in the fair value of equity securities
- 0.01 -
Change in the net asset value of other investments (1)
0.01 (0.01 ) (0.03 )
Severance (2)
0.01 - -
Loan purchase expense (3)
- - -
Core diluted earnings per common share
$ 0.33 $ 0.67 $ 0.71
Efficiency ratio
(c) / (a+b)
82.56 % 74.50 % 61.10 %
Core efficiency ratio
(f) / (a+d)
79.98 74.21 61.63
Core return on average assets (5)
0.47 0.97 1.08
Core return on average equity (5)
5.87 11.98 12.46
Total average assets
$ 2,736,358 $ 2,748,171 $ 2,621,611
Total average stockholders' equity
220,393 221,528 226,624

(1) Change in net asset value of other investments represents unrealized gains or losses on Investar's investments in Small Business Investment Companies and other investment funds and is included in other operating income in the accompanying consolidated statements of income.

(2) Adjustments to noninterest expense directly attributable to Investar's exit from its consumer mortgage origination business, consisting of salaries and employee benefits.

(3) Adjustments to noninterest expense directly attributable to the purchase of loans, consisting of professional fees for legal and consulting services.

(4) Core income tax expense is calculated using the effective tax rates of 17.4%, 18.7% and 18.9% for the quarters ended September 30, 2023, June 30, 2023 and September 30, 2022, respectively.

(5) Core earnings used in calculation. No adjustments were made to average assets or average equity.

SOURCE: Investar Holding Corporation


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