Investar Holding Corporation (NASDAQ:ISTR) has demonstrated its ability to navigate the dynamic banking industry, delivering solid financial performance amidst the challenges of the current economic environment. The company's recent financial results, strategic initiatives, and market positioning suggest that Investar is well-positioned to continue its growth trajectory.

Business Overview

Investar Holding Corporation is a financial holding company headquartered in Baton Rouge, Louisiana, providing full banking services, excluding trust services, through its wholly-owned subsidiary, Investar Bank, National Association. The company primarily serves the needs of individuals, professionals, and small to medium-sized businesses in its core markets of south Louisiana, southeast Texas, and Alabama. As of March 31, 2024, the company operated 28 full-service branches across these regions and had 323 full-time equivalent employees.

Financials

Investar's financial performance has been commendable, showcasing its ability to adapt to the evolving market conditions. For the fiscal year ended December 31, 2023, the company reported annual net income of $16.68 million and annual revenue of $141.13 million. The company's annual operating cash flow was $26.52 million, and its annual free cash flow was $25.45 million.

In the first quarter of 2024, Investar continued to deliver solid results. The company reported net income of $4.71 million, or $0.48 per basic and diluted common share, compared to net income of $3.81 million, or $0.38 per basic and diluted common share, for the same period in 2023. This increase in net income was primarily driven by a $1.4 million negative provision for credit losses, a $1.7 million increase in noninterest income, and a $0.9 million decrease in noninterest expense, partially offset by a $3.0 million decrease in net interest income and a $0.5 million increase in income tax expense.

Loan Portfolio and Asset Quality

Investar's loan portfolio remains a key focus area, with total loans decreasing by $30.0 million, or 1.4%, to $2.18 billion as of March 31, 2024, compared to $2.21 billion at December 31, 2023. The decrease in loans was primarily the result of lower demand and loan amortization. The company's business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $972.4 million at March 31, 2024, a decrease of $20.6 million, or 2.1%, compared to $993.0 million at December 31, 2023.

Investar's credit quality metrics remained strong, with nonperforming loans at 0.26% of total loans at both March 31, 2024, and December 31, 2023. The allowance for credit losses was $29.1 million, or 1.34% of total loans, at March 31, 2024, compared to $30.5 million, or 1.38% of total loans, at December 31, 2023. The decrease in the allowance for credit losses was primarily due to a decrease in total loans, aging of existing loans, and the completion of the company's annual CECL allowance model recalibration, which resulted in lower historical loss rates.

Deposits and Borrowings

Investar's total deposits decreased by $47.9 million, or 2.1%, to $2.21 billion at March 31, 2024, compared to $2.26 billion at December 31, 2023. Noninterest-bearing deposits decreased by $13.4 million, or 3.0%, to $435.4 million at March 31, 2024, compared to $448.8 million at December 31, 2023. As of March 31, 2024, estimated uninsured deposits represented approximately 31% of the company's total deposits.

To manage its liquidity position, Investar utilized the Federal Reserve's Bank Term Funding Program (BTFP), which was established in March 2023 in response to the disruptions in the banking industry. At March 31, 2024, outstanding borrowings under the BTFP were $229.0 million, compared to $212.5 million at December 31, 2023. The company refinanced its BTFP borrowings during the fourth quarter of 2023 and the first quarter of 2024 due to more favorable rates.

Capital Position and Shareholder Returns

Investar and its subsidiary bank remained well-capitalized as of March 31, 2024, with the Bank's Tier 1 leverage ratio at 10.01%, common equity Tier 1 capital ratio at 11.83%, Tier 1 capital ratio at 11.83%, and total capital ratio at 13.04%.

During the first quarter of 2024, the company paid $1.0 million in dividends, or $0.10 per common share, compared to $0.9 million, or $0.095 per common share, during the same period in 2023. Additionally, the company repurchased 10,525 shares of its common stock for $0.2 million during the first quarter of 2024, compared to repurchasing 45,975 shares for $0.9 million in the first quarter of 2023.

Geographical and Segment Diversification

Investar's operations are primarily concentrated in south Louisiana, southeast Texas, and Alabama, with 20 full-service branches in Louisiana, two in Texas, and six in Alabama as of March 31, 2024. This geographic diversification helps the company mitigate risks associated with any single market.

The company's loan portfolio is also diversified across various segments, including construction and development, 1-4 family, multifamily, farmland, commercial real estate, commercial and industrial, and consumer loans. This diversification helps Investar manage its credit risk and exposure to specific industries or borrower types.

Outlook

Investar has pivoted its near-term strategy from a primarily growth-focused approach to one that prioritizes consistent, quality earnings through the optimization of its balance sheet. This strategic shift has involved initiatives such as the purchase of commercial and industrial revolving lines of credit, the sale of certain branch assets and liabilities, and the exit from the consumer mortgage origination business.

Looking ahead, Investar remains focused on organic growth through high-quality loans, as well as growth through strategic acquisitions. The company continues to evaluate acquisition opportunities, having completed seven whole-bank acquisitions since 2011. Investar's long-term strategy also includes leveraging its digital initiatives to enhance the customer experience and drive operational efficiencies.

Risks and Challenges

While Investar has demonstrated resilience, the company faces several risks and challenges common to the banking industry. These include interest rate risk, credit risk, regulatory changes, and competition from larger financial institutions. The company's geographic concentration in Louisiana, Texas, and Alabama also exposes it to regional economic conditions and potential natural disasters.

Additionally, the disruptions in the banking industry in early 2023, which led to the closure of several large banks, have heightened concerns about deposit stability and liquidity. Investar has taken proactive measures to address these concerns, including utilizing the BTFP and informing customers about the company's financial position and insured deposit products.

Conclusion

Investar Holding Corporation has navigated the evolving banking landscape with resilience and adaptability. The company's solid financial performance, diversified loan portfolio, and strategic initiatives position it well for continued growth and success. While challenges remain, Investar's focus on consistent, quality earnings and its commitment to serving its local communities make it an intriguing investment opportunity in the regional banking sector.