Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
_____________________________________
 
FORM 10-Q
_____________________________________
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                  
Commission File Number: 001-36522
_____________________________________
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11740129&doc=12 
Investar Holding Corporation
(Exact name of registrant as specified in its charter) 
Louisiana
27-1560715
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
7244 Perkins Road, Baton Rouge, Louisiana 70808
(Address of principal executive offices, including zip code)
(225) 227-2222
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
þ
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Smaller reporting company
 
 
Emerging growth company
þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  þ
The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, is as follows: Common stock, $1.00 par value, 8,815,285 shares outstanding as of August 9, 2017.




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
 
 
 
Item 1A.
 
Item 2.
 
Item 6.
 


2



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
When included in this Quarterly Report on Form 10-Q, or in other documents that Investar Holding Corporation (the “Company”) files with the Securities and Exchange Commission (“SEC”) or in statements made by or on behalf of the Company, words like “may,” “should,” “could,” “predict,” “potential,” “believe,” “think,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “outlook” and similar expressions or the negative version of those words are intended to identify forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a variety of risks and uncertainties that could cause actual results to differ materially from those described therein. The Company’s forward-looking statements are based on assumptions and estimates that management believes to be reasonable in light of the information available at the time such statements are made. However, many of the matters addressed by these statements are inherently uncertain and could be affected by many factors beyond management’s control. 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;
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;
concentration of credit exposure; and
the ability to effectively integrate employees, customers, operations and branches from our recent acquisition of Citizens Bancshares, Inc. and its wholly-owned subsidiary, Citizens Bank.
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 Item 7. “Special Note Regarding Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on any forward-looking statement as a prediction of future events. We expressly disclaim any obligation or undertaking to update our forward-looking statements, and we do not intend to release publicly any updates or changes in our expectations concerning the forward-looking statements or any changes in events, conditions or circumstances upon which any forward-looking statement may be based, except as required by law.


3



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVESTAR HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
 
 
June 30, 2017
 
December 31, 2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Cash and due from banks
 
$
11,720

 
$
9,773

Interest-bearing balances due from other banks
 
23,238

 
19,569

Federal funds sold
 
3

 
106

Cash and cash equivalents
 
34,961

 
29,448

 
 
 
 
 
Available for sale securities at fair value (amortized cost of $185,121 and $166,258, respectively)
 
183,584

 
163,051

Held to maturity securities at amortized cost (estimated fair value of $19,418 and $19,612, respectively)
 
19,460

 
20,091

Loans, net of allowance for loan losses of $7,320 and $7,051, respectively
 
925,640

 
886,375

Other equity securities
 
7,025

 
5,362

Bank premises and equipment, net of accumulated depreciation of $7,497 and $6,751, respectively
 
31,510

 
31,722

Other real estate owned, net
 
3,830

 
4,065

Accrued interest receivable
 
3,197

 
3,218

Deferred tax asset
 
2,343

 
2,868

Goodwill and other intangible assets, net
 
3,213

 
3,234

Bank owned life insurance
 
7,297

 
7,201

Other assets
 
3,466

 
2,325

Total assets
 
$
1,225,526

 
$
1,158,960

 
 
 
 
 
LIABILITIES
 
 

 
 

Deposits:
 
 

 
 

Noninterest-bearing
 
$
130,625

 
$
108,404

Interest-bearing
 
764,200

 
799,383

Total deposits
 
894,825

 
907,787

Advances from Federal Home Loan Bank
 
109,285

 
82,803

Repurchase agreements
 
36,745

 
39,087

Subordinated debt, net of unamortized issuance costs
 
18,145

 

Junior subordinated debt
 
3,609

 
3,609

Other borrowings
 

 
1,000

Accrued taxes and other liabilities
 
12,121

 
11,917

Total liabilities
 
1,074,730

 
1,046,203

 
 
 
 
 
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; 8,815,119 and 7,101,851 shares issued and outstanding, respectively
 
8,815

 
7,102

Surplus
 
113,246

 
81,499

Retained earnings
 
29,644

 
26,227

Accumulated other comprehensive loss
 
(909
)
 
(2,071
)
Total stockholders’ equity
 
150,796

 
112,757

Total liabilities and stockholders’ equity
 
$
1,225,526

 
$
1,158,960

See accompanying notes to the consolidated financial statements.

4



INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share data)
(Unaudited)
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
INTEREST INCOME
 
 
 
 
 
 
 
 
Interest and fees on loans
 
$
10,559

 
$
9,781

 
$
20,563

 
$
19,266

Interest on investment securities
 
1,199

 
891

 
2,228

 
1,747

Other interest income
 
86

 
47

 
146

 
84

Total interest income
 
11,844

 
10,719

 
22,937

 
21,097

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 

 
 

 
 

 
 

Interest on deposits
 
1,827

 
1,763

 
3,680

 
3,278

Interest on borrowings
 
715

 
298

 
1,095

 
614

Total interest expense
 
2,542

 
2,061

 
4,775

 
3,892

Net interest income
 
9,302

 
8,658

 
18,162

 
17,205

 
 
 
 
 
 
 
 
 
Provision for loan losses
 
375

 
800

 
725

 
1,254

Net interest income after provision for loan losses
 
8,927

 
7,858

 
17,437

 
15,951

 
 
 
 
 
 
 
 
 
NONINTEREST INCOME
 
 

 
 

 
 

 
 

Service charges on deposit accounts
 
96

 
88

 
193

 
185

Gain on sale of investment securities, net
 
109

 
144

 
215

 
224

Gain on sale of fixed assets, net
 
1

 
1,252

 
24

 
1,252

(Loss) gain on sale of other real estate owned, net
 
(10
)
 
10

 
(5
)
 
11

Gain on sale of loans, net
 

 

 

 
313

Servicing fees and fee income on serviced loans
 
378

 
537

 
801

 
1,128

Other operating income
 
227

 
225

 
458

 
430

Total noninterest income
 
801

 
2,256

 
1,686

 
3,543

Income before noninterest expense
 
9,728

 
10,114

 
19,123

 
19,494

 
 
 
 
 
 
 
 
 
NONINTEREST EXPENSE
 
 

 
 

 
 

 
 

Depreciation and amortization
 
391

 
369

 
767

 
739

Salaries and employee benefits
 
4,109

 
3,890

 
8,059

 
7,763

Occupancy
 
245

 
242

 
509

 
478

Data processing
 
355

 
367

 
723

 
741

Marketing
 
119

 
102

 
147

 
214

Professional fees
 
231

 
375

 
463

 
654

Customer reimbursements
 

 
584

 

 
584

Acquisition expense
 
80

 

 
225

 

Other operating expenses
 
1,398

 
1,175

 
2,719

 
2,315

Total noninterest expense
 
6,928

 
7,104

 
13,612

 
13,488

Income before income tax expense
 
2,800

 
3,010

 
5,511

 
6,006

Income tax expense
 
877

 
1,005

 
1,724

 
2,011

Net income
 
$
1,923

 
$
2,005

 
$
3,787

 
$
3,995

 
 
 
 
 
 
 
 
 
EARNINGS PER SHARE
 
 

 
 

 
 

 
 

Basic earnings per share
 
$
0.22

 
$
0.28

 
$
0.48

 
$
0.56

Diluted earnings per share
 
0.22

 
0.28

 
0.47

 
0.55

Cash dividends declared per common share
 
0.02

 
0.01

 
0.04

 
0.02

See accompanying notes to the consolidated financial statements.

5



INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
1,923

 
$
2,005

 
$
3,787

 
$
3,995

Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Unrealized gain (loss) on investment securities:
 
 

 
 

 
 

 
 

Unrealized gain, available for sale, net of tax expense of $279, $408, $660 and $887, respectively
 
518

 
757

 
1,225

 
1,648

Reclassification of realized gain, net of tax expense of $38, $50, $75 and $78, respectively
 
(70
)
 
(93
)
 
(139
)
 
(145
)
Unrealized loss, transfer from available for sale to held to maturity, net of tax benefit of $0 for all respective periods
 
(1
)
 
(1
)
 
(1
)
 
(2
)
Fair value of derivative financial instruments:
 
 

 
 

 
 

 
 

Change in fair value of interest rate swap designated as a cash flow hedge, net of tax (benefit) expense of ($23), ($109), $42 and ($351), respectively
 
(43
)
 
(202
)
 
77

 
(651
)
Total other comprehensive income
 
404

 
461

 
1,162

 
850

Total comprehensive income
 
$
2,327

 
$
2,466

 
$
4,949

 
$
4,845

See accompanying notes to the consolidated financial statements.


6



INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share data)
 
 
 
Common
Stock
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
Balance, December 31, 2015
 
$
7,264

 
$
84,099

 
$
18,650

 
$
(663
)
 
$
109,350

Surrendered shares
 
(4
)
 
(61
)
 

 

 
(65
)
Shares repurchased
 
(222
)
 
(3,251
)
 

 

 
(3,473
)
Options and warrants exercised
 
12

 
153

 

 

 
165

Dividends declared, $0.04 per share
 

 

 
(303
)
 

 
(303
)
Stock-based compensation
 
52

 
557

 

 

 
609

Net tax effect of stock-based compensation
 

 
2

 

 

 
2

Net income
 

 

 
7,880

 

 
7,880

Other comprehensive loss, net
 

 

 

 
(1,408
)
 
(1,408
)
Balance, December 31, 2016
 
$
7,102

 
$
81,499

 
$
26,227

 
$
(2,071
)
 
$
112,757

Common stock issued in offering, net of direct costs of $1,991
 
1,624

 
30,885

 

 

 
32,509

Surrendered shares
 
(5
)
 
(104
)
 

 

 
(109
)
Options and warrants exercised
 
50

 
617

 

 

 
667

Dividends declared, $0.04 per share
 

 

 
(370
)
 

 
(370
)
Stock-based compensation
 
44

 
342

 

 

 
386

Net tax effect of stock-based compensation
 

 
7

 

 

 
7

Net income
 

 

 
3,787

 

 
3,787

Other comprehensive income, net
 

 

 

 
1,162

 
1,162

Balance, June 30, 2017 (Unaudited)
 
$
8,815

 
$
113,246

 
$
29,644

 
$
(909
)
 
$
150,796

See accompanying notes to the consolidated financial statements.


7



INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited) 
 
 
Six months ended June 30,
 
 
2017
 
2016
Cash flows from operating activities:
 
 

 
 

Net income
 
$
3,787

 
$
3,995

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
767

 
739

Provision for loan losses
 
725

 
1,254

Amortization of purchase accounting adjustments
 
1

 
(27
)
Provision for other real estate owned
 

 
7

Net amortization of securities
 
559

 
534

Gain on sale of securities, net
 
(215
)
 
(224
)
Gain on sale of fixed assets, net
 
(24
)
 
(1,252
)
Loss (gain) on sale of other real estate owned, net
 
5

 
(11
)
Impairment of other real estate owned
 
183

 

FHLB stock dividend
 
(39
)
 
(31
)
Stock-based compensation
 
386

 
306

Deferred taxes
 
(101
)
 
(2
)
Net change in value of bank owned life insurance
 
(96
)
 
(89
)
Amortization of subordinated debt issuance costs
 
12

 

Loans held for sale:
 
 
 
 
Originations
 

 
(495
)
Proceeds from sales
 

 
23,837

Gain on sale of loans
 

 
(313
)
Net change in:
 
 
 
 
Accrued interest receivable
 
22

 
(9
)
Other assets
 
(409
)
 
166

Accrued taxes and other liabilities
 
(6
)
 
5,272

Net cash provided by operating activities
 
5,557

 
33,657

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Proceeds from sales of investment securities available for sale
 
19,049

 
8,418

Funds invested in securities available for sale
 
(49,561
)
 
(52,263
)
Proceeds from maturities, prepayments and calls of investment securities available for sale
 
11,338

 
7,425

Proceeds from maturities, prepayments and calls of investment securities held to maturity
 
596

 
701

Proceeds from redemption of other equity securities
 
2,000

 

Purchase of other equity securities
 
(3,624
)
 
(1,505
)
Net increase in loans
 
(39,991
)
 
(61,598
)
Proceeds from sales of other real estate owned
 
47

 
480

Proceeds from the sales of fixed assets
 
327

 
2,649

Purchases of fixed assets
 
(837
)
 
(1,632
)
Acquisition of trademark intangible
 

 
(100
)
Purchase of bank owned life insurance
 

 
(3,500
)
Purchase of other investments
 
(624
)
 
(553
)
Distributions from investments
 
12

 

Net cash used in investing activities
 
(61,268
)
 
(101,478
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Net (decrease) increase in customer deposits
 
(12,962
)
 
129,837

Net decrease in repurchase agreements
 
(2,342
)
 
(10,245
)
Net increase (decrease) in short-term FHLB advances
 
15,000

 
(28,780
)
Proceeds from long-term FHLB advances
 
15,000

 

Repayment of long-term FHLB advances
 
(3,518
)
 
(5,118
)
Cash dividends paid on common stock
 
(263
)
 
(128
)
Proceeds from public offering of common stock, net of issuance costs
 
32,509

 

Proceeds from stock options and warrants exercised
 
667

 
15

Payments to repurchase common stock
 

 
(1,592
)
Proceeds from other borrowings
 
78

 

Repayment of other borrowings
 
(1,078
)
 

Proceeds from subordinated debt, net of issuance costs
 
18,133

 

Net cash provided by financing activities
 
61,224

 
83,989

 
 
 
 
 
Net increase in cash and cash equivalents
 
5,513

 
16,168

Cash and cash equivalents, beginning of period
 
29,448

 
20,966

Cash and cash equivalents, end of period
 
$
34,961

 
$
37,134

See accompanying notes to the consolidated financial statements.

8

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements of Investar Holding Corporation (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with GAAP. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results that may be expected for the entire fiscal year. These statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2016, including the notes thereto, which were included as part of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2017.
Nature of Operations
Investar Holding Corporation, headquartered in Baton Rouge, Louisiana, provides full banking services, excluding trust services, through its wholly-owned banking subsidiary, Investar Bank (the “Bank”), a Louisiana-chartered bank. The Company’s primary market is South Louisiana. At June 30, 2017, the Company operated 12 full service banking offices located throughout its market and had 157 employees.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowance for loan losses may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Other estimates that are susceptible to significant change in the near term relate to the determination of other-than-temporary impairments of securities and the fair value of financial instruments.
Investment Securities
The Company’s investments in securities are accounted for in accordance with applicable guidance contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), which requires the classification of securities into one of the following categories:
Securities to be held to maturity (“HTM”): bonds, notes, and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.
Securities available for sale (“AFS”): available for sale securities consist of bonds, notes, and debentures that are available to meet the Company’s operating needs. These securities are reported at fair value.


9

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Unrealized holding gains and losses, net of tax, on available for sale securities are reported as a net amount in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Realized gains and losses on the sale of investment securities are determined using the specific-identification method.
The Company follows FASB guidance related to the recognition and presentation of other-than-temporary impairment. The guidance specifies that if an entity does not have the intent to sell a debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.
Loans
The Company’s loan portfolio categories include real estate, commercial and consumer loans. Real estate loans are further categorized into construction and development, one-to-four family residential, multifamily, farmland and commercial real estate loans. The consumer loan category includes loans originated through indirect lending. Indirect lending, which is lending initiated through third-party business partners, is largely comprised of loans made through automotive dealerships.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at unpaid principal balances, adjusted by an allowance for loan losses. Interest on loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. Loans are ordinarily placed on nonaccrual when a loan is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more; however, management may elect to continue the accrual when the estimated net realizable value of collateral is sufficient to cover the principal balance and the accrued interest. Any unpaid interest previously accrued on nonaccrual loans is reversed from income. Interest income, generally, is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received.
The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The Company’s impaired loans include troubled debt restructurings and performing and non-performing major loans for which full payment of principal or interest is not expected. Large groups of smaller balance homogenous loans are collectively evaluated for impairment. The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of its collateral. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is required as a component of the allowance for loan losses. Changes to the valuation allowance are recorded as a component of the provision for loan losses.
The Company follows the FASB accounting guidance on sales of financial assets, which includes participating interests in loans. For loan participations that are structured in accordance with this guidance, the sold portions are recorded as a reduction of the loan portfolio. Loan participations that do not meet the criteria are accounted for as secured borrowings.
Reclassifications
Certain reclassifications have been made to the 2016 financial statements to be consistent with the 2017 presentation.
Concentrations of Credit Risk
The Company’s loan portfolio consists of the various types of loans described in Note 4, Loans. Real estate or other assets secure most loans. The majority of loans have been made to individuals and businesses in the Company’s market of South Louisiana. Customers are dependent on the condition of the local economy for their livelihoods and servicing their loan obligations. The Company does not have any significant concentrations in any one industry or individual customer.

10

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

New Accounting Pronouncement
Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting was effective for the Company on January 1, 2017. ASU 2016-09 requires that all income tax effects related to vestings of share-based payment awards be reported in earnings as an increase (or decrease) to income tax expense. Previously, excess income tax benefits of a vested award were reported as an increase (or decrease) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits recognized in earnings during the award’s vesting period. The requirement to report those income tax effects in earnings has been applied to vestings occurring on or after January 1, 2017 and resulted in recording a $57,000 tax benefit for the six months ended June 30, 2017. ASU 2016-09 also requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows. We have elected to apply that change in cash flow classification on a prospective basis. The impact of this change and that of the remaining provisions of ASU 2016-09 did not have significant impact on our financial statements.
 
Recent Accounting Pronouncements
 
FASB ASC Topic 718 “Compensation – Stock Compensation: Scope of Modification Accounting” Update No. 2017-09. The Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-09 in May 2017. The ASU clarifies when changes to terms or conditions of a share-based payment award must be accounted for as a modification. Under the new guidance, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the fair value of the award, (ii) the vesting conditions of the award, and (iii) the classification of the award as either an equity or liability instrument. ASU 2017-09 will be effective for the Company beginning January 1, 2018. Early adoption is permitted. The guidance requires companies to apply the requirements prospectively to awards modified on or after the adoption date. ASU 2017-09 is not expected to have a significant impact on the Company’s consolidated financial statements.

FASB ASC Subtopic 310-20 “Receivables – Nonrefundable Fees and Other Costs, Premium Amortization on Purchased Callable Debt Securities” Update No. 2017-08. The FASB issued ASU No. 2017-08 in March 2017. The amendments in the ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Update 2017-08 will be effective for the Company beginning January 1, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is assessing the impact of ASU 2017-08 on its accounting and disclosures.
FASB ASC Topic 350 “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment” Update No. 2017-04. The FASB issued ASU No. 2017-04 in January 2017. The ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Therefore, any carrying amount which exceeds the reporting unit’s fair value, up to the amount of goodwill recorded, will be recognized as an impairment loss. ASU 2017-04 will be effective for the Company on January 1, 2020. The amendments will be applied prospectively on or after the effective date. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Based on recent goodwill impairments tests, which did not require the application of Step 2, the Company does not expect the adoption of this ASU to have an immediate impact.
FASB ASC Topic 805 “Business Combinations: Clarifying the Definition of a Business” Update No. 2017-01. The FASB issued ASU No. 2017-01 in January 2017. The amendments in the ASU are intended to clarify the definition and the current interpretation of a business to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The ASU will be effective for the Company beginning January 1, 2018. The amendments will be applied prospectively on or after the effective date. Early application of the amendments in this ASU is allowed for transactions, including when a subsidiary or group of assets is deconsolidated/derecognized, in which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.
FASB ASC Topic 230 “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments” Update No. 2016-15. The FASB issued ASU No. 2016-15 in August 2016. The amendments in the ASU address eight specific cash flow issues with the objective of reducing the existing diversity in practice, as the issues are either unclear or do not have specific guidance under current GAAP. ASU 2016-15 will be effective on January 1, 2018. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

11

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

FASB ASC Topic 326 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” Update No. 2016-13. The FASB issued ASU No. 2016-13 in June 2016. The amendments introduce an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loans and held-to-maturity securities), including certain off-balance sheet financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. The ASU also amends the current AFS security impairment model for debt securities. The new model will require an estimate of expected credit losses when the fair value is below the amortized cost of the asset through the use of an allowance to record estimated credit losses (and subsequent recoveries). Non-credit related losses will continue to be recognized through other comprehensive income. In addition, the amendments provide for a simplified accounting model for purchased financial assets with a more-than-insignificant amount of credit deterioration since their origination. The initial estimate of expected credit losses would be recognized through an allowance for loan losses with an offset (i.e., increase) to the cost basis of the related financial asset at acquisition.
ASU 2016-13 will be effective for the Company beginning January 1, 2020. The amendments will be applied through a modified-retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which other-than-temporary impairment had been recognized before the effective date. Amounts previously recognized in accumulated other comprehensive income as of the date of adoption that relate to improvements in cash flows expected to be collected should continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption should be recorded in earnings when received. Management is currently evaluating the potential impact of ASU 2016-13 on the Company’s consolidated financial statements.
FASB ASC Topic 825 “Financial Instruments – Overall” Update No. 2016-1. The FASB issued ASU No. 2016-1 in January 2016 to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The ASU will not change the guidance for classifying and measuring investments in debt securities or loans; however, it will impact how entities measure certain equity investments, recognize changes in the fair value of financial liabilities measured under the fair value option that are attributable to instrument-specific credit risk, and disclose and present financial assets and liabilities in financial statements. The main provisions require investments in equity securities to be measured at fair value through net income, unless they qualify for a new practicability exception, the equity method of accounting, or consolidation, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option to be recognized in other comprehensive income. The amendments will also require entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the statement of financial position or in the accompanying notes to the financial statements. Entities will also no longer have to disclose the methods and significant assumptions for financial instruments measured at amortized cost, but will be required to measure such instruments under the “exit price” notion for disclosure purposes.
The amendments in this ASU are effective for the Company beginning January 1, 2018. The Company will record a cumulative-effect adjustment to beginning retained earnings as of the beginning of the first reporting period in which the guidance is adopted, with two exceptions. The amendments related to equity investments without readily determinable fair values will be effective prospectively. The requirement to use the exit price notion to measure fair value of financial instruments for disclosure purposes will also be applied prospectively.
The Company does not expect a significant cumulative-effect adjustment to be recorded at adoption or any significant impact to the consolidated financial statements associated with the accounting for its current equity investments. The Company does anticipate financial statement disclosures to be impacted, specifically related to financial instruments measured at amortized cost whose fair values are disclosed under the “entry price” notion, but is currently still in the process of determining the impact.

12

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

FASB ASC Topic 606 “Revenue from Contracts with Customers” Update No. 2014-9. The FASB issued ASU No. 2014-9 in May 2014 which implements a common revenue standard and clarifies the principles used for recognizing revenue. The amendments in the ASU clarify that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As part of that principle, the entity should identify the contract(s) with the customer, identify the performance obligation(s) of the contract, determine the transaction price, allocate that transaction price to the performance obligation(s), and then recognize revenue when or as the entity satisfies the performance obligation(s). The amendments also provide additional guidance/principles associated with gross vs. net presentation (i.e., principal versus agency considerations).
The amendments in ASU No. 2014-9 will be effective for the Company beginning January 1, 2018. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that annual reporting period. The amendments will be applied through the election of one of two retrospective methods.
The Company intends to adopt the amendments beginning January 1, 2018 through the modified-retrospective transition method and does not expect to recognize a significant cumulative adjustment to equity upon implementation of the standard. Further, the Company does not expect a significant impact to the Company’s consolidated statements of comprehensive income or consolidated balance sheets from either a presentation or timing perspective, but is still analyzing some contracts.
 
NOTE 2. EARNINGS PER SHARE
The following is a summary of the information used in the computation of basic and diluted earnings per share for the three and six months ended June 30, 2017 and 2016 (in thousands, except share data).
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
1,923

 
$
2,005

 
$
3,787

 
$
3,995

Weighted average number of common shares outstanding used in computation of basic earnings per share
 
8,685,980

 
7,158,532

 
7,950,049

 
7,176,545

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Restricted stock
 
27,045

 
15,298

 
20,557

 
12,705

Stock options
 
43,640

 
14,715

 
34,478

 
14,752

Stock warrants
 
23,963

 
11,231

 
22,212

 
11,249

Weighted average number of common shares outstanding plus effect of dilutive securities used in computation of diluted earnings per share
 
8,780,628

 
7,199,776

 
8,027,296

 
7,215,251

Basic earnings per share
 
$
0.22

 
$
0.28

 
$
0.48

 
$
0.56

Diluted earnings per share
 
$
0.22

 
$
0.28

 
$
0.47

 
$
0.55

 
 

13

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3. INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities classified as available for sale are summarized below as of the dates presented (dollars in thousands).
 
 
 
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
June 30, 2017
 
 
 
 
Obligations of other U.S. government agencies and corporations
 
$
50,477

 
$
96

 
$
(368
)
 
$
50,205

Obligations of state and political subdivisions
 
26,596

 
20

 
(433
)
 
26,183

Corporate bonds
 
15,264

 
55

 
(336
)
 
14,983

Residential mortgage-backed securities
 
89,457

 
166

 
(674
)
 
88,949

Commercial mortgage-backed securities
 
2,494

 
6

 
(41
)
 
2,459

Equity securities
 
833

 
12

 
(40
)
 
805

Total
 
$
185,121

 
$
355

 
$
(1,892
)
 
$
183,584

 
 
 
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
December 31, 2016
 
 
 
 
Obligations of other U.S. government agencies and corporations
 
$
29,809

 
$
68

 
$
(387
)
 
$
29,490

Obligations of state and political subdivisions
 
29,631

 
15

 
(1,791
)
 
27,855

Corporate bonds
 
15,292

 
54

 
(378
)
 
14,968

Residential mortgage-backed securities
 
88,295

 
193

 
(900
)
 
87,588

Commercial mortgage-backed securities
 
2,520

 

 
(76
)
 
2,444

Equity securities
 
711

 
46

 
(51
)
 
706

Total
 
$
166,258

 
$
376

 
$
(3,583
)
 
$
163,051


 Proceeds from sales of investment securities available for sale and gross gains and losses are summarized below as of the dates presented (dollars in thousands).

 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Proceeds from sale
 
$
8,724

 
$
4,978

 
$
19,049

 
$
8,418

Gross gains
 
$
141

 
$
144

 
$
248

 
$
224

Gross losses
 
$
(32
)
 
$

 
$
(33
)
 
$


The amortized cost and approximate fair value of investment securities classified as held to maturity are summarized below as of the dates presented (dollars in thousands).
 
 
 
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
June 30, 2017
 
 
 
 
Obligations of state and political subdivisions
 
$
12,763

 
$
12

 
$
(7
)
 
$
12,768

Residential mortgage-backed securities
 
6,697

 
7

 
(54
)
 
6,650

Total
 
$
19,460

 
$
19

 
$
(61
)
 
$
19,418

 
 
 
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
December 31, 2016
 
 
 
 
Obligations of state and political subdivisions
 
$
12,976

 
$
2

 
$
(429
)
 
$
12,549

Residential mortgage-backed securities
 
7,115

 
8

 
(60
)
 
7,063

Total
 
$
20,091

 
$
10

 
$
(489
)
 
$
19,612


14

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
Securities are classified in the consolidated balance sheets according to management’s intent. The Company had no securities classified as trading as of June 30, 2017 or December 31, 2016.
The aggregate fair values and aggregate unrealized losses on securities whose fair values are below book values are summarized in the tables below. Unrealized losses are generally due to changes in interest rates. The Company has the intent to hold these securities either until maturity or a forecasted recovery, and it is more likely than not that the Company will not have to sell the securities before the recovery of their cost basis. Due to the nature of the investment and current market prices, these unrealized losses are considered a temporary impairment of the securities.
The number of securities available for sale, fair value, and unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized below as of the dates presented (dollars in thousands).
 
 
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Count
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
June 30, 2017
 
 
 
 
 
 
 
Obligations of other U.S. government agencies and corporations
 
59

 
$
34,362

 
$
(368
)
 
$
435

 
$

 
$
34,797

 
$
(368
)
Obligations of state and political subdivisions
 
15

 
13,797

 
(120
)
 
8,352

 
(313
)
 
22,149

 
(433
)
Corporate bonds
 
23

 
1,934

 
(66
)
 
7,402

 
(270
)
 
9,336

 
(336
)
Residential mortgage-backed securities
 
109

 
59,174

 
(657
)
 
2,890

 
(17
)
 
62,064

 
(674
)
Commercial mortgage-backed securities
 
3

 
1,436

 
(41
)
 

 

 
1,436

 
(41
)
Equity securities
 
2

 
208

 
(14
)
 
480

 
(26
)
 
688

 
(40
)
Total
 
211

 
$
110,911

 
$
(1,266
)
 
$
19,559

 
$
(626
)
 
$
130,470

 
$
(1,892
)
 
 
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Count
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
December 31, 2016
 
 
 
 
 
 
 
Obligations of other U.S. government agencies and corporations
 
45

 
$
22,819

 
$
(382
)
 
$
448

 
$
(5
)
 
$
23,267

 
$
(387
)
Obligations of state and political subdivisions
 
33

 
25,764

 
(1,791
)
 

 

 
25,764

 
(1,791
)
Corporate bonds
 
27

 
3,724

 
(132
)
 
6,929

 
(246
)
 
10,653

 
(378
)
Residential mortgage-backed securities
 
110

 
60,433

 
(883
)
 
1,778

 
(17
)
 
62,211

 
(900
)
Commercial mortgage-backed securities
 
4

 
2,444

 
(76
)
 

 

 
2,444

 
(76
)
Equity securities
 
3

 
50

 
(4
)
 
492

 
(47
)
 
542

 
(51
)
Total
 
222

 
$
115,234

 
$
(3,268
)
 
$
9,647

 
$
(315
)
 
$
124,881

 
$
(3,583
)
 

15

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The number of securities held to maturity, fair value, and unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized below as of the dates presented (dollars in thousands).
 
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Count
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
June 30, 2017
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
1

 
$
6,231

 
$
(7
)
 
$

 
$

 
$
6,231

 
$
(7
)
Residential mortgage-backed securities
 
6

 
4,442

 
(54
)
 

 

 
4,442

 
(54
)
Total
 
7

 
$
10,673

 
$
(61
)
 
$

 
$

 
$
10,673

 
$
(61
)

 
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Count
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
December 31, 2016
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
5

 
$
9,597

 
$
(429
)
 
$

 
$

 
$
9,597

 
$
(429
)
Residential mortgage-backed securities
 
6

 
4,677

 
(60
)
 

 

 
4,677

 
(60
)
Total
 
11

 
$
14,274

 
$
(489
)
 
$

 
$

 
$
14,274

 
$
(489
)
 
The unrealized losses in the Company’s investment portfolio, caused by interest rate increases, are not credit issues and the Company does not intend to sell the securities. Furthermore, it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases. The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2017 or December 31, 2016.
The weighted average tax equivalent yield, amortized cost and approximate fair value of debt securities, by contractual maturity (including mortgage-backed securities), are shown below as of the dates presented. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (dollars in thousands).
 
 
 
Securities Available for Sale
 
Securities Held to Maturity
 
 
Weighted
Average T.E.
Yield
 
Amortized
Cost
 
Fair
Value
 
Weighted
Average T.E.
Yield
 
Amortized
Cost
 
Fair
Value
June 30, 2017
 
 
 
 
 
 
Due within one year
 
2.19
%
 
$
922

 
$
919

 
7.17
%
 
$
685

 
$
686

Due after one year through five years
 
2.31

 
10,410

 
10,405

 
7.17

 
3,095

 
3,101

Due after five years through ten years
 
2.84

 
25,448

 
25,118

 
7.17

 
2,745

 
2,750

Due after ten years
 
2.49

 
147,508

 
146,337

 
3.52

 
12,935

 
12,881

Total debt securities
 
 

 
$
184,288

 
$
182,779

 
 

 
$
19,460

 
$
19,418

 
 
 
Securities Available for Sale
 
Securities Held to Maturity
 
 
Weighted
Average T.E.
Yield
 
Amortized
Cost
 
Fair
Value
 
Weighted
Average T.E.
Yield
 
Amortized
Cost
 
Fair
Value
December 31, 2016
 
 
 
 
 
 
Due within one year
 
1.61
%
 
$
1,753

 
$
1,750

 
7.17
%
 
$
685

 
$
686

Due after one year through five years
 
2.27

 
10,509

 
10,476

 
7.17

 
3,095

 
3,089

Due after five years through ten years
 
2.77

 
27,173

 
26,771

 
7.17

 
2,745

 
2,637

Due after ten years
 
2.51

 
126,112

 
123,348

 
3.52

 
13,566

 
13,200

Total debt securities
 
 

 
$
165,547

 
$
162,345

 
 

 
$
20,091

 
$
19,612


 

16

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4. LOANS
The Company’s loan portfolio consists of the following categories of loans as of the dates presented (dollars in thousands).
 
 
June 30, 2017
 
December 31, 2016
Construction and development
 
$
109,627

 
$
90,737

1-4 Family
 
177,979

 
177,205

Multifamily
 
46,109

 
42,759

Farmland
 
8,006

 
8,207

Commercial real estate
 
408,523

 
380,716

Total mortgage loans on real estate
 
750,244

 
699,624

Commercial and industrial
 
98,837

 
85,377

Consumer
 
83,879

 
108,425

Total loans
 
$
932,960

 
$
893,426

 
The table below provides an analysis of the aging of loans as of the dates presented (dollars in thousands).
 
 
June 30, 2017
 
 
Past Due and Accruing
 
 
 
 
 
 
 
 
 
 
30-59 days
 
60-89 days
 
90 or more
days
 
Nonaccrual
 
Total Past
Due &
Nonaccrual
 
Current
 
Total Loans
Construction and development
 
$

 
$

 
$

 
$
30

 
$
30

 
$
109,597

 
$
109,627

1-4 Family
 
50

 
112

 

 
46

 
208

 
177,771

 
177,979

Multifamily
 

 

 

 

 

 
46,109

 
46,109

Farmland
 

 

 

 

 

 
8,006

 
8,006

Commercial real estate
 
29

 

 

 

 
29

 
408,494

 
408,523

Total mortgage loans on real estate
 
79

 
112

 

 
76

 
267

 
749,977

 
750,244

Commercial and industrial
 
49

 

 

 
26

 
75

 
98,762

 
98,837

Consumer
 
311

 
142

 
1

 
1,063

 
1,517

 
82,362

 
83,879

Total loans
 
$
439

 
$
254

 
$
1

 
$
1,165

 
$
1,859

 
$
931,101

 
$
932,960

 
 
 
December 31, 2016
 
 
Past Due and Accruing
 
 
 
 
 
 
 
 
 
 
30-59 days
 
60-89 days
 
90 or more
days
 
Nonaccrual
 
Total Past
Due &
Nonaccrual
 
Current
 
Total Loans
Construction and development
 
$
48

 
$

 
$

 
$
480

 
$
528

 
$
90,209

 
$
90,737

1-4 Family
 
427

 

 

 
47

 
474

 
176,731

 
177,205

Multifamily
 

 

 

 

 

 
42,759

 
42,759

Farmland
 

 

 

 

 

 
8,207

 
8,207

Commercial real estate
 

 

 

 

 

 
380,716

 
380,716

Total mortgage loans on real estate
 
475

 

 

 
527

 
1,002

 
698,622

 
699,624

Commercial and industrial
 
30

 

 

 
443

 
473

 
84,904

 
85,377

Consumer
 
378

 
149

 
1

 
1,008

 
1,536

 
106,889

 
108,425

Total loans
 
$
883

 
$
149

 
$
1

 
$
1,978

 
$
3,011

 
$
890,415

 
$
893,426

 

17

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Credit Quality Indicators
Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:
Pass - Loans not meeting the criteria below are considered pass. These loans have high credit characteristics and financial strength. The borrowers at least generate profits and cash flow that are in line with peer and industry standards and have debt service coverage ratios above loan covenants and our policy guidelines. For some of these loans, a guaranty from a financially capable party mitigates characteristics of the borrower that might otherwise result in a lower grade.
Special Mention - Loans classified as special mention possess some credit deficiencies that need to be corrected to avoid a greater risk of default in the future. For example, financial ratios relating to the borrower may have deteriorated. Often, a special mention categorization is temporary while certain factors are analyzed or matters addressed before the loan is re-categorized as either pass or substandard.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower or the liquidation value of any collateral. If deficiencies are not addressed, it is likely that this category of loan will result in the Bank incurring a loss. Where a borrower has been unable to adjust to industry or general economic conditions, the borrower’s loan is often categorized as substandard.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as recorded assets is not warranted. This classification does not mean that the assets have absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off these assets.
The table below presents the Company’s loan portfolio by category and credit quality indicator as of the dates presented (dollars in thousands).
 
 
 
June 30, 2017
 
 
Pass
 
Special
Mention
 
Substandard
 
Total
Construction and development
 
$
109,578

 
$

 
$
49

 
$
109,627

1-4 Family
 
177,888

 

 
91

 
177,979

Multifamily
 
45,259

 

 
850

 
46,109

Farmland
 
8,006

 

 

 
8,006

Commercial real estate
 
407,956

 

 
567

 
408,523

Total mortgage loans on real estate
 
748,687

 

 
1,557

 
750,244

Commercial and industrial
 
96,358

 

 
2,479

 
98,837

Consumer
 
82,420

 
396

 
1,063

 
83,879

Total loans
 
$
927,465

 
$
396

 
$
5,099

 
$
932,960