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 September 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=11883771&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, 8,718,810 shares outstanding as of November 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;
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; and
the satisfaction of the conditions to closing the pending acquisition of BOJ Bancshares, Inc. and the ability to subsequently integrate it effectively.
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)
 
 
September 30, 2017
 
December 31, 2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Cash and due from banks
 
$
17,942

 
$
9,773

Interest-bearing balances due from other banks
 
30,566

 
19,569

Federal funds sold
 

 
106

Cash and cash equivalents
 
48,508

 
29,448

 
 
 
 
 
Available for sale securities at fair value (amortized cost of $228,980 and $166,258, respectively)
 
227,562

 
163,051

Held to maturity securities at amortized cost (estimated fair value of $19,311 and $19,612, respectively)
 
19,306

 
20,091

Loans, net of allowance for loan losses of $7,605 and $7,051, respectively
 
1,102,916

 
886,375

Other equity securities
 
7,744

 
5,362

Bank premises and equipment, net of accumulated depreciation of $7,362 and $6,751, respectively
 
33,705

 
31,722

Other real estate owned, net
 
3,830

 
4,065

Accrued interest receivable
 
4,147

 
3,218

Deferred tax asset
 
2,604

 
2,868

Goodwill and other intangible assets, net
 
13,271

 
3,234

Bank owned life insurance
 
8,140

 
7,201

Other assets
 
4,690

 
2,325

Total assets
 
$
1,476,423

 
$
1,158,960

 
 
 
 
 
LIABILITIES
 
 

 
 

Deposits:
 
 

 
 

Noninterest-bearing
 
$
175,130

 
$
108,404

Interest-bearing
 
926,232

 
799,383

Total deposits
 
1,101,362

 
907,787

Advances from Federal Home Loan Bank
 
162,700

 
82,803

Repurchase agreements
 
24,892

 
39,087

Subordinated debt, net of unamortized issuance costs
 
18,157

 

Junior subordinated debt
 
3,609

 
3,609

Other borrowings
 

 
1,000

Accrued taxes and other liabilities
 
12,827

 
11,917

Total liabilities
 
1,323,547

 
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; 8,704,562 and 7,101,851 shares issued and outstanding, respectively
 
8,705

 
7,102

Surplus
 
113,458

 
81,499

Retained earnings
 
31,508

 
26,227

Accumulated other comprehensive loss
 
(795
)
 
(2,071
)
Total stockholders’ equity
 
152,876

 
112,757

Total liabilities and stockholders’ equity
 
$
1,476,423

 
$
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
September 30,
 
Nine months ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
INTEREST INCOME
 
 
 
 
 
 
 
 
Interest and fees on loans
 
$
12,893

 
$
10,011

 
$
33,456

 
$
29,277

Interest on investment securities
 
1,399

 
920

 
3,627

 
2,667

Other interest income
 
150

 
62

 
296

 
146

Total interest income
 
14,442

 
10,993

 
37,379

 
32,090

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 

 
 

 
 

 
 

Interest on deposits
 
2,137

 
1,934

 
5,817

 
5,212

Interest on borrowings
 
767

 
306

 
1,862

 
920

Total interest expense
 
2,904

 
2,240

 
7,679

 
6,132

Net interest income
 
11,538

 
8,753

 
29,700

 
25,958

 
 
 
 
 
 
 
 
 
Provision for loan losses
 
420

 
450

 
1,145

 
1,704

Net interest income after provision for loan losses
 
11,118

 
8,303

 
28,555

 
24,254

 
 
 
 
 
 
 
 
 
NONINTEREST INCOME
 
 

 
 

 
 

 
 

Service charges on deposit accounts
 
281

 
79

 
474

 
264

Gain on sale of investment securities, net
 
27

 
204

 
242

 
428

Gain on sale of fixed assets, net
 
160

 

 
184

 
1,252

Gain on sale of other real estate owned, net
 
37

 

 
32

 
11

Gain on sale of loans, net
 

 

 

 
313

Servicing fees and fee income on serviced loans
 
352

 
510

 
1,153

 
1,638

Other operating income
 
310

 
236

 
768

 
666

Total noninterest income
 
1,167

 
1,029

 
2,853

 
4,572

Income before noninterest expense
 
12,285

 
9,332

 
31,408

 
28,826

 
 
 
 
 
 
 
 
 
NONINTEREST EXPENSE
 
 

 
 

 
 

 
 

Depreciation and amortization
 
542

 
371

 
1,309

 
1,110

Salaries and employee benefits
 
5,136

 
3,945

 
13,195

 
11,708

Occupancy
 
317

 
265

 
826

 
743

Data processing
 
446

 
374

 
1,169

 
1,115

Marketing
 
124

 
102

 
271

 
316

Professional fees
 
263

 
312

 
726

 
966

Customer reimbursements
 

 

 

 
584

Acquisition expense
 
824

 

 
1,049

 

Other operating expenses
 
1,470

 
1,179

 
4,189

 
3,494

Total noninterest expense
 
9,122

 
6,548

 
22,734

 
20,036

Income before income tax expense
 
3,163

 
2,784

 
8,674

 
8,790

Income tax expense
 
1,032

 
747

 
2,756

 
2,758

Net income
 
$
2,131

 
$
2,037

 
$
5,918

 
$
6,032

 
 
 
 
 
 
 
 
 
EARNINGS PER SHARE
 
 

 
 

 
 

 
 

Basic earnings per share
 
$
0.24

 
$
0.29

 
$
0.72

 
$
0.85

Diluted earnings per share
 
0.24

 
0.29

 
0.71

 
0.84

Cash dividends declared per common share
 
0.03

 
0.01

 
0.07

 
0.03

See accompanying notes to the consolidated financial statements.

5



INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
2,131

 
$
2,037

 
$
5,918

 
$
6,032

Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Unrealized gain (loss) on investment securities:
 
 

 
 

 
 

 
 

Unrealized gain (loss), available for sale, net of tax expense (benefit) of $51, ($98), $711 and $790, respectively
 
95

 
(182
)
 
1,320

 
1,466

Reclassification of realized gain, net of tax expense of $10, $71, $85 and $150, respectively
 
(18
)
 
(133
)
 
(157
)
 
(278
)
Unrealized loss, transfer from available for sale to held to maturity, net of tax benefit of $0, $0, $0, and $1, respectively
 

 

 
(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 expense (benefit) of $20, $151, $62 and ($199), respectively
 
37

 
281

 
114

 
(370
)
Total other comprehensive income (loss)
 
114

 
(34
)
 
1,276

 
816

Total comprehensive income
 
$
2,245

 
$
2,003

 
$
7,194

 
$
6,848

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
 
(8
)
 
(158
)
 

 

 
(166
)
Shares repurchased
 
(12
)
 
(252
)
 

 

 
(264
)
Options and warrants exercised
 
67

 
822

 

 

 
889

Dividends declared, $0.07 per share
 

 

 
(637
)
 

 
(637
)
Stock-based compensation and other activity
 
(68
)
 
655

 

 

 
587

Net tax effect of stock-based compensation
 

 
7

 

 

 
7

Net income
 

 

 
5,918

 

 
5,918

Other comprehensive income, net
 

 

 

 
1,276

 
1,276

Balance, September 30, 2017 (Unaudited)
 
$
8,705

 
$
113,458

 
$
31,508

 
$
(795
)
 
$
152,876

See accompanying notes to the consolidated financial statements.


7



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

 
 

Net income
 
$
5,918

 
$
6,032

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
1,309

 
1,110

Provision for loan losses
 
1,145

 
1,704

Amortization of purchase accounting adjustments
 
(234
)
 
(36
)
Provision for other real estate owned
 
183

 
7

Net amortization of securities
 
834

 
893

Gain on sale of securities, net
 
(242
)
 
(428
)
Gain on sale of fixed assets, net
 
(184
)
 
(1,252
)
Gain on sale of other real estate owned, net
 
(32
)
 
(11
)
FHLB stock dividend
 
(65
)
 
(48
)
Stock-based compensation
 
587

 
457

Deferred taxes
 
(210
)
 
92

Net change in value of bank owned life insurance
 
(154
)
 
(137
)
Amortization of subordinated debt issuance costs
 
23

 

Loans held for sale:
 
 
 
 
Originations
 

 
(495
)
Proceeds from sales
 

 
23,837

Gain on sale of loans
 

 
(313
)
Net change in:
 
 
 
 
Accrued interest receivable
 
(276
)
 
(250
)
Other assets
 
(195
)
 
(339
)
Accrued taxes and other liabilities
 
(1,045
)
 
2,232

Net cash provided by operating activities
 
7,362

 
33,055

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Proceeds from sales of investment securities available for sale
 
82,537

 
14,416

Funds invested in securities available for sale
 
(95,614
)
 
(60,664
)
Proceeds from maturities, prepayments and calls of investment securities available for sale
 
19,702

 
12,058

Proceeds from maturities, prepayments and calls of investment securities held to maturity
 
741

 
4,893

Proceeds from redemption of other equity securities
 
1,307

 

Purchase of other equity securities
 
(3,624
)
 
(1,505
)
Net increase in loans
 
(88,313
)
 
(84,951
)
Proceeds from sales of other real estate owned
 
513

 
480

Proceeds from the sales of fixed assets
 
601

 
2,649

Purchases of fixed assets
 
(1,214
)
 
(3,682
)
Acquisition of trademark intangible
 

 
(100
)
Purchase of bank owned life insurance
 

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

 

Cash paid for Citizens, net of cash acquired
 
(1,235
)
 

Net cash used in investing activities
 
(85,211
)
 
(120,459
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Net (decrease) increase in customer deposits
 
(18,603
)
 
169,693

Net decrease in repurchase agreements
 
(14,195
)
 
(15,545
)
Net increase (decrease) in short-term FHLB advances
 
38,500

 
(33,780
)
Proceeds from long-term FHLB advances
 
45,000

 
5,000

Repayment of long-term FHLB advances
 
(3,603
)
 
(9,774
)
Cash dividends paid on common stock
 
(457
)
 
(199
)
Proceeds from public offering of common stock, net of issuance costs
 
32,509

 

Proceeds from stock options and warrants exercised
 
889

 
30

Payments to repurchase common stock
 
(264
)
 
(2,832
)
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
 
96,909

 
112,593

 
 
 
 
 
Net increase in cash and cash equivalents
 
19,060

 
25,189

Cash and cash equivalents, beginning of period
 
29,448

 
20,966

Cash and cash equivalents, end of period
 
$
48,508

 
$
46,155

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 nine month periods ended September 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 September 30, 2017, the Company operated 15 full service banking offices located throughout its market and had 227 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, 1-4 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 for which 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 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.
Acquisition Accounting
Acquisitions are accounted for under the purchase method of accounting. Purchased assets and assumed liabilities are recorded at their respective acquisition date fair values, and identifiable intangible assets are recorded at fair value. If the consideration given exceeds the fair value of the net assets received, goodwill is recognized. If the fair value of the net assets received exceeds the consideration given, a bargain purchase gain is recognized. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available.
Purchased loans acquired in a business combination are recorded at their estimated fair value as of the acquisition date. The fair value of loans acquired is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest prepayments, estimated payments, estimated default rates, estimated loss severity in the event of defaults, and current market rates. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan losses is not recorded on the acquisition date. The fair value adjustment is amortized over the life of the loan using the effective interest method, except for those loans accounted for under ASC Topic 310-30, discussed below.

10

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

The Company accounts for acquired impaired loans under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). An acquired loan is considered impaired when there is evidence of credit deterioration since origination and it is probable, at the date of acquisition, that we will be unable to collect all contractually required payments. ASC 310-30 prohibits the carryover of an allowance for loan losses for acquired impaired loans. Over the life of the acquired loans, we continually estimate the cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics. As of the end of each fiscal quarter, we evaluate the present value of the acquired loans using the effective interest rates. For any increases in cash flows expected to be collected, we adjust the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life, while we recognize a provision for loan loss in the consolidated statement of operations if the cash flows expected to be collected have decreased.
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 5, 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.
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 $83,000 tax benefit for the nine months ended September 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, and prior periods have not been adjusted. The impact of this change and that of the remaining provisions of ASU 2016-09 did not have a significant impact on our financial statements.
 
Recent Accounting Pronouncements
 
FASB ASC Topic 815 “Derivatives and Hedging” Update No. 2017-12. The Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-12 in August 2017. The ASU amends the hedge accounting model in Topic 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments expand an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. This amended guidance is effective for the Company on January 1, 2019, and, given the current level of derivatives designated as hedges, is not expected to have a material impact on our consolidated operating results or financial condition.

FASB ASC Topic 718 “Compensation – Stock Compensation: Scope of Modification Accounting” Update No. 2017-09. The 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.


11

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

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.
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.

12

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

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.
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. BUSINESS COMBINATIONS

On July 1, 2017, the Company completed the acquisition of Citizens Bancshares, Inc. (“Citizens”) and its wholly-owned subsidiary, Citizens Bank, located in Evangeline Parish, Louisiana. The Company acquired 100% of Citizens’ outstanding common shares for an aggregate amount of cash consideration equal to $45.8 million, or approximately $419.20 per share. The acquisition of Citizens expands the Company’s branch footprint in Louisiana and increases the core deposit base to help position the Company to continue to grow. On the date of acquisition, Citizens had approximately $250 million in assets, $130 million in net loans, $212 million in deposits, and $36 million in stockholders’ equity, and served the residents of Evangeline Parish through its three branch locations.

Acquisition related costs of $0.8 million and $1.0 million are included in acquisition expenses in the accompanying consolidated statements of income, for the three and nine month periods ended September 30, 2017. These costs include system conversion and integrating operations charges as well as legal and consulting expenses.


13

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

In connection with the acquisition, the Company recorded $8.7 million of goodwill. Goodwill resulted from a combination of synergies and cost savings, expansion in Louisiana with the addition of three branch locations, enhanced products and services and a lower cost of funds. The Company also recorded a core deposit intangible of $1.5 million. The change in goodwill and other intangibles at September 30, 2017 compared to December 31, 2016 is primarily attributable to the goodwilll and core deposit intangible recorded as a result of the Citizens acquisition.

The table below shows the allocation of the consideration paid for Citizens’ common equity to the acquired identifiable assets and liabilities assumed and the goodwill generated from the transaction (dollars in thousands). The fair values listed below, primarily related to loans, are subject to refinement for up to one year after the closing date of the acquisition as additional information becomes available.
Purchase price:
 
 
Cash paid
 
$
45,800


 
 
Fair value of assets acquired:
 
 
Cash and cash equivalents
 
44,565

Investment securities
 
69,897

Loans
 
129,189

Bank premises and equipment
 
3,337

Other intangible assets
 
1,462

Other assets
 
2,558

Total assets acquired
 
251,008


 
 
Fair value of liabilities acquired:
 
 
Deposits
 
212,228

Other liabilities
 
1,652

Total liabilities assumed
 
213,880


 
 
Fair value of net assets acquired
 
37,128

Goodwill
 
$
8,672


Fair value adjustments to assets acquired and liabilities assumed are generally amortized using either an effective yield or straight-line basis over periods consistent with the average life, useful life and/or contractual term of the related assets and liabilities.

The fair value of net assets acquired includes a fair value adjustment to loans as of the acquisition date. The adjustment for the acquired loan portfolio is based on current market interest rates, and the Company’s initial evaluation of credit losses identified.

The tables below present information about the loans acquired from Citizens as of the date of acquisition (dollars in thousands).

 
 
Purchase Credit Impaired
Contractually required principal
 
$
9,809

Non-accretable difference
 
(1,546
)
Cash flows expected to be collected
 
8,263

Accretable yield
 

Fair value of acquired loans
 
$
8,263



14

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

 
 
Non-Credit Impaired
Contractually required principal
 
$
122,755

Cash flows expected to be collected
 
122,060

Accretable yield
 
(1,134
)
Fair value of acquired loans
 
$
120,926


The following unaudited supplemental pro forma information is presented to show estimated results assuming Citizens was acquired as of January 1, 2016. These unaudited pro forma results are not necessarily indicative of the operating results that the Company would have achieved had it completed the acquisition as of January 1, 2016 and should not be considered representative of future operating results. The pro forma net income for the three and nine month periods ended September 30, 2017 excludes the tax-affected amounts of $0.8 million and $2.0 million, respectively, of acquisition expenses recorded in noninterest expense by both the Company and Citizens.

 
 
Unaudited Pro Forma for the
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
2017
 
2016
 
2017
 
2016
Interest income
 
$
14,442

 
$
13,171

 
$
41,635

 
$
38,491

Noninterest income
 
1,167

 
1,254

 
3,350

 
5,241

Net income
 
2,686

 
2,582

 
7,510

 
7,710



NOTE 3. 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 nine months ended September 30, 2017 and 2016 (in thousands, except share data).
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
2,131

 
$
2,037

 
$
5,918

 
$
6,032

Weighted average number of common shares outstanding used in computation of basic earnings per share
 
8,702,559

 
7,059,953

 
8,203,645

 
7,137,398

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Restricted stock
 
27,741

 
15,546

 
18,756

 
8,991

Stock options
 
46,632

 
15,369

 
10,572

 
14,920

Stock warrants
 
20,585

 
11,575

 
47,022

 
11,360

Weighted average number of common shares outstanding plus effect of dilutive securities used in computation of diluted earnings per share
 
8,797,517

 
7,102,443

 
8,279,995

 
7,172,669

Basic earnings per share
 
$
0.24

 
$
0.29

 
$
0.72

 
$
0.85

Diluted earnings per share
 
$
0.24

 
$
0.29

 
$
0.71

 
$
0.84

 
 

15

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

NOTE 4. 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
September 30, 2017
 
 
 
 
Obligations of other U.S. government agencies and corporations
 
$
55,789

 
$
77

 
$
(370
)
 
$
55,496

Obligations of state and political subdivisions
 
35,884

 
35

 
(388
)
 
35,531

Corporate bonds
 
16,821

 
68

 
(331
)
 
16,558

Residential mortgage-backed securities
 
116,246

 
197

 
(654
)
 
115,789

Commercial mortgage-backed securities
 
3,218

 
5

 
(46
)
 
3,177

Equity securities
 
1,022

 
23

 
(34
)
 
1,011

Total
 
$
228,980

 
$
405

 
$
(1,823
)
 
$
227,562

 
 
 
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 September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Proceeds from sale
 
$
63,488

 
$
5,998

 
$
82,537

 
$
14,416

Gross gains
 
$
27

 
$
204

 
$
275

 
$
428

Gross losses
 
$

 
$

 
$
(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
September 30, 2017
 
 
 
 
Obligations of state and political subdivisions
 
$
12,655

 
$
17

 
$

 
$
12,672

Residential mortgage-backed securities
 
6,651

 
21

 
(33
)
 
6,639

Total
 
$
19,306

 
$
38

 
$
(33
)
 
$
19,311

 
 
 
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

 

16

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 September 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
September 30, 2017
 
 
 
 
 
 
 
Obligations of other U.S. government agencies and corporations
 
73

 
$
39,719

 
$
(351
)
 
$
1,162

 
$
(19
)
 
$
40,881

 
$
(370
)
Obligations of state and political subdivisions
 
24

 
16,960

 
(73
)
 
9,367

 
(315
)
 
26,327

 
(388
)
Corporate bonds
 
23

 
3,002

 
(63
)
 
7,652

 
(268
)
 
10,654

 
(331
)
Residential mortgage-backed securities
 
124

 
77,167

 
(597
)
 
4,397

 
(57
)
 
81,564

 
(654
)
Commercial mortgage-backed securities
 
4

 
1,960

 
(41
)
 
200

 
(5
)
 
2,160

 
(46
)
Equity securities
 
3

 
245

 
(9
)
 
481

 
(25
)
 
726

 
(34
)
Total
 
251

 
$
139,053

 
$
(1,134
)
 
$
23,259

 
$
(689
)
 
$
162,312

 
$
(1,823
)
 
 
 
 
 
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
)
 

17

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
September 30, 2017
 
 
 
 
 
 
 
Residential mortgage-backed securities
 
4

 
$
2,655

 
$
(33
)
 
$

 
$

 
$
2,655

 
$
(33
)
Total
 
4

 
$
2,655

 
$
(33
)
 
$

 
$

 
$
2,655

 
$
(33
)

 
 
 
 
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 September 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
September 30, 2017
 
 
 
 
 
 
Due within one year
 
2.03
%
 
$
1,985

 
$
1,985

 
7.17
%
 
$
685

 
$
686

Due after one year through five years
 
2.36

 
15,748

 
15,772

 
7.17

 
3,095

 
3,101

Due after five years through ten years
 
2.88

 
27,635

 
27,274

 
7.17

 
2,745

 
2,750

Due after ten years
 
2.48

 
182,590

 
181,520

 
3.54

 
12,781

 
12,774

Total debt securities
 
 

 
$
227,958

 
$
226,551

 
 

 
$
19,306

 
$
19,311

 
 
 
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


 
NOTE 5. LOANS
The Company’s loan portfolio consists of the following categories of loans as of the dates presented (dollars in thousands).

18

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

 
 
September 30, 2017
 
December 31, 2016
Construction and development
 
$
122,501

 
$
90,737

1-4 Family
 
252,003

 
177,205

Multifamily
 
50,770

 
42,759

Farmland
 
14,130

 
8,207

Commercial real estate
 
462,422

 
380,716

Total mortgage loans on real estate
 
901,826

 
699,624

Commercial and industrial
 
125,230

 
85,377

Consumer
 
83,465

 
108,425

Total loans
 
$
1,110,521

 
$
893,426

 
The table below provides an analysis of the aging of loans as of the dates presented (dollars in thousands).
 
 
September 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
 
$
27

 
$
34

 
$

 
$
29

 
$
90

 
$
122,411

 
$
122,501

1-4 Family
 
241

 
340

 
267

 
555

 
1,403

 
250,600

 
252,003

Multifamily
 

 

 

 

 

 
50,770

 
50,770

Farmland
 
111

 

 
67

 

 
178

 
13,952

 
14,130

Commercial real estate
 
626

 

 

 
67

 
693

 
461,729

 
462,422

Total mortgage loans on real estate
 
1,005

 
374

 
334

 
651

 
2,364

 
899,462

 
901,826

Commercial and industrial
 
11

 
10

 

 
6

 
27

 
125,203

 
125,230

Consumer
 
510

 
90

 
8

 
1,176

 
1,784

 
81,681

 
83,465

Total loans
 
$
1,526

 
$
474

 
$
342

 
$
1,833

 
$
4,175

 
$
1,106,346

 
$
1,110,521

 
 
 
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