WASHINGTON, D.C. 20549
Notes to Financial Statements
Note 1 – Description of Plan
The Investar Holding Corporation 401(k) Plan (the “Plan”) was adopted effective March 1, 2015. Prior to this date, Investar Holding Corporation (the “Company”) participated in a multi-employer plan, the assets of which were transferred to the Plan as of the effective date. The following brief description of the Plan is provided for general information purposes only. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
General and Eligibility
The Plan is a defined contribution plan covering all full-time employees of Investar Bank (the “Bank”), a wholly owned subsidiary of Investar Holding Corporation (the “Company”), who have 90 days of credited service and are age 21 or older. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
Contributions
The Plan is funded by employee and employer contributions. Participating employees may contribute a percentage of their wages up to the maximum percentage allowable not to exceed the limits of Code Section 401(k). Annual employee contributions were limited to $18,000 in 2015, as indexed by the Internal Revenue Service (IRS), except for those employees eligible for catch-up contributions.
Participants direct the investment of their contributions and any employer contributions into various investment options offered by the Plan. Participants may currently direct contributions into pooled separate accounts, a guaranteed investment contract account, and various mutual fund accounts. Additionally, participants may use a portion of their account balance to contribute to common stock of the Company.
During the year ended December 31, 2015, the Plan allowed participants to contribute to an after-tax Roth 401(k) account. Total contributions to the after-tax Roth 401(k) account were $24,174 for the period ended December 31, 2015. The Plan collects and distributes funds in the after-tax Roth 401(k) accounts in the same manner as for all other contributions to the Plan.
The Company matches 100% of each eligible participant’s voluntary deferrals, up to 4% of compensation. Also, the Company may, in its sole discretion, make discretionary contributions to the Plan each year, although no discretionary contributions were made in 2015.
Participant Accounts
Each participant’s account is credited
with the participant’s contributions and allocations of (a) the Company’s contribution, if any, and (b) investment fund earnings (losses), and charged with an allocation of administrative expenses. Investment income and administrative expenses are allocated based on participant account value. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account. Participants are allowed to direct the investment of their contributions among the investment options offered by the Plan. Participants may change investment options at any time.
Voting Rights
Each participant is entitled to exercise voting rights attributable to the shares of Company stock allocated to his or her account and is notified by the Company on behalf of the Trustees prior to the time that such rights are to be exercised. The Trustees are not permitted to vote any allocated share for which instructions have not been given by a participant.
Vesting
Participants are immediately vested in their voluntary contributions and in the Company’s matching and discretionary contributions, plus actual earnings thereon.
Payment of Benefits
On termination of service due to retirement, death, or disability, a participant may elect to receive either a lump
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sum cash payment equal to the value of the participant’s account or monthly, quarterly, semiannual, or annual installment payments. In all instances, if the vested value of a participant’s account is less than $1,000, a lump
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sum cash payment will be made.
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Note
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– Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Shares of mutual funds are reported at fair value based on the quoted market price of the fund, which represents the net asset value of the shares held by the fund at year
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end. The pooled separate accounts are stated at the net asset value per unit held by the Plan. The investment in the common stock of Investar Holding Corporation is reported at fair value based on quoted market price.
Purchases and sales of securities are recorded on a trade
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date basis. Interest is recorded on the accrual basis. Dividends are recorded on the ex
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dividend date.
Payment of Benefits
Benefit payments to participants are recorded upon distribution. As of December 31, 2015, there were no amounts allocated to accounts of participants who had elected to withdraw from the Plan but had not yet been paid.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent notes are reclassified as distributions based upon applicable law and are included in the Statement of Changes in Net Assets Available for Benefits as a deduction.
Recently Issued Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-07, “
Fair Value Measurement (Topic 820):
Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent)
.” This ASU removes the requirement to make certain disclosures and to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per practical expedient. The amendments in ASU 2015-07 are effective for public entities for interim and annual periods beginning after December 15, 2015. The amendment is required to be applied retrospectively and early adoption is permitted. The Company has early adopted and applied the amendments for the year ended December 31, 2015. Other than requiring a change to the disclosures, the adoption of this standard did not have a material impact on the financial statements.
In July 2015, the FASB issued ASU
No. 2015-12,
“
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contributions Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient,
” which is part of the FASB’s Simplification Initiative for employee benefit plans. Part I of this ASU clarifies that contract value is the only required measurement for Fully Benefit-Responsive Investment Contracts (“FBRICs”) and clarifies that indirect investments in FBRICs should no longer be reflected as FBRICs and therefore, should be reported at fair value. Part II of this ASU eliminates the current GAAP requirements for plans to disclose individual investments that represent five percent or more of the net assets available for benefits, and the net appreciation or depreciation for investments by general type for both participant-directed investments and nonparticipant-directed investments. It also allows investments to be disaggregated by general type and eliminates the requirement to disaggregate investments by class. Further, significant investment strategies for an investment in a fund that files a U. S. Department of Labor Form 5500, Annual Return/Report of Employee Benefit Plan, as direct filing entity when the plan measures that investment using the NAV practical expedient are no longer required. The provisions of this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015. Parts I and II are to be applied retrospectively and early adoption is permitted. The Company has early adopted and applied the amendments for the year ended December 31, 2015. Other than requiring a change to the disclosures, the adoption of Parts I and II of this standard did not have a material impact on the financial statements.
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Note
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Administrative Expenses
Certain administrative functions are performed by officers or employees of the Bank. No such officer or employee receives compensation from the Plan. Certain other administrative expenses are paid directly by the Plan.
Note 4 – Investments
During the year ended December 31, 2015, the Plan’s investments in mutual funds, pooled separate accounts, and Investar Holding Corporation common stock (including investments bought, sold, and held during the year) depreciated in value by $148,096 and appreciated in value by $35,755.
The Plan owns 29,907 shares of Investar Holding Corporation common stock at December 31, 2015. The Plan did not sell or distribute any shares during the same period. The Plan received $484 in dividend income on the Investar Holding Corporation common stock during the year ended December 31, 2015.
Note 5 – Fixed Income Guaranteed Option
The Plan has a fully benefit-responsive guaranteed investment contract (“GIC”) with Principal Life Insurance Company. Principal Life Insurance Company maintains the contributions in a general account. The GIC does not have specific underlying assets assigned. The GIC issuer is contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan.
The GIC is included in the financial statements at contract value. Contract value, as reported to the Plan by Principal Life Insurance Company, represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. The GIC does have a surrender charge of 5% that may be charged if the Plan terminates its interest in the contract.
Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the following: (1) amendments to the plan document (including complete or partial plan termination or merger with another plan), (2) changes to the Plan’s prohibition on competing investment options or deletion of equity wash provisions, (3) bankruptcy of the plan sponsor or other plan sponsor events (for example, divestitures or spin-offs of a subsidiary) that cause a significant withdrawal from the Plan, or (4) the failure of the trust to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA. The Plan Administrator does not believe that the occurrence of any such value event, which would limit the Plan’s ability to transact at contract value with participants, is probable.
There are no reserves against contract value for credit risk of the contract issuer or otherwise. The crediting interest rate is based on a formula agreed upon with the issuer, but it may not be greater than 3% or less than 1%. Such interest rates are reviewed on a semi-annual basis for resetting.
Note 6 – Fair Value Measurements
Accounting Standards Codification (ASC) 820,
Fair Value Measurement
, defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.
ASC Topic 820 requires that assets and liabilities carried at fair value also be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value. These levels are:
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Level 1:
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Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.
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Level 2:
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Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market.
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Level 3:
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Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
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In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value
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measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment a
nd considers factors specific to the financial statements.
The following is a description of the valuation methods used for assets measured at fair value:
Mutual Funds:
These investments
are open-end mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily NAV and transact at that price. The mutual funds held by the Plan are deemed to be actively traded.
Common Stock
: The Company’s common stock is traded on the NASDAQ Global Select Market and is valued based on the closing price on the last day of the Plan year.
The fair value of the Plan’s assets at December 31, 2015, by level within the fair value hierarchy, is presented below.
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Assets at Fair Value at December 31, 2015
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Level 1
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Level 2
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Level 3
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Total
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Employer security
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526,357
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526,357
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Mutual funds
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719,466
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719,466
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Total investments, at fair value
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1,245,823
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1,245,823
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Note 7 – Plan Termination
Although it has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.
Note 8 – Tax Status
The Plan has applied for but not yet obtained a determination letter from the Internal Revenue Service. However, management believes that the Plan, as designed, was in compliance with the applicable requirements of the Internal Revenue Code (IRC). The Plan has not been amended since applying for the determination letter. GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2015, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
Note 9 – Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
The Plan’s exposure to a concentration of credit risk is limited by the diversification of investments across the participant
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directed fund elections. Additionally, the investments within each participant
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directed fund election are further diversified into varied financial instruments. Investment decisions are made, and the resulting risks are borne, exclusively by the Plan participant who made such decisions.
Note 10 – Related-Party Transactions
Transactions resulting in Plan assets being transferred to or used by a related party are prohibited under ERISA unless a specific exemption is applied. Principal is a party-in-interest as defined by ERISA as a result of being the record keeper and custodian of the Plan. The Plan incurred administrative and trustee/custodian expenses of approximately $27,616 to Principal in 2015. Investar Holding Corporation is a party-in-interest as defined by ERISA as a result of being the Plan Sponsor. The Plan engages in transactions involving the acquisition or disposition of common stock of the Company. One of the Company’s directors is the owner of HR Solutions, LLC, located in Baton Rouge, Louisiana, which provides the Company’s payroll processing services. All of the above transactions are exempt from the “prohibited transactions” provisions of ERISA and the Internal Revenue Code.
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Note
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1
– Subsequent Events
The Plan has evaluated subsequent events through the date the financial statements were issued, to ensure that the financial statements include appropriate disclosure or recognition of events that occurred subsequent to December 31, 2015. See accompanying report of independent registered public accounting firm.
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