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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, 2020
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

ISTR-20200930_G1.JPG  
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.)
10500 Coursey Boulevard, Baton Rouge, Louisiana 70816
(Address of principal executive offices, including zip code)
(225) 227-2222
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, $1.00 par value per share ISTR The Nasdaq Global Market
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 every Interactive Data File required to be submitted 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 such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
Large accelerated filer Accelerated filer
Non-accelerated filer ☐  Smaller reporting company
Emerging growth company



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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No 
The number of shares outstanding of the issuer’s class of common stock, as of the latest practicable date, is as follows: Common stock, $1.00 par value, 10,622,068 shares outstanding as of November 3, 2020.



TABLE OF CONTENTS
 
     
 
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Note 13. Transactions with Related Parties
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3


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVESTAR HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
  September 30, 2020 December 31, 2019
  (Unaudited)  
ASSETS    
Cash and due from banks $ 32,856  $ 23,769 
Interest-bearing balances due from other banks 17,697  20,539 
Federal funds sold —  387 
Cash and cash equivalents 50,553  44,695 
Available for sale securities at fair value (amortized cost of $275,288 and $258,104, respectively)
278,906  259,805 
Held to maturity securities at amortized cost (estimated fair value of $13,737 and $14,480, respectively)
13,542  14,409 
Loans, net of allowance for loan losses of $19,044 and $10,700, respectively
1,810,636  1,681,275 
Equity securities 20,927  19,315 
Bank premises and equipment, net of accumulated depreciation of $14,971 and $12,432, respectively
57,074  50,916 
Other real estate owned, net 69  133 
Accrued interest receivable 13,057  7,913 
Deferred tax asset 2,160  — 
Goodwill and other intangible assets, net 32,471  31,035 
Bank owned life insurance 38,672  32,014 
Other assets 5,178  7,406 
Total assets $ 2,323,245  $ 2,148,916 
LIABILITIES    
Deposits:    
Noninterest-bearing $ 452,070  $ 351,905 
Interest-bearing 1,382,379  1,355,801 
Total deposits 1,834,449  1,707,706 
Advances from Federal Home Loan Bank 178,500  131,600 
Repurchase agreements 5,923  2,995 
Subordinated debt, net of unamortized issuance costs 42,874  42,826 
Junior subordinated debt 5,936  5,897 
Accrued taxes and other liabilities 18,296  15,916 
Total liabilities 2,085,978  1,906,940 
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; 10,629,586 and 11,228,775 shares issued and outstanding, respectively
10,630  11,229 
Surplus 159,410  168,658 
Retained earnings 67,536  60,198 
Accumulated other comprehensive (loss) income (309) 1,891 
Total stockholders’ equity 237,267  241,976 
Total liabilities and stockholders’ equity $ 2,323,245  $ 2,148,916 
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,
  2020 2019 2020 2019
INTEREST INCOME        
Interest and fees on loans $ 21,866  $ 20,844  $ 65,653  $ 59,621 
Interest on investment securities 1,356  1,848  4,506  5,697 
Other interest income 172  162  658  610 
Total interest income 23,394  22,854  70,817  65,928 
INTEREST EXPENSE        
Interest on deposits 3,404  5,198  12,626  13,988 
Interest on borrowings 1,284  1,290  3,811  4,087 
Total interest expense 4,688  6,488  16,437  18,075 
Net interest income 18,706  16,366  54,380  47,853 
Provision for loan losses 2,500  538  8,760  1,172 
Net interest income after provision for loan losses 16,206  15,828  45,620  46,681 
NONINTEREST INCOME        
Service charges on deposit accounts 441  462  1,417  1,296 
Gain on sale of investment securities, net 939  —  2,289  229 
Loss on sale of fixed assets, net (5) —  (5) (11)
Gain on sale of other real estate owned, net —  26  19 
Servicing fees and fee income on serviced loans 85  142  301  472 
Interchange fees 387  294  1,029  825 
Income from bank owned life insurance 234  186  657  508 
Change in the fair value of equity securities (31) (9) (609) 220 
Other operating income 1,351  542  3,316  1,083 
Total noninterest income 3,401  1,618  8,421  4,641 
Income before noninterest expense 19,607  17,446  54,041  51,322 
NONINTEREST EXPENSE        
Depreciation and amortization 1,203  882  3,385  2,519 
Salaries and employee benefits 8,228  7,325  24,753  20,817 
Occupancy 604  445  1,671  1,313 
Data processing 816  675  2,295  1,855 
Marketing 88  86  198  205 
Professional fees 343  326  1,166  940 
Acquisition expense 52  177  1,058  1,082 
Other operating expenses 2,717  1,766  7,912  5,808 
Total noninterest expense 14,051  11,682  42,438  34,539 
Income before income tax expense 5,556  5,764  11,603  16,783 
Income tax expense 1,089  1,107  2,254  3,275 
Net income $ 4,467  $ 4,657  $ 9,349  $ 13,508 
EARNINGS PER SHARE        
Basic earnings per share $ 0.41  $ 0.46  $ 0.85  $ 1.35 
Diluted earnings per share 0.41  0.46  0.85  1.34 
Cash dividends declared per common share 0.07  0.06  0.19  0.17 
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,
  2020 2019 2020 2019
Net income $ 4,467  $ 4,657  $ 9,349  $ 13,508 
Other comprehensive income (loss):        
Unrealized gain (loss) on investment securities:        
Unrealized (loss) gain, available for sale, net of tax (benefit) expense of $(32), $197, $883 and $1,495, respectively
(122) 740  3,323  5,624 
Reclassification of realized gain, net of tax expense of $197, $0, $481 and $48, respectively
(741) —  (1,808) (181)
Unrealized loss, transfer from available for sale to held to maturity, net of tax benefit of $0 for all respective periods
—  (1) (1) (1)
Fair value of derivative financial instruments:        
Change in fair value of interest rate swaps designated as a cash flow hedge, net of tax expense (benefit) of $49, $22, $(987) and $(88), respectively
184  84  (3,714) (330)
Total other comprehensive (loss) income (679) 823  (2,200) 5,112 
Total comprehensive income $ 3,788  $ 5,480  $ 7,149  $ 18,620 
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)
(Unaudited)
 
Common
Stock
Surplus Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Three months ended:
September 30, 2019
Balance at beginning of period $ 9,938  $ 140,856  $ 53,492  $ 1,213  $ 205,499 
Surrendered shares —  (7) —  —  (7)
Options exercised 10  132  —  —  142 
Dividends declared, $0.06 per share
—  —  (602) —  (602)
Stock-based compensation 373  —  —  374 
Shares repurchased (19) (410) —  —  (429)
Net income —  —  4,657  —  4,657 
Other comprehensive income, net —  —  —  823  823 
Balance at end of period $ 9,930  $ 140,944  $ 57,547  $ 2,036  $ 210,457 
September 30, 2020
Balance at beginning of period $ 10,840  $ 161,729  $ 63,767  $ 370  $ 236,706 
Surrendered shares —  (5) —  —  (5)
Dividends declared, $0.065 per share
—  —  (698) —  (698)
Stock-based compensation 422  —  —  424 
Shares repurchased (212) (2,736) —  —  (2,948)
Net income —  —  4,467  —  4,467 
Other comprehensive loss, net —  —  —  (679) (679)
Balance at end of period $ 10,630  $ 159,410  $ 67,536  $ (309) $ 237,267 
























7


INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY, CONTINUED
(Amounts in thousands, except share data)
(Unaudited)
Common
Stock
Surplus Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Nine months ended:
September 30, 2019
Balance at beginning of period $ 9,484  $ 130,133  $ 45,721  $ (3,076) $ 182,262 
Common stock issued in acquisition 764  17,873  —  —  18,637 
Surrendered shares (11) (269) —  —  (280)
Options exercised 12  158  —  —  170 
Dividends declared, $0.1676 per share
—  —  (1,682) —  (1,682)
Stock-based compensation 41  1,015  —  —  1,056 
Shares repurchased (360) (7,966) —  —  (8,326)
Net income —  —  13,508  —  13,508 
Other comprehensive income, net —  —  —  5,112  5,112 
Balance at end of period $ 9,930  $ 140,944  $ 57,547  $ 2,036  $ 210,457 
September 30, 2020
Balance at beginning of period $ 11,229  $ 168,658  $ 60,198  $ 1,891  $ 241,976 
Stock issuance costs —  (45) —  —  (45)
Surrendered shares (15) (298) —  —  (313)
Options exercised 43  —  —  46 
Dividends declared, $0.1850 per share
—  —  (2,011) —  (2,011)
Stock-based compensation 54  1,202  —  —  1,256 
Shares repurchased (641) (10,150) —  —  (10,791)
Net income —  —  9,349  —  9,349 
Other comprehensive loss, net —  —  —  (2,200) (2,200)
Balance at end of period $ 10,630  $ 159,410  $ 67,536  $ (309) $ 237,267 

See accompanying notes to the consolidated financial statements.
8


INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited) 
Nine months ended September 30,
  2020 2019
Net income $ 9,349  $ 13,508 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,385  2,519 
Provision for loan losses 8,760  1,172 
Amortization of purchase accounting adjustments (933) (1,200)
Provision for other real estate owned —  18 
Net amortization of securities 1,850  294 
Gain on sale of investment securities, net (2,289) (229)
Loss on sale of fixed assets, net 11 
Gain on sale of other real estate owned, net (26) (19)
FHLB stock dividend (116) (259)
Stock-based compensation 1,256  1,056 
Deferred taxes (1,328) 142 
Net change in value of bank owned life insurance (657) (508)
Amortization of subordinated debt issuance costs 48  35 
Change in the fair value of equity securities 609  (220)
Net change in:
Accrued interest receivable (5,145) (1,331)
Other assets 10  (1,061)
Accrued taxes and other liabilities (3,490) (191)
Net cash provided by operating activities $ 11,288  $ 13,737 
Cash flows from investing activities:    
Proceeds from sales of investment securities available for sale $ 56,466  $ 62,564 
Purchases of securities available for sale (117,860) (96,468)
Proceeds from maturities, prepayments and calls of investment securities available for sale 44,676  28,558 
Proceeds from maturities, prepayments and calls of investment securities held to maturity 839  720 
Proceeds from redemption or sale of equity securities 2,503  2,887 
Purchases of equity securities (4,607) (7,040)
Net increase in loans (93,191) (102,216)
Proceeds from sales of other real estate owned 131  5,041 
Purchases of fixed assets (6,364) (6,218)
Purchases of bank owned life insurance (6,000) (5,023)
Purchases of other investments —  (95)
Proceeds from sales of other investments 1,762  — 
Distributions from investments 16  60 
Cash acquired from acquisition of Mainland Bank —  38,365 
Cash paid for acquisition of PlainsCapital branches, net of cash acquired (10,761) — 
Net cash used in investing activities $ (132,390) $ (78,865)
9


INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Amounts in thousands)
(Unaudited)
Cash flows from financing activities:    
Net increase in customer deposits $ 89,915  $ 116,026 
Net increase (decrease) in repurchase agreements 2,928  (4,541)
Net increase (decrease) in short-term FHLB advances 50,000  (32,775)
Proceeds from long-term FHLB advances —  20,000 
Repayments of long-term FHLB advances (3,100) (12,000)
Cash dividends paid on common stock (1,993) (1,566)
Proceeds from stock options and warrants exercised 46  170 
Payments to repurchase common stock (10,791) (8,325)
Payments of stock issuance costs (45) — 
Net cash provided by financing activities $ 126,960  $ 76,989 
Net change in cash and cash equivalents $ 5,858  $ 11,861 
Cash and cash equivalents, beginning of period 44,695  17,140 
Cash and cash equivalents, end of period $ 50,553  $ 29,001 
See accompanying notes to the consolidated financial statements.
10

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, 2020 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, 2019, 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 (“SEC”) on March 13, 2020.
Nature of Operations
The Company, headquartered in Baton Rouge, Louisiana, provides full banking services, excluding trust services, through its wholly-owned banking subsidiary, Investar Bank, National Association (the “Bank”), a national bank, primarily to meet the needs of individuals and small to medium-sized businesses. The Company’s primary markets are south Louisiana, southeast Texas and west Alabama. At September 30, 2020, the Company operated 24 full service branches located in Louisiana, five full service branches located in Texas and two full service branches in southwest Alabama and had 318 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 financial statements in conformity with 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 and goodwill.
The ongoing COVID-19 pandemic has made certain estimates more challenging, including those discussed above, as the pandemic is unprecedented in recent history, continues to evolve, and its future effects are impossible to predict with any certainty.
11

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Investment Securities
The Company’s investments in debt 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.
Unrealized holding gains and losses, net of tax, on AFS debt 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 debt 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 and it is not more likely than not that the Company will be required to sell the 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.
Equity Securities
The Company is a member of the Federal Home Loan Bank (“FHLB”) system. Members of the FHLB are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, is restricted as to redemption, and is periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. Equity securities also include investments in our other correspondent banks including Independent Bankers Financial Corporation and First National Bankers Bank stock. These investments are carried at cost which approximates fair value. The balance of equity securities in our correspondent banks at September 30, 2020 and December 31, 2019 was $17.1 million and $17.2 million, respectively.
In addition, equity securities include marketable securities in corporate stocks and mutual funds and totaled $3.8 million and $2.1 million at September 30, 2020 and December 31, 2019, respectively.
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. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period of repayment performance by the borrower.
12

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 homogeneous 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.
See the Treatment of Loan Modifications Pursuant to the CARES Act and Interagency Statement section under Accounting Standards Adopted in 2020 below for further discussion on the accounting treatment for loans.
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.
Allowance for Loan Losses
The allowance for loan losses is estimated through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the loan balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance.
The allowance is an amount that management believes will be adequate to absorb probable losses inherent in the loan portfolio as of the balance sheet date based on evaluations of the collectability of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Credits deemed uncollectible are charged to the allowance. Provisions for loan losses and recoveries on loans previously charged off are added to the allowance. Past due status is determined based on contractual terms.
The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. Based on management’s review and observations made through qualitative review, management may apply qualitative adjustments to determine loss estimates at a group and/or portfolio segment level as deemed appropriate. Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in its portfolio and portfolio segments. The Company utilizes an internally developed model that requires judgment to determine the estimation method that fits the credit risk characteristics of the loans in its portfolio and portfolio segments. Qualitative and environmental factors that may not be directly reflected in quantitative estimates include: asset quality trends, changes in loan concentrations, new products and process changes, changes and pressures from competition, changes in lending policies and underwriting practices, trends in the nature and volume of the loan portfolio, changes in experience and depth of lending staff and management and national and regional economic trends. Changes in these factors are considered in determining changes in the allowance for loan losses. The impact of these factors on the Company’s qualitative assessment of the allowance for loan losses can change from period to period based on management’s assessment of the extent to which these factors are already reflected in historic loss rates. The uncertainty inherent in the estimation process is also considered in evaluating the allowance for loan losses.
In the ordinary course of business, the Bank enters into commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses. The reserve for unfunded lending commitments is included in accrued taxes and other liabilities in the consolidated balance sheet. At September 30, 2020 and December 31, 2019 the reserve for unfunded loan commitments was $0.4 million and $0.1 million, respectively.
13

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Acquisition Accounting
Business combinations are accounted for under the acquisition 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.
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. An allowance for acquired loans not accounted for under ASC Topic 310-30 is only recorded to the extent that the reserve requirement exceeds the remaining fair value adjustment.
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 2019 financial statements to be consistent with the 2020 presentation, if applicable.
Concentrations of Credit Risk
The Company’s loan portfolio consists of the various types of loans described in Note 5. Loans and Allowance for Loan Losses. 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 southeast 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.
Accounting Standards Adopted in 2020
FASB ASC Topic 820 “Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” Update No. 2018-13. ASU 2018-13 became effective for the Company on January 1, 2020. The ASU modifies the existing guidance on disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU 2018-13 removes the disclosure requirement detailing the amount of and reasons for transfers between Level 1 and Level 2 and the valuation processes for Level 3 fair value measurements. In addition, this ASU modifies the disclosure requirement for investments in certain entities that calculate net asset value. Lastly, ASU 2018-13 adds a disclosure requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. The impact of these amendments is limited to presentation and disclosure changes that did not have an impact on the Company’s consolidated financial statements.
14

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
FASB ASC Topic 350 “Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment” ASU No. 2017-04. ASU 2017-04 became effective for the Company on January 1, 2020. 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. The amendment will be applied prospectively on or after the effective date. Based on recent annual goodwill impairments tests, performed in the fourth quarter of each year, which did not require the application of Step 2, the adoption of this ASU did not have a material impact.
At March 31, 2020, we evaluated potential triggering events that may be indicators that our goodwill was impaired. The events included economic disruption and uncertainty surrounding the COVID-19 pandemic and the associated volatility in the financial markets which caused a significant decline in our market capitalization. As a result of the significant decline in our market capitalization in the first quarter of 2020, we performed an interim goodwill impairment test as of March 31, 2020. Factors considered in our impairment evaluation included the uncertainty related to the pandemic’s impact on our business and our customers’ businesses, the Company’s revised financial forecast in light of current market conditions, and changes in discount rates as a result of uncertainty in the market. Based on our evaluation, we concluded that our goodwill was not impaired as of March 31, 2020. As the economic disruption and uncertainty surrounding the COVID-19 pandemic, as well as the associated volatility in the financial markets, continued through the second and third quarters of 2020, management continued to evaluate goodwill impairment indicators as of June 30, 2020 and September 30, 2020. Based upon management’s procedures, including an assessment of changes to assumptions from the interim quantitative impairment analysis performed as of March 31, 2020, management determined that it was not more likely than not that the goodwill balance of $28.1 million at September 30, 2020 was impaired.
A prolonged pandemic, or any other event that harms the global or U.S. economies, could adversely affect our operations and negatively impact our financial condition and results of operations, which may require further evaluation in subsequent reporting periods, in addition to our annual impairment test performed in the fourth quarter of each year, and could result in an impairment charge.
Treatment of Loan Modifications Pursuant to the CARES Act and Interagency Statement
Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted on March 27, 2020 provides that from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic declared by the President of the United States under the National Emergencies Act terminates (the “applicable period”), we may elect to suspend GAAP for loan modifications related to the pandemic that would otherwise be categorized as troubled debt restructurings (“TDRs”) and suspend any determination of a loan modified as a result of the effects of the pandemic as being a TDR, including impairment for accounting purposes. The suspension is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. The suspension is not applicable to any adverse impact on the credit of a borrower that is not related to the pandemic.
In addition, our banking regulators and other financial regulators, on March 22, 2020 and revised April 7, 2020, issued a joint interagency statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the COVID-19 pandemic. Pursuant to the interagency statement, loan modifications that do not meet the conditions of Section 4013 of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. Specifically, the agencies confirmed with the staff of the FASB that short-term modifications made in good faith in response to the pandemic to borrowers who were current prior to any relief are not TDRs under GAAP. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Appropriate allowances for loan and lease losses are expected to be maintained. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to the pandemic as past due because of the deferral. The interagency statement also states that during short-term pandemic-related loan modifications, these loans generally should not be reported as nonaccrual.
15

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accordingly, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term modifications of 90 days or less, in the form of deferrals of payment of principal and interest, principal only, or interest only, and fee waivers. As of September 30, 2020, the balance of loans participating in the 90-day deferral program was $56.5 million, or 3.1% of the total loan portfolio. Of these loans, 65% have deferrals of principal and interest, 31% have deferrals of principal only, and 4% have deferrals of interest only. In accordance with Section 4013 of the CARES Act and the interagency statement, we have not accounted for such loans as TDRs, nor have we designated them as past due or nonaccrual.
Accounting Pronouncements Not Yet Adopted
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 ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. We are currently evaluating the potential impact of ASU 2016-13 on our financial statements. In that regard, we have formed a cross-functional working group, under the direction of our Chief Financial Officer and our Chief Risk Officer. The working group is comprised of individuals from various functional areas including credit, risk management, finance and information technology. We have developed an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. We have also selected a third-party vendor solution to assist us in the application of ASU 2016-13.
The adoption of ASU 2016-13 is likely to result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses on debt securities. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios, as well as the prevailing economic conditions and forecasts, as of the adoption date.
This amendment was originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In July 2019, the FASB proposed changes that would delay the effective date for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. In October 2019, the FASB voted in favor of finalizing its proposal to delay the effective date of this standard to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ASU 2016-13 will be effective for the Company on January 1, 2023. The Company expects to adopt the standard as soon as practicable, based upon progress on the implementation plan. Adoption prior to the revised effective date of January 1, 2023 is permitted by the ASU.
FASB ASC Topics 321, 323, and 815 “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)” Update No. 2020-01. In January 2020, the FASB issued ASU 2020-01 to clarify the interaction among ASC 321, ASC 323, and ASC 815 for equity securities, equity method investments, and certain financial instruments to acquire equity securities. ASU 2020-01 clarifies whether re-measurement of equity investments is appropriate when observable transactions cause the equity method to be triggered or discontinued. ASU 2020-01 also provides that certain forward contracts and purchased options to acquire equity securities will be measured under ASC 321 without an assessment of subsequent accounting upon settlement or exercise. The amendment is effective for the Company on January 1, 2021. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its consolidated financial statements.
FASB ASC Topic 848 “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” Update No. 2020-04. In March 2020, the FASB issued ASU 2020-04, which is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.
16

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2. BUSINESS COMBINATIONS
Mainland Bank
On March 1, 2019, the Company completed the acquisition of Mainland Bank (“Mainland”) in Texas City, Texas. The Company acquired 100% of Mainland’s outstanding common shares for an aggregate merger consideration of 763,849 shares of the Company’s common stock, for a total of approximately $18.6 million. The acquisition of Mainland expanded the Company’s branch footprint into the greater Houston, Texas market. After fair value adjustments, the acquisition added $127.6 million in total assets, including $81.3 million in loans, and $107.6 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded $5.2 million of goodwill. Goodwill resulted from a combination of synergies and cost savings, expansion into Texas with the addition of three branch locations, and enhanced products and services.
The table below shows the allocation of the consideration paid for Mainland’s common equity to the acquired identifiable assets and liabilities assumed and the goodwill generated from the transaction (dollars in thousands).
Purchase price:
Stock issued $ 18,637 
Fair value of assets acquired:
Cash and cash equivalents 38,365 
Loans 81,336 
Other real estate owned 1,507 
Bank premises and equipment 2,550 
Core deposit intangible asset 2,439 
Other assets 1,414 
Total assets acquired 127,611 
Fair value of liabilities acquired:
Deposits 107,646 
Repurchase agreements 4,684 
Other liabilities 1,883 
Total liabilities assumed 114,213 
Fair value of net assets acquired 13,398 
Goodwill $ 5,239 
Fair value adjustments to assets acquired and liabilities assumed are generally amortized using the effective yield method 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 at the time of acquisition, and the Company’s initial evaluation of credit losses identified. The contractually required principal and interest payments of the loans acquired from Mainland total $92.4 million.
Prior to the end of the one-year adjustment period following the acquisition of Mainland, certain loans were identified to be purchase credit impaired loans at the time of acquisition. These loans had a balance of $2.8 million at the time of acquisition. The total contractually required principal and interest payments of these loans are $3.1 million, of which $1.7 million is not expected to be collected.

17

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Bank of York
On November 1, 2019, the Company completed the acquisition of Bank of York in York, Alabama. The Company acquired 100% of Bank of York’s outstanding common shares for an aggregate merger consideration of $15.0 million. The acquisition of Bank of York expanded the Company’s branch footprint into the west Alabama market. After fair value adjustments, including total adjustments of approximately $0.7 million to other liabilities and small adjustments to loans and other assets recorded in the three months ended September 30, 2020, the acquisition added $101.9 million in total assets, including $46.1 million in loans, and $85.0 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded $5.0 million of goodwill. Goodwill resulted from a combination of synergies and cost savings, and expansion into Alabama with the addition of two branch locations.
The table below shows the allocation of the consideration paid for Bank of York’s 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 and deferred tax assets and liabilities, 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 $ 15,000 
Fair value of assets acquired:
Cash and cash equivalents 50,776 
Investments 451 
Loans 46,086 
Bank premises and equipment 917 
Core deposit intangible asset 931 
Bank owned life insurance 2,429 
Other assets 344 
Total assets acquired 101,934 
Fair value of liabilities acquired:
Deposits 85,004 
Repurchase agreements 5,641 
Other liabilities 1,306 
Total liabilities assumed 91,951 
Fair value of net assets acquired 9,983 
Goodwill $ 5,017 
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 at the time of acquisition, and the Company’s initial evaluation of credit losses identified. The contractually required principal and interest payments of the loans acquired from Bank of York total $51.5 million.
Loans acquired from Bank of York that are considered to be purchased credit impaired loans had a balance of $0.3 million at the time of acquisition. The total contractually required principal and interest payments of these loans are $0.3 million, of which $0.1 million is not expected to be collected.
18

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PlainsCapital
On February 21, 2020, the Company completed the acquisition of the Alice and Victoria, Texas branch locations of PlainsCapital Bank (“PlainsCapital”), a wholly-owned subsidiary of Hilltop Holdings Inc., for an aggregate merger consideration of approximately $11.1 million. The acquisition added $48.7 million in total assets, including $45.3 million in loans, and $37.0 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded $0.5 million of goodwill. Goodwill resulted from a combination of synergies and cost savings, and further expansion into south Texas with the addition of two branch locations.
The table below shows the allocation of the consideration paid for certain assets, deposits and other liabilities associated with the Alice and Victoria, Texas locations of PlainsCapital and the goodwill generated from the transaction (dollars in thousands). The fair values listed below, primarily related to loans and deferred tax assets and liabilities, 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 $ 11,114 
Fair value of assets acquired:
Cash and cash equivalents 353 
Loans 45,287 
Bank premises and equipment 2,770 
Core deposit intangible asset 170 
Other assets 127 
Total assets acquired 48,707 
Fair value of liabilities acquired:
Deposits 36,973 
Other liabilities 1,084 
Total liabilities assumed 38,057 
Fair value of net assets acquired 10,650 
Goodwill $ 464 

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 at the time of acquisition, and the Company’s initial evaluation of credit losses identified. The contractually required principal and interest payments of the loans acquired from PlainsCapital total $51.3 million. No loans acquired from PlainsCapital were considered to be purchased credit impaired loans.
Acquisition Expense
Acquisition related costs of $0.1 million and $1.1 million are included in acquisition expenses in the accompanying consolidated statements of income for the three and nine months ended September 30, 2020, respectively. These costs include system conversion and integrating operations charges for both the acquisition of Bank of York and the acquisition of two branches from PlainsCapital, as well as legal and consulting expenses.
19

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2020 and 2019 (in thousands, except share data).
 
  Three months ended September 30, Nine months ended September 30,
  2020 2019 2020 2019
Earnings per common share - basic
Net income $ 4,467  $ 4,657  $ 9,349  $ 13,508 
Less: income allocated to participating securities (21) (43) (50) (136)
Net income allocated to common shareholders 4,446  4,614  9,299  13,372 
Weighted-average basic shares outstanding 10,759,791  9,935,221  10,927,702  9,874,113 
Basic earnings per common share $ 0.41  $ 0.46  $ 0.85  $ 1.35 
Earnings per common share - diluted
Net income allocated to common shareholders $ 4,446  $ 4,614  $ 9,299  $ 13,372 
Weighted-average basic shares outstanding 10,759,791  9,935,221  10,927,702  9,874,113 
Dilutive effect of securities 1,826  102,713  14,057  123,124 
Total weighted average diluted shares outstanding 10,761,617  10,037,934  10,941,759  9,997,237 
Diluted earnings per common share $ 0.41  $ 0.46  $ 0.85  $ 1.34 
 
The weighted average shares that have an antidilutive effect in the calculation of diluted earnings per common share and have been excluded from the computations above are shown below.
  Three months ended September 30, Nine months ended September 30,
  2020 2019 2020 2019
Stock options —  —  54  — 
Restricted stock awards 16,060  11  12,611  129 
Restricted stock units 68,861  64  73,519  158 
NOTE 4. INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities classified as AFS are summarized below as of the dates presented (dollars in thousands).
 
Amortized Cost Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
September 30, 2020
Obligations of U.S. government agencies and corporations $ 38,393  $ 167  $ (68) $ 38,492 
Obligations of state and political subdivisions 20,514  156  (64) 20,606 
Corporate bonds 25,831  257  (315) 25,773 
Residential mortgage-backed securities 133,549  2,880  (496) 135,933 
Commercial mortgage-backed securities 57,001  1,286  (185) 58,102 
Total $ 275,288  $ 4,746  $ (1,128) $ 278,906 
 
20

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Amortized Cost Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
December 31, 2019
Obligations of U.S. government agencies and corporations $ 33,651  $ 100  $ (100) $ 33,651 
Obligations of state and political subdivisions 32,920  541  (12) 33,449 
Corporate bonds 19,245  192  (274) 19,163 
Residential mortgage-backed securities 100,948  1,083  (85) 101,946 
Commercial mortgage-backed securities 71,340  564  (308) 71,596 
Total $ 258,104  $ 2,480  $ (779) $ 259,805 

Proceeds from sales of investment securities AFS and gross gains and losses are summarized below for the periods presented (dollars in thousands).
Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
Proceeds from sale $ 15,928  $ —  $ 56,466  $ 62,564 
Gross gains $ 939  $ —  $ 2,300  $ 575 
Gross losses $ —  $ —  $ (11) $ (346)

The amortized cost and approximate fair value of investment securities classified as HTM are summarized below as of the dates presented (dollars in thousands). 
Amortized Cost Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
September 30, 2020
Obligations of state and political subdivisions $ 9,135  $ 12  $ —  $ 9,147 
Residential mortgage-backed securities 4,407  183  —  4,590 
Total $ 13,542  $ 195  $ —  $ 13,737 
 
Amortized Cost Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
December 31, 2019
Obligations of state and political subdivisions $ 9,487  $ 14  $ —  $ 9,501 
Residential mortgage-backed securities 4,922  57  —  4,979 
Total $ 14,409  $ 71  $ —  $ 14,480 
 
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, 2020 or December 31, 2019.
The aggregate fair values and aggregate unrealized losses on AFS securities whose fair values are below book values are summarized in the table below. Unrealized losses are generally due to changes in interest rates. Beginning in the first quarter of 2020, the COVID-19 pandemic has led to ongoing disruption and volatility in the capital markets, causing fluctuations of fair values across asset classes. 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, current market prices, and the current interest rate environment, these unrealized losses are considered a temporary impairment of the securities.
21

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The number of AFS securities, 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, 2020
Obligations of U.S. government agencies and corporations 19  $ 13,218  $ (49) $ 8,527  $ (19) $ 21,745  $ (68)
Obligations of state and political subdivisions —  —  5,231  (64) 5,231  (64)
Corporate bonds 27  6,887  (123) 5,559  (192) 12,446  (315)
Residential mortgage-backed securities 20  45,277  (496) —  —  45,277  (496)
Commercial mortgage-backed securities 28  8,567  (73) 8,979  (112) 17,546  (185)
Total 103  $ 73,949  $ (741) $ 28,296  $ (387) $ 102,245  $ (1,128)
 
    Less than 12 Months 12 Months or More Total
  Count Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
December 31, 2019
Obligations of U.S. government agencies and corporations 21  $ 19,980  $ (94) $ 955  $ (6) $ 20,935  $ (100)
Obligations of state and political subdivisions 10  212  (1) 371  (11) 583  (12)
Corporate bonds 21  495  (5) 7,829  (269) 8,324  (274)
Residential mortgage-backed securities 32  12,341  (56) 6,190  (29) 18,531  (85)
Commercial mortgage-backed securities 57  29,072  (274) 2,516  (34) 31,588  (308)
Total 141  $ 62,100  $ (430) $ 17,861  $ (349) $ 79,961  $ (779)
  
The unrealized losses in the Company’s investment portfolio 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, 2020 or December 31, 2019.
The amortized cost and approximate fair value of debt securities, by contractual maturity (including mortgage-backed securities), are shown below as of the dates presented (dollars in thousands). 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.
Securities Available For Sale Securities Held To Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
September 30, 2020
Due within one year $ 1,692  $ 1,725  $ 790  $ 791 
Due after one year through five years 12,064  12,065  3,575  3,582 
Due after five years through ten years 63,603  63,849  4,770  4,774 
Due after ten years 197,929  201,267  4,407  4,590 
Total debt securities $ 275,288  $ 278,906  $ 13,542  $ 13,737 
22

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Securities Available For Sale Securities Held To Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
December 31, 2019
Due within one year $ 2,174  $ 2,175  $ 790  $ 792 
Due after one year through five years 13,525  13,675  3,575  3,582 
Due after five years through ten years 66,551  66,568  5,122  5,126 
Due after ten years 175,854  177,387  4,922  4,980 
Total debt securities $ 258,104  $ 259,805  $ 14,409  $ 14,480 
At September 30, 2020, securities with a carrying value of $94.7 million were pledged to secure certain deposits, borrowings, and other liabilities, compared to $89.5 million in pledged securities at December 31, 2019.
NOTE 5. LOANS AND ALLOWANCE FOR LOAN LOSSES
The Company’s loan portfolio consists of the following categories of loans as of the dates presented (dollars in thousands).
  September 30, 2020 December 31, 2019
Construction and development $ 206,751  $ 197,797 
1-4 Family 339,364  321,489 
Multifamily 57,734  60,617 
Farmland 26,005  27,780 
Commercial real estate 784,238  731,060 
Total mortgage loans on real estate 1,414,092  1,338,743 
Commercial and industrial 392,955  323,786 
Consumer 22,633  29,446 
Total loans $ 1,829,680  $ 1,691,975 
Unamortized premiums and discounts on loans, included in the total loans balances above, were $1.9 million and $2.1 million at September 30, 2020 and December 31, 2019, respectively, and unearned income on loans was $3.9 million and $0.9 million at September 30, 2020 and December 31, 2019, respectively.
In the second quarter of 2020, the Bank began participating as a lender in the Small Business Administration’s (“SBA”) and U.S. Department of Treasury’s Paycheck Protection Program (“PPP”) as established by the CARES Act and enhanced by the Paycheck Protection Program and Health Care Enhancement Act and the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP was established to provide unsecured low interest rate loans to small businesses that have been impacted by the COVID-19 pandemic. The PPP loans are 100% guaranteed by the SBA. The loans have a fixed interest rate of 1% with deferred payments, and mature two years from origination, or if made on or after June 5, 2020, five years from origination. PPP loans are forgiven by the SBA (which makes forgiveness payments directly to the lender) to the extent the borrower uses the proceeds of the loan for certain purposes (primarily to fund payroll costs) during the eight-week covered period (or, as amended by the Flexibility Act, the 24-week covered period or if shorter to December 31, 2020) following origination and maintains certain employee and compensation levels. Lenders receive processing fees from the SBA for originating the PPP loans which are based on a percentage of the loan amount. In July 2020, the CARES Act was amended to extend the SBA’s authority to make commitments under the PPP, which had previously expired on June 30, 2020. The PPP resumed taking applications on July 6, 2020 and the new deadline to apply for a PPP loan was August 8, 2020. At September 30, 2020, our loan portfolio included PPP loans with a balance of $110.3 million, all of which are included in commercial and industrial loans.
23

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below provides an analysis of the aging of loans as of the dates presented (dollars in thousands).
September 30, 2020
Accruing        
Current 30-59 Days Past Due 60-89 Days Past Due 90 Days or More
Past Due
Nonaccrual Total Past Due & Nonaccrual Acquired Impaired Loans Total Loans
Construction and development $ 205,017  $ 1,212  $ —  $ —  $ 522  $ 1,734  $ —  $ 206,751 
1-4 Family 337,162  451  115  —  1,245  1,811  391  339,364 
Multifamily 57,078  —  656  —  —  656  —  57,734 
Farmland 24,304  —  —  —  —  —  1,701  26,005 
Commercial real estate 779,926  711  —  —  1,806  2,517  1,795  784,238 
Total mortgage loans on real estate 1,403,487  2,374  771  —  3,573  6,718  3,887  1,414,092 
Commercial and industrial 384,511  942  529  —  6,691  8,162  282  392,955 
Consumer 22,069  78  28  —  418  524  40  22,633 
Total loans $ 1,810,067  $ 3,394  $ 1,328  $ —  $ 10,682  $ 15,404  $ 4,209  $ 1,829,680 
 
December 31, 2019
Accruing        
Current 30-59 Days Past Due 60-89 Days Past Due 90 Days or More
Past Due
Nonaccrual Total Past Due & Nonaccrual Acquired Impaired Loans Total Loans
Construction and development $ 197,318  $ 133  $ 32  $ —  $ 314  $ 479  $ —  $ 197,797 
1-4 Family 317,572  998  413  138  1,923  3,472  445  321,489 
Multifamily 60,617  —  —  —  —  —  —  60,617 
Farmland 25,516  —  —  —  —  —  2,264  27,780 
Commercial real estate 727,423  1,193  14  657  141  2,005  1,632  731,060 
Total mortgage loans on real estate 1,328,446  2,324  459  795  2,378  5,956  4,341  1,338,743 
Commercial and industrial 323,446  171  19  —  137  327  13  323,786 
Consumer 28,443  339  95  —  531  965  38  29,446 
Total loans $ 1,680,335  $ 2,834  $ 573  $ 795  $ 3,046  $ 7,248  $ 4,392  $ 1,691,975 
Nonaccrual and Past Due Loans
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regard to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.
24

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Certain borrowers are currently experiencing difficulties meeting their contractual payment obligations because of the adverse economic effects attributable to the COVID-19 pandemic. As a result, loan customers may apply for payment deferrals, or portions thereof, for up to 90 days. In the absence of other contributing factors, these short-term modifications made on a good faith basis are not considered TDRs, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status if the loans were not past due or on non-accrual status prior to the deferral. See Note 1. Summary of Significant Accounting Policies for further discussion.
Loans Acquired with Deteriorated Credit Quality
The Company accounts for certain loans acquired as acquired impaired loans under ASC 310-30 due to evidence of credit deterioration at acquisition and the probability that the Company will be unable to collect all contractually required payments. The acquired impaired loans had no accretable yield recorded for the three and nine months ended September 30, 2020 and 2019.
Portfolio Segment Risk Factors
The following describes the risk characteristics relevant to each of the Company’s loan portfolio segments.
Construction and Development - Construction and development loans are generally made for the purpose of acquisition and development of land to be improved through the construction of commercial and residential buildings. The successful repayment of these types of loans is generally dependent upon a commitment for permanent financing from the Company, or from the sale of the constructed property. These loans carry more risk than commercial or residential real estate loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market, and state and local government regulations. One such risk is that loan funds are advanced upon the security of the property under construction, which is of uncertain value prior to the completion of construction. Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and to calculate related loan-to-value ratios. The Company attempts to minimize the risks associated with construction lending by limiting loan-to-value ratios as described above. In addition, as to speculative development loans, the Company generally makes such loans only to borrowers that have a positive pre-existing relationship with us. The Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations in any one business or industry.
1-4 Family - The 1-4 family portfolio mainly consists of residential mortgage loans to consumers to finance a primary residence. The majority of these loans are secured by properties located in the Company’s market areas and carry risks associated with the creditworthiness of the borrower and changes in the value of the collateral and loan-to-value-ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, employing experienced underwriting personnel, requiring standards for appraisers, and not making subprime loans.
Multifamily - Multifamily loans are normally made to real estate investors to support permanent financing for multifamily residential income producing properties that rely on the successful operation of the property for repayment. This management mainly involves property maintenance and collection of rents due from tenants. This type of lending carries a lower level of risk, as compared to other commercial lending. In addition, underwriting requirements for multifamily properties are stricter than for other non-owner-occupied property types. The Company manages this risk by avoiding concentrations with any particular customer.
Farmland - Farmland loans are often for land improvements related to agricultural endeavors and may include construction of new specialized facilities. These loans are usually repaid through the conversion to permanent financing, or if scheduled loan amortization begins, for the long-term benefit of the borrower’s ongoing operations. Underwriting generally involves intensive analysis of the financial strength of the borrower and guarantor, liquidation value of the subject collateral, the associated unguaranteed exposure, and any available secondary sources of repayment, with the greatest emphasis given to a borrower’s capacity to meet cash flow coverage requirements as set forth by Bank policies.
25

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Commercial Real Estate - Commercial real estate loans are extensions of credit secured by owner occupied and non-owner occupied collateral. Underwriting generally involves intensive analysis of the financial strength of the borrower and guarantor, liquidation value of the subject collateral, the associated unguaranteed exposure, and any available secondary sources of repayment, with the greatest emphasis given to a borrower’s capacity to meet cash flow coverage requirements as set forth by Bank policies. Repayment is commonly derived from the successful ongoing operations of the property. General market conditions and economic activity may impact the performance of these types of loans, including fluctuations in the value of real estate, new job creation trends, and tenant vacancy rates. The Company attempts to limit risk by analyzing a borrower’s cash flow and collateral value on an ongoing basis. The Company also typically requires personal guarantees from the principal owners of the property, supported by a review of their personal financial statements, as an additional means of mitigating our risk. The Company manages risk by avoiding concentrations in any one business or industry.
Commercial and Industrial - Commercial and industrial loans receive similar underwriting treatment as commercial real estate loans in that the repayment source is analyzed to determine its ability to meet cash flow coverage requirements as set forth by Bank policies. Repayment of these loans generally comes from the generation of cash flow as the result of the borrower’s business operations. Commercial lending generally involves different risks from those associated with commercial real estate lending or construction lending. Although commercial loans may be collateralized by equipment or other business assets (including real estate, if available as collateral), the repayment of these types of loans depends primarily on the creditworthiness and projected cash flow of the borrower (and any guarantors). Thus, the general business conditions of the local economy and the borrower’s ability to sell its products and services, thereby generating sufficient operating revenue to repay us under the agreed upon terms and conditions, are the chief considerations when assessing the risk of a commercial loan. The liquidation of collateral, if any, is considered a secondary source of repayment because equipment and other business assets may, among other things, be obsolete or of limited resale value. The Company actively monitors certain financial measures of the borrower, including advance rate, cash flow, collateral value and other appropriate credit factors.
Consumer - Consumer loans are offered by the Company in order to provide a full range of retail financial services to its customers and include auto loans, credit cards, and other consumer installment loans. Typically, the Company evaluates the borrower’s repayment ability through a review of credit scores and an evaluation of debt to income ratios. Repayment of consumer loans depends upon key consumer economic measures and upon the borrower’s financial stability, and is more likely to be adversely affected by divorce, job loss, illness and personal hardships than repayment of other loans. A shortfall in the value of any collateral also may pose a risk of loss to the Company for these types of loans.
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.
26

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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).
  September 30, 2020
Pass Special
Mention
Substandard Doubtful Total
Construction and development $ 198,557  $ 7,672  $ 522  $ —  $ 206,751 
1-4 Family 337,919  —  1,445  —  339,364 
Multifamily 57,734  —  —  —  57,734 
Farmland 24,028  —  1,977  —  26,005 
Commercial real estate 778,093  1,057  5,088  —  784,238 
Total mortgage loans on real estate 1,396,331  8,729  9,032  —  1,414,092 
Commercial and industrial 384,145  1,984  6,470  356  392,955 
Consumer 22,216  —  417  —  22,633 
Total loans $ 1,802,692  $ 10,713  $ 15,919  $ 356  $ 1,829,680 
 
  December 31, 2019
Pass Special
Mention
Substandard Doubtful Total
Construction and development $ 196,873  $ 610  $ 314  $ —  $ 197,797 
1-4 Family 318,549  714  2,198  28  321,489 
Multifamily 60,617  —  —  —  60,617 
Farmland 25,516  —  2,264  —  27,780 
Commercial real estate 729,921  —  1,139  —  731,060 
Total mortgage loans on real estate 1,331,476  1,324  5,915  28  1,338,743 
Commercial and industrial 318,519  2,910  2,264  93  323,786 
Consumer 28,775  128  543  —  29,446 
Total loans $ 1,678,770  $ 4,362  $ 8,722  $ 121  $ 1,691,975 
  
The Company had no loans that were classified as loss at September 30, 2020 or December 31, 2019.
Loan Participations and Sold Loans
Loan participations and whole loans sold to and serviced for others are not included in the accompanying consolidated balance sheets. The balance of loans serviced for others was $62.8 million and $82.8 million at September 30, 2020 and December 31, 2019, respectively. The unpaid principal balance of these loans was approximately $164.3 million and $174.7 million at September 30, 2020 and December 31, 2019, respectively.
Loans to Related Parties
In the ordinary course of business, the Company makes loans to related parties including its executive officers, principal stockholders, directors and their immediate family members, as well as companies in which these individuals are principal owners. Loans outstanding to such related party borrowers amounted to approximately $97.4 million and $98.1 million as of September 30, 2020 and December 31, 2019, respectively.
27

INVESTAR HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below shows the aggregate principal balance of loans to such related parties as of the dates presented (dollars in thousands).
  September 30, 2020 December 31, 2019
Balance, beginning of period $ 98,093  $ 93,021 
New loans 10,655  20,903 
Repayments and changes in relationship (11,325) (15,831)
Balance, end of period $ 97,423  $ 98,093 
Allowance for Loan Losses
The table below shows a summary of the activity in the allowance for loan losses for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands).
  Three months ended September 30, Nine months ended September 30,
  2020 2019 2020 2019
Balance, beginning of period $ 16,657  $ 9,924  $ 10,700  $ 9,454 
Provision for loan losses 2,500  538  8,760  1,172 
Loans charged off (183) (160) (596) (384)
Recoveries 70  37  180  97 
Balance, end of period $ 19,044  $ 10,339  $ 19,044  $ 10,339 

The following tables outline the activity in the allowance for loan losses by collateral type for the three and nine months ended September 30, 2020 and 2019, and show both the allowance and portfolio balances for loans individually and collectively evaluated for impairment as of September 30, 2020 and 2019 (dollars in thousands).
  Three months ended September 30, 2020
Construction & Development Farmland 1-4 Family Multifamily Commercial Real Estate Commercial &
Industrial
Consumer Total
Allowance for loan losses:                
Beginning balance $ 2,058  $ 207  $ 2,838  $ 486  $ 7,129  $ 3,336  $ 603  $ 16,657 
Provision 335  11  543  45  978  553  35  2,500 
Charge-offs —  —  (13) —  —  (81) (89) (183)
Recoveries 10  —  27  —  27  70 
Ending balance $ 2,403  $ 218  $ 3,395  $ 531  $ 8,110  $ 3,811  $ 576  $ 19,044 
  Three months ended September 30, 2019
Construction & Development Farmland 1-4 Family Multifamily Commercial Real Estate Commercial &
Industrial
Consumer Total
Allowance for loan losses: