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 March 31, 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

INVESTARLOGO1A03.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
þ
Non-accelerated filer
☐ 
Smaller reporting company
þ
 
 
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  þ
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, 10,938,709 shares outstanding as of May 6, 2020.




TABLE OF CONTENTS
 
 
 
 
 
 
 
4
 
 
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5
 
 
6
 
 
7
 
 
8
 
 
10
 
 
10
 
 
16
 
 
19
 
 
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22
 
 
33
 
 
33
 
 
35
 
 
36
 
 
41
 
 
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42
 
43
 
65
 
65
 
 
 
 
66
 
 
 
 
 
66
 
67
 
69
70


3



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVESTAR HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
 
 
March 31, 2020
 
December 31, 2019
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Cash and due from banks
 
$
26,641

 
$
23,769

Interest-bearing balances due from other banks
 
11,854

 
20,539

Federal funds sold
 
47

 
387

Cash and cash equivalents
 
38,542

 
44,695

 
 
 
 
 
Available for sale securities at fair value (amortized cost of $274,041 and $258,104, respectively)
 
276,281

 
259,805

Held to maturity securities at amortized cost (estimated fair value of $14,181 and $14,480, respectively)
 
14,253

 
14,409

Loans, net of allowance for loan losses of $14,233 and $10,700, respectively
 
1,715,561

 
1,681,275

Equity securities
 
17,653

 
19,315

Bank premises and equipment, net of accumulated depreciation of $13,130 and $12,432, respectively
 
54,573

 
50,916

Other real estate owned, net
 
76

 
133

Accrued interest receivable
 
8,765

 
7,913

Deferred tax asset
 
1,142

 

Goodwill and other intangible assets, net
 
32,211

 
31,035

Bank owned life insurance
 
32,204

 
32,014

Other assets
 
8,108

 
7,406

Total assets
 
$
2,199,369

 
$
2,148,916

 
 
 
 
 
LIABILITIES
 
 

 
 

Deposits:
 
 

 
 

Noninterest-bearing
 
$
339,379

 
$
351,905

Interest-bearing
 
1,389,447

 
1,355,801

Total deposits
 
1,728,826

 
1,707,706

Advances from Federal Home Loan Bank
 
167,722

 
131,600

Repurchase agreements
 
3,732

 
2,995

Subordinated debt, net of unamortized issuance costs
 
42,831

 
42,826

Junior subordinated debt
 
5,910

 
5,897

Accrued taxes and other liabilities
 
17,076

 
15,916

Total liabilities
 
1,966,097

 
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; 10,940,021 and 11,228,775 shares issued and outstanding, respectively
 
10,940

 
11,229

Surplus
 
162,380

 
168,658

Retained earnings
 
60,146

 
60,198

Accumulated other comprehensive (loss) income
 
(194
)
 
1,891

Total stockholders’ equity
 
233,272

 
241,976

Total liabilities and stockholders’ equity
 
$
2,199,369

 
$
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 March 31,
 
 
2020
 
2019
INTEREST INCOME
 
 
 
 
Interest and fees on loans
 
$
21,669

 
$
18,544

Interest on investment securities
 
1,695

 
1,926

Other interest income
 
257

 
216

Total interest income
 
23,621

 
20,686

 
 
 
 
 
INTEREST EXPENSE
 
 

 
 

Interest on deposits
 
5,032

 
4,106

Interest on borrowings
 
1,254

 
1,424

Total interest expense
 
6,286

 
5,530

Net interest income
 
17,335

 
15,156

 
 
 
 
 
Provision for loan losses
 
3,760

 
265

Net interest income after provision for loan losses
 
13,575

 
14,891

 
 
 
 
 
NONINTEREST INCOME
 
 

 
 

Service charges on deposit accounts
 
571

 
400

Gain on sale of investment securities, net
 
172

 
2

Gain on sale of other real estate owned, net
 
26

 
5

Servicing fees and fee income on serviced loans
 
120

 
180

Interchange fees
 
295

 
240

Income from bank owned life insurance
 
190

 
152

Change in the fair value of equity securities
 
(826
)
 
172

Other operating income
 
541

 
130

Total noninterest income
 
1,089

 
1,281

Income before noninterest expense
 
14,664

 
16,172

 
 
 
 
 
NONINTEREST EXPENSE
 
 

 
 

Depreciation and amortization
 
1,033

 
764

Salaries and employee benefits
 
7,953

 
6,415

Occupancy
 
531

 
414

Data processing
 
693

 
536

Marketing
 
32

 
51

Professional fees
 
394

 
305

Acquisition expense
 
751

 
905

Other operating expenses
 
2,520

 
1,913

Total noninterest expense
 
13,907

 
11,303

Income before income tax expense
 
757

 
4,869

Income tax expense
 
149

 
952

Net income
 
$
608

 
$
3,917

 
 
 
 
 
EARNINGS PER SHARE
 
 

 
 

Basic earnings per share
 
$
0.05

 
$
0.40

Diluted earnings per share
 
0.05

 
0.40

Cash dividends declared per common share
 
0.06

 
0.05

See accompanying notes to the consolidated financial statements.

5



INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2020
 
2019
Net income
 
$
608

 
$
3,917

Other comprehensive income (loss):
 
 

 
 

Unrealized gain (loss) on investment securities:
 
 

 
 

Unrealized gain, available for sale, net of tax expense of $149, and $588, respectively
 
562

 
2,212

Reclassification of realized gain, net of tax expense of $36 and $0, respectively
 
(136
)
 
(2
)
Fair value of derivative financial instruments:
 
 

 
 

Change in fair value of interest rate swap designated as a cash flow hedge, net of tax benefit of $667 and $44, respectively
 
(2,511
)
 
(167
)
Total other comprehensive (loss) income
 
(2,085
)
 
2,043

Total comprehensive (loss) income
 
$
(1,477
)
 
$
5,960

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:
 
 
 
 
 
 
 
 
 
 
March 31, 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
 
(9
)
 
(223
)
 

 

 
(232
)
Shares repurchased
 
(144
)
 
(3,224
)
 

 

 
(3,368
)
Dividends declared, $0.05 per share
 

 

 
(534
)
 

 
(534
)
Stock-based compensation
 
35

 
254

 

 

 
289

Net income
 

 

 
3,917

 

 
3,917

Other comprehensive income, net
 

 

 

 
2,043

 
2,043

Balance at end of period
 
$
10,130

 
$
144,813

 
$
49,104

 
$
(1,033
)
 
$
203,014

 
 
 
 
 
 
 
 
 
 
 
March 31, 2020
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
11,229

 
$
168,658

 
$
60,198

 
$
1,891

 
$
241,976

Stock issuance costs
 

 
(45
)
 

 

 
(45
)
Surrendered shares
 
(13
)
 
(279
)
 

 

 
(292
)
Options exercised
 
3

 
43

 

 

 
46

Dividends declared, $0.06 per share
 

 

 
(660
)
 

 
(660
)
Stock-based compensation
 
48

 
335

 

 

 
383

Shares repurchased
 
(327
)
 
(6,332
)
 

 

 
(6,659
)
Net income
 

 

 
608

 

 
608

Other comprehensive loss, net
 

 

 

 
(2,085
)
 
(2,085
)
Balance at end of period
 
$
10,940

 
$
162,380

 
$
60,146

 
$
(194
)
 
$
233,272

 
 
 
 
 
 
 
 
 
 
 

See accompanying notes to the consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 



7



INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited) 
 
 
Three months ended March 31,
 
 
2020
 
2019
Net income
 
$
608

 
$
3,917

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
1,033

 
764

Provision for loan losses
 
3,760

 
265

Amortization of purchase accounting adjustments
 
(299
)
 
(393
)
Net amortization of securities
 
538

 
(28
)
Gain on sale of investment securities, net
 
(172
)
 
(2
)
Gain on sale of other real estate owned, net
 
(26
)
 
(5
)
FHLB stock dividend
 
(715
)
 
(85
)
Stock-based compensation
 
383

 
289

Deferred taxes
 
(347
)
 
289

Net change in value of bank owned life insurance
 
(190
)
 
(152
)
Amortization of subordinated debt issuance costs
 
5

 
12

Change in the fair value of equity securities
 
826

 
(172
)
Net change in:
 
 
 
 
Accrued interest receivable
 
(851
)
 
(578
)
Other assets
 
(1,270
)
 
281

Accrued taxes and other liabilities
 
(2,500
)
 
1,464

Net cash provided by operating activities
 
$
783

 
$
5,866

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Proceeds from sales of investment securities available for sale
 
$
16,572

 
$
393

Purchases of securities available for sale
 
(47,882
)
 
(22,331
)
Proceeds from maturities, prepayments and calls of investment securities available for sale
 
15,014

 
9,499

Proceeds from maturities, prepayments and calls of investment securities held to maturity
 
151

 
240

Proceeds from redemption or sale of equity securities
 
2,371

 

Purchase of equity securities
 
(820
)
 

Net decrease (increase) in loans
 
6,322

 
(11,345
)
Proceeds from sales of other real estate owned
 
131

 
3,275

Purchases of fixed assets
 
(1,759
)
 
(2,425
)
Distributions from investments
 
7

 
8

Cash acquired from acquisition of Mainland Bank
 

 
38,365

Cash paid for acquisition PlainsCapital branches, net of cash acquired
 
(10,761
)
 

Net cash (used in) provided by investing activities
 
$
(20,654
)
 
$
15,679


8



INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Net (decrease) increase in customer deposits
 
$
(15,803
)
 
$
63,432

Net increase (decrease) in repurchase agreements
 
737

 
(4,465
)
Net increase (decrease) in short-term FHLB advances
 
36,721

 
(21,400
)
Repayment of long-term FHLB advances
 
(600
)
 

Cash dividends paid on common stock
 
(679
)
 
(481
)
Proceeds from stock options and warrants exercised
 
46

 

Payments to repurchase common stock
 
(6,659
)
 
(3,368
)
Payment of stock issuance costs
 
(45
)
 

Net cash provided by financing activities
 
$
13,718

 
$
33,718

 
 
 
 
 
Net change in cash and cash equivalents
 
$
(6,153
)
 
$
55,263

Cash and cash equivalents, beginning of period
 
44,695

 
17,140

Cash and cash equivalents, end of period
 
$
38,542

 
$
72,403

See accompanying notes to the consolidated financial statements.

9

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 month periods ended March 31, 2020 is 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 March 31, 2020, the Company operated 23 full service branches located in Louisiana, five full service branches located in Texas and two full service branches in southwest Alabama and had 335 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, the fair value of financial instruments and goodwill.
The outbreak of the COVID-19 disease, declared a pandemic by the World Health Organization on March 11, 2020, has made certain estimates more challenging, including those discussed above, as the pandemic is unprecedented in recent history, rapidly evolving, and its future effects are impossible to predict with any certainty.

10

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 (“IBFC”) and First National Bankers Bank (“FNBB”) stock. These investments are carried at cost which approximates fair value. The balance of equity securities in our correspondent banks at March 31, 2020 and December 31, 2019 was $16.4 million and $17.2 million, respectively.
In addition, equity securities include marketable securities in corporate stocks and mutual funds and totaled $1.3 million and $2.1 million at March 31, 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.

11

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 adequacy of the allowance for loan losses is determined in accordance with GAAP. 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 uncollectable. 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 March 31, 2020 and December 31, 2019 the reserve for unfunded loan commitments was $144,000 and $95,000, respectively.

12

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.
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 Company does not expect the adoption of this ASU to have an immediate impact.

13

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

As of March 31, 2020, we evaluated recent potential triggering events that may be indicators that our goodwill was impaired. The events include 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, we identified a triggering event and performed an interim goodwill impairment test as of March 31, 2020. Factors considered in our impairment evaluation include 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, at which time the Company had goodwill of $27.4 million.
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, prior to our annual impairment test performed in the fourth quarter, 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 (TDR) 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.
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 March 31, 2020, the Company had placed approximately $55 million, or 3% of the total loan portfolio, on a 90-day deferral plan. As of May 4, 2020, the Company had placed approximately $531 million, or 30% of the total loan portfolio, on the loan deferral program, of which 87% are secured by real estate with loan-to-value ratios averaging 67%. Of the loans participating in the deferral program, 69% have deferrals of principal and interest, 18% have deferrals of principal only, and 13% 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.

14

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

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.

 

15

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, including total adjustments of approximately $1.1 million to loans and $0.3 million to other assets recorded in the three months ended March 31, 2020, 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 is $92.4 million.
During the three months ended March 31, 2020, and 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. 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.


16

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, 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 $4.3 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
 
46,089

Bank premises and equipment
 
917

Core deposit intangible asset
 
931

Bank owned life insurance
 
2,429

Other assets
 
351

Total assets acquired
 
101,944

 
 
 
Fair value of liabilities acquired:
 
 
Deposits
 
85,004

Repurchase agreements
 
5,641

Other liabilities
 
562

Total liabilities assumed
 
91,207

 
 
 
Fair value of net assets acquired
 
10,737

Goodwill
 
$
4,263

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 total contractually required principal and interest payments of the loans acquired from Bank of York are $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.

17

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 is $51.3 million. No loans acquired from PlainsCapital were considered to be purchased credit impaired loans.
Acquisition Expense
Acquisition related costs of $0.8 million are included in acquisition expenses in the accompanying consolidated statement of income for the three months ended March 31, 2020. These costs include system conversion and integrating operations charges as well as legal and consulting expenses primarily related to the acquisition of two branches from PlainsCapital.

18

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 months ended March 31, 2020 and 2019 (in thousands, except share data).
 
 
 
Three months ended March 31,
 
 
2020
 
2019
Earnings per common share - basic
 


 


Net income
 
$
608

 
$
3,917

Less: income allocated to participating securities
 
(3
)
 
(46
)
Net income allocated to common shareholders
 
$
605

 
$
3,871

Weighted-average basic shares outstanding
 
11,143,078

 
9,675,381

Basic earnings per common share
 
$
0.05

 
$
0.40


 


 


Earnings per common share - diluted
 


 


Net income allocated to common shareholders
 
$
605

 
$
3,871

Weighted-average basic shares outstanding
 
11,143,078

 
9,675,381

Dilutive effect of securities
 
68,265

 
95,371

Total weighted average diluted shares outstanding
 
11,211,343

 
9,770,752

Diluted earnings per common share
 
$
0.05

 
$
0.40

 
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 March 31,
 
 
2020
 
2019
Stock options
 
3,782

 

Restricted stock awards
 
295

 
55

Restricted stock units
 
64,780

 
44,467

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
March 31, 2020
 
 
 
 
Obligations of U.S. government agencies and corporations
 
$
43,966

 
$
150

 
$
(107
)
 
$
44,009

Obligations of state and political subdivisions
 
32,717

 
652

 
(1,386
)
 
31,983

Corporate bonds
 
24,069

 
243

 
(1,218
)
 
23,094

Residential mortgage-backed securities
 
100,852

 
2,846

 
(16
)
 
103,682

Commercial mortgage-backed securities
 
72,437

 
1,344

 
(268
)
 
73,513

Total
 
$
274,041

 
$
5,235

 
$
(2,995
)
 
$
276,281

 

19

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 March 31,
 
 
2020
 
2019
Proceeds from sale
 
$
16,572

 
$
393

Gross gains
 
$
182

 
$
2

Gross losses
 
$
10

 
$


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
March 31, 2020
 
 
 
 
Obligations of state and political subdivisions
 
$
9,371

 
$

 
$
(262
)
 
$
9,109

Residential mortgage-backed securities
 
4,882

 
190

 

 
5,072

Total
 
$
14,253

 
$
190

 
$
(262
)
 
$
14,181

 
 
 
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 March 31, 2020 or December 31, 2019.
The aggregate fair values and aggregate unrealized losses on securities whose fair values are below book values are summarized in the tables below. Unrealized losses are generally due to changes in interest rates. However, during the three months ended March 31, 2020, the change in market valuation can largely be attributed to the COVID-19 pandemic. As the risks associated with the contagion became more apparent, capital markets responded accordingly, and fair values decreased 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.

20

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
March 31, 2020
 
 
 
 
 
 
 
Obligations of U.S. government agencies and corporations
 
18

 
$
22,871

 
$
(107
)
 
$

 
$

 
$
22,871

 
$
(107
)
Obligations of state and political subdivisions
 
20

 

 

 
16,873

 
(1,386
)
 
16,873

 
(1,386
)
Corporate bonds
 
27

 
5,318

 
(408
)
 
7,539

 
(810
)
 
12,857

 
(1,218
)
Residential mortgage-backed securities
 
15

 
3,128

 
(14
)
 
147

 
(2
)
 
3,275

 
(16
)
Commercial mortgage-backed securities
 
30

 
19,442

 
(245
)
 
1,868

 
(23
)
 
21,310

 
(268
)
Total
 
110

 
$
50,759

 
$
(774
)
 
$
26,427

 
$
(2,221
)
 
$
77,186

 
$
(2,995
)
 
 
 
 
 
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 number of HTM 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
March 31, 2020
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
6

 
$

 
$

 
$
9,108

 
$
(262
)
 
$
9,108

 
$
(262
)
Residential mortgage-backed securities
 

 

 

 

 

 

 

Total
 
6

 
$

 
$

 
$
9,108

 
$
(262
)
 
$
9,108

 
$
(262
)

 
 
 
 
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 state and political subdivisions
 

 
$

 
$

 
$

 
$

 
$

 
$

Residential mortgage-backed securities
 

 

 

 

 

 

 

Total
 

 
$

 
$

 
$

 
$

 
$

 
$

 
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 March 31, 2020 or December 31, 2019.

21

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

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
March 31, 2020
 
 
 
 
Due within one year
 
$
460

 
$
471

 
$
790

 
$
790

Due after one year through five years
 
12,834

 
12,925

 
3,575

 
3,554

Due after five years through ten years
 
78,098

 
77,382

 
5,006

 
4,764

Due after ten years
 
182,649

 
185,503

 
4,882

 
5,073

Total debt securities
 
$
274,041

 
$
276,281

 
$
14,253

 
$
14,181


 
 
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 March 31, 2020, securities with a carrying value of $111.7 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).
 
 
March 31, 2020
 
December 31, 2019
Construction and development
 
$
191,597

 
$
197,797

1-4 Family
 
328,730

 
321,489

Multifamily
 
61,709

 
60,617

Farmland
 
29,373

 
27,780

Commercial real estate
 
776,354

 
731,060

Total mortgage loans on real estate
 
1,387,763

 
1,338,743

Commercial and industrial
 
313,850

 
323,786

Consumer
 
28,181

 
29,446

Total loans
 
$
1,729,794

 
$
1,691,975

Unamortized premiums and discounts on loans, included in the total loans balances above, were $3.9 million and $2.1 million at March 31, 2020 and December 31, 2019, respectively.

22

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

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.
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 months ended March 31, 2020 and 2019.
The table below provides an analysis of the aging of loans as of the dates presented (dollars in thousands).
 
 
March 31, 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
 
$
190,205

 
$
177

 
$
3

 
$

 
$
1,212

 
$
1,392

 
$

 
$
191,597

1-4 Family
 
323,740

 
1,902

 
229

 
162

 
2,292

 
4,585

 
405

 
328,730

Multifamily
 
60,799

 
910

 

 

 

 
910

 

 
61,709

Farmland
 
27,109

 

 

 

 

 

 
2,264

 
29,373

Commercial real estate
 
772,717

 
1,737

 
197

 

 
139

 
2,073

 
1,564

 
776,354

Total mortgage loans on real estate
 
1,374,570

 
4,726

 
429

 
162

 
3,643

 
8,960

 
4,233

 
1,387,763

Commercial and industrial
 
310,597

 
1,422

 
592

 

 
197

 
2,211

 
1,042

 
313,850

Consumer
 
27,194

 
390

 
15

 
1

 
543

 
949

 
38

 
28,181

Total loans
 
$
1,712,361

 
$
6,538

 
$
1,036

 
$
163

 
$
4,383

 
$
12,120

 
$
5,313

 
$
1,729,794

 

23

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

 
 
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

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.

24

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 busines