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On January 1, 2023 the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced a new model known as CECL. Refer to Note 1. Summary of Significant Accounting Policies for more information on the adoption of ASC Topic 326. For PCD loans, formerly classified as PCI, the Company applied the guidance under CECL using the prospective transition approach. As a result, the Company adjusted the amortized cost basis of the PCD loans to reclassify the purchase discount to the allowance for credit losses on January 1, 2023. 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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 March 31, 2023

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

 

 

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

(Registrants 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, 9,917,350 shares outstanding as of May 1, 2023.

 

 

 
 

TABLE OF CONTENTS

 

Part I. Financial Information

 
     

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

3

 

Consolidated Statements of Income for the three months ended March 31, 2023 and 2022

4

 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022

5

 

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022

6

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

7

 

Notes to the Consolidated Financial Statements

9

 

Note 1. Summary of Significant Accounting Policies

9

 

Note 2. Earnings Per Share

11
 

Note 3. Investment Securities

12
 

Note 4. Loans and Allowance for Credit Losses

15
 

Note 5. Stockholders’ Equity

25
 

Note 6. Derivative Financial Instruments

26
 

Note 7. Fair Values of Financial Instruments

27
 

Note 8. Income Taxes

32
 

Note 9. Commitments and Contingencies

32
 

Note 10. Leases

33

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

56

Item 4.

Controls and Procedures

56
     

Part II. Other Information

 
     

Item 1A.

Risk Factors

57

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 6.

Exhibits

59

Signatures

60

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

INVESTAR HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

 

  

March 31, 2023

  

December 31, 2022

 
  

(Unaudited)

     

ASSETS

        

Cash and due from banks

 $30,571  $30,056 

Interest-bearing balances due from other banks

  722   10,010 

Federal funds sold

     193 

Cash and cash equivalents

  31,293   40,259 
         

Available for sale securities at fair value (amortized cost of $462,332 and $467,316, respectively)

  406,107   405,167 

Held to maturity securities at amortized cost (estimated fair value of $7,805 and $7,922, respectively)

  8,048   8,305 

Loans

  2,109,044   2,104,767 

Less: allowance for credit losses

  (30,521)  (24,364)

Loans, net

  2,078,523   2,080,403 

Equity securities

  24,617   27,254 

Bank premises and equipment, net of accumulated depreciation of $21,670 and $22,025, respectively

  47,698   49,587 

Other real estate owned, net

  662   682 

Accrued interest receivable

  12,947   12,749 

Deferred tax asset

  16,434   16,438 

Goodwill and other intangible assets, net

  42,864   43,147 

Bank owned life insurance

  57,715   57,379 

Other assets

  24,761   12,437 

Total assets

 $2,751,669  $2,753,807 
         

LIABILITIES

        

Deposits:

        

Noninterest-bearing

 $508,241  $580,741 

Interest-bearing

  1,637,406   1,501,624 

Total deposits

  2,145,647   2,082,365 

Advances from Federal Home Loan Bank

  300,116   387,000 

Federal funds purchased

  440    

Subordinated debt, net of unamortized issuance costs

  44,248   44,225 

Junior subordinated debt

  8,545   8,515 

Accrued taxes and other liabilities

  34,215   15,920 

Total liabilities

  2,533,211   2,538,025 
         

Commitments and contingencies (Note 9)

        
         

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; 9,900,648 and 9,901,847 shares issued and outstanding, respectively

  9,901   9,902 

Surplus

  146,027   146,587 

Retained earnings

  106,780   108,206 

Accumulated other comprehensive loss

  (44,250)  (48,913)

Total stockholders’ equity

  218,458   215,782 

Total liabilities and stockholders’ equity

 $2,751,669  $2,753,807 

 

See accompanying notes to the consolidated financial statements.

 

 

 

INVESTAR HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except share data)

(Unaudited)

 

   

Three months ended March 31,

 
   

2023

   

2022

 

INTEREST INCOME

               

Interest and fees on loans

  $ 27,359     $ 21,726  

Interest on investment securities:

               

Taxable

    3,085       1,814  

Tax-exempt

    105       141  

Other interest income

    428       186  

Total interest income

    30,977       23,867  
                 

INTEREST EXPENSE

               

Interest on deposits

    6,221       976  

Interest on borrowings

    4,583       1,070  

Total interest expense

    10,804       2,046  

Net interest income

    20,173       21,821  
                 

Provision for credit losses

    388       (449 )

Net interest income after provision for credit losses

    19,785       22,270  
                 

NONINTEREST INCOME

               

Service charges on deposit accounts

    740       667  

(Loss) gain on call or sale of investment securities, net

    (1 )     6  

(Loss) gain on sale or disposition of fixed assets, net

    (859 )     373  

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

    (142 )     41  

Swap termination fee income

          3,344  

Gain on sale of loans

    75       33  

Servicing fees and fee income on serviced loans

    6       21  

Interchange fees

    438       498  

Income from bank owned life insurance

    336       292  

Change in the fair value of equity securities

    (4 )     11  

Other operating income

    487       580  

Total noninterest income

    1,076       5,866  

Income before noninterest expense

    20,861       28,136  
                 

NONINTEREST EXPENSE

               

Depreciation and amortization

    1,052       1,155  

Salaries and employee benefits

    9,334       9,021  

Occupancy

    1,024       641  

Data processing

    875       1,006  

Marketing

    69       21  

Professional fees

    633       379  

Other operating expenses

    3,188       3,210  

Total noninterest expense

    16,175       15,433  

Income before income tax expense

    4,686       12,703  

Income tax expense

    874       2,600  

Net income

  $ 3,812     $ 10,103  
                 

EARNINGS PER SHARE

               

Basic earnings per share

  $ 0.38     $ 0.98  

Diluted earnings per share

    0.38       0.97  

Cash dividends declared per common share

    0.095       0.085  

 

See accompanying notes to the consolidated financial statements.

 

 

 

INVESTAR HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

(Unaudited)

 

  

Three months ended March 31,

 
  

2023

  

2022

 

Net income

 $3,812  $10,103 

Other comprehensive income (loss):

        

Investment securities:

        

Unrealized gain (loss), available for sale, net of tax expense (benefit) of $1,261 and ($4,587), respectively

  4,662   (17,259)

Reclassification of realized loss (gain), available for sale, net of tax expense of $0 and $1, respectively

  1   (5)

Derivative financial instruments:

        

Change in fair value of interest rate swaps designated as cash flow hedges, net of tax expense of $0 and $843, respectively

     3,172 

Reclassification of realized gain, interest rate swap termination, net of tax expense of $0 and $702, respectively

     (2,642)

Total other comprehensive income (loss)

  4,663   (16,734)

Total comprehensive income (loss)

 $8,475  $(6,631)

 

See accompanying notes to the consolidated financial statements.

 

 

 

INVESTAR HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(Amounts in thousands, except share data)

(Unaudited)

 

              

Accumulated

     
              

Other

  

Total

 
  

Common

      

Retained

  

Comprehensive

  

Stockholders’

 
  

Stock

  

Surplus

  

Earnings

  

Income (Loss)

  

Equity

 

Three months ended:

                    

March 31, 2022

                    

Balance at beginning of period

 $10,343  $154,932  $76,160  $1,163  $242,598 

Surrendered shares

  (14)  (258)        (272)

Dividends declared, $0.085 per share

        (876)     (876)

Stock-based compensation

  58   324         382 

Shares repurchased

  (77)  (1,467)        (1,544)

Net income

        10,103      10,103 

Other comprehensive loss, net

           (16,734)  (16,734)

Balance at end of period

 $10,310  $153,531  $85,387  $(15,571) $233,657 
                     

March 31, 2023

                    

Balance at beginning of period

 $9,902  $146,587  $108,206  $(48,913) $215,782 

Cumulative effect of adoption of ASU 2016-13, net

        (4,295)     (4,295)

Surrendered shares

  (10)  (177)        (187)

Options exercised

  8   97         105 

Dividends declared, $0.095 per share

        (943)     (943)

Stock-based compensation

  47   386         433 

Shares repurchased

  (46)  (866)        (912)

Net income

        3,812      3,812 

Other comprehensive income, net

           4,663   4,663 

Balance at end of period

 $9,901  $146,027  $106,780  $(44,250) $218,458 

 

See accompanying notes to the consolidated financial statements.

 

 

 

INVESTAR HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited) 

 

   

Three months ended March 31,

 
   

2023

   

2022

 

Net income

  $ 3,812     $ 10,103  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    1,052       1,155  

Provision for credit losses

    388       (449 )

Amortization of purchase accounting adjustments

    (89 )     (63 )

Net amortization of securities

    45       449  

Loss (gain) on call or sale of investment securities, net

    1       (6 )

Loss (gain) on sale or disposition of fixed assets, net

    859       (373 )

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

    142       (41 )

Gain on sale of loans to First Community Bank

    (75 )      

FHLB stock dividend

    (186 )     (9 )

Stock-based compensation

    433       382  

Deferred taxes

    (116 )     87  

Net change in value of bank owned life insurance

    (336 )     (292 )

Amortization of subordinated debt issuance costs

    23       23  

Change in the fair value of equity securities

    4       (11 )

Loans held for sale:

               

Originations

          (624 )

Proceeds from sales

          1,277  

Gain on sale of loans

          (33 )

Net change in:

               

Accrued interest receivable

    (198 )     186  

Other assets

    5,487       1,636  

Accrued taxes and other liabilities

    1,125       6,814  

Net cash provided by operating activities

    12,371       20,211  
                 

Cash flows from investing activities:

               

Proceeds from sales of investment securities available for sale

    2,364        

Purchases of securities available for sale

    (7,632 )     (103,011 )

Proceeds from maturities, prepayments and calls of investment securities available for sale

    10,209       17,453  

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

    254       323  

Proceeds from redemption or sale of equity securities

    4,000       213  

Purchases of equity securities

    (1,182 )     (1,293 )

Net increase in loans

    (18,671 )     (1,166 )

Proceeds from sales of other real estate owned

    794       859  

Proceeds from sales of fixed assets

          2,510  

Purchases of fixed assets

    (324 )     (317 )

Purchases of other investments

    (279 )      

Distributions from investments

    37       3  

Cash paid for branch sale to First Community Bank, net of cash received

    (596 )      

Net cash used in investing activities

    (11,026 )     (84,426 )

 

 

INVESTAR HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(Amounts in thousands)

(Unaudited)

 

Cash flows from financing activities:

               

Net increase in customer deposits

    77,883       65,630  

Net increase in federal funds purchased

    440        

Net decrease in repurchase agreements

          (4,478 )

Net decrease in short-term FHLB advances

    (56,884 )      

Repayment of long-term FHLB advances

    (30,000 )      

Cash dividends paid on common stock

    (943 )     (829 )

Proceeds from stock options exercised

    105        

Payments to repurchase common stock

    (912 )     (1,544 )

Net cash (used in) provided by financing activities

    (10,311 )     58,779  

Net change in cash and cash equivalents

    (8,966 )     (5,436 )

Cash and cash equivalents, beginning of period

    40,259       97,041  

Cash and cash equivalents, end of period

  $ 31,293     $ 91,605  

 

See accompanying notes to the consolidated financial statements.

 

 

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 period ended March 31, 2023 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, 2022, 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 8, 2023.

 

Nature of Operations

 

The Company is a financial holding company, headquartered in Baton Rouge, Louisiana that 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, professionals and small to medium-sized businesses. The Company’s primary markets are in south Louisiana, southeast Texas and Alabama. At March 31, 2023, the Company operated 20 full service branches located in Louisiana, two full service branches located in Texas and six full service branches located in Alabama, and had 332 full-time equivalent 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 credit losses. While management uses available information to recognize credit losses on loans, future additions to the allowance may be necessary based on changes in economic conditions, changes in conditions of our borrowers’ industries or changes in the condition of individual borrowers. As described below under “Accounting Standards Adopted in 2023,” the Company adopted Accounting Standards Update (“ASU”) 2016-13 effective January 1, 2023, which changed how the Company accounts for the allowance for credit losses. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit 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 credit 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 allowance for off-balance sheet credit losses, the fair value of stock-based compensation awards, the determination of other-than-temporary impairments of securities, and the fair value of financial instruments and goodwill. Rapidly changing inflation rates and rising interest rates have made certain estimates more challenging, including those discussed above.

 

Reclassifications

 

Certain reclassifications have been made to prior period balances to conform to the current period presentation.

 

9

 

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Accounting Standards Adopted in 2023

 

FASB ASC Topic 326 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” Update No. 2016-13 (ASU 2016-13). ASU 2016-13 became effective for the Company as a smaller reporting company on January 1, 2023. ASU 2016-13, also referred to as the Current Expected Credit Loss (“CECL”) standard, requires financial assets measured on an amortized cost basis, including loans and held-to-maturity debt securities, to be presented at an amount net of an allowance for credit losses, which reflects expected losses for the full life of the financial asset. Unfunded lending commitments are also within the scope of this topic.

 

CECL 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. The CECL methodology requires that lifetime expected credit losses be recorded at the time the financial asset is originated or acquired, and be adjusted each period as a provision for credit losses for changes in expected lifetime credit losses. Under prior GAAP, credit losses were not recognized until the occurrence of the loss was probable and entities, in general, did not attempt to estimate credit losses for the full life of financial assets.


ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the lifetime credit loss estimate. The Company developed a CECL model methodology that calculates expected credit losses over the life of the portfolio by analyzing the composition, characteristics and quality of the loan and securities portfolios, as well as prevailing economic conditions and forecasts. The Company’s CECL calculation estimates loan losses using a combination of discounted cash flow and remaining life analyses. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, when necessary, the model reverts back to the historical loss rates adjusted for qualitative factors related to current conditions using a four-quarter reversion period. The Company adopted ASU 2016-13 using the modified retrospective approach for all loans and off-balance sheet credit exposures measured at amortized cost, other than purchased credit deteriorated (“PCD”) financial assets. Results for reporting periods beginning after December 31, 2022 are presented in accordance with ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

 

ASU 2016-13 also amended the accounting model for purchased financial assets and replaced the guidance for purchased credit impaired (“PCI”) financial assets with the concept of PCDs. For PCD assets, the CECL estimate is recognized through the allowance for credit losses with an offset to the amortized cost basis of the PCD asset at the date of acquisition. Subsequent changes in the allowance for credit losses for PCD assets are recognized through a provision for credit losses on loans. The Company used the prospective transition approach for PCD loans that were previously classified as PCI and accounted for under ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). As permitted under ASU 2016-13, the Company did not reassess whether PCI assets meet the criteria of PCD assets as of the date of adoption.

 

The Company adopted ASU 2016-13 on January 1, 2023, and recorded a one-time, cumulative effect adjustment as shown in the table below (dollars in thousands).

 

  

December 31, 2022

Impact of ASU 2016-13 Adoption

January 1, 2023

Assets:

            

Allowance for credit losses

 $(24,364) $(5,865) $(30,229)

Deferred tax asset

  16,438   1,142   17,580 

Remaining purchase discount on loans(1)

  (818)  422   (396)

Liabilities:

            

Reserve for unfunded loan commitments(2)

  372   (6)  366 

Stockholders’ Equity

            

Retained earnings

  108,206   (4,295)  103,911 

 

(1) For PCD loans, formerly classified as PCI, the Company applied the guidance under CECL using the prospective transition approach. As a result, the Company adjusted the amortized cost basis of the PCD loans to reclassify the purchase discount to the allowance for credit losses on January 1, 2023.
(2) The allowance for credit losses on unfunded loan commitments is included in “Accrued taxes and other liabilities” in the accompanying consolidated balance sheets. The related provision for credit losses on unfunded loan commitments is included in “Provision for credit losses” in the accompanying consolidated statement of income for the three months ended March 31, 2023.

 

In addition, ASU 2016-13 amends the accounting for credit losses on available for sale (“AFS”) securities, requiring expected credit losses on AFS securities to be recorded in an allowance for credit losses rather than as a write-down of the securities’ amortized cost basis when management does not intend to sell or believes that it is not more likely than not that they will be required to sell the securities prior to recovery of the securities’ amortized cost basis. If management has the intent to sell or believes it is more likely than not the Company will be required to sell an impaired available for sale security before recovery of the amortized cost basis, the credit loss is recorded as a direct write-down of the amortized cost basis. Declines in the fair value of AFS securities that are not considered credit related are recognized in accumulated other comprehensive income. In addition, expected credit losses on held to maturity (“HTM”) securities are required to be recorded in an allowance for credit losses rather than as a write-down of the securities’ amortized cost basis. The Companys AFS and HTM securities portfolios were not materially impacted by the adoption of ASU 2016-13 due to the composition of the portfolios, which consists primarily of U.S. Treasury and U.S. government agencies and corporations securities and mortgage-backed securities. Due to the nature of the investments, current market prices, and the current interest rate environment, the Company determined that the declines in the fair values of the HTM and AFS securities portfolio were not attributable to credit losses. The Company will apply the provisions of ASU 2016-13 to debt securities that have an other-than-temporary impairment on a prospective basis. Accordingly, there was no adjustment made to the amortized cost basis upon adoption. The adoption of ASU 2016-13 did not have a significant impact on the Company’s regulatory capital ratios. 

 

The allowance for credit losses is measured on a pool basis when similar risk characteristics exist and is maintained at an amount which management believes is a current estimate of the expected credit losses for the full life of the relevant pool of loans and related unfunded lending commitments. For modeling purposes, loan pools include: agriculture and farmland, automotive, commercial and industrial, construction and development, commercial real estate - non-owner occupied and multifamily, commercial real estate - owner occupied, credit cards, home equity lines of credit and junior liens, consumer, residential senior liens, and other loans, which primarily consist of public finance. Management periodically reassesses each pool to confirm the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. The loss rates computed for each pool and expected pool-level funding rates are applied to the related unfunded lending commitments to calculate an allowance for credit losses. 

 

Loans that do not share similar risk characteristics with other loans are excluded from the loan pools and individually evaluated for impairment. Individually evaluated loans are loans for which it is probable that all the amounts due under the contractual terms of the loan will not be collected.

 

FASB ASC Topic 326 “Financial Instruments – Credit Losses, Troubled Debt Restructurings and Vintage Disclosures” Update No. 2022-02 (“ASU 2022-02”). ASU 2022-02 became effective for the Company on January 1, 2023 and is applied prospectively. ASU 2022-02 amends Topic 326 to eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have adopted ASU 2016-13 and, instead, requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendment also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

 

Accounting Pronouncements Not Yet Adopted

 

FASB ASC Topic 848 “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” Update No. 2020-04 (ASU 2020-04) and FASB ASC Topic 848 “Reference Rate Reform: Deferral of the Sunset Date” Update No. 2022-06 (ASU 2022-06). 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. ASU 2020-04 became effective as of March 12, 2020 and could be adopted any time during the period of January 1, 2020 through December 31, 2022. In  December 2022, the FASB issued ASU 2022-06, which deferred the sunset date of ASU 2020-04 from  December 31, 2022 to  December 31, 2024. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated financial statements.

 

10

 
 

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2. EARNINGS PER SHARE

 

The following is a summary of the information used in the computation of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022 (in thousands, except share data).

 

  

Three months ended March 31,

 
  

2023

  

2022

 

Earnings per common share - basic

        

Net income

 $3,812  $10,103 

Less: income allocated to participating securities

  (1)  (16)

Net income allocated to common shareholders

  3,811   10,087 

Weighted average basic shares outstanding

  9,908,931   10,335,334 

Basic earnings per common share

 $0.38  $0.98 
         

Earnings per common share - diluted

        

Net income allocated to common shareholders

 $3,811  $10,087 

Weighted average basic shares outstanding

  9,908,931   10,335,334 

Dilutive effect of securities

  83,536   70,449 

Total weighted average diluted shares outstanding

  9,992,467   10,405,783 

Diluted earnings per common share

 $0.38  $0.97 

 

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,

 
  

2023

  

2022

 

Stock options

  6,011    

Restricted stock awards

     11 

Restricted stock units

  7,760   3,328 

 

11

 

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3. INVESTMENT SECURITIES

 

Debt 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).

 

      

Gross

  

Gross

     
      

Unrealized

  

Unrealized

  

Fair

 
  

Amortized Cost

  

Gains

  

Losses

  

Value

 

March 31, 2023

                

Obligations of the U.S. Treasury and U.S. government agencies and corporations

 $29,786  $148  $(526) $29,408 

Obligations of state and political subdivisions

  19,967   15   (2,142)  17,840 

Corporate bonds

  33,731      (3,251)  30,480 

Residential mortgage-backed securities

  294,561   13   (42,887)  251,687 

Commercial mortgage-backed securities

  84,287   274   (7,869)  76,692 

Total

 $462,332  $450  $(56,675) $406,107 

 

      

Gross

  

Gross

     
      

Unrealized

  

Unrealized

  

Fair

 
  

Amortized Cost

  

Gains

  

Losses

  

Value

 

December 31, 2022

                

Obligations of the U.S. Treasury and U.S. government agencies and corporations

 $30,370  $134  $(699) $29,805 

Obligations of state and political subdivisions

  21,098   7   (2,727)  18,378 

Corporate bonds

  33,477      (3,535)  29,942 

Residential mortgage-backed securities

  298,867   10   (47,026)  251,851 

Commercial mortgage-backed securities

  83,504   179   (8,492)  75,191 

Total

 $467,316  $330  $(62,479) $405,167 

 

The Company calculates realized gains and losses on sales of debt securities under the specific identification method. Proceeds from sales of investment securities classified as AFS and gross gains and losses are summarized below for the periods presented (dollars in thousands).

 

  

Three months ended March 31,

 
  

2023

  

2022

 

Proceeds from sales

 $2,364  $ 

Gross gains

 $1  $ 

Gross losses

 $(2) $ 

 

The amortized cost and approximate fair value of investment securities classified as HTM are summarized below as of the dates presented (dollars in thousands). 

 

      

Gross

  

Gross

     
      

Unrealized

  

Unrealized

  

Fair

 
  

Amortized Cost

  

Gains

  

Losses

  

Value

 

March 31, 2023

                

Obligations of state and political subdivisions

 $5,411  $2  $(43) $5,370 

Residential mortgage-backed securities

  2,637      (202)  2,435 

Total

 $8,048  $2  $(245) $7,805 

 

      

Gross

  

Gross

     
      

Unrealized

  

Unrealized

  

Fair

 
  

Amortized Cost

  

Gains

  

Losses

  

Value

 

December 31, 2022

                

Obligations of state and political subdivisions

 $5,538  $1  $(127) $5,412 

Residential mortgage-backed securities

  2,767      (257)  2,510 

Total

 $8,305  $1  $(384) $7,922 

 

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, 2023 or December 31, 2022.

 

12

 

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The approximate fair value of AFS securities and unrealized losses, aggregated by investment category and length of time that the 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

 
      

Unrealized

      

Unrealized

      

Unrealized

 
  

Fair Value

  

Losses

  

Fair Value

  

Losses

  

Fair Value

  

Losses

 

March 31, 2023

                        

Obligations of the U.S. Treasury and U.S. government agencies and corporations

 $12,995  $(250) $2,904  $(276) $15,899  $(526)

Obligations of state and political subdivisions

  8,174   (249)  9,500   (1,893)  17,674   (2,142)

Corporate bonds

  11,492   (610)  18,988   (2,641)  30,480   (3,251)

Residential mortgage-backed securities

  46,871   (2,865)  203,435   (40,022)  250,306   (42,887)

Commercial mortgage-backed securities

  15,568   (725)  42,845   (7,144)  58,413   (7,869)

Total

 $95,100  $(4,699) $277,672  $(51,976) $372,772  $(56,675)

 

  

Less than 12 Months

  

12 Months or More

  

Total

 
      

Unrealized

      

Unrealized

      

Unrealized

 
  

Fair Value

  

Losses

  

Fair Value

  

Losses

  

Fair Value

  

Losses

 

December 31, 2022

                        

Obligations of the U.S. Treasury and U.S. government agencies and corporations

 $16,017  $(688) $1,013  $(11) $17,030  $(699)

Obligations of state and political subdivisions

  13,695   (1,427)  4,524   (1,300)  18,219   (2,727)

Corporate bonds

  19,606   (1,170)  10,085   (2,365)  29,691   (3,535)

Residential mortgage-backed securities

  134,419   (18,122)  116,132   (28,904)  250,551   (47,026)

Commercial mortgage-backed securities

  27,181   (2,632)  32,432   (5,860)  59,613   (8,492)

Total

 $210,918  $(24,039) $164,186  $(38,440) $375,104  $(62,479)

 

The approximate fair value of HTM securities, and unrealized losses, aggregated by investment category and length of time that the 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

 
      

Unrealized

      

Unrealized

      

Unrealized

 
  

Fair Value

  

Losses

  

Fair Value

  

Losses

  

Fair Value

  

Losses

 

March 31, 2023

                        

Obligations of state and political subdivisions

 $3,493  $(43) $  $  $3,493  $(43)

Residential mortgage-backed securities

  52   (2)  2,384   (200)  2,436   (202)

Total

 $3,545  $(45) $2,384  $(200) $5,929  $(245)

 

  

Less than 12 Months

  

12 Months or More

  

Total

 
      

Unrealized

      

Unrealized

      

Unrealized

 
  

Fair Value

  

Losses

  

Fair Value

  

Losses

  

Fair Value

  

Losses

 

December 31, 2022

                        

Obligations of state and political subdivisions

 $3,536  $(127) $  $  $3,536  $(127)

Residential mortgage-backed securities

  2,510   (257)        2,510   (257)

Total

 $6,046  $(384) $  $  $6,046  $(384)

 

At  March 31, 2023, 787 of the Company’s debt securities had unrealized losses totaling 13.0% of the individual securities’ amortized cost basis and 12.3% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 574 of the 787 securities had been in a continuous loss position for over 12 months.

 

Unrealized losses are generally due to changes in market interest rates. The Company has the intent to hold these securities either until maturity or a forecasted recovery, and it is more likely than not that the Company will not have to sell the securities before the recovery of their amortized cost basis. Due to the nature of the investments, current market prices, and the current interest rate environment, the Company determined that these declines were not attributable to credit losses at March 31, 2023 or December 31, 2022.

 

13

 

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The amortized cost and approximate fair value of investment debt securities, by contractual maturity, are shown below as of the dates presented (dollars in thousands). Actual maturities  may differ from contractual maturities due to mortgage-backed securities whereby borrowers  may have the right to call or prepay obligations with or without call or prepayment penalties and certain callable bonds whereby the issuer has the option to call the bonds prior to contractual maturity.

 

  

Securities Available For Sale

  

Securities Held To Maturity

 
  

Amortized

  

Fair

  

Amortized

  

Fair

 
  

Cost

  

Value

  

Cost

  

Value

 

March 31, 2023

                

Due within one year

 $1,989  $1,962  $915  $916 

Due after one year through five years

  34,341   33,525   960   961 

Due after five years through ten years

  50,883   47,639   3,536   3,493 

Due after ten years

  375,119   322,981   2,637   2,435 

Total debt securities

 $462,332  $406,107  $8,048  $7,805 

 

  

Securities Available For Sale

  

Securities Held To Maturity

 
  

Amortized

  

Fair

  

Amortized

  

Fair

 
  

Cost

  

Value

  

Cost

  

Value

 

December 31, 2022

                

Due within one year

 $1,082  $1,072  $915