2015 Annual Report
Dear Shareholders:
It is my great pleasure to provide you with an update on Investar Holding Corporation, the holding company for
Investar Bank, for 2015. During our first full year as a public company, we experienced continued organic loan
growth and strong earnings. We remain committed to growing organically while seeking out advantageous
opportunities to grow through acquisition.
Two thousand fifteen was a strong year in which our Company’s net income increased by 31% compared to the
prior year, to $7.1 million. Diluted earnings per share was $0.97, an increase of 4% from 2014. Furthermore,
total assets grew 17% to $1.0 billion. Our loan growth was substantial in size and diversity and increased 20% to
$745.5 million compared to the prior year. We ended the year with deposits of $737.4 million, a 17% increase
compared to 2014. Noninterest-bearing deposits increased by 29% compared to 2014 and can be attributed to
our focus on relationship banking.
While enjoying this growth, we have not reduced our focus on asset quality. Our loan portfolio’s risk profile
remained very strong and we experienced minimal loss throughout the year. Net charge-offs were an impressive
0.05% of average loans for the year, and nonperforming loans to total loans was 0.32% at the end of the year. As
oil and gas prices continue to make headlines, we consider our exposure to the energy sector not to be
significant, at less than 1% of total loans as of December 31, 2015. Although not immune to these pricing
pressures, Baton Rouge and New Orleans, our primary operating markets, have diverse economies. We will
continue to remain diligent and focus our growth on loans with good credit quality.
We made several strategic operating decisions in 2015, including restructuring certain departments and exiting
the indirect auto loan business. Our stated long-term strategy has always been to be a relationship-focused bank.
Indirect auto lending is a very transactional business and was not going to be a long-term business line of the
bank. Based on declining margins and competitive pressures primarily from national banks, we determined that
2015 was the right time to exit this business line and increase our focus on our relationship banking strategy.
These and other moves have put us in a more favorable position to improve our performance, maintain our
excellent asset quality, and grow shareholder value.
A special thank you is due to our loyal customers and dedicated employees for making 2015 a successful year.
We believe our customers choose our company for their banking needs because of our focus on relationships
and creating value and opportunities for them. We remain committed to this mission as we approach the year
ahead.
Sincerely,
John J. D’Angelo
President & Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:59) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
(cid:133) 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
(State or other jurisdiction of
incorporation or organization)
27-1560715
(I.R.S. Employer
Identification No.)
7244 Perkins Road, Baton Rouge, Louisiana 70808
(Address of principal executive offices, including zip code)
(225) 227-2222
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which registered
The NASDAQ Global Market
Title of each class
Common Stock, $1.00 par value per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:59)(cid:3)
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:59)
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 (cid:59) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes (cid:59) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. (cid:59)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(cid:133)
(cid:133) (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
(cid:59)
(cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:59)(cid:3)
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price of the common stock as of June 30,
2015, was approximately $110,856,777.
The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, is as follows: Common stock, $1.00 par value,
7,304,103 shares outstanding as of March 11, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the 2016 Annual Meeting of Shareholders of Investar Holding Corporation are incorporated by reference into Part III of the
Form 10-K. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year
ended December 31, 2015.
TABLE OF CONTENTS
PART I
Page
Item 1.
Business ........................................................................................................................................................................
Item 1A.
Risk Factors ..................................................................................................................................................................
Item 1B.
Unresolved Staff Comments .........................................................................................................................................
Item 2.
Properties ......................................................................................................................................................................
Item 3.
Legal Proceedings .........................................................................................................................................................
Item 4.
Mine Safety Disclosures ...............................................................................................................................................
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...
Item 6.
Selected Financial Data ................................................................................................................................................
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................................
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk .......................................................................................
Item 8.
Financial Statements and Supplementary Data .............................................................................................................
3
15
28
29
29
29
30
32
35
62
63
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ...................................... 115
Item 9A.
Controls and Procedures ............................................................................................................................................... 115
Item 9B.
Other Information ......................................................................................................................................................... 115
PART III
Item 10.
Directors, Executive Officers and Corporate Governance ............................................................................................ 116
Item 11.
Executive Compensation .............................................................................................................................................. 116
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..................... 116
Item 13.
Certain Relationships and Related Transactions, and Directors Independence ............................................................ 116
Item 14.
Principal Accounting Fees and Services ....................................................................................................................... 116
Item 15.
Exhibits, Financial Statement Schedules ........................................................................................................................ 117
PART IV
2
Item 1. Business
General
PART I
Investar Holding Corporation (the “Company”), a Louisiana corporation incorporated in 2009, is a financial holding company
headquartered in Baton Rouge, Louisiana that conducts its operations primarily through its wholly-owned subsidiary, Investar Bank
(the “Bank”), a Louisiana commercial bank, chartered in 2006. Through the Bank, the Company offers a wide range of commercial
banking products tailored to meet the needs of individuals and small to medium-sized businesses. The primary markets served are
Baton Rouge, New Orleans, Hammond and Lafayette, Louisiana, and their surrounding metropolitan areas. These markets are served
from our main office located in Baton Rouge and from ten additional full service branches located throughout our market areas. As of
December 31, 2015, on a consolidated basis, the Company had total assets of $1.0 billion, net loans, excluding loans held for sale, of
$739.3 million, total deposits of $737.4 million, and stockholders’ equity of $109.4 million.
Management believes that the current markets present a significant opportunity for growth and franchise expansion, both organically
and through strategic acquisitions. Although the financial services industry is rapidly changing and intensely competitive, and likely to
remain so, we believe that the Bank competes effectively as a local community bank and possesses the consistency of local leadership,
the availability of local access and responsive customer service, coupled with competitively-priced products and services, necessary to
successfully compete with other financial institutions for individual and small to medium-sized business customers.
We have experienced significant growth since the Bank was chartered, completing acquisitions in 2011 and 2013, as described below
in more detail, and establishing additional branches in our market areas. In 2012, we entered the New Orleans market through de novo
branching by purchasing two closed branch locations of another financial institution in suburban New Orleans, Louisiana. In 2013, we
entered the Lafayette market by opening a de novo branch. In addition, we opened our sixth Baton Rouge market area branch location
in August 2014.
We have completed construction of our seventh Baton Rouge market area branch location in Gonzales, Louisiana, which we expect to
open in the second quarter of 2016, subject to regulatory approval. In September 2015, we acquired land and a building for an
additional branch location in the New Orleans market area.
In November 2013, the Company and the Bank completed a share exchange with the Bank’s shareholders, resulting in the Bank
becoming a wholly-owned subsidiary of the Company. In July 2014, the Company completed the issuance and sale of 3,285,300
shares of its common stock in its initial public offering, which amount includes 410,300 shares sold pursuant to the underwriters’
exercise of their option to purchase additional shares from the Company, at a public offering price of $14.00 per share. After
deducting underwriting commissions and offering expenses, the Company received net proceeds of $41.7 million from the sale of such
shares.
The information set forth in this Annual Report on Form 10-K is as of March 11, 2016, unless otherwise indicated herein.
Operations
General. We offer a full range of commercial and retail lending products throughout our market areas, including business loans to
small to medium-sized businesses as well as loans to individuals. Our business lending products include owner-occupied commercial
real estate loans, construction loans and commercial and industrial loans, such as term loans, equipment financing and lines of credit,
while our loans to individuals include first and second mortgage loans, installment loans, auto loans and lines of credit. For business
customers, we target businesses with $10 million in annual revenue or less but do not focus on any particular industry. We also target
professional organizations such as law firms, accounting firms and medical practices.
Management considers all of our operations to be aggregated in one reportable operating segment, and accordingly no separate
segment disclosures are presented in this report. Please refer to our audited consolidated financial statements and the notes thereto in
Item 8, Financial Statements and Supplementary Data, for information with respect to our revenues from external customers, profit or
loss and total assets for the last three years. Neither we nor the Bank have any foreign operations.
Lending Activities. Income generated by our lending activities represents a substantial portion of our total revenue. For the years
ended December 31, 2015, 2014 and 2013, income from our lending activities comprised 77%, 80% and 78%, respectively, of our
total revenue.
3
Lending to Businesses. Our lending to small to medium-sized businesses falls into three general categories:
(cid:120) Commercial real estate loans. Approximately 43% of our total loans at December 31, 2015 were commercial real estate
loans, which include multifamily, farmland and commercial real estate loans, with owner-occupied loans comprising
approximately 43% of the commercial real estate loan portfolio. Commercial real estate loan terms generally are ten years or
less, although payments may be structured on a longer amortization basis. Interest rates may be fixed or adjustable, although
rates typically will not be fixed for a period exceeding 120 months, and we generally charge an origination fee. We do not
offer non-recourse loans. Risks associated with commercial real estate loans include, among other things, fluctuations in the
value of real estate, new job creation trends, tenant vacancy rates and the quality of the borrower’s management. We attempt
to limit risk by analyzing a borrower’s cash flow and collateral value on an ongoing basis. Also, we typically require 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.
(cid:120) Construction and development loans. Construction and development loans, which consist of loans for the construction of
commercial projects, single family residential properties and multifamily properties, accounted for approximately 11% of our
total loans at December 31, 2015. Our construction and development loans are made on both a “pre-sold” basis and on a
“speculative” basis. Construction and development loans are generally made with a term of 6 to 12 months, with interest
accruing at either a fixed or floating rate and paid monthly. These loans are secured by the underlying project being built. For
construction loans, loan to value ratios range from 75% to 80% of the developed/completed value, while for development
loans our loan to value ratios typically will not exceed 70% to 75% of such value. Speculative loans are based on the
borrower’s financial strength and cash flow position, and we disburse funds in installments based on the percentage of
completion and only after the project has been inspected by an experienced construction lender or third-party inspector.
Construction lending entails significant additional risks compared to commercial real estate or residential real estate lending.
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. We attempt to minimize the risks associated with construction
lending by limiting loan-to-value ratios as described above. In addition, as to speculative development loans, we generally
make such loans only to borrowers that have a positive pre-existing relationship with us.
(cid:120) Commercial and industrial loans. Commercial and industrial loans primarily consist of working capital lines of credit and
equipment loans. We often make commercial loans to borrowers with whom we have previously made a commercial real
estate loan. The terms of these loans vary by purpose and by type of underlying collateral. We make equipment loans for a
term of five years or less at fixed or variable rates, with the loan fully amortized over the term and secured by the relevant
piece of equipment. Loans to support working capital typically have terms not exceeding one year, and such loans are secured
by accounts receivable or inventory. Fixed rate loans are priced based on collateral, term and amortization. The interest rate
for floating rate loans is typically tied to the prime rate published in The Wall Street Journal with a floor of 4.5%.
Commercial and industrial loans accounted for approximately 9% of our total loans at December 31, 2015.
Commercial lending generally involves different risks from those associated with commercial real estate lending or
construction lending. Although commercial loans may be collateralized by equipment or other business assets (including real
estate, if available as collateral), the repayment of these types of loans depends primarily on the creditworthiness and
projected cash flow of the borrower (and any guarantors). Thus, the general business conditions of the local economy and the
borrower’s ability to sell its products and services, thereby generating sufficient operating revenue to repay us under the
agreed upon terms and conditions, are the chief considerations when assessing the risk of a commercial loan. The liquidation
of collateral is considered a secondary source of repayment because equipment and other business assets may, among other
things, be obsolete or of limited resale value. We actively monitor certain financial measures of the borrower, including
advance rate, cash flow, collateral value and other appropriate credit factors. We use commercial loan credit scoring models
for smaller level commercial loans.
4
Lending to Individuals. We make the following types of loans to our individual customers:
(cid:120) Consumer loans. Consumer loans represented 16% of our total loans at December 31, 2015. We make these loans (which are
normally fixed-rate loans) to individuals for a variety of personal, family and household purposes, including auto loans,
secured and unsecured installment and term loans, second mortgages, home equity loans and home equity lines of credit.
Because many consumer loans are secured by depreciable assets such as cars, boats and trailers, the loans are amortized over
the useful life of the asset. The amortization of second mortgages generally does not exceed 15 years and the rates generally
are not fixed for more than 60 months. As a general matter, in underwriting these loans, our loan officers review a borrower’s
past credit history, past income level, debt history and, when applicable, cash flow, and determine the impact of all these
factors on the ability of the borrower to make future payments as agreed. A comparison of the value of the collateral, if any,
to the proposed loan amount, is also a consideration in the underwriting process. Repayment of consumer loans depends upon
the borrower’s financial stability and is more likely to be adversely affected by divorce, job loss, illness and personal
hardships than repayment of other loans. A shortfall in the value of any collateral also may pose a risk of loss to us for these
types of loans.
Auto loans comprised the largest component of our consumer loans and third largest component of our overall loan portfolio,
representing 80% of our total consumer loans and 12% of our total loans as of December 31, 2015. We have been an indirect
lender for our auto loans, meaning that the loans have been originated by automobile dealerships and then assigned to us.
These dealerships were selected based on our review of their operating history and the dealership’s reputation in the
marketplace, which we believe helps to mitigate the risks of fraud or negligence by the dealership. At all times, the decision
whether or not to provide financing resided with us.
In November 2015, the Bank announced that it was exiting the indirect auto loan origination business. The Bank discontinued
accepting indirect auto loan applications December 31, 2015, but continued to process and fund applications that were
accepted on or before that date. The Bank will continue to service the current auto loan portfolio for its duration but expects
this portfolio to decrease over time.
(cid:120) Residential real estate. One-to-four family residential real estate loans, including second mortgage loans, comprised
approximately 21% of our total loans at December 31, 2015. Second mortgage loans in this category include only loans we
make to cover the gap between the purchase price of a residence and the amount of the first mortgage; all other second
mortgage loans are considered consumer loans. Long-term fixed rate mortgages are underwritten for resale to the secondary
market; however, we generally hold jumbo mortgage loans (i.e., loan amounts above $417,000) in our portfolio and sell
virtually all of our remaining mortgage loans on the secondary market. Unless the borrower has private mortgage insurance,
loan to value ratios do not typically exceed 80%, although some of the mortgage loans that we retain in our portfolio may
have higher loan to value ratios. We use an independent appraiser to establish collateral values. We generate residential real
estate mortgage loans through Bank referrals and contacts with real estate agents in our markets. We do not originate
subprime residential real estate loans.
Deposits. We offer a broad base of deposit products and services to our individual and business clients, including savings, checking,
money market and NOW accounts, debit cards and mobile banking with smartphone deposit capability, as well as a variety of
certificates of deposit and individual retirement accounts. For our business clients, we offer a competitive suite of cash management
products which include, but are not limited to, remote deposit capture, electronic statements, positive pay, ACH origination and wire
transfer, investment sweep accounts and enhanced business internet banking.
Other Banking Services. Investar Bank’s other banking services include cashiers’ checks, direct deposit of payroll and Social Security
checks, night depository, bank-by-mail, automated teller machines with deposit automation and debit cards. We have also associated
with nationwide networks of automated teller machines, enabling the Bank’s customers to use ATMs throughout Louisiana and other
regions. Currently, we reimburse our customers up to $12.50 per month for any foreign ATM fees they may incur. We offer merchant
card services through a third-party vendor, and, during 2015, launched our own credit card product. The Bank does not offer trust
services or insurance products.
Acquisition Activity
General. To complement our organic growth strategy, from time to time, we evaluate potential acquisition opportunities. We believe
there are many banking institutions that continue to face credit challenges, capital constraints and liquidity issues and that lack the
scale and management expertise to manage the increasing regulatory burden. Our management team has a long history of identifying
targets, assessing and pricing risk and executing acquisitions in a creative, yet disciplined, manner. We seek acquisitions that provide
meaningful financial benefits, long-term organic growth opportunities and expense reductions, without compromising our risk profile.
Additionally, we seek banking markets with favorable competitive dynamics and potential consolidation opportunities. All of our
acquisition activity is evaluated and overseen by a standing Merger and Acquisition Committee of our board of directors.
5
Acquisition of South Louisiana Business Bank. On October 1, 2011, the Bank completed its acquisition of South Louisiana Business
Bank (“SLBB”), a Louisiana-chartered commercial bank with one location in Prairieville, Louisiana. The Bank acquired all of the
outstanding common stock of the former SLBB shareholders for a total consideration of approximately $14.7 million in the form of
1,069,065 shares of Bank common stock. Including the effect of purchase accounting adjustments, the Bank acquired assets with a fair
value of $50.9 million, including loans with a fair value of $31.5 million, and assumed $38.6 million in deposits. The fair value of net
assets acquired including identifiable intangible assets was approximately $12.0 million. Goodwill of approximately $2.7 million was
recognized on the acquisition date.
Acquisition of First Community Bank. On May 1, 2013, the Bank completed its acquisition of First Community Bank (“FCB”), a
Louisiana-chartered commercial bank headquartered in Hammond, Louisiana with one branch in Mandeville, Louisiana. The Bank
acquired all of the outstanding common stock of the former FCB shareholders for a total consideration of approximately $4.5 million
in the form of 320,774 shares of Bank common stock. Including the effect of purchase accounting adjustments, the Bank acquired
assets with a fair value of $99.2 million, including loans with a fair value of $77.5 million, assumed $86.5 million in deposits and
recognized a $0.9 million bargain purchase gain.
Competition
We face competition in all major product and geographic areas in which we conduct our operations. Through the Bank, we compete
for available loans and deposits with state, regional and national banks, as well as savings and loan associations, credit unions, finance
companies, mortgage companies, insurance companies, brokerage firms and investment companies. All of these institutions compete
in the delivery of services and products through availability, quality and pricing, both with respect to interest rates on loans and
deposits and fees charged for banking services. Many of our competitors are larger and have substantially greater resources than we
do, including higher total assets and capitalization, greater access to capital markets and a broader offering of financial services. As
larger institutions, many of our competitors can offer more attractive pricing than we can offer and have more extensive branch
networks from which they can offer their financial services products.
While we continually strive to offer competitive pricing for our banking products, we believe that our community bank approach to
customers, focusing on quality customer service and maintaining strong customer relationships affords us the best opportunity to
successfully compete with other institutions. In addition, as a smaller institution, we think we can be flexible in developing and
implementing new products and services, especially in the online banking area. Further, in recent years there has been consolidation
activity involving banks with a presence in our markets. In our view, mergers and other business combinations within our markets
provide us with growth opportunities. Many acquisitions, especially when local institutions are acquired by institutions based outside
our markets, result not only in customer disruption but also in a loss of market knowledge and relationships that we believe provide us
the opportunity to acquire customers seeking a personalized approach to banking. Furthermore, acquisition activity typically creates
opportunities to hire talented personnel from the combining institutions.
The following table sets forth certain information about our total deposits and our market share. The amount of total deposits in our
markets is as of June 30, 2015, which is the latest date for which such information is available.
Market (MSA)
Investar Total Deposits
(in millions)
Investar Market Share
Baton Rouge
New Orleans
Hammond
Lafayette
$
472
91
52
93
2.5 %
0.3 %
3.0 %
0.8 %
6
Supervision and Regulation
General. Banking is highly regulated under federal and state law. We are a financial holding company registered under the Bank
Holding Company Act of 1956, as amended, and are subject to supervision, regulation and examination by the Federal Reserve.
Investar Bank is a commercial bank chartered under the laws of the State of Louisiana. The Bank is not a member of the Federal
Reserve system and is subject to supervision, regulation and examination by the Louisiana Office of Financial Institutions, or OFI, and
the Federal Deposit Insurance Corporation, or FDIC. This system of supervision and regulation establishes a comprehensive
framework for our operations and, consequently, can have a material impact on our growth and earnings performance.
The primary goals of the bank regulatory scheme are to maintain a safe and sound banking system and to facilitate the conduct of
sound monetary policy. This system is intended primarily for the protection of the FDIC’s deposit insurance funds, bank depositors
and the public, rather than our shareholders and creditors. The banking agencies have broad enforcement power over bank holding
companies and banks, including the authority, among other things, to enjoin “unsafe or unsound” practices, require affirmative action
to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the
sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil monetary penalties, remove officers
and directors, and, with respect to banks, terminate deposit insurance or place the bank into conservatorship or receivership. In
general, these enforcement actions may be initiated for violations of laws and regulations or unsafe or unsound practices.
The Dodd-Frank Act. The Dodd-Frank Act, enacted on July 21, 2010, aims to restore responsibility and accountability to the financial
system by significantly altering the regulation of financial institutions and the financial services industry. Full implementation of the
Dodd-Frank Act will require many new rules to be issued by federal regulatory agencies over the next several years, which will
profoundly affect how financial institutions will be regulated in the future. The ultimate effect of the Dodd-Frank Act and its
implementing regulations on the financial services industry in general, and on us in particular, is uncertain at this time.
The Dodd-Frank Act, among other things:
(cid:120) established the Consumer Financial Protection Bureau, an independent organization within the Federal Reserve with centralized
responsibility for promulgating and enforcing federal consumer protection laws applicable to all entities offering consumer
financial products or services;
(cid:120) established the Financial Stability Oversight Council, tasked with the authority to identify and monitor institutions and systems
that pose a systemic risk to the financial system;
(cid:120) changed the assessment base for federal deposit insurance from the amount of insured deposits held by the depository institution
to the institution’s average total consolidated assets less tangible equity;
(cid:120) increased the minimum reserve ratio for the Deposit Insurance Fund from 1.15% to 1.35%;
(cid:120) permanently increased the deposit insurance coverage amount from $100,000 to $250,000;
(cid:120) required the FDIC to make its capital requirements for insured depository institutions countercyclical, so that capital
requirements increase in times of economic expansion and decrease in times of economic contraction;
(cid:120) required bank holding companies and banks to be “well capitalized” and “well managed” in order to acquire banks located
outside of their home state and requires any bank holding company electing to be treated as a financial holding company to be
“well capitalized” and “well managed”;
(cid:120) directed the Federal Reserve to establish interchange fees for debit cards under a restrictive “reasonable and proportional cost”
per transaction standard;
(cid:120) limited the ability of banking organizations to sponsor or invest in private equity and hedge funds and to engage in proprietary
trading;
(cid:120) increased regulation of consumer protections regarding mortgage originations, including originator compensation, minimum
repayment standards and prepayment consideration;
(cid:120) restricted the preemption of select state laws by federal banking law applicable to national banks and disallow subsidiaries and
affiliates of national banks from availing themselves of such preemption;
(cid:120) authorized national and state banks to establish de novo branches in any state that would permit a bank chartered in that state to
open a branch at that location; and
(cid:120) repealed the federal prohibition on the payment of interest on demand deposits, thereby permitting depository institutions to pay
interest on business transaction and other accounts.
7
Some of these provisions may have the consequence of increasing our expenses, decreasing our revenues, and changing the activities
in which we choose to engage. The environment in which banking organizations will operate after the financial crisis, including
legislative and regulatory changes affecting capital, liquidity, supervision, permissible activities, corporate governance and
compensation, changes in fiscal policy and steps to eliminate government support for banking organizations, may have long-term
effects on the business model and profitability of banking organizations that cannot currently be foreseen. The specific impact on our
current activities or new financial activities we may consider in the future, our financial performance and the markets in which we
operate will depend on the manner in which the relevant agencies develop and implement the required rules and the reaction of market
participants to these regulatory developments. Many aspects of the Dodd-Frank Act are subject to further rulemaking and will take
effect over several years. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations
or their interpretations would have on us, these changes could be materially adverse to our financial condition and results of
operations.
The Volcker Rule. On December 10, 2013, the Federal Reserve and the other federal banking regulators as well as the SEC each
adopted a final rule implementing Section 619 of the Dodd-Frank Act, commonly referred to as the “Volcker Rule.” Generally
speaking, the final rule prohibits a bank and its affiliates from engaging in proprietary trading and from sponsoring certain “covered
funds” or from acquiring or retaining any ownership interest in such covered funds. Most private equity, venture capital and hedge
funds are considered “covered funds” as are bank trust preferred collateralized debt obligations. The final rule requires banking
entities to divest disallowed securities by July 21, 2015, subject to extension upon application. The Volcker Rule does not impact any
of our current activities nor do we hold any securities that we would be required to sell under the rule, but it does limit the scope of
permissible activities in which we might engage in the future.
Regulatory Capital Requirements
Capital Adequacy. The Federal Reserve Board monitors the capital adequacy of the Company, on a consolidated basis, and the FDIC
and the OFI monitor the capital adequacy of the Bank. The regulatory agencies use a combination of risk-based guidelines and a
leverage ratio to evaluate capital adequacy and consider these capital levels when taking action on various types of applications and
when conducting supervisory activities related to safety and soundness. The risk-based capital standards are designed to make
regulatory capital requirements more sensitive to differences in risk profiles among financial institutions and their holding companies,
to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. A financial institution’s assets and
off-balance sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with
appropriate risk weights. Regulatory capital, in turn, is classified in one of two tiers. “Tier 1” capital includes two components: (1)
common equity Tier 1 capital and (2) additional Tier 1 capital. Common equity Tier 1 capital consists solely of common stock (plus
related surplus), retained earnings, accumulated other comprehensive income, and limited amounts of minority interests that are in the
form of common stock. Additional Tier 1 capital includes other perpetual instruments historically included in Tier 1 capital, such as
non-cumulative perpetual preferred stock. “Tier 2” capital includes, among other things, qualifying subordinated debt and allowances
for loan and lease losses, subject to limitations. The resulting capital ratios represent capital as a percentage of total risk-weighted
assets and off-balance sheet items.
Effective January 1, 2015, the minimum capital standards under Basel III, as well as the prompt corrective action standards discussed
below, increased from previous requirements as a result of changes adopted by the federal banking agencies, which are described in
greater detail below under “Basel III.”
Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the FDIC is required and authorized to take
supervisory actions against undercapitalized financial institutions. For this purpose, a bank is placed in one of the following five
categories based on its capital: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized. Under the prompt corrective action regulations, as currently in effect, to be well capitalized, a bank must have a
leverage capital ratio of at least 5%, a common equity Tier 1 capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least
8% and a total risk-based capital ratio of at least 10% and must not be subject to any order or written agreement or directive by a
federal banking agency to meet and maintain a specific capital level for any capital measure. As discussed below under “Basel III,”
the federal banking agencies have adopted changes to the capital thresholds applicable to each of the five categories under the prompt
corrective action regulations.
8
Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary
actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital
category in which the institution is placed. Generally, subject to a narrow exception, banking regulators must appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant
capital level for each category. An institution that is categorized as undercapitalized, significantly undercapitalized, or critically
undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. An
undercapitalized institution also is generally prohibited from increasing its average total assets, making acquisitions, establishing any
branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval. The
regulations also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than
capital.
Furthermore, a bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject
to various limitations. The controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of 5% of
an undercapitalized subsidiary’s assets at the time it became undercapitalized or the amount required to meet regulatory capital
requirements.
The capital classification of a bank affects the frequency of regulatory examinations, the bank’s ability to engage in certain activities
and the deposit insurance premiums paid by the bank. As of December 31, 2015, Investar Bank met the requirements to be categorized
as well capitalized under the prompt corrective action framework as currently in effect.
Basel III. On July 2, 2013, the federal banking agencies adopted a final rule revising the regulatory capital framework applicable to all
top tier bank holding companies with consolidated assets of $500 million or more and all banks, regardless of size. The Basel III
framework became effective on January 1, 2015, although the capital conservation buffer, which is discussed in greater detail below,
will be phased in over a three year period, beginning January 1, 2016.
Under the Basel III framework, we are required to maintain the following minimum regulatory capital ratios:
(cid:120) A new ratio of common equity Tier 1 capital to total risk-weighted assets of not less than 4.5%;
(cid:120) A Tier 1 risk-based capital ratio of 6.0% (an increase from 4.0%);
(cid:120) A total risk-based capital ratio of 8.0%; and
(cid:120) A leverage ratio of 4.0%.
The Basel III framework also changes the regulatory capital requirements for purposes of the prompt corrective action regulations.
Accordingly, as of January 1, 2015, to be categorized as well capitalized, the Bank must have a minimum common equity Tier 1
capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8.0%, a total risk-based capital ratio of at least 10.0%, and a
leverage capital ratio of at least 5.0%.
Under the Basel III framework, Tier 1 capital is redefined to include two components: (1) common equity Tier 1 capital and (2)
additional Tier 1 capital. Common equity Tier 1 capital consists solely of common stock (plus related surplus), retained earnings,
accumulated other comprehensive income, and limited amounts of minority interests that are in the form of common stock. Additional
Tier 1 capital includes other perpetual instruments historically included in Tier 1 capital, such as non-cumulative perpetual preferred
stock. With limited exceptions, trust preferred securities and cumulative perpetual preferred stock will no longer qualify as Tier 1
capital. Tier 2 capital consists of instruments that currently qualify as Tier 2 capital plus instruments that the rule has disqualified from
Tier 1 capital treatment. In addition, the Basel III framework establishes certain deductions from and adjustments to the regulatory
capital ratios.
The Basel III framework also implements a requirement for all banking organizations to maintain a capital conservation buffer above
the minimum capital requirements to avoid certain restrictions on capital distributions and discretionary bonus payments to executive
officers. The capital conservation buffer must be composed of common equity Tier 1 capital. The capital conservation buffer
requirement, when fully phased in, will effectively require banking organizations to maintain regulatory capital ratios at least 50 basis
points higher than well capitalized levels under prompt corrective action standards to avoid the restrictions on capital distributions and
discretionary bonus payments to executive officers.
9
The Basel III framework alters the method under which banking organizations must calculate risk-weighted assets in an effort to make
the calculation of risk-weighted assets more risk sensitive, to better account for risk mitigation techniques, and to create substitutes for
credit ratings (in accordance with the Dodd-Frank Act). The standardized approach, which will apply to us, includes additional
exposure categories as compared with current standards including a new high volatility commercial real estate category that is risk-
weighted at 150%. Although a number of asset classes will be risk-weighted differently, the Basel III framework does not change
standardized risk weightings for certain assets, including residential mortgages.
Although management is continuing to evaluate the impact the Basel III framework will have on the Company and the Bank, we were
in compliance with all applicable minimum regulatory capital requirements as of December 31, 2015, and management believes that at
December 31, 2015, the Company and the Bank would have met all new capital adequacy requirements under the new Basel III
framework on a fully phased-in basis if such requirements were then effective.
The Basel III framework also requires banks and bank holding companies to measure their liquidity against specific liquidity tests.
However, the final rules adopted by the federal banking agencies in September 2014 implementing the Basel III liquidity framework
apply only to banking organizations with $250 billion or more in consolidated assets or $10 billion or more in foreign exposures. As a
result, unless modified, the Basel III liquidity framework does not apply to us.
Acquisitions by Bank Holding Companies
Federal and state laws, including the Bank Holding Company Act and the Change in Bank Control Act, impose additional prior notice
or approval requirements and ongoing regulatory requirements on any investor that seeks to acquire direct or indirect “control” of an
FDIC-insured depository institution or bank holding company. We must obtain the prior approval of the Federal Reserve before
(1) acquiring more than 5% of the voting stock of any bank or other bank holding company, (2) acquiring all or substantially all of the
assets of any bank or bank holding company, or (3) merging or consolidating with any other bank holding company. The Federal
Reserve may determine not to approve any of these transactions if it would result in or tend to create a monopoly or substantially
lessen competition or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is
also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks
concerned, the convenience and needs of the community to be served, and the record of a bank holding company and its subsidiary
bank(s) in combating money laundering activities. In addition, a failure to implement and maintain adequate compliance programs
could cause the Federal Reserve or other banking regulators not to approve an acquisition when regulatory approval is required or to
prohibit an acquisition even if approval is not required.
Scope of Permissible Bank Holding Company Activities
In general, the Bank Holding Company Act limits the activities permissible for bank holding companies to the business of banking,
managing or controlling banks and such other activities as the Federal Reserve has determined to be so closely related to banking as to
be properly incident thereto.
A bank holding company may elect to be treated as a financial holding company and receive expanded powers if it and its depository
institution subsidiaries are “well capitalized” and “well managed.” We have elected for the Company to be treated as a financial
holding company. As a financial holding company, we may engage in a range of activities that are (1) financial in nature or incidental
to such financial activity or (2) complementary to a financial activity and which do not pose a substantial risk to the safety and
soundness of a depository institution or to the financial system generally. These activities include securities dealing, underwriting and
market making, insurance underwriting and agency activities, merchant banking and insurance company portfolio investments.
Expanded financial activities of financial holding companies generally will be regulated according to the type of such financial
activity: banking activities by banking regulators; securities activities by securities regulators; and insurance activities by insurance
regulators.
The Bank Holding Company Act does not place territorial limitations on permissible non-banking activities of bank holding
companies. The Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuation of
such activity or such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank
subsidiary of the bank holding company.
10
Source of Strength Doctrine for Bank Holding Companies
Under longstanding Federal Reserve policy which has been codified by the Dodd-Frank Act, we are expected to act as a source of
financial strength to, and to commit resources to support, Investar Bank. This support may be required at times when we may not be
inclined to provide it. In addition, any capital loans that we make to Investar Bank are subordinate in right of payment to deposits and
to certain other indebtedness of the Bank. In the event of our bankruptcy, any commitment by us to a federal bank regulatory agency
to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Dividends
As a bank holding company, we are subject to certain restrictions on dividends under applicable banking laws and regulations. The
Federal Reserve has issued a policy statement that provides that a bank holding company should not pay dividends unless: (1) its net
income over the last four quarters (net of dividends paid) has been sufficient to fully fund the dividends; (2) the prospective rate of
earnings retention appears to be consistent with the capital needs, asset quality and overall financial condition of the bank holding
company and its subsidiaries; and (3) the bank holding company will continue to meet minimum required capital adequacy ratios.
Accordingly, a bank holding company should not pay cash dividends that exceed its net income or that can only be funded in ways
that weaken the bank holding company’s financial health, such as by borrowing. The Dodd-Frank Act imposes, and Basel III effected,
additional restrictions on the ability of banking institutions to pay dividends. In addition, in the current financial and economic
environment, the Federal Reserve Board has indicated that bank holding companies should carefully review their dividend policy and
has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.
The Bank is also subject to certain restrictions on dividends under federal and state laws, regulations and policies. In general, under
Louisiana law, the Bank may pay dividends to us without the approval of the OFI only so long as the amount of the dividend does not
exceed the Bank’s net profits earned during the current year combined with its retained net profits of the immediately preceding year.
The Bank must obtain the approval of the OFI for any amount in excess of this threshold. In addition, under federal law, the Bank may
not pay any dividend to us if it is undercapitalized or the payment of the dividend would cause it to become undercapitalized. The
FDIC may further restrict the payment of dividends by requiring the Bank to maintain a higher level of capital than would otherwise
be required to be adequately capitalized for regulatory purposes. Moreover, if, in the opinion of the FDIC, the Bank is engaged in an
unsound practice (which could include the payment of dividends even within the legal requirements noted above), the FDIC may
require, generally after notice and hearing, the Bank to cease such practice. The FDIC has indicated that paying dividends that deplete
a depository institution’s capital base to an inadequate level would be an unsafe banking practice. The FDIC has also issued policy
statements providing that insured depository institutions generally should pay dividends only out of current operating earnings.
Restrictions on Transactions with Affiliates and Loans to Insiders
Federal law strictly limits the ability of banks to engage in transactions with their affiliates, including their bank holding companies.
Sections 23A and 23B of the Federal Reserve Act, and Federal Reserve Regulation W, impose quantitative limits, qualitative
standards, and collateral requirements on certain transactions by a bank with, or for the benefit of, its affiliates, and generally require
those transactions to be on terms at least as favorable to the bank as transactions with non-affiliates and to be consistent with safe and
sound practices. The Dodd-Frank Act significantly expands the coverage and scope of the limitations on affiliate transactions within a
banking organization, including an expansion of what types of transactions are covered transactions to include credit exposures related
to derivatives, repurchase agreements and securities lending arrangements and an increase in the amount of time for which collateral
requirements regarding covered transactions must be satisfied.
Federal law also limits a bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to
entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are
substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons. Also, the terms of such extensions of credit may not involve more than the normal risk of
repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such
persons, individually and in the aggregate, which limits are based, in part, on the amount of the bank’s capital.
Incentive Compensation Guidance
The federal banking agencies have issued comprehensive guidance on incentive compensation policies. This guidance is designed to
ensure that a financial institution’s incentive compensation structure does not encourage imprudent risk taking, which may undermine
the safety and soundness of the institution. The guidance, which applies to all employees that have the ability to materially affect an
institution’s risk profile, either individually or as part of a group, is based upon three primary principles: (1) balanced risk taking
incentives; (2) compatibility with effective controls and risk management; and (3) strong corporate governance.
11
An institution’s supervisory ratings will incorporate any identified deficiencies in an institution’s compensation practices, and it may
be subject to an enforcement action if the incentive compensation arrangements pose a risk to the safety and soundness of the
institution. Further, a provision of the Basel III proposals described above would limit discretionary bonus payments to bank
executives if the institution’s regulatory capital ratios fail to exceed certain thresholds.
Deposit Insurance Assessments
FDIC insured banks are required to pay deposit insurance assessments to the FDIC. The amount of the assessment is based on the size
of the bank’s assessment base, which is equal to its average consolidated total assets less its average tangible equity, and its risk
classification under an FDIC risk-based assessment system. Institutions assigned to higher risk classifications (that is, institutions that
pose a higher risk of loss to the Deposit Insurance Fund) pay assessments at higher rates than institutions that pose a lower risk. An
institution’s risk classification is assigned based on its capital levels and the level of supervisory concern that the institution poses to
the regulators. In addition, the FDIC can impose special assessments in certain instances. As noted above, the Dodd-Frank Act
changed the way that deposit insurance premiums are calculated. Continued action by the FDIC to replenish the Deposit Insurance
Fund, as well as the changes contained in the Dodd-Frank Act, may result in higher assessment rates, which could reduce our
profitability or otherwise negatively impact our operations.
Branching and Interstate Banking
Under Louisiana law, Investar Bank is permitted to establish additional branch offices within Louisiana, subject to the approval of the
OFI. As a result of the Dodd-Frank Act, the Bank may also establish additional branch offices outside of Louisiana, subject to prior
regulatory approval, so long as the laws of the state where the branch is to be located would permit a state bank chartered in that state
to establish a branch. We currently do not have any branches outside the state of Louisiana. The Bank may also establish offices in
other states by merging with banks or by purchasing branches of other banks in other states, subject to certain restrictions.
Community Reinvestment Act
Investar Bank is required under the Community Reinvestment Act, or CRA, and related FDIC regulations to help meet the credit
needs of its communities, including low and moderate-income borrowers. In connection with its examination of the Bank, the FDIC
assesses our record of compliance with the CRA. The Bank’s failure to comply with the provisions of the CRA could, at a minimum,
result in denial of certain corporate applications, such as branches or mergers, or in restrictions on its or the Company’s activities. The
Bank received a “satisfactory” CRA rating on its most recent CRA examination. The CRA requires all FDIC insured institutions to
publicly disclose their rating.
Concentrated Commercial Real Estate Lending Regulations
The federal banking regulatory agencies have promulgated guidance governing financial institutions with concentrations in
commercial real estate lending. The guidance provides that a bank has a concentration in commercial real estate lending if (i) total
reported loans for construction, land development, and other land represent 100% or more of total capital or (ii) total reported loans
secured by multifamily and nonfarm residential properties and loans for construction, land development, and other land represent
300% or more of total capital and the bank’s commercial real estate loan portfolio has increased 50% or more during the prior
36 months. Owner occupied loans are excluded from this second category. If a concentration is present, management must employ
heightened risk management practices that address, among other things, board and management oversight and strategic planning,
portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress
testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. At December 31,
2015, the Company did not have a concentration in commercial real estate as defined by the regulatory guidance.
Financial Privacy Requirements
Federal law and regulations limit a financial institution’s ability to share consumer financial information with unaffiliated third parties.
Specifically, these provisions require all financial institutions offering financial products or services to retail customers to provide
such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of
personal financial information with unaffiliated third parties. The sharing of information for marketing purposes is also subject to
limitations. The Bank currently has a privacy protection policy in place.
12
Consumer Laws and Regulations
The Bank is subject to numerous laws and regulations intended to protect consumers in transactions with the Bank, including, among
others, laws regarding unfair, deceptive and abusive acts and practices, usury laws, and other federal consumer protection statutes.
These federal laws include the ECOA, the Electronic Fund Transfer Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Real Estate Procedures Act of 1974, the S.A.F.E. Mortgage Licensing Act of 2008, the Truth in Lending Act and the
Truth in Savings Act, among others. Many states and local jurisdictions have consumer protection laws analogous, and in addition, to
those enacted under federal law. These laws and regulations mandate certain disclosure requirements and regulate the manner in
which financial institutions must deal with customers when taking deposits, making loans and conducting other types of transactions.
Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state
and local attorneys general and civil or criminal liability.
In addition, the Dodd-Frank Act created the Consumer Financial Protection Bureau that has broad authority to regulate and supervise
retail financial services activities of banks and various non-bank providers. The Bureau has authority to promulgate regulations, issue
orders, guidance and policy statements, conduct examinations and bring enforcement actions with regard to consumer financial
products and services. In general, however, banks with assets of $10 billion or less, such as Investar Bank, will continue to be
examined for consumer compliance by their primary federal bank regulator.
Mortgage Lending Rules
The Dodd-Frank Act authorized the Consumer Financial Protection Bureau to establish certain minimum standards for the origination
of residential mortgages, including a determination of the borrower’s ability to repay. Under the Dodd-Frank Act, financial institutions
may not make a residential mortgage loan unless they make a “reasonable and good faith determination” that the consumer has a
“reasonable ability” to repay the loan. The Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure but provides a
full or partial safe harbor from such defenses for loans that are “qualified mortgages.” On January 10, 2013, the Bureau published final
rules to, among other things, specify the types of income and assets that may be considered in the ability-to-repay determination, the
permissible sources for verification, and the required methods of calculating the loan’s monthly payments. Since then, the Bureau has
made certain modifications to these rules. The rules extend the requirement that creditors verify and document a borrower’s income
and assets to include all information that creditors rely on in determining repayment ability. The rules also provide further examples of
third-party documents that may be relied on for such verification, such as government records and check cashing or funds transfer
service receipts. The new rules became effective on January 10, 2014. The rules also define “qualified mortgages,” imposing both
underwriting standards, for example, a borrower’s debt-to-income ratio may not exceed 43%, and limits on the terms of their loans.
Points and fees are subject to a relatively stringent cap, and the terms include a wide array of payments that may be made in the course
of closing a loan. Certain loans, including interest-only loans and negative amortization loans, cannot be qualified mortgages.
Anti-Money Laundering and OFAC
Under federal law, financial institutions must maintain anti-money laundering programs that include: established internal policies,
procedures and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an
independent audit function. Financial institutions are also prohibited from entering into specified financial transactions and account
relationships and must meet enhanced standards for due diligence and customer identification in their dealings with foreign financial
institutions and foreign customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account
relationships to guard against money laundering and to report any suspicious transactions, and law enforcement authorities have been
granted increased access to financial information maintained by financial institutions.
The Office of Foreign Assets Control, or OFAC, is responsible for helping to insure that U.S. entities do not engage in transactions
with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of persons and
organizations suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked
Persons. Generally, if the Bank identifies a transaction, account or wire transfer relating to a person or entity on an OFAC list, it must
freeze the account or block the transaction, file a suspicious activity report and notify the appropriate authorities.
Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution’s
compliance in connection with the regulatory review of applications, including applications for banking mergers and acquisitions.
Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing
and comply with OFAC sanctions, or to comply with relevant laws and regulations, could have serious legal, reputational and
financial consequences for the institution.
13
Safety and Soundness Standards
Federal bank regulatory agencies have adopted guidelines that establish general standards relating to internal controls and information
systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees
and benefits. Additionally, the agencies have adopted regulations that provide the authority to order an institution that has been given
notice by an agency that it is not satisfying any of these safety and soundness standards to submit a compliance plan. If, after being so
notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable
compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other
actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the Federal
Deposit Insurance Act. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial
proceedings and to impose civil money penalties.
Bank holding companies are also not permitted to engage in unsound banking practices. For example, the Federal Reserve’s
Regulation Y requires a holding company to give the Federal Reserve prior notice of any redemption or repurchase of its own equity
securities, if the consideration to be paid, together with the consideration paid for any repurchases in the preceding year, is equal to
10% or more of the company’s consolidated net worth. The Federal Reserve may oppose the transaction if it believes that the
transaction would constitute an unsafe or unsound practice or would violate any law or regulation. As another example, a holding
company could not impair its subsidiary bank’s soundness by causing it to make funds available to non-banking subsidiaries or their
customers if the Federal Reserve believed it not prudent to do so. The Federal Reserve has broad authority to prohibit activities of
bank holding companies and their nonbanking subsidiaries that represent unsafe and unsound banking practices or that constitute
violations of laws or regulations.
Effect of Governmental Monetary Policies
The commercial banking business is affected not only by general economic conditions but also by U.S. fiscal policy and the monetary
policies of the Federal Reserve. Some of the instruments of monetary policy available to the Federal Reserve include changes in the
discount rate on member bank borrowings, the fluctuating availability of borrowings at the “discount window,” open market
operations, the imposition of and changes in reserve requirements against member banks’ deposits and assets of foreign branches, and
the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates. These policies
influence to a significant extent the overall growth of bank loans, investments, and deposits and the interest rates charged on loans or
paid on deposits. We cannot predict the nature of future fiscal and monetary policies and the effect of these policies on our future
business and earnings.
Future Legislation and Regulatory Reform
As a result of the recent economic downturn and its effect on financial institutions, regulators have increased their focus on the
regulation of financial institutions. New laws, regulations and policies are regularly proposed that contain wide-ranging proposals for
altering the structures, regulations and competitive relationships of financial institutions operating in the United States. In addition,
existing laws, regulations and policies are continually subject to modification or changes in interpretation. We cannot predict whether
or in what form any law, regulation or policy will be adopted or modified or the extent to which our operations and activities, financial
condition, results of operations, growth plans or future prospects may be affected by its adoption or modification.
The cumulative effect of these laws and regulations add significantly to the cost of our operations and thus have a negative impact on
profitability. There has also been a tremendous expansion in recent years of financial service providers that are not subject to the same
level of regulation, examination and oversight as we are. Those providers, because they are not so highly regulated, may have a
competitive advantage over us and may continue to draw large amounts of funds away from traditional banking institutions, with a
continuing adverse effect on the banking industry in general.
Employees
As of December 31, 2015, we had 168 full-time equivalent employees. None of our employees are represented by any collective
bargaining unit or are parties to a collective bargaining agreement. We believe that our relations with our employees are good.
Dependence upon a Single Customer
No material portion of our loans has been made to, nor have our deposits been obtained from, a single or small group of customers; the
loss of any single customer or small group of customers would not have a materially adverse effect on our business. A discussion of
concentrations of credit in our loan portfolio is set forth under the heading Loan Concentrations in “Discussion and Analysis of
Financial Condition—Loans” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
14
Available Information
Our filings with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and all amendments thereto, are available on our website as soon as reasonably practicable
after the reports are filed with or furnished to the SEC. Copies can be obtained free of charge in the “Investor Relations” section of our
website at www.investarbank.com. Our SEC filings are also available through the SEC’s website www.sec.gov. Copies of these
filings are also available by writing to us at the following address:
Investar Holding Corporation
P.O. Box 84207
Baton Rouge, Louisiana 70884-4207
Item 1A. Risk Factors
Our business is subject to risk. In addition to the other information contained in this Annual Report on Form 10-K, including
management’s discussion and analysis of financial condition and results of operations and our financial statements and the notes
thereto, investors should consider the following risks when evaluating whether to invest in our common stock. If any of the following
risks occur, whether alone or in combination, our business, financial condition, results of operations, cash flows and growth prospects
could be materially and adversely affected. Additional risks that we do not presently know of or currently deem immaterial may also
adversely affect our business, financial condition, results of operations cash flows and growth prospects.
Risks Related to our Business
As a business operating in the financial services industry, our business and operations may be adversely affected by current
economic conditions.
General business and economic conditions in the United States and abroad can materially affect our business and operations. A weak
U.S. economy is likely to cause uncertainty about the federal fiscal policymaking process, the medium and long-term fiscal outlook of
the federal government and future tax rates. In addition, economic conditions in foreign countries, including uncertainty over the
stability of the euro currency, could affect the stability of global financial markets, which could hinder U.S. economic growth.
Weak economic conditions are characterized by deflation, fluctuations in debt and equity capital markets, a lack of liquidity and/or
depressed prices in the secondary market for mortgage loans, increased delinquencies on mortgage, consumer and commercial loans,
residential and commercial real estate price declines and lower home sales and commercial activity. The current economic
environment in the United States is also characterized by interest rates at historically low levels, which impacts our ability to attract
deposits and to generate attractive earnings through our investment portfolio. All of these factors are detrimental to our business, and
the interplay between these factors can be complex and unpredictable. Our business is also significantly affected by monetary and
related policies of the U.S. federal government and its agencies. Changes in any of these policies are influenced by macroeconomic
conditions and other factors that are beyond our control. Adverse economic conditions and government policy responses to such
conditions could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
15
Our business strategy includes the continuation of growth plans, and our financial condition and results of operations could be
negatively affected if we fail to grow or fail to manage our growth effectively.
We have grown our business largely through the acquisition of other financial institutions and through de novo branching. Since
June 14, 2006, we have opened eight de novo branches and acquired South Louisiana Business Bank (“SLBB”) in 2011 and First
Community Bank (“FCB”) in 2013 by merger. We intend to continue pursuing a growth strategy for our business through de novo
branching and to evaluate attractive acquisition opportunities that are presented to us. Our growth prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by companies when expanding their franchise, including the
following:
(cid:120) Management of Growth. We may be unable to successfully maintain loan quality in the context of significant loan growth or
maintain adequate management personnel and systems to oversee such growth, including internal audit, loan review and
compliance personnel. Our growth may require that we implement additional policies, procedures and operating systems, and
we may encounter difficulties in doing so at all or in a timely manner.
(cid:120) Operating Results. There is no assurance that existing offices or future offices will maintain or achieve deposit levels, loan
balances or other operating results necessary to avoid losses or produce profits. Our growth and de novo branching strategy
necessarily entails growth in overhead expenses as we routinely add new offices and staff. Our historical results may not be
indicative of future results or results that may be achieved as we continue to increase the number and concentration of our
branch offices. Should any new location be unprofitable or marginally profitable, or should any existing location experience a
decline in profitability or incur losses, the adverse effect on our results of operations and financial condition could be more
significant than would be the case for a larger company.
(cid:120) De Novo Branching. There are considerable costs involved in opening branches, and new branches generally do not generate
sufficient revenues to offset their costs until they have been in operation for at least a year or more. Accordingly, our de novo
branches can be expected to negatively impact our earnings for some period of time until the branches reach certain economies
of scale. Our expenses could be further increased if we encounter delays in opening any of our de novo branches. We may be
unable to accomplish future branch expansion plans due to a lack of available satisfactory sites, difficulties in acquiring such
sites, increased expenses or loss of potential sites due to complexities associated with zoning and permitting processes, higher
than anticipated merger and acquisition costs or other factors. Finally, we have no assurance our de novo branches or branches
that we may acquire will be successful even after they have been established or acquired, as the case may be.
(cid:120) Expansion into New Markets. As we grow into new markets in Louisiana and in other states, we are likely to encounter
customer demographics and financial services offerings unlike those found in our current markets. In these markets we are
likely to face competition from a wide array of financial institutions, including much larger, better-established financial
institutions.
Failure to successfully address these issues could have a material adverse effect on our financial condition and results of operations,
and could adversely affect our ability to successfully implement our business strategy. Also, if our growth occurs more slowly than
anticipated or declines, our operating results could be materially adversely affected.
Our success depends significantly on our management team, and the loss of our senior executive officers or other key employees
and our inability to recruit or retain suitable replacements could adversely affect our business, results of operations and growth
prospects.
Our success depends significantly on the continued service and skills of our existing executive management team. The implementation
of our business and growth strategies also depends significantly on our ability to retain employees with experience and business
relationships within their respective market areas, as well as on our ability to attract, motivate and retain highly qualified senior and
middle management. We do not have employment agreements with any of our executive officers, and our officers may terminate their
employment with us at any time. Competition for employees is intense, and we could have difficulty replacing such officers with
personnel with the combination of skills and attributes required to execute our business and growth strategies and who have ties to the
communities within our market areas. The loss of any of our key personnel could therefore have a material adverse effect on our
business, financial condition, results of operations and growth prospects.
As a community bank, our ability to maintain our reputation is critical to the growth of our business.
16
We are a community bank and our reputation is one of the most valuable components of our business. Much of our growth over the
past several years has depended on attracting new customers from competing financial institutions and increasing our market share,
primarily through the involvement of our employees in the communities that we serve. Also, our ability to attract and retain highly-
skilled management and employees is impacted by our reputation. A negative public opinion of our business can result from any
number of activities, including our lending practices, corporate governance, and regulatory compliance, acquisitions, and actions taken
by our regulators or by community organizations in response to these activities. Significant harm to our reputation could also arise as a
result of regulatory or governmental actions, litigation, employee misconduct, or the activities of our customers, other participants in
the financial services industry or our contractual counterparties, such as our service providers and vendors. Damage to our reputation
could also adversely affect our credit ratings and access to capital markets.
Our business is concentrated in southern Louisiana, and a regional or local economic downturn affecting southern Louisiana may
magnify the adverse effects and consequences to us.
We conduct our operations almost exclusively in southern Louisiana, and more specifically, in the Baton Rouge, New Orleans,
Lafayette and Hammond metropolitan areas. At December 31, 2015, approximately 97% of the secured loans in our total loan
portfolio, including loans held for sale, are secured by properties and other collateral located in Louisiana, while approximately 72%
of the loans in our loan portfolio (measured by dollar amount) were made to borrowers who live or work in either the Baton Rouge or
New Orleans metropolitan area. This geographic concentration imposes a greater risk to us than to our competitors in the area who
maintain significant operations outside of southern Louisiana. Accordingly, any regional or local economic downturn, or natural or
man-made disaster, that affects southern Louisiana or existing or prospective property or borrowers in such area may affect us and our
profitability more significantly and more adversely than our more geographically diversified competitors.
More particularly, much of our business development and marketing strategy is directed toward fulfilling the banking and financial
services needs of small to medium-sized businesses. Such businesses generally have fewer financial resources in terms of capital or
borrowing capacity than larger entities. If general economic conditions negatively impact our markets or the Louisiana market
generally and these businesses are adversely affected, our financial condition and results of operations may be negatively affected.
Adverse economic factors affecting particular industries could have a negative effect on our customers and their ability to make
payments to us.
In addition to the geographic concentration of our markets, certain industry-specific economic factors also affect us. For example, a
downturn in segments of the commercial and residential real estate industries in our markets due to adverse economic factors affecting
particular industries could have an adverse effect on our customers. In addition, the energy sector, which is historically cyclical, has
recently experienced significant volatility and a decline in oil and gas prices. While we consider our exposure to the energy sector to
not be significant, less than 1% of total loans as of December 31, 2015, should the price of oil and gas decline further and/or remain at
the current low price for an extended period, the general economic conditions in our south Louisiana markets could be negatively
affected, which could have a material adverse effect on our business, financial condition, and results of operations.
We have a significant number of loans secured by real estate, and a downturn in the real estate market could result in losses and
negatively impact our profitability.
At December 31, 2015, approximately 68% of our total loan portfolio had real estate as a primary or secondary component of the
collateral securing the loan. The real estate provides an alternate source of repayment in the event of a default by the borrower and
may deteriorate in value during the time the credit is extended. Real estate values in southern Louisiana declined in the aftermath of
Hurricane Katrina in August 2005. These values started to improve in 2006 and 2007. However, in connection with the national
recession, real estate values nationally declined severely in 2008 and 2009, including in our markets. Recently, real estate values both
nationally and in our markets have shown improvement. Future declines in real estate values in our southern Louisiana markets could
significantly impair the value of the particular collateral securing our loans and our ability to sell the collateral upon foreclosure for an
amount necessary to satisfy the borrower’s obligations to us. Furthermore, in a declining real estate market, we often will need to
further increase our allowance for loan losses to address the deterioration in the value of the real estate securing our loans. Any of the
foregoing could have a material adverse effect on our business, financial condition, results of operations, cash flows and growth
prospects.
Commercial real estate loans may expose us to greater risks than our other real estate loans.
Our loan portfolio includes nonowner-occupied commercial real estate loans for individuals and businesses for various purposes,
which are secured by commercial properties, as well as real estate construction and development loans. As of December 31, 2015, our
nonowner-occupied commercial real estate loans totaled $150.8 million, or 20% of our total loan portfolio.
17
Commercial real estate loans typically depend on cash flows from the property to service the debt. Cash flows, either in the form of
rental income or the proceeds from sales of commercial real estate, may be affected significantly by general economic conditions.
These loans expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these
loans typically cannot be liquidated as easily as residential real estate. If we foreclose on these loans, our holding period for the
collateral typically is longer than for a one-to-four family residential property because there are fewer potential purchasers of the
collateral. Additionally, nonowner-occupied commercial real estate loans generally involve relatively large balances to single
borrowers or related groups of borrowers. Accordingly, charge-offs on nonowner-occupied commercial real estate loans may be larger
on a per loan basis than those incurred with our residential or consumer loan portfolios. Unexpected deterioration in the credit quality
of our commercial real estate loan portfolio would require us to increase our provision for loan losses, which would reduce our
profitability and could materially adversely affect our business, financial condition, results of operations, cash flows and growth
prospects.
We are exposed to consumer credit risk.
Historically, we have originated a significant number of consumer installment loans, particularly with respect to automobile finance.
We are subject to credit risk resulting from defaults in payment or performance by customers for our loans, as well as loans that we
sell to third parties but retain servicing rights. A weak economic environment and high unemployment rates could exert pressure on
our auto loan customers resulting in higher delinquencies, repossessions and losses. There can be no assurances that our monitoring of
our credit risk as it affects the value of these loans and the underlying collateral will be sufficient to prevent an effect on our
profitability and financial condition.
There are also risks with respect to our auto lending in particular. First, as an indirect auto lender, all of our auto loans were originated
by dealerships with which we have relationships. As a result, we do not have relationships directly with the borrowers and are
dependent on the relationships these dealerships have with their customers to make a determination on whether or not there are factors
that would cause an otherwise qualified customer to not repay the loan. In addition, federal and state laws may prohibit, limit or delay
our repossession and sale of vehicles on defaulted automobile loan contracts, which will impair our ability to recover losses on these
loans. Additional factors that may affect our ability to recoup the full amount due on an indirect auto loan include, among other things,
our failure to perfect our security interest in the relevant vehicle, depreciation, obsolescence, damage or loss to the vehicle and the
impact of federal and state bankruptcy and insolvency laws. Furthermore, proceeds from the sale of repossessed vehicles can fluctuate
significantly based upon market conditions. A deterioration in general economic conditions could result in a greater loss in the sale of
repossessed vehicles than we have historically experienced.
In November 2015, the Bank announced that it was exiting the indirect auto loan origination business. The Bank discontinued
accepting indirect auto loan applications December 31, 2015, but continued to process and fund applications that were accepted on or
before that date. The Bank will continue to service the current auto loan portfolio for its duration, which bears the risks discussed
above.
Our allowance for loan losses may prove to be insufficient to absorb losses inherent in our loan portfolio, and we may be required
to further increase our provision for loan losses.
Although we endeavor to diversify our loan portfolio in order to minimize the effect of economic conditions within a particular
industry, management also maintains an allowance for loan losses, which is a reserve established through a provision for loan losses
charged to expense, to absorb probable credit losses inherent in the entire loan portfolio. We maintain our allowance for loan losses at
a level considered adequate by management to absorb probable loan losses, including collateral impairment, based on our analysis of
our portfolio and market environment, using relevant information available to us. Among other considerations in establishing the
allowance for loan losses, management considers economic conditions reflected within industry segments, the unemployment rate in
our markets, loan segmentation and historical losses that are inherent in the loan portfolio.
As of December 31, 2015, our allowance for loan losses as percentages of total loans and nonperforming loans was 0.82% and 254%,
respectively. The determination of the appropriate level of the allowance is inherently subjective and requires us to make significant
estimates of current credit risks and future trends, all of which are subject to material changes. In addition, loans acquired in
connection with business combination transactions are measured at fair value, based on management’s estimates related to expected
prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. Because fair value
measurements incorporate assumptions regarding credit risk, no allowance for loan losses related to the acquired loans is recorded on
the acquisition date.
18
Inaccurate management assumptions, including with respect to the fair value of acquired loans, continuing deterioration of economic
conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors,
both within and outside of our control, may require us to increase our allowance for loan losses. In addition, bank regulatory agencies
periodically review the allowance for loan losses and may require an increase in the provision for loan losses or the recognition of
further loan charge-offs, based on judgments different than those of management. Finally, if actual charge-offs in future periods
exceed the allowance for loan losses, we will need additional provisions to increase the allowance for loan losses. Any increases in the
allowance for loan losses will result in a decrease in net income and, possibly, capital and may have a material adverse effect on our
business, financial condition, results of operations and growth prospects.
Lack of seasoning of our loan portfolio could increase the risk of future credit defaults.
As a result of our growth over the past three years, a large portion of loans in our loan portfolio and of our lending relationships are of
relatively recent origin. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding
for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually behave more
predictably than a newer portfolio. Because a large portion of our portfolio is relatively new, the current level of delinquencies and
defaults may not represent the level that may prevail as the portfolio becomes more seasoned. If delinquencies and defaults increase,
we may be required to increase our provision for loan losses, which could materially adversely affect our business, financial condition,
results of operations and growth prospects.
New lines of business or new products and services may subject the Company to additional risks.
From time to time, the Company may implement or may acquire new lines of business or offer new products and services within
existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the
markets are not fully developed. In developing and marketing new lines of business and/or new products and services, the Company
may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new
products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as
compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation
of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have
a significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully manage these risks in
the development and implementation of new lines of business or new products or services could have a material adverse effect on the
Company’s business, financial condition, and results of operations.
We are subject to interest rate risk.
The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates. Our earnings, like that of
most financial institutions, are significantly dependent on our net interest income, which is the difference between our interest income
on interest-earning assets, such as loans and investment securities, and our interest expense on interest-bearing liabilities, such as
deposits and borrowings. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and
liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our
interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” will
negatively impact our earnings. At December 31, 2015, our interest sensitivity profile was somewhat liability sensitive, meaning that
our net interest expense would increase more from rising interest rates than from falling interest rates.
Interest rates are highly sensitive to many factors that are beyond our control, including governmental monetary policies, inflation,
recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial
markets. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and
securities and the interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and
obtain deposits, the fair value of our financial assets and liabilities and the average duration of our assets. Any substantial, unexpected,
prolonged change in market interest rates could have a material adverse effect on our business, financial condition, results of
operations and growth prospects.
In addition, as interest rates increase, the ability of borrowers to repay their current loan obligations could be negatively impacted,
which would adversely affect our results of operations. These circumstances could not only result in increased loan defaults,
foreclosures and charge-offs but also necessitate further increases to the allowance for loan losses. At the same time, the marketability
of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates. Further, when
we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income, but we
continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated
funding expense. Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. On
the other hand, in a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their
loans at lower rates.
19
If short-term interest rates remain at their historically low levels for a prolonged period, and assuming longer term interest rates fall
further, we could experience net interest margin compression as our interest-earning assets would continue to reprice downward while
our interest-bearing liability rates could fail to decline in tandem. Such an occurrence would have a material adverse effect on our net
interest income and our results of operations.
By engaging in derivative transactions, we are exposed to credit and market risk, which could adversely affect our profitability and
financial condition.
We manage interest rate risk by utilizing derivative instruments to minimize significant unplanned fluctuations in earnings that are
caused by interest rate volatility. Hedging interest rate risk is a complex process, requiring sophisticated models and constant
monitoring. The effect of this unrealized appreciation or depreciation will generally be offset by income or loss on the derivative
instruments that are linked to the hedged assets and liabilities. By engaging in derivative transactions, we are exposed to credit and
market risk. If the counterparty fails to perform, credit risk exists to the extent of the fair value gain in the derivative instrument.
Market risk exists to the extent that interest rates change in ways that are significantly different from what was expected when we
entered into the derivative agreement. The existence of credit and market risk associated with our derivative instruments could
adversely affect our profitability and financial condition.
Breakdowns in our internal controls and procedures could have an adverse effect on us.
Management regularly reviews and updates our internal controls over financial reporting, disclosure controls and procedures, and
corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain
assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or
circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a
material adverse effect on our business, financial condition, and results of operations. See Item 9A, Controls and Procedures for
additional information.
Hurricanes or other adverse weather conditions, as well as man-made disasters, could negatively affect our local markets or
disrupt our operations, which may adversely affect our business and results of operations.
Our business is concentrated in southern Louisiana, and in the Baton Rouge, New Orleans, Lafayette, and Hammond metropolitan
areas in particular. Southern Louisiana is susceptible to major hurricanes, floods, tropical storms and other natural disasters and
adverse weather. These natural disasters can disrupt our operations, cause widespread property damage and severely depress the local
economies in which we operate. For example, Hurricane Gustav in 2008 severely impacted our headquarters city of Baton Rouge,
with power in many areas of the city not being restored for nearly three weeks after the hurricane. The 2010 Deepwater Horizon oil
spill in the Gulf of Mexico illustrated that man-made disasters can also adversely affect economic activity in the markets in which we
operate. Any economic decline as a result of a natural disaster, adverse weather, oil spill or other man-made disaster can reduce the
demand for loans and our other products and services.
Such events could also affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans (resulting in
increased delinquencies, foreclosures and loan losses), impair the value of collateral securing such loans, cause significant property
damage, result in loss of revenue and/or cause us to incur additional expenses. The occurrence of any such event could, therefore,
result in decreased revenue and loan losses that have a material adverse effect on our business, financial condition, results of
operations and growth prospects.
We are subject to a variety of risks in connection with any sale of loans we may conduct.
As discussed elsewhere in this document, we sell certain mortgage loans that we originate as well as pools of our consumer loans. In
connection with these sales, we are typically required to make representations and warranties to the purchaser about the loans sold and
the procedures under which those loans have been originated. If these representations and warranties are incorrect, we may be required
to indemnify the purchaser for its losses or we may be required to repurchase part or all of the affected loans. Borrower fraud may also
cause us to have to repurchase loans that we have sold. If we are required to make any indemnity payments or repurchases and do not
have a remedy available to us against a solvent counterparty, we may not be able to recover our losses resulting from these indemnity
payments and repurchases. Consequently, our results of operations may be adversely affected.
20
Factors outside our control could result in impairment of or losses with respect to our investment securities.
There are many factors beyond our control that can significantly influence, and adversely change, the fair value of the securities in our
portfolio. Factors include, for example, rating agency downgrades of the securities, defaults by the issuer or continued instability in
the capital markets. Any of these factors, among others, could cause other-than-temporary impairments and realized and/or unrealized
losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results
of operations, financial condition and growth prospects. The process for determining whether impairment of a security is other-than-
temporary usually requires difficult, subjective judgments about the future financial performance and liquidity of the issuer and any
collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the
security.
We may need to raise additional capital in the future to execute our business strategy.
In addition to the liquidity that we require to conduct our day-to-day operations, the Company, on a consolidated basis, and Investar
Bank, on a stand-alone basis, must meet certain regulatory capital requirements. With the implementation of certain new regulatory
requirements, such as the Basel III accord and the capital requirements enacted under the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010, or the Dodd-Frank Act, financial institutions will be required to establish higher tangible capital
requirements. Also, we may need capital to finance acquisitions.
Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors,
including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial
condition and performance. Accordingly, there can be no assurances that we will be able to raise additional capital if needed or on
terms acceptable to us. If we fail to maintain capital to meet regulatory requirements, our business, financial condition, results of
operations and growth prospects could be materially and adversely affected.
Competition in our industry is intense, which could adversely affect our growth and profitability.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and
have substantially greater resources than we have, including higher total assets and capitalization, a more extensive and established
branch network, greater access to capital markets and a broader offering of financial services. Such competitors primarily include
national, regional and community banks within the various markets in which we operate. Because of their scale, many of these
competitors can be more aggressive than we can on loan and deposit pricing. We also face competition from many other types of
financial institutions, including savings and loans, credit unions, finance companies, brokerage firms, insurance companies, factoring
companies and other financial intermediaries. Many of these entities have fewer regulatory constraints and may have lower cost
structures than we do.
Our industry could become even more competitive as a result of legislative and regulatory changes as well as continued consolidation.
The increased regulatory requirements imposed on financial institutions as well as the economic downturn in the United States in the
2007-2009 time frame, and generally slow recovery thereafter, have already resulted in the consolidation of a number of financial
institutions, in addition to acquisitions of failed institutions. We expect additional consolidation to occur. Finally, technology has
lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as
automatic transfer and automatic payment systems. If we are unable to successfully compete, our business, financial condition, results
of operations and growth prospects will be materially adversely affected.
If the goodwill that we recorded in connection with a business acquisition becomes impaired, it could require charges to earnings,
which would have a negative impact on our financial condition and results of operations.
Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in connection
with the purchase of another financial institution. We review goodwill for impairment at least annually, or more frequently if events or
changes in circumstances indicate that the carrying value of the asset might be impaired.
We determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which
they become known. As of December 31, 2015, our goodwill totaled $2.7 million. While we have not recorded any such impairment
charges since we initially recorded the goodwill, there can be no assurance that our future evaluations of goodwill will not result in
findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of
operations.
21
We may face risks with respect to future acquisitions.
When we attempt to expand our business in Louisiana and other states through mergers and acquisitions, we seek targets that are
culturally similar to us, have experienced management and possess either significant market presence or have potential for improved
profitability through economies of scale or expanded services. In addition to the general risks associated with our growth plans
highlighted above, acquiring other banks, businesses or branches involves various risks commonly associated with acquisitions,
including, among other things:
(cid:120) the time and costs associated with identifying and evaluating potential acquisition and merger targets;
(cid:120) inaccuracies in the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the
target institution;
(cid:120) the time and costs of evaluating new markets, hiring experienced local management and opening new bank locations, and the
time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;
(cid:120) our ability to finance an acquisition and possible dilution to our existing shareholders;
(cid:120) the diversion of our management’s attention to the negotiation of a transaction;
(cid:120) the incurrence of an impairment of goodwill associated with an acquisition and adverse effects on our results of operations;
(cid:120) entry into new markets where we lack experience; and
(cid:120) risks associated with integrating the operations and personnel of the acquired business in a manner that permits growth
opportunities and does not materially disrupt existing customer relationships or result in decreased revenues resulting from any
loss of customers.
With respect to the risks particularly associated with the integration of an acquired business, we may encounter a number of
difficulties, such as:
(cid:120) customer loss and revenue loss;
(cid:120) the loss of key employees;
(cid:120) the disruption of our operations and business;
(cid:120) our inability to maintain and increase competitive presence;
(cid:120) possible inconsistencies in standards, control procedures and policies; and/or
(cid:120) unexpected problems with costs, operations, personnel, technology and credit.
In addition to the risks posed by the integration process itself, the focus of management’s attention and effort on integration may result
in a lack of sufficient management attention to other important issues, causing harm to our business. Also, general market and
economic conditions or governmental actions affecting the financial industry generally may inhibit our successful integration of an
acquired business.
We expect to continue to evaluate merger and acquisition opportunities that are presented to us and conduct due diligence activities
related to possible transactions with other financial institutions. As a result, merger or acquisition discussions and, in some cases,
negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities may occur at any time.
Historically, acquisitions of non-failed financial institutions involve the payment of a premium over book and market values, and,
therefore, some dilution of our book value and net income per common share may occur in connection with any future transaction.
Failure to realize the expected revenue increases, cost savings, increases in geographic or product presence and/or other projected
benefits from an acquisition could have a material adverse effect on our business, financial condition, results of operations and growth
prospects.
22
A lack of liquidity could adversely affect our ability to fund operations and meet our obligations as they become due.
Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they come due
because of an inability to liquidate assets or obtain adequate funding. The primary source of the Bank’s funds are customer deposits
and loan repayments, while borrowings are a secondary source of liquidity. Our access to deposits and other funding sources in
adequate amounts and on acceptable terms is affected by a number of factors, including rates paid by competitors, returns available to
customers on alternative investments and general economic conditions. Any decline in available funding could adversely impact our
ability to originate loans, invest in securities, meet our expenses, pay dividends to our shareholders, or to fulfill obligations such as
repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our business,
financial condition, results of operations and growth prospects.
The Company may be materially and adversely affected by the creditworthiness and liquidity of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. Our Bank has
exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial
services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these
transactions expose our Bank to credit risk in the event of a default by a counterparty or client. In addition, our Bank’s credit risk may
be increased when the collateral to which it is entitled cannot be realized upon or is liquidated at prices not sufficient to recover the
full amount of its credit or derivative exposure. Any such losses could have a material adverse effect on our business, financial
condition, and results of operations.
We rely on information technology and telecommunications systems and third-party vendors, and our failure to effectively
implement new technology or a breach, computer virus or disruption of service could adversely affect our operations and financial
condition.
Our industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.
We believe that improved technology allows us to serve our customers in a more efficient and less costly manner. Our ability to
compete successfully to some extent depends on whether we can implement new technologies to provide products and services to our
customers while avoiding significant operational challenges that increase our costs or delay full implementation of technology
enhancements or new products, especially relative to our peers (many of which have greater resources to devote to technological
improvements).
Although new technologies enable us to enhance the products and services we offer our customers, this technology exposes us to
certain risks. First, the successful and uninterrupted functioning of our information technology and telecommunications systems is
critical to our business. We outsource many of our major systems, such as data processing, loan servicing and deposit processing. If
one of these third-party service providers terminates their relationship with us or fails to provide services to us for any reason or
provides such services poorly, our business will be negatively affected. In addition, we may be forced to replace such vendor, which
could interrupt our operations and result in a higher cost to us.
Another risk associated with our reliance on technology is our potential vulnerability to security breaches, denial of service attacks,
viruses, worms and other disruptive problems caused by hackers as well as to damage from physical theft, fire, power loss,
telecommunications failure or a similar catastrophic event. We have attempted to address these concerns by backing up our systems as
well as retaining qualified third-party vendors to test and audit our network. However, there can be no guarantees that our efforts will
be successful in avoiding material problems with our information technology and telecommunications systems. If our efforts are
unsuccessful, security breaches, viruses and other technology disruptions could expose us to claims, regulatory scrutiny, litigation and
other possible liabilities, in addition to a loss of the confidence of our existing customers in the reliability of our systems.
We are subject to environmental liability risk associated with our lending activities.
A significant portion of our loan portfolio is secured by real property. Also, in the ordinary course of business, we may foreclose on
and take title to properties securing certain loans or purchase real estate to expand our facilities. In doing so, there is a risk that
hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for
remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial
expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. The
remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on
our business, financial condition, results of operations and growth prospects. In addition, future laws or more stringent interpretations
or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although management has
policies and procedures to perform an environmental review before the loan is recorded and before initiating any foreclosure action on
real property, these reviews may not be sufficient to detect all potential environmental hazards.
23
Risks Related to Our Industry
We operate in a highly regulated environment, which could restrain our growth and profitability.
We are subject to extensive regulation and supervision that governs almost all aspects of our operations, including, among other
things, our lending practices, capital structure, investment practices, dividend policy, operations and growth. These laws and
regulations, and the supervisory framework that oversees the administration of these laws and regulations, are primarily intended to
protect consumers, depositors, the Deposit Insurance Fund and the banking system as a whole, and not shareholders and
counterparties. Furthermore, new proposals for legislation continue to be introduced in the U.S. Congress that could further
substantially increase regulation of the financial services industry, impose restrictions on our operations and our ability to conduct
business consistent with historical practices, including in the areas of compensation, interest rates, financial product offerings and
disclosures, and have an effect on bankruptcy proceedings with respect to consumer residential real estate mortgages, among other
things.
Our efforts to comply with these additional laws, regulations and standards are likely to result in increased expenses and a diversion of
management time and attention. The information under the heading “Supervision and Regulation” in Item 1, Business, provides more
information regarding the regulatory environment in which we and the Bank operate.
Financial reform legislation enacted by Congress will, among other things, tighten capital standards and result in new laws and
regulations that likely will increase our costs of operations.
The Dodd-Frank Act was signed into law on July 21, 2010. This law significantly changed the then-existing bank regulatory structure
and affected the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.
The Dodd-Frank Act changes the regulatory structure to which we are subject in numerous ways, including, but not limited to, the
following:
(cid:120) The base for FDIC insurance assessments has been changed to a bank’s average consolidated total assets minus average tangible
equity, rather than upon its deposit base, while the FDIC’s authority to raise insurance premiums has been expanded.
(cid:120) The current standard deposit insurance limit has been permanently raised to $250,000.
(cid:120) The FDIC must raise the ratio of reserves to deposits from 1.15% to 1.35% for deposit insurance purposes by September 30,
2020 and to “offset the effect” of increased assessments on insured depository institutions with assets of less than $10.0 billion.
(cid:120) The interchange fees payable on debit card transactions have been limited.
(cid:120) There are multiple new provisions affecting corporate governance and executive compensation at all publicly traded companies.
(cid:120) All federal prohibitions on the ability of financial institutions to pay interest on commercial demand deposit accounts have been
repealed.
Our management continues to assess the impact on our operations of the Dodd-Frank Act and its regulations, many of which have yet
to be proposed or adopted or are to be phased-in over the next several months and years. Because the impact of many of the
regulations adopted pursuant to the Dodd-Frank Act may not be known for some time, it is difficult to predict at this time the full
impact that Dodd-Frank Act will have on us. However, it is expected that at a minimum our operating and compliance costs will
increase, and our interest expense could also increase.
In addition to the foregoing, the Dodd-Frank Act established the Bureau of Consumer Financial Protection (the “CFPB”) as an
independent entity within the Federal Reserve. The CFPB has broad rulemaking, supervisory and enforcement authority over
consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards, as
well as with respect to certain mortgage-related matters, such as steering incentives, determinations as to a borrower’s ability to repay
and prepayment penalties.
24
Federal and state regulators periodically examine our business, and we may be required to remediate adverse examination
findings.
The Federal Reserve, the FDIC and the Louisiana Office of Financial Institutions, or the OFI, periodically examine our business,
including our compliance with laws and regulations. If, as a result of an examination, a federal banking agency were to determine that
our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our
operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial
actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action
to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to
direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove
officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors,
to terminate our deposit insurance and place us into receivership or conservatorship. If we become subject to any regulatory actions, it
could have a material adverse effect on our business, results of operations, financial condition and growth prospects.
We may be required to pay significantly higher FDIC deposit insurance premiums in the future.
The deposits of Investar Bank are insured by the FDIC up to legal limits and, accordingly, subject it to the payment of FDIC deposit
insurance assessments. A bank’s regular assessments are determined by its risk classification, which is based on its regulatory capital
levels and the level of supervisory concern that it poses. In connection with the most recent economic recession, insured depository
institution failures, general deterioration in banking and economic conditions, and significantly increased losses of the FDIC, resulted
in a decline in the designated reserve ratio of the FDIC to historical lows. To restore this reserve ratio and bolster its funding position,
the FDIC imposed a special assessment on depository institutions and also increased deposit insurance assessment rates. Further
increases in assessment rates are possible in the future, especially if there are additional bank failures. Any increase in deposit
insurance assessment rates, or any future special assessment, could materially and adversely affect our business, results of operations,
financial condition and growth prospects.
The short-term and long-term impact of the new regulatory capital rules is uncertain.
In July 2013, each of the U.S. federal banking agencies adopted final rules implementing the recommendations of the International
Basel Committee on Bank Supervision to strengthen the regulatory capital requirements of all banking organizations in the United
States. The new capital framework, referred to as Basel III, replaces the existing regulatory capital rules for all banks, savings
associations and U.S. bank holding companies with greater than $500 million in total assets, and all savings and loan holding
companies. The final Basel III rules became effective with respect to the Company and the Bank on January 1, 2015, although the
rules will not be fully phased in until January 1, 2019.
The new rules establish a new regulatory capital standard based on Tier 1 common equity, increase the minimum Tier 1 capital risk-
based capital ratio, and impose a capital conservation buffer of at least 2.5% of common equity Tier 1 capital above the new minimum
regulatory capital ratios, when fully phased in during 2019. Failure to meet the capital conservation buffer will result in certain
limitations on dividends, capital repurchases, and discretionary bonus payments to executive officers. The rules also change the
manner in which a number of our regulatory capital components are calculated and the risk weights applicable to certain asset
categories. Although there remains some uncertainty associated with the implementation and regulatory interpretation of the newly
adopted standards, we expect that the new rules will generally require us to maintain greater amounts of regulatory capital. The new
rules may also limit or restrict how we utilize our capital. A significant increase in our capital requirements could have a material
adverse effect on our business, financial condition, results of operations or prospects.
25
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending
laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The Community Reinvestment Act, or CRA, the ECOA, the Fair Housing Act and other fair lending laws and regulations impose
nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies enforce these
laws and regulations, but private parties may also have the ability to challenge an institution’s performance under fair lending laws in
private class action litigation. If an institution’s performance under the Community Reinvestment Act or fair lending laws and
regulations is found to be deficient, the institution could be subject to damages and civil money penalties, injunctive relief, restrictions
on mergers and acquisitions activity, restrictions on expansion and restrictions on entering new business lines, among other sanctions.
In addition, the FDIC’s assessment of our compliance with CRA provisions is taken into account when evaluating any application we
submit for, among other things, approval of the acquisition or establishment of a branch or other deposit facility, an office relocation, a
merger or the acquisition of another financial institution. Our failure to satisfy our CRA obligations could, at a minimum, result in the
denial of such applications and limit our growth.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and
regulations.
The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other
duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction
reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties
for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking
regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. We are also
subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. If our policies, procedures
and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include
restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our
business plan, including our acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and
terrorist financing could also have serious reputational consequences for us. Any of these results could materially and adversely affect
our business, financial condition, results of operations and growth prospects.
Risks Related to an Investment in our Common Stock
The market price of our common stock may be volatile, which may make it difficult for investors to sell their shares at the volume,
prices and times desired.
The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control,
including, without limitation:
(cid:120) actual or anticipated variations in our quarterly and annual operating results, financial condition or asset quality;
(cid:120) changes in general economic or business conditions, both domestically and internationally;
(cid:120) the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve, or
in laws and regulations affecting us;
(cid:120) the number of securities analysts covering us;
(cid:120) publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to
meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts
or ceasing of coverage;
(cid:120) changes in market valuations or earnings of companies that investors deemed comparable to us;
(cid:120) the average daily trading volume of our common stock;
(cid:120) future issuances of our common stock or other securities;
(cid:120) additions or departures of key personnel;
(cid:120) perceptions in the marketplace regarding our competitors and/or us;
(cid:120) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving
our competitors or us; and
(cid:120) other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the
financial services industry.
26
The stock market and, in particular, the market for financial institution stocks have experienced significant fluctuations in recent years.
In many cases, these changes have been unrelated to the operating performance and prospects of particular companies. In addition,
significant fluctuations in the trading volume in our common stock may cause significant price variations to occur. Increased market
volatility may materially and adversely affect the market price of our common stock, which may make it difficult for investors to sell
their shares at the volume, prices and times desired.
We are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may
make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. While we
retain this status, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other
public companies that are not emerging growth companies, including reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We will
continue to be an emerging growth company until the earliest to occur of the following: (1) December 31, 2019; (2) the last day of the
fiscal year in which we have more than $1.0 billion in annual revenues; (3) the date on which we have more than $700 million in
market value of our common stock held by non-affiliates; or (4) the date on which we have issued more than $1.0 billion in non-
convertible debt over a three-year period. We cannot predict if investors will find our common stock less attractive because we may
rely on these exemptions, or if we choose to rely on additional exemptions in the future. If some investors find our common stock less
attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Shares eligible for future sale could adversely affect market prices of our common stock.
Shares of our common stock eligible for future sale, including those that may be issued in any private or public offering of our
common stock, as consideration in acquisition transactions, or as incentives under incentive plans, could adversely affect market
prices for our common stock. As of December 31, 2015, we had 7,264,282 shares outstanding, 278,352 shares subject to options
granted under our incentive plan, and warrants outstanding to purchase 130,875 shares of our common stock. Because our outstanding
shares of common stock either were issued in an offering registered under the Securities Act of 1933, as amended (the “Securities
Act”) or have been held for more than one year, such shares are freely tradable, except for shares held by our affiliates (approximately
9% of shares outstanding as of December 31, 2015) and 60,592 shares that represent unvested restricted shares under our incentive
plan. Shares issued under our incentive plan will be available for sale into the public market, except for shares held by our affiliates.
Shares held by our affiliates may be resold subject to the restrictions in Rule 144 of the Securities Act. In the future, we may issue
additional shares of common stock to raise capital for growth or as consideration in acquisition transactions or for other purposes, and
such shares may be registered under the Securities Act and freely tradable.
Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions.
Holders of our common stock are entitled to receive only such cash dividends as our board of directors may declare out of funds
legally available for the payment of dividends. We have no obligation to continue paying dividends, and we may change our dividend
policy at any time without notice to our shareholders.
Since the Company’s primary asset is its stock of Investar Bank, we are dependent upon dividends from the Bank to pay our operating
expenses, satisfy our obligations and to pay dividends on the Company’s common stock. Accordingly, any declaration and payment of
dividends on common stock will substantially depend upon the Bank’s earnings and financial condition, liquidity and capital
requirements, the general economic and regulatory climate and other factors deemed relevant by our board of directors. Furthermore,
consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs, and other factors, we have made,
and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends, if any,
paid to our common shareholders.
In addition, there are numerous laws and banking regulations that limit our and Investar Bank’s ability to pay dividends. For Investar
Bank, federal and state statutes and regulations require, among other things, that the Bank maintain certain levels of capital in order to
pay a dividend. Further, state and federal banking authorities have the ability to restrict the payment of dividends by supervisory
action. At the holding company level, the Federal Reserve Board has indicated that bank holding companies should carefully review
their dividend policy in relation to the organization’s overall asset quality, level of current and prospective earnings and level,
composition and quality of capital. The guidance requires that a company inform and consult with the Federal Reserve Board prior to
declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in an
adverse change to its capital structure.
27
Our Restated Articles of Incorporation and By-laws, and certain banking laws applicable to us, could have an anti-takeover effect
that decreases our chances of being acquired, even if our acquisition is in our shareholders’ best interests.
Certain provisions of our restated articles of incorporation and our by-laws, as amended, and federal banking laws, including
regulatory approval requirements, could make it more difficult for a third party to acquire control of our organization or conduct a
proxy contest, even if those events were perceived by many of our shareholders as beneficial to their interests. These provisions, and
the corporate and banking laws and regulations applicable to us:
(cid:120) enable our board of directors to issue additional shares of authorized, but unissued capital stock. In particular, our board may
issue “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by
the board;
(cid:120) enable our board of directors to increase the size of the board and fill the vacancies created by the increase;
(cid:120) enable our board of directors to amend our by-laws without shareholder approval;
(cid:120) require advance notice for director nominations and other shareholder proposals; and
(cid:120) require prior regulatory application and approval of any transaction involving control of our organization.
These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including
circumstances in which our shareholders might otherwise receive a premium over the market price of our shares.
Our issuance of preferred stock could adversely affect holders of our common stock and discourage a takeover.
Our shareholders authorized our board of directors to issue up to 5,000,000 shares of preferred stock without any further action on the
part of our shareholders. The board also has the power, without shareholder approval, to set the terms of any series of preferred stock
that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the
event of a dissolution, liquidation or winding up and other terms. In the event that we issue preferred stock in the future that has
preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we
issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common
stock or the market price of our common stock could be adversely affected. In addition, the ability of our board of directors to issue
shares of preferred stock without any action on the part of our shareholders may impede a takeover of us and prevent a transaction
perceived to be favorable to our shareholders.
Holders of the junior subordinated debentures have rights that are senior to those of our common shareholders.
In connection with the FCB merger, we assumed junior subordinated debentures issued by FCB. At December 31, 2015, we had trust
preferred securities and accompanying junior subordinated debentures with a carrying value of $3.6 million. Payments of the principal
and interest on the trust preferred securities of these trusts are conditionally guaranteed by us. Further, the junior subordinated
debentures we issued to the trusts are senior to our shares of common stock. As a result, we must make payments on the junior
subordinated debentures before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or
liquidation, the holders of the junior subordinated debentures must be satisfied before any distributions can be made on our common
stock. We have the right to defer distributions on our junior subordinated debentures (and the related trust preferred securities) for up
to five years, during which time no dividends may be paid on our common stock.
An investment in our common stock is not an insured deposit and is subject to risk of loss.
Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any deposit insurance fund or by any
other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors”
section and elsewhere in this Annual Report on Form 10-K and is subject to the same market forces that affect the price of common
stock in any company. As a result, an investor may lose some or all of his or her investment in our common stock.
Item 1B. Unresolved Staff Comments
Not applicable.
28
Item 2. Properties
Our main office is located at 7244 Perkins Road in Baton Rouge, Louisiana, in an approximately 4,900 square foot building built in
May 2008. In addition to our main office, we operate ten branch offices located in Ascension (1), East Baton Rouge (2), Jefferson (1),
Lafayette (1), Livingston (1), St. Tammany (2), Tangipahoa (1) and West Baton Rouge (1) Parishes, Louisiana, as well as a mortgage
and loan operations center and a separate executive and operations center, each in Baton Rouge. We also have four stand-alone
automated teller machines in Baton Rouge.
We own our main office and all of our branch sites. Each branch facility is a stand-alone building, equipped with an automatic teller
machine and on-site parking as well as providing for drive-up access. We believe that our facilities are in good condition and are
adequate to meet our operating needs for the foreseeable future.
We have completed construction on a new branch location in Gonzales, Louisiana (in our Baton Rouge market area), which we expect
to open in the second quarter of 2016, subject to regulatory approval. We also own two tracts of land in Ascension parish, one in St.
Mary parish, one in Jefferson parish, one in Calcasieu parish and one in Lafayette parish, each of which has been designated as a
future branch location, although the timing of the development of these tracts is uncertain.
Item 3. Legal Proceedings
From time to time we are party to ordinary routine litigation matters incidental to the conduct of our business. We are not presently
party to, and none of our property is the subject of, any legal proceedings the resolution of which we believe would have a material
adverse effect on our business, financial condition, results of operation, cash flows, growth prospects or capital levels nor were any
such proceedings terminated during the fourth quarter of 2015.
Item 4. Mine Safety Disclosures
Not applicable.
29
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock Market Prices
Our common stock is listed on the NASDAQ Global Select Market (the “NASDAQ”) under the symbol “ISTR.” As of February 16,
2016, there were approximately 789 holders of record of our common stock, and the closing sales price of our common stock on that
date was $14.55.
The following tables set forth the reported high and low intraday sales prices for the Company’s common stock as reported by
NASDAQ during each quarter since we completed our initial public offering and began trading on July 3, 2014. Prior to that date,
there was no public trading market for our common stock.
2015
4th quarter
3rd quarter
2nd quarter
1st quarter
2014
4th quarter
3rd quarter
Dividends
High
Low
$
$
$
$
$
$
18.00
16.52
17.20
17.42
15.00
19.00
$
$
$
$
$
$
15.39
14.95
14.65
13.35
13.00
13.06
The following table sets forth the amounts of dividends declared on the Company’s common stock during each quarterly period for the
years ended December 31, 2014 and 2015.
2015
4th quarter
3rd quarter
2nd quarter
1st quarter
2014
4th quarter
3rd quarter
2nd quarter
1st quarter
Dividend Policy
$
Amount Per Share
0.0086
0.0082
0.0078
0.0074
0.0070
0.0068
0.0123
0.0122
The Company intends to declare dividends on a quarterly basis. Since we are a holding company with no material business activities,
our ability to pay dividends is substantially dependent upon the ability of Investar Bank to transfer funds to us in the form of
dividends, loans and advances. The Bank’s ability to pay dividends and make other distributions and payments to us depends upon the
Bank’s earnings, financial condition, general economic conditions, compliance with regulatory requirements and other factors. In
addition, the Bank’s ability to pay dividends to us is itself subject to various legal, regulatory and other restrictions. See “Supervision
and Regulation—Dividends” in Item 1, Business, above for a discussion of the restrictions on dividends under federal banking laws
and regulations. In addition, as a Louisiana corporation, we are subject to certain restrictions on dividends under the Louisiana
Business Corporation Act. Generally, a Louisiana corporation may pay dividends to its shareholders unless, after giving effect to the
dividend, either (1) the corporation would not be able to pay its debts as they come due in the usual course of business or (2) the
corporations’ total assets are less than the sum of its total liabilities and the amount that would be needed, if the corporation were to be
dissolved at the time of the payment of the dividend, to satisfy the preferential rights of shareholders whose preferential rights are
superior to those receiving the dividend. Finally, our ability to pay dividends may be limited on account of the junior subordinated
debentures that we assumed in the FCB acquisition. We must make payments on the junior subordinated debentures before any
dividends can be paid on our common stock.
These restrictions do not, and are not expected in the future to, materially limit the Company’s ability to pay dividends to its
shareholders in an amount consistent with the Company’s history of paying dividends.
30
Stock Performance Graph
The following graph compares the cumulative total shareholder return on the Company’s common stock over a measurement period
beginning July 3, 2014 with (i) the cumulative total return on the stocks included in the Russell 3000 Index and (ii) the cumulative
total return on the stocks included in the SNL Index of Banks with assets between $500 million and $1 billion. The performance graph
assumes that the value of the investment in our common stock, the Russell 3000 Index and the SNL Index of Banks was $100 at July
3, 2014, the date our common stock began publicly trading on the NASDAQ, and that all dividends were reinvested.
ISTR
Russell 3000
SNL U.S. Bank $500M-$1B
e
u
l
a
V
x
e
d
n
I
130.00
125.00
120.00
115.00
110.00
105.00
100.00
95.00
90.00
07/03/14
09/30/14
12/31/14
03/31/15
06/30/15
09/30/15
12/31/15
Index
Investar Holding Corporation
Russell 3000
SNL U.S. Bank $500M-$1B
7/3/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 9/30/2015 12/31/2015
125.27
100.00
101.50
100.00
114.05
100.00
98.58
103.01
103.39
121.71
104.37
105.33
108.19
104.02
104.93
110.25
96.00
108.54
94.66
98.35
99.91
There can be no assurance that our common stock performance will continue in the future with the same or similar trends depicted in
the performance graph above. We will not make or endorse any predictions as to future stock performance.
The information provided under the heading “Stock Performance Graph” shall not be deemed to be “soliciting material” or to be
“filed” with the SEC or subject to its proxy regulations or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as
amended, other than as provided in Item 201 of Regulation S-K. The information provided in this section shall not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.
Issuer Purchases of Equity Securities
Period
October 1, 2015 to October 31, 2015
November 1, 2015 to November 30, 2015
December 1, 2015 to December 31, 2015
(a) Total Number of
Shares (or Units)
Purchased(1)
(b) Average Price
Paid per Share (or
Unit)
(c ) Total Number
of Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
88 $
-
126
214 $
15.83
-
17.33
16.72
(d) Maximum Number
(or
Approximate Dollar
Value) of Shares (or
Units) That May Be
Purchased Under the
Plans or Programs (2)
213,144
213,144
213,144
213,144
- $
-
-
- $
(1) Represents shares surrendered to cover the payroll taxes due upon the vesting of restricted stock.
(2) On February 19, 2015, the Company announced that its board of directors authorized the repurchase of up to 250,000 shares of the Company’s common
stock in open market transactions from time to time or through privately negotiated transactions in accordance with federal securities laws.
Unregistered Sales of Equity Securities
None.
31
Securities Authorized for Issuance under Equity Compensation Plans
Please refer to the information under the heading “Securities Authorized for Issuance under Equity Compensation Plans” in Item 12,
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, for a discussion of the securities
authorized for issuance under the Company’s equity compensation plans.
Item 6. Selected Financial Data
The following table sets forth selected historical financial information and other data as of and for years ended December 31, 2015,
2014, 2013, 2012, and 2011. As discussed in Item 1, Business, Investar Bank did not become a subsidiary of the Company until the
completion of the share exchange in November 2013. Accordingly, the selected financial information below as of and for the years
ended December 31, 2012 and 2011 relates only to the operations of the Bank, while the selected financial information below as of
and for the years ended December 31, 2015, 2014 and 2013 reflects the operations of the Company and the Bank on a consolidated
basis. The selected financial information for the years ended December 31, 2015, 2014 and 2013 has been derived from the audited
consolidated financial statements of the Company as of and for such years, other than the performance ratios, and the selected
financial information for the years ended December 31, 2012 and 2011 has been derived from the audited financial statements of
Investar Bank as of and for such years, other than the performance ratios.
The selected financial information below should be read in conjunction with other information contained in this report, including the
information contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the
consolidated financial statements and related notes in Item 8, Financial Statements and Supplementary Data. Our historical results for
any prior period are not necessarily indicative of results to be expected in any future period.
(In thousands, except share data)(1)
Financial Condition Data
Total assets
Total gross loans, net of allowance for loan losses
Allowance for loan losses
Investment securities
Goodwill and other intangible assets
Noninterest-bearing deposits
Interest-bearing deposits
Total deposits
Long-term borrowings
Total stockholders’ equity
Income Statement Data
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
2015
2014
As of December 31,
2013
2012
2011
$ 1,031,555 $ 879,354 $ 634,946 $ 375,446 $ 279,330
226,209
1,746
28,930
2,839
18,208
209,960
228,168
9,575
35,166
721,556
4,630
92,818
3,216
70,217
557,901
628,118
25,055
$ 109,350 $ 103,384 $
505,744
3,380
62,752
3,257
72,795
459,811
532,606
34,427
55,483 $
303,019
2,722
44,326
2,828
37,489
262,181
299,670
26,794
43,553 $
819,822
6,128
139,779
3,175
90,447
646,959
737,406
11,969
As of and for the year ended December 31,
2013
2012
2014
31,369 $
4,675
26,694
1,628
25,066
5,860
24,384
6,542
1,145
5,397 $
22,472 $
3,460
19,012
1,026
17,986
5,354
19,024
4,316
1,148
3,168 $
14,587 $
2,542
12,045
685
11,360
3,625
11,645
3,340
979
2,361 $
2011
11,302
2,579
8,723
639
8,084
2,032
8,615
1,501
502
999
2015
37,340 $
5,882
31,458
1,865
29,593
8,344
27,353
10,584
3,511
7,073 $
$
$
32
$
Per Common Share Data
Basic earnings per share
Diluted earnings per share
Dividends per share
Book value per share
Tangible book value per share(2)
Period end common shares outstanding
Basic weighted average common shares
outstanding
Diluted weighted average common shares
outstanding
Performance Ratios
Return on average assets
Return on average equity
Net interest margin
Efficiency ratio(3)
Net interest income to average assets
Dividend payout ratio
Asset Quality Ratios
Nonperforming assets to total assets
Nonperforming loans to total loans
Allowance for loan losses to total loans
Allowance for loan losses to
nonperforming loans
Net charge-offs to average loans
Capital Ratios(4)
Total equity to total assets
Tangible common equity to tangible
assets(5)
Tier 1 capital to average assets
Common equity tier 1 capital ratio
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
2015
0.98
0.97
0.03
15.05
14.62
7,264,282
7,214,045
As of and for the year ended December 31,
2013
2012
2014
$
$
0.98
0.93
0.04
14.24
13.79
7,262,085
5,533,514
$
$
0.86
0.81
0.05
14.06
13.24
3,945,114
3,667,929
0.79
0.71
0.05
13.56
12.68
3,210,816
2,998,087
2011
0.54
0.47
0.07
12.82
11.79
2,742,205
1,843,180
7,258,008
5,777,302
3,923,375
3,302,661
2,120,471
0.77 %
6.60 %
3.61 %
68.72 %
3.42 %
3.26 %
0.73 %
6.80 %
3.85 %
74.90 %
3.63 %
3.93 %
0.64 %
6.10 %
4.10 %
78.07 %
3.83 %
5.44 %
0.74 %
5.90 %
4.04 %
74.32 %
3.77 %
5.84 %
0.44 %
4.44 %
4.09 %
80.10 %
3.86 %
12.91 %
0.30 %
0.32 %
0.82 %
254.16 %
0.69 %
0.54 %
0.74 %
138.61 %
0.79 %
0.30 %
0.67 %
227.00 %
0.62 %
0.02 %
0.94 %
5136.00 %
0.75 %
0.01 %
0.79 %
6236.00 %
0.05 %
0.07 %
0.09 %
-0.12 %
0.20 %
10.60 %
10.32 %
11.39 %
11.67 %
12.05 %
12.72 %
11.76 %
11.43 %
12.61 %
NA
13.79 %
14.41 %
8.74 %
8.27 %
9.53 %
NA
10.85 %
11.51 %
11.60 %
10.93 %
11.55 %
NA
13.06 %
13.95 %
12.59 %
11.69 %
11.67 %
NA
14.36 %
15.14 %
(1)
(2)
(3)
Selected consolidated financial data includes the effect of mergers from the date of each merger. On May 1, 2013, Investar Bank
acquired First Community Bank (“FCB”), a Louisiana state bank headquartered in Hammond, Louisiana, by merger of FCB
with and into Investar Bank. On October 1, 2011, Investar Bank acquired South Louisiana Business Bank (“SLBB”), a
Louisiana state bank headquartered in Prairieville, Louisiana, by merger of SLBB with and into Investar Bank. References in
this document to assets purchased and liabilities assumed in the FCB and SLBB mergers reflect the fair value of such assets and
liabilities on the date of acquisition, unless the context otherwise requires. See Note 2, Acquisition Activity, in the Notes to
Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, for additional information about
the FCB and SLBB transactions.
Tangible book value per common share is a non-GAAP financial measure. Tangible book value per common share is calculated
as total stockholders’ equity less goodwill and other intangible assets, divided by the number of common shares outstanding as
of the balance sheet date. We believe that the most directly comparable GAAP financial measure is book value per share. For
more information regarding our use of non-GAAP financial measures, including a reconciliation of tangible book value per
common share to book value per share, please refer to the information under the heading “Non-GAAP Financial Measures” in
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Efficiency ratio represents noninterest expenses divided by the sum of net interest income (before provision for loan losses) and
noninterest income. For more information regarding our use of non-GAAP financial measures, including our calculation of the
efficiency ratio, please refer to the information under the heading “Non-GAAP Financial Measures” in Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
33
(4)
(5)
Beginning January 1, 2015, the capital ratios are calculated using the Basel III framework. Capital ratios for prior periods were
calculated using the Basel I framework. The Common Equity Tier 1 capital ratio is a new ratio introduced under the Basel III
framework. See discussion of Basel III framework under the heading “Regulatory Capital Requirements” in Item 1, Business.
Tangible equity to tangible assets is a non-GAAP financial measure. Tangible equity is calculated as total stockholders’ equity
less goodwill and other intangible assets, and tangible assets is calculated as total assets less goodwill and other intangible
assets. We believe that the most directly comparable GAAP financial measure is total equity to total assets. For more
information regarding our use of non-GAAP financial measures, including a reconciliation of the ratio of tangible equity to
tangible assets to the ratio of total equity to total assets, please refer to the information under the heading “Non-GAAP Financial
Measures” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
34
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section presents management’s perspective on the financial condition and results of operations of Investar Holding Corporation
(the “Company,” “we,” “our,” or “us”) and its wholly-owned subsidiary, Investar Bank (the “Bank”). The following discussion and
analysis should be read in conjunction with the Company’s consolidated financial statements and related notes and other
supplemental information included herein. As discussed in previous filings, the Company did not become the holding company of the
Bank until the completion of the share exchange, whereby all of the Bank’s shareholders received shares of the Company’s common
stock in exchange for the Bank’s common stock, in November 2013. Accordingly, references below to financial condition or results of
operations or to events or circumstances relating to dates or time periods prior to this share exchange (even if “we,” “our,” or “us”
is used) relate to the Bank alone, while references below to financial condition or results of operations or to events or circumstances
relating to dates or time periods after the share exchange pertain to the Company and the Bank on a consolidated basis, unless the
context explicitly dictates otherwise.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K, both in Management’s Discussion and Analysis of Financial Condition and Results of Operations,
and elsewhere, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include statements relating to
our projected growth, anticipated future financial performance, financial condition, credit quality and performance goals, as well as
statements relating to the anticipated effects on our business, financial condition and results of operations from expected
developments, our growth and potential acquisitions. These statements can typically be identified through the use of words or phrases
such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “think,” “will likely result,” “expect,” “continue,” “will,”
“anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or
other comparable words or phrases of a future or forward-looking nature.
Our forward-looking statements contained herein are based on assumptions and estimates that management believes to be reasonable
in light of the information available at this time. However, many of these statements are inherently uncertain and beyond our control
and could be affected by many factors. Factors that could have a material effect on our business, financial condition, results of
operations, cash flows and future growth prospects can be found in Item 1A, Risk Factors. These factors include, but are not limited to,
the following, any one or more of which could materially affect the outcome of future events:
(cid:120) business and economic conditions generally and in the financial services industry in particular, whether nationally, regionally or
in the markets in which we operate;
(cid:120) our ability to achieve organic loan and deposit growth, and the composition of that growth;
(cid:120) changes (or the lack of changes) in interest rates, yield curves and interest rate spread relationships that affect our loan and
deposit pricing;
(cid:120) the extent of continuing client demand for the high level of personalized service that is a key element of our banking approach
as well as our ability to execute our strategy generally;
(cid:120) our dependence on our management team, and our ability to attract and retain qualified personnel;
(cid:120) changes in the quality or composition of our loan or investment portfolios, including adverse developments in borrower
industries or in the repayment ability of individual borrowers;
(cid:120) inaccuracy of the assumptions and estimates we make in establishing reserves for probable loan losses and other estimates;
(cid:120) the concentration of our business within our geographic areas of operation in Louisiana;
(cid:120) concentration of credit exposure;
(cid:120) deteriorating asset quality and higher loan charge-offs, and the time and effort necessary to resolve problem assets;
(cid:120) a lack of liquidity, including as a result of a reduction in the amount of deposits we hold or other sources of liquidity;
(cid:120) our potential growth, including our entrance or expansion into new markets, and the need for sufficient capital to support that
growth;
(cid:120) difficulties in identifying attractive acquisition opportunities and strategic partners that will complement our relationship
banking approach;
(cid:120) our ability to efficiently integrate acquisitions into our operations, retain the customers of acquired businesses and grow the
acquired operations;
35
(cid:120) the impact of litigation and other legal proceedings to which we become subject;
(cid:120) data processing system failures and errors;
(cid:120) competitive pressures in the consumer finance, commercial finance, retail banking, mortgage lending and auto lending
industries, as well as the financial resources of, and products offered by, competitors;
(cid:120) the impact of changes in laws and regulations applicable to us, including banking, securities and tax laws and regulations and
accounting standards, as well as changes in the interpretation of such laws and regulations by our regulators;
(cid:120) changes in the scope and costs of FDIC insurance and other coverages;
(cid:120) governmental monetary and fiscal policies;
(cid:120) hurricanes, other natural disasters and adverse weather; oil spills and other man-made disasters; acts of terrorism, an outbreak of
hostilities or other international or domestic calamities, acts of God and other matters beyond our control; and
(cid:120) other circumstances, many of which are beyond our control.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included
herein. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be
incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such
forward-looking statements.
Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly
update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New
factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of
each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary
statements.
Overview
Through our wholly-owned subsidiary Investar Bank, we provide full banking services, excluding trust services, tailored primarily to
meet the needs of individuals and small to medium-sized businesses in our primary areas of operation in South Louisiana: Baton
Rouge, New Orleans, Lafayette, Hammond and their surrounding metropolitan areas. Our Bank commenced operations in 2006 and
we completed our initial public offering in July 2014. Our strategy includes organic growth through high quality loans and growth
through acquisitions. We currently operate 11 full service branches, including a branch in Baton Rouge, Louisiana opened in August
2014. We have completed construction of one new branch in Gonzales, Louisiana in our Baton Rouge market area and in September
2015, acquired land and a building for an additional branch in our New Orleans market area. We continue to focus on growing our
deposit base in our markets. We completed acquisitions in 2011 and 2013 and regularly review acquisition opportunities.
Our principal business is lending to and accepting deposits from individuals and small to medium-sized businesses in our areas of
operation. We generate our income principally from interest on loans and, to a lesser extent, our securities investments, as well as
from fees charged in connection with our various loan and deposit services and gains on the sale of loans and securities. Our principal
expenses are interest expense on interest-bearing customer deposits and borrowings, salaries, employee benefits, occupancy costs, data
processing and operating expenses. We measure our performance through our net interest margin, return on average assets, and return
on average equity, among other metrics, while seeking to maintain appropriate regulatory leverage and risk-based capital ratios.
Financial Condition and Results of Operations
Net income for the year ended December 31, 2015 totaled $7.1 million, or $0.97 per diluted share, compared to $5.4 million, or $0.93 per
diluted share, for the year ended December 31, 2014. This represents a $1.7 million, or 31%, increase in net income. The increase can
mainly be attributed to the Company’s year over year earning asset growth.
Key components of the Company’s performance during the year ended December 31, 2015 are summarized below.
(cid:120) Total assets grew to $1.0 billion at December 31, 2015, an increase of 17% from $879.4 million at December 31, 2014.
(cid:120) Total loans, excluding held for sale, net of allowance for loan losses at December 31, 2015 were $739.3 million, an increase
of $121.2 million, or 20% compared to $618.1 million at December 31, 3014.
36
(cid:120) Total deposits were $737.4 million at December 31, 2015, an increase of $109.3 million, or 17%, compared to deposits of
$628.1 million at December 31, 2014. Noninterest-bearing deposits increased $20.2 million, or 29%, to $90.4 million
compared to $70.2 million at December 31, 2014.
(cid:120) Net interest income for the year ended December 31, 2015 was $31.5 million, an increase of $4.8 million, or 18%, compared
to $26.7 million for the year ended December 31, 2014. This increase was mainly driven by organic growth in our interest-
earning assets with an increase in net interest income of $7.1 million due to an increase in volume offset by a $2.3 million
decrease related to a reduction in yield compared the year ended December 31, 2014.
(cid:120) We opened our Highland Road branch in Baton Rouge, Louisiana on August 1, 2014. This branch contributed $27.8 million
to our total gross loans and $42.6 million to our total deposits at December 31, 2015.
(cid:120) We hired a number of key bankers in the past two years, including experienced commercial lenders and their teams in the
Baton Rouge, New Orleans, and Lafayette markets.
37
Non-GAAP Financial Measures
Our accounting and reporting policies conform to accounting principles generally accepted in the United States, or GAAP, and the
prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional metrics. The
efficiency ratio, tangible book value per share and the ratio of tangible equity to tangible assets are not financial measures recognized
under GAAP and, therefore, are considered non-GAAP financial measures.
Our management, banking regulators, many financial analysts and other investors use these non-GAAP financial measures to compare
the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets,
which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. Tangible equity,
tangible assets, tangible book value per share or related measures should not be considered in isolation or as a substitute for total
stockholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the
manner in which we calculate tangible equity, tangible assets, tangible book value per share and any other related measures may differ
from that of other companies reporting measures with similar names. The following table reconciles, as of the dates set forth below,
stockholders’ equity (on a GAAP basis) to tangible equity and total assets (on a GAAP basis) to tangible assets and calculates both our
tangible book value per share and efficiency ratio (dollars in thousands).
2015
As of and for the year ended December 31,
2013
2012
2014
2011
Total stockholders' equity -
GAAP
Adjustments:
Goodwill
Other intangibles
Tangible equity
Total assets - GAAP
Adjustments:
Goodwill
Other intangibles
Tangible assets
$
109,350 $
103,384 $
55,483 $
43,553 $
35,166
2,684
491
106,175 $
2,684
532
100,168 $
2,684
573
52,226 $
2,684
145
40,724 $
2,684
155
32,327
1,031,555 $
879,354 $
634,946 $
375,446 $
279,330
2,684
491
1,028,380 $
2,684
532
876,138 $
2,684
573
631,689 $
2,684
145
372,617 $
2,684
155
276,491
$
$
$
$
Total shares outstanding
Book value per share
Effect of adjustment
Tangible book value per share $
Total equity to total assets
Effect of adjustment
Tangible equity to tangible
assets
15.05 $
(0.43 )
14.62 $
10.60 %
(0.28 )
10.32 %
14.24 $
(0.45 )
13.79 $
11.76 %
(0.33 )
11.43 %
14.06 $
(0.82 )
13.24 $
8.74 %
(0.47 )
8.27 %
13.56 $
(0.88 )
12.68 $
11.60 %
(0.67 )
10.93 %
Efficiency ratio(1)
Noninterest expense
Net interest income
Noninterest income
Efficiency ratio
$
27,353 $
31,458
8,344
68.72 %
24,384 $
26,694
5,860
74.90 %
19,024 $
19,012
5,354
78.07 %
11,645 $
12,045
3,625
74.32 %
12.82
(1 )
11.79
12.59 %
(1 )
11.69 %
8,615
8,723
2,033
80.10 %
(1)Calculated as noninterest expense divided by the sum of net interest income (before provision for loan losses) and noninterest
income.
Critical Accounting Policies
The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and judgments that
affect our reported amounts of assets, liabilities, income and expenses and related disclosure of contingent assets and liabilities.
Wherever feasible, we utilize third-party information to provide management with these estimates. Although independent third parties
are engaged to assist us in the estimation process, management evaluates the results, challenges assumptions used and considers other
factors which could impact these estimates. Actual results may differ from these estimates under different assumptions or conditions.
38
For more detailed information about our accounting policies, please refer to Note 1, Summary of Significant Accounting Policies, in
the Notes to Consolidated Financial Statements contained in Item 8, Financial Statements and Supplementary Data. The following
discussion presents an overview of some of our accounting policies and estimates that require us to make difficult, subjective or
complex judgments about inherently uncertain matters when preparing our financial statements. We believe that the judgments,
estimates and assumptions that we use in the preparation of our consolidated financial statements are appropriate.
Allowance for Loan Losses. One of the accounting policies most important to the presentation of our financial statements relates to
the allowance for loan losses and the related provision for loan losses. The allowance for loan losses is established as losses are
estimated through a provision for loan losses charged to earnings. The allowance for loan losses is based on the amount that
management believes will be adequate to absorb probable losses inherent in the loan portfolio based on, among other things,
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 borrowers’ ability to pay. Another component of the allowance is losses on loans assessed as
impaired under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 310, Receivables
(“ASC 310”). The balance of the loans determined to be impaired under ASC 310 and the related allowance is included in
management’s estimation and analysis of the allowance for loan losses. Allowances for impaired loans are generally determined based
on collateral values or the present value of estimated cash flows.
The determination of the appropriate level of the allowance is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available. We have an established methodology to determine the adequacy of the
allowance for loan losses that assesses the risks and losses inherent in our portfolio and portfolio segments. We have an internally
developed model that requires significant judgment to determine the estimation method that fits the credit risk characteristics of the
loans in our 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, 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 our 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.
Acquisition Accounting. We account for our acquisitions under ASC Topic 805, Business Combinations (“ASC 805”), which requires
the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value (which is
discussed below). The excess purchase price over the fair value of net assets acquired is recorded as goodwill. If the fair value of the
net assets acquired exceeds the purchase price, a bargain purchase gain is recognized.
Because the fair value measurements incorporate assumptions regarding credit risk, no allowance for loan losses related to the
acquired loans is recorded on the acquisition date. The fair value measurements of acquired loans are based on estimates related to
expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. The fair value
adjustment is amortized over the life of the loan using the effective interest method.
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.
39
Intangible Assets. Our intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess of the
purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill and other intangible
assets deemed to have an indefinite useful life are not amortized but instead are subject to review for impairment annually, or more
frequently if deemed necessary, in accordance with ASC Topic 350, Intangibles – Goodwill and Other. Intangible assets with
estimable useful lives are amortized over their respective estimated useful lives and reviewed for impairment in accordance with ASC
Topic 360, Property, Plant, and Equipment. If impaired, the asset is written down to its estimated fair value. Core deposit intangibles
representing the value of the acquired core deposit base are generally recorded in connection with business combinations involving
banks and branch locations. Our policy is to amortize core deposit intangibles over the estimated useful life of the deposit base, either
on a straight line basis not exceeding 15 years or an accelerated basis over 10 years. The remaining useful lives of core deposit
intangibles are evaluated periodically to determine whether events and circumstances warrant revision of the remaining period of
amortization. All of our core deposit intangibles are currently amortized on a straight-line basis over 15 years.
Fair Value Measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, using assumptions market participants would use when
pricing an asset or liability. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of future cash flows, and the fair value estimates may not
be realized in an immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not necessarily
represent our underlying value.
The definition of fair value focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between
market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume
and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be
appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date
under current market conditions depends on the facts and circumstances and requires use of significant judgment. The fair value is a
reasonable point within the range that is most representative of fair value under current market conditions.
In accordance with fair value guidance, we group our financial assets and financial liabilities measured at fair value in three levels,
based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
(cid:120) Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the
ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are
traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions
involving identical assets or liabilities.
(cid:120) Level 2—Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the asset or liability.
(cid:120) Level 3—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined
using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which
determination of fair value requires significant management judgment or estimation.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the
fair value measurement.
Other-Than-Temporary-Impairment on Investment Securities. On a quarterly basis, we evaluate our investment portfolio for other-
than-temporary-impairment (“OTTI”) in accordance with ASC Topic 320, Investments – Debt and Equity Securities. An investment
security is considered impaired if the fair value of the security is less than its cost or amortized cost basis. When impairment of an
equity security is considered to be other-than-temporary, the security is written down to its fair value and an impairment loss is
recorded in earnings. When impairment of a debt security is considered to be other-than-temporary, the security is written down to its
fair value. The amount of OTTI recorded as a loss in earnings depends on whether we intend to sell the debt security and whether it is
more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If we intend to sell the
debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, the entire
difference between the security’s amortized cost basis and its fair value is recorded as an impairment loss in earnings. If we do not
intend to sell the debt security and it is not more likely than not that we will be required to sell the security before recovery of its
amortized cost basis, OTTI is separated into the amount representing credit loss and the amount related to all other market factors. The
amount related to credit loss is recognized in earnings. The amount related to other market factors is recognized in other
comprehensive income, net of applicable taxes.
40
Stock-Based Compensation. We recognize compensation expense for all stock-based payments to employees in accordance with ASC
Topic 718, Compensation – Stock Compensation. Under this accounting guidance, such payments are measured at fair value.
Determining the fair value of, and ultimately the expense we recognize related to, our stock-based payments requires us to make
assumptions regarding dividend yields, expected stock price volatility, estimated forfeitures and, as to stock options, the expected life
of the option. Changes in these assumptions and estimates can materially affect the calculated fair value of stock-based compensation
and the related expense to be recognized.
Income Taxes. Accrued taxes represent the estimated amount payable to or receivable from taxing jurisdictions, either currently or in
the future, and are reported in our consolidated statement of operations after exclusion of non-taxable income such as interest on state
and municipal securities. Also, certain items of income and expenses are recognized in different time periods for financial statement
purposes than for income tax purposes. Thus, provisions for deferred taxes are recorded in recognition of such temporary differences.
The calculation of our income tax expense is complex and requires the use of many estimates and judgments in its determination.
Deferred taxes are determined utilizing a liability method whereby we recognize deferred tax assets for deductible temporary
differences and deferred tax liabilities for taxable temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. We adjust
deferred tax assets and liabilities for the effects of changes in tax laws and rates on the date of enactment.
The Company has adopted accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent
framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. We recognize deferred tax assets
if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The
term “more likely than not” means a likelihood of more than 50%. A tax position that meets the more-likely-than-not recognition
threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being
realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or
not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available
at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance when, if
based on the weight of evidence available, it is more likely than not that some portion or all of deferred tax asset will not be realized.
We recognize interest and penalties on income taxes as a component of income tax expense.
Implications of and Elections under the JOBS Act. Pursuant to the JOBS Act, an emerging growth company such as the Company
can choose to not adopt new or revised accounting standards that may be issued by the FASB until they would apply to private
companies. We have elected not to opt in to such extended transition period, which election is irrevocable. As a result of this election,
our financial statements may not be comparable to the financial statements of emerging growth companies that have opted in to this
extended transition period, but they will be comparable to those of other public companies that are neither emerging growth
companies nor emerging growth companies that have opted in to using the extended transition period. In addition, we have elected to
take advantage of the reduced disclosure requirements relating to executive compensation arrangements that is available to us so long
as we remain an emerging growth company.
Discussion and Analysis of Financial Condition
Total assets were $1.0 billion at December 31, 2015, an increase of 17% from total assets of $879.4 million at December 31, 2014.
Our total assets of $879.4 million at December 31, 2014 represents a 38% increase from total assets of $634.9 million at December 31,
2013. The growth experienced since December 31, 2013 can be attributed to organic growth of the Company through de novo
branches and the hiring of a number of key bankers, including experienced commercial lenders.
Loans
General. Loans, excluding loans held for sale, constitute our most significant asset, comprising 72%, 71%, and 79% of our total assets
at December 31, 2015, 2014, and 2013, respectively. Loans, excluding loans held for sale, increased $122.6 million, or 20%, to $745.4
million at December 31, 2015 from $622.8 million at December 31, 2014. Loans, excluding loans held for sale, increased $118.7
million, or 24%, to $622.8 million at December 31, 2014 from $504.1 million at December 31, 2013.
41
The table below sets forth the balance of loans, excluding loans held for sale, outstanding by loan type as of the dates presented, and
the percentage of each loan type to total loans (dollars in thousands).
2015
2014
December 31,
2013
2012
2011
Amount
Percentage of
Total Loans
Amount
Percentage of
Total Loans
Amount
Percentage of
Total Loans
Amount
Percentage of
Total Loans
Amount
Percentage of
Total Loans
Mortgage loans on
real estate:
Construction and
land
development
1-4 Family
Multifamily
Farmland
Commercial real
estate
Owner-
occupied
Nonowner-
occupied
Commercial and
industrial
Consumer
Total loans
$ 81,863
156,300
29,694
2,955
11.0 % $ 71,350
137,519
21.0
17,458
4.0
2,919
0.4
11.4 % $ 63,170
104,685
22.1
14,286
2.8
830
0.5
12.5 % $ 20,271
54,813
20.8
1,750
2.8
64
0.2
7.0 % $ 21,171
46,664
1,454
8
19.0
0.6
0.0
9.6 %
21.2
0.7
0.0
137,752
18.5
119,668
19.2
78,415
15.6
52,534
18.2
38,397
17.4
150,831
20.2
105,390
16.9
78,948
15.6
47,393
16.4
18,070
8.2
69,961
116,085
$ 745,441
54,187
9.4
15.5
114,299
100.0 % $ 622,790
32,665
8.7
18.4
131,096
100.0 % $ 504,095
15,319
6.5
96,609
26.0
100.0 % $ 288,753
11,499
5.3
33.5
82,986
100.0 % $ 220,249
5.2
37.7
100.0 %
As the table above indicates, we have experienced significant growth in all loan categories, with the exception of consumer, from
2013 to 2015. Our strong presence in our Baton Rouge market and our expansion into the New Orleans, Hammond, and Lafayette
markets are the primary reasons for our loan growth from 2013 to 2015. Beyond the impact of our expansion into new markets, we
believe our loan growth from 2013 to 2015 is due to the successful implementation of our relationship-driven banking strategy. The
decrease in the consumer loan portfolio from 2013 to 2015 is primarily a result of the Company’s increase in consumer loan pool
sales. In addition, the Company announced in November 2015 that the Bank would be exiting the indirect auto loan origination
business based on the operating performance of the business in order to focus the Bank’s resources on relationship banking. The Bank
discontinued accepting indirect auto loan applications on December 31, 2015, but continued to process and fund applications that were
accepted on or before that date. Indirect auto loans represented approximately 80% of our total consumer loans at December 31, 2015.
As a result, the Company expects its consumer loan portfolio as a percentage of the total loan portfolio to decrease over time.
At December 31, 2015, the Company’s total business lending portfolio, which consists of loans secured by owner-occupied
commercial real estate properties and commercial and industrial loans, was $207.7 million, an increase of $33.8 million, or 19%,
compared to the business lending portfolio of $173.9 million at December 31, 2014. The business lending portfolio at December 31,
2014 increased $62.8 million, or 57%, compared to $111.1 million at December 31, 2013.
42
The following table sets forth loans outstanding at December 31, 2015, which, based on remaining scheduled repayments of principal,
are due in the periods indicated, as well as the amount of loans with fixed and variable rates in each maturity range. Loans with
balloon payments and longer amortizations are often repriced and extended beyond the initial maturity when credit conditions remain
satisfactory. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported below as
due in one year or less.
(dollars in thousands)
Mortgage loans on real estate:
Construction and land development
1-4 Family
Multifamily
Farmland
Commercial real estate
Owner-occupied
Nonowner-occupied
Commercial and industrial
Consumer
Total loans
Amounts with fixed rates
Amounts with variable rates
Total loans
One Year or
Less
After One
Year Through
Five Years
After Five
Years Through
Ten Years
After Ten
Years Through
Fifteen Years
After Fifteen
Years
Total
$ 48,728 $
9,026
2,138
-
25,744 $
26,969
12,309
49
5,478 $
48,695
13,522
851
1,913 $
35,866
127
2,055
- $ 81,863
35,744 156,300
1,598 29,694
2,955
-
3,832
4,110
13,071
3,517
51,741
55,122
31,509
88,555
$ 84,422 $ 291,998 $
$ 31,210 $ 259,629 $
32,369
$ 84,422 $ 291,998 $
53,212
45,053
69,543
22,612
23,615
229,369 $
208,121 $
21,248
229,369 $
31,202
21,572
230
398
5,924 137,752
484 150,831
2,539 69,961
- 116,085
93,363 $ 46,289 $ 745,441
93,061 $ 42,649 $ 634,670
3,640 110,771
93,363 $ 46,289 $ 745,441
302
Loans Held for Sale. Loans held for sale, consisting of both consumer and mortgage loans, decreased $22.9 million, or 22%, to $80.5
million at December 31, 2015 from $103.4 million at December 31, 2014. The decrease is primarily due to $99.7 million of consumer
loans classified as held for sale at December 31, 2014 after two consumer loan pool sales were postponed by the buyer from the fourth
quarter of 2014 to the first quarter of 2015. Consumer loans held for sale were $79.9 million at December 31, 2015. No consumer
loans were classified as held for sale at December 31, 2013.
In the years ended December 31, 2015 and 2014, we originated $303.1 million and $170.8 million, respectively, in consumer loans for
sale, consisting of auto loans. There were no consumer loans originated for sale in 2013.
We sell pools of our consumer loans, typically several times per quarter, in order to manage our concentration in consumer loans as
well as to generate liquidity. For the year ended December 31, 2015, we recognized gains from the sales of pools of our consumer
loans of $3.1 million. For the year ended December 31, 2014, the gains from sales of pools of our consumer loans was $1.7 million, an
increase over gains of $0.2 from such sales for the year ended December 31, 2013, due primarily to the overall growth in consumer
loan originations and our strategy to sell the majority of consumer loans originated. The gains from the sales of pools of our consumer
loans are expected to decrease significantly as the result of exiting the indirect auto loan origination business, as mentioned in Loans –
General above.
In the years ended December 31, 2015 and 2014, we originated $46.6 million and $67.7 million, respectively, in mortgage loans for
sale. Mortgage loans held for sale decreased $3.1 million, or 84%, to $0.6 million at December 31, 2015 from $3.7 million at
December 31, 2014. The decrease is primarily due to a decrease in originations of mortgage loans for sale and the timing of the loan
sales. We do not expect significant growth in mortgage originations.
One-to-four family mortgage loans not held in our portfolio are typically sold on a “best efforts” basis within 30 days after the loan is
funded. This means that residential real estate originations are locked in at a contractual rate with a third-party investor or directly with
government sponsored agencies, and we are obligated to sell the mortgage only if it is closed and funded. As a result, the risk we
assume is conditioned upon loan underwriting and market conditions in the national mortgage market. Although loan fees and some
interest income are derived from mortgage loans held for sale, our main source of income on these loans is gains from the loan sales in
the secondary market which is recorded in fee income on mortgage loans held for sale, net on the consolidated statements of
operations.
Loan Concentrations. Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in
similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2015 and
December 31, 2014, we had no concentrations of loans exceeding 10% of total loans other than loans in the categories listed in the
table above.
43
Investment Securities
We purchase investment securities primarily to provide a source for meeting liquidity needs, with return on investment a secondary
consideration. We also use investment securities as collateral for certain deposits and other types of borrowing. Investment securities
represented 14% of our total assets at December 31, 2015 and totaled $139.8 million at December 31, 2015, an increase of $47.0
million, or 51%, from $92.8 million at December 31, 2014. The investment securities balance at December 31, 2014 represents a
$30.0 million, or 48%, increase from $62.8 million at December 31, 2013. The increase in investment securities at December 31, 2015
compared to December 31, 2014 and 2013 resulted from purchases of all investment types in our current portfolio.
The table below shows the carrying value of our investment securities portfolio by investment type and the percentage that such
investment type comprises of our entire portfolio as of the dates indicated (dollars in thousands).
Obligations of other U.S. government agencies and
corporations
Obligations of state and political subdivisions
Corporate bonds
Residential mortgage-backed securities
Commercial mortgage backed securities
Equity securities
Total
December 31, 2015
December 31, 2014
December 31, 2013
Balance
Percentage of
Portfolio
Balance
Percentage of
Portfolio
Balance
Percentage of
Portfolio
$ 30,460
35,515
14,824
55,899
1,989
1,092
$ 139,779
21.79 % $
8,339
25.41 26,811
10.61
5,419
39.99 50,224
1,491
534
100.00 % $ 92,818
1.42
0.78
8.98 % $ 6,182
28.89 14,100
5.84 4,925
54.11 36,804
265
476
100.00 % $ 62,752
1.61
0.57
9.85 %
22.47
7.85
58.65
0.42
0.76
100.00 %
The investment portfolio consists of available for sale and held to maturity securities. We classify debt securities as held to maturity if
management has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized
cost. Securities not classified as held to maturity or trading are classified as available for sale. The carrying values of the Company’s
available for sale securities are adjusted for unrealized gains or losses as valuation allowances, and any gains or losses are reported on
an after-tax basis as a component of other comprehensive income. Any expected credit loss due to the inability to collect all amounts
due according to the security’s contractual terms is recognized as a charge against earnings. Any remaining unrealized loss related to
other factors would be recognized in other comprehensive income, net of taxes.
In the year ended December 31, 2015, we purchased $88.6 million of investment securities, compared to purchases of $72.2 million
and $40.4 million of investment securities during the years ended December 31, 2014 and 2013, respectively. We increased our
purchases of securities in 2014, which continued throughout 2015, primarily to increase the amount of liquidity on our balance sheet
and also to reposition the portfolio to take advantage of an anticipated rising interest rate environment. Mortgage-backed securities
represented 42%, 87%, and 69% of the available for sale securities we purchased in 2015, 2014, and 2013, respectively. Of the
remaining securities purchased in 2015, 2014 and 2013, 29%, 6% and 4%, respectively, were U.S. government agency securities,
while 16%, 3%, and 18%, respectively, were municipal securities. We only purchase corporate bonds that are investment grade
securities issued by seasoned corporations.
Typically, our investment securities are available for sale. Our purchases of held to maturity securities comprised only 6% of our total
purchases in 2015. Our purchases of held to maturity securities in 2015 consisted only of mortgage-backed securities while our
purchases of held to maturity securities in 2014 mainly consisted of U.S. government agency securities. Our purchases of held to
maturity securities in 2013 consisted of U.S. government agency securities that we acquired in connection with our acquisition of FCB
and mortgage-backed securities that were qualified investments for Community Redevelopment Act purposes.
44
The table below sets forth the stated maturities and weighted average yields of our investment debt securities based on the amortized
cost of our investment portfolio as of December 31, 2015 (dollars in thousands).
Held to maturity:
Obligations of other U.S. government
agencies and corporations
Obligations of states and political
subdivisions
Residential mortgage-backed securities
Available for sale:
Obligations of other U.S. government
agencies and corporations
Obligations of states and political
subdivisions
Corporate bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
One Year or Less
Amount Yield
After One Year
Through Five Years
Amount Yield
After Five Years
Through Ten Years
Amount Yield
After Ten Years
Amount Yield
$
-
- % $
-
- % $
-
- % $ 3,987 2.21 %
655 7.17
-
-
2,950 7.17
-
-
3,575 7.17
-
-
6,868 4.38
8,373 2.65
-
-
-
-
-
$ 655
-
-
-
-
-
634 2.10
4,980 2.51
20,888 2.38
3,511 2.22
5,096 1.84
-
-
738 2.08
$ 12,929
4,044 3.24
9,723 3.14
3,888 2.04
1,027 2.32
$ 27,237
13,810 4.47
250 4.00
43,815 2.16
240 1.85
$ 98,231
The maturity of mortgage-backed securities reflects scheduled repayments based upon the contractual maturities of the securities.
Weighted average yields on tax-exempt obligations have been computed on a fully tax equivalent basis assuming a federal tax rate of
35%.
Premises and Equipment
Bank premises and equipment increased $2.1 million, or 7%, to $30.6 million at December 31, 2015 from $28.5 million at
December 31, 2014. The construction of a new branch location in Gonzales, Louisiana and the purchase of potential future branch
locations in Jefferson and Calcasieu parishes are the primary reasons for this increase. Bank premises and equipment increased $3.8
million, or 16%, to $28.5 million at December 31, 2014 from $24.7 million at December 31, 2013. The acquisition of a parcel of land
in Lafayette, Louisiana for a potential future branch location and the purchase of furniture and fixtures related to the consolidation of
our back office support staff to a central location are the primary reasons for this increase.
Deferred Tax Asset
At December 31, 2015, the net deferred tax asset was $1.9 million, compared to $1.1 million and $1.2 million, respectively, at
December 31, 2014 and 2013. The increase is mainly attributable to the $0.7 million increase in the deferred tax asset related to the
provision for loan losses.
The Bank acquired a net operating loss carryforward of approximately $1.4 million on an after-tax basis as a result of the acquisitions
of both SLBB and FCB. At December 31, 2015, we held approximately $1.2 million in net operating loss carryforwards, with
expiration dates ranging from 2031 to 2033. U.S. tax law imposes annual limitations under Internal Revenue Code Section 382 on the
amount of net operating loss carryforwards that may be used to offset federal taxable income. Under these laws, we may apply up to
approximately $0.6 million to offset our taxable income each year through 2015, with declining amounts thereafter as the net
operating loss carryforwards are utilized. In addition to this limitation, our ability to utilize net operating loss carryforwards depends
upon the Company generating taxable income. Given the substantial amount of time before our net operating loss carryforwards begin
to expire, we currently expect to utilize these net operating loss carryforwards in full before their expiration.
45
Deposits
The following table sets forth the composition of our deposits and the percentage of each deposit type to total deposits at
December 31, 2015, 2014 and 2013 (dollars in thousands).
December 31, 2015
December 31, 2014
December 31, 2013
Noninterest-bearing demand
deposits
NOW accounts
Money market deposit accounts
Savings accounts
Time deposits
Total deposits
Amount
$
$
90,447
140,503
96,113
53,735
356,608
737,406
Percentage of
Total
Deposits
Percentage of
Total
Deposits
Amount
Percentage of
Total
Deposits
Amount
12.3 % $
19.0
13.0
7.3
48.4
100 % $
70,217
116,644
77,589
53,332
310,336
628,118
11.2 % $
18.6
12.4
8.5
49.4
100 % $
72,795
77,190
67,006
52,177
263,438
532,606
13.7 %
14.5
12.6
9.8
49.5
100 %
Total deposits were $737.4 million at December 31, 2015, an increase of $109.3 million, or 17%, from total deposits of $628.1 million
at December 31, 2014. Total deposits at December 31, 2014 increased $95.5 million, or 18%, from total deposits of $532.6 million at
December 31, 2013. The increase in deposits at December 31, 2015 compared to December 31, 2014 and 2013 resulted from organic
growth in all of our markets.
The following table shows the contractual maturities of certificates of deposit and other time deposits greater than $100,000 at
December 31, 2015 and 2014 (dollars in thousands).
Time remaining until maturity:
Three months or less
Over three months through six months
Over six months through twelve months
Over one year through three years
Over three years
Borrowings
December 31,
2015
2014
Certificates of
Deposit
Other Time
Deposits
Certificates of
Deposit
Other Time
Deposits
$
$
4,312
10,039
12,809
5,272
1,468
33,900
$
$
363
-
103
438
-
904
$
$
24,193
4,554
7,617
8,421
1,386
46,171
$
$
-
234
208
128
123
693
Total borrowings include securities sold under agreements to repurchase, advances from the Federal Home Loan Bank (“FHLB”),
lines of credit with First National Bankers Bankshares, Inc. (“FNBB”) and The Independent Bankers Bank (“TIB”), and junior
subordinated debentures. Securities sold under agreements to repurchase increased $26.8 million to $39.1 million at December 31,
2015 from $12.3 million at December 31, 2014. Our advances from the FHLB were $127.5 million at December 31, 2015, an increase
of $1.7 million, or 1%, from FHLB advances of $125.8 million at December 31, 2014. We had no funds drawn on the lines of credit at
December 31, 2015 or 2014. The $3.6 million in junior subordinated debt at December 31, 2015 and 2014 represents the junior
subordinated debentures that we assumed in connection with our acquisition of FCB. The overall increase in borrowings was used
primarily to fund loan growth.
46
Securities sold under agreements to repurchase increased $2.1 million to $12.3 million at December 31, 2014 from $10.2 million at
December 31, 2013 primarily a result of one new short-term repurchase agreement. Our advances from the FHLB were $125.8 million
at December 31, 2014, an increase of $95.0 million, or 308%, from FHLB advances of $30.8 million at December 31, 2013, mainly
resulting from the timing of our consumer loan pool sales, as short term FHLB advances were used to fund the origination of the loans
included in the two loan sales that the buyers postponed form the fourth quarter of 2014 to the first quarter of 2015.
The average balances and cost of funds of short-term borrowings at December 31, 2015, 2014 and 2013 are summarized in the table
below (dollars in thousands).
Average Balances
Cost of Funds
2015
2014
December 31,
2015
2013
2014
2013
$ 41,906
$ 16,521
$
19
0.20 %
0.16 %
0.76 %
19,064
$ 60,970
11,828
$ 28,349
$
7,608
7,627
0.20
0.20 %
0.23
0.19 %
0.15
0.15 %
(cid:3)
Federal funds purchased and other
short-term borrowings
Securities sold under agreements
to repurchase
Total short-term borrowings
Results of Operations
Performance Summary
2015 vs. 2014. For the year ended December 31, 2015, net income was $7.1 million, or $0.98 per basic share and $0.97 per diluted
share, compared to net income of $5.4 million, or $0.98 per basic share and $0.93 per diluted share, for the year ended December 31,
2014. The increase in our net income was primarily driven by higher levels of net interest income resulting from strong organic loan
growth, offset, in part, by a decrease in yields on interest-earning assets. Return on average assets increased to 0.77% for the year
ended December 31, 2015 from 0.73% for the year ended December 31, 2014 primarily as a result of increases in interest income and
noninterest income. Return on average equity was 6.6% for the year ended December 31, 2015 as compared to 6.8% for the year
ended December 31, 2014. This decrease is attributable to the increase in average equity in 2015 as a result of the Company’s initial
public offering in July 2014.
2014 vs. 2013. For the year ended December 31, 2014, net income was $5.4 million, or $0.98 per basic share and $0.93 per diluted
share, compared to net income of $3.2 million, or $0.86 per basic share and $0.81 per diluted share, for the year ended December 31,
2013. The increase in our net income was primarily driven by higher levels of net interest income resulting from strong organic loan
growth as well as the increase in loans as a result of the FCB acquisition in 2013, offset, in part, by a slight decrease in yields on
interest-earning assets. Return on average assets increased to 0.73% for the year ended December 31, 2014 from 0.64% for the year
ended December 31, 2013 primarily on account of increases in interest income and noninterest income. Return on average equity was
6.8% for the year ended December 31, 2014 as compared to 6.1% for the year ended December 31, 2013.
Net Interest Income and Net Interest Margin
Net interest income, which is the largest component of our earnings, is the difference between interest earned on assets and the cost of
interest-bearing liabilities. The primary factors affecting net interest income are the volume, yield and mix of our rate-sensitive assets
and liabilities as well as the amount of our nonperforming loans and the interest rate environment.
The primary factors affecting net interest margin are changes in interest rates, competition and the shape of the interest rate yield
curve. The decline in interest rates since 2008 has put significant downward pressure on net interest margin over the past few years.
Each rate reduction in interest rate indices (and, in particular, the prime rate, rates paid on U.S. Treasury securities and the London
Interbank Offering Rate) resulted in a reduction in the yield on our variable rate loans indexed to one of these indices. However, rates
on our deposit and other interest-bearing liabilities did not decline proportionally. To offset the effects on our net interest income and
net interest margin from the prevailing interest rate environment, we have attempted to focus our interest-earning assets in loans and
shift our interest-bearing liabilities from higher-costing deposits, like certificates of deposit, to noninterest-bearing and other lower
cost deposits.
47
2015 vs. 2014. Net interest income increased 18% to $31.5 million for the year ended December 31, 2015 from $26.7 million for the
same period in 2014. Net interest margin was 3.61% for the year ended December 31, 2015, down 24 basis points from 3.85% for the
year ended December 31, 2014. The increase in net interest income resulted from increases in the volume of interest-earning assets,
offset by declines in the rate earned on interest-earnings assets and an increase in the volume of interest-bearing liabilities, as well as a
slight decrease in the rate paid on such liabilities. These changes were driven by organic loan and deposit growth and the current
interest rate environment. For the year ended December 31, 2015, average loans and average investment securities increased
approximately $152.8 million and $19.6 million, respectively, compared to the same period in 2014, while average interest-bearing
deposits and average short- and long-term borrowings increased approximately $105.2 million and $30.0 million, respectively.
Interest income was $37.3 million for the year ended December 31, 2015 compared to $31.4 million for the same period in 2014. Loan
interest income made up substantially all of our interest income for the years ended December 31, 2015 and 2014. Interest on our
commercial real estate loans, one-to-four family residential real estate loans and consumer loans constituted the three largest
components of our loan interest income for the years ended December 31, 2015 and 2014 at 77% and 79%, respectively, for such
periods. The prolonged low interest rate environment contributed to a lower yield on earning assets, offset by the increases in interest-
earning assets, described above. The overall yield on interest-earning assets decreased 23 basis points to 4.29% for the year ended
December 31, 2015 as compared to 4.52% for the same period in 2014. The loan portfolio yielded 4.65% for the year ended
December 31, 2015 as compared to 4.99% for the year ended December 31, 2014, while the yield on the investment portfolio was
2.22% for the year ended December 31, 2015 compared to 1.69% for the year ended December 31, 2014.
Interest expense was $5.9 million for the year ended December 31, 2015, an increase of $1.2 million compared to interest expense of
$4.7 million for the year ended December 31, 2014, as a result of an increase in volume of interest-bearing liabilities and a slight
increase in cost. Average interest-bearing liabilities increased approximately $135.1 million for the year ended December 31, 2015 as
compared to the same period in 2014 as a result of our organic deposit growth. The cost of interest-bearing liabilities increased two
basis points to 0.82% for the year ended December 31, 2015 compared to the same period in 2014, primarily as a result of an increase
in the cost of short-term borrowings.
2014 vs. 2013. Net interest income increased 40% to $26.7 million for the year ended December 31, 2014 from $19.0 million for the
same period in 2013. Net interest margin was 3.85% for the year ended December 31, 2014, down 25 basis points from 4.10% for the
year ended December 31, 2013. The increase in net interest income resulted from increases in the volume of interest-earning assets
and decreases in the cost of interest-bearing liabilities, offset by decreases in the rate earned on interest-earnings assets and an increase
in the volume of interest-bearing liabilities. These changes were driven both by the impact of the assets acquired and liabilities
assumed in connection with the FCB acquisition as well as organic loan and deposit growth. For the year ended December 31, 2014,
average loans and average investment securities increased approximately $195.2 million and $24.4 million, respectively, compared to
the same period in 2013, while average interest-bearing deposits and average short- and long-term borrowings increased
approximately $151.5 million and $30.1 million, respectively.
Interest income was $31.4 million for the year ended December 31, 2014 compared to $22.5 million for the same period in 2013. Loan
interest income made up substantially all of our interest income for the years ended December 31, 2014 and 2013. Interest on our
commercial real estate loans, our one-to-four family residential real estate loans and our consumer loans constituted the three largest
components of our loan interest income for the years ended December 31, 2014 and 2013 at 79% each for such periods. The prolonged
low interest rate environment contributed to a lower yield on earning assets, offset by the increases in interest-earning assets,
described above. The overall yield on interest-earning assets decreased thirty-three basis points to 4.52% for the year ended
December 31, 2014 compared to 4.85% for the same period in 2013. The loan portfolio yielded 4.99% for the year ended
December 31, 2014 compared to 5.34% for the year ended December 31, 2013, while the yield on the investment portfolio was 1.69%
for the year ended December 31, 2014 compared to 1.41% for the year ended December 31, 2013.
Interest expense was $4.7 million for the year ended December 31, 2014, an increase of $1.2 million compared to interest expense of
$3.5 million for the year ended December 31, 2013, as a result of an increase in volume of interest-bearing liabilities, offset by a
decrease in cost. Average interest-bearing liabilities increased approximately $186.6 million for the year ended December 31, 2014 as
compared to the same period in 2013 as a result of the FCB acquisition and our organic deposit growth. The cost of interest-bearing
liabilities decreased seven basis points to 0.80% for the year ended December 31, 2014 compared to the same period in 2013,
primarily as a result of lower rates overall. In particular, the weighted average rate paid on certificates of deposit decreased seven basis
points during the year ended December 31, 2014 compared to same period in 2013. Competitive factors and the general interest rate
environment, as well as the impact of our strategy to cross-sell using lower cost deposits, drove the decrease in deposit rates.
48
Average Balances and Yields. The following table sets forth average balance sheet data, including all major categories of interest-
earning assets and interest-bearing liabilities, together with the interest earned or paid and the average yield or rate paid on each such
category as of and for the years ended December 31, 2015, 2014 and 2013. Averages presented below are daily averages (dollars in
thousands).
2015
Interest
Income/
Expense(1) Yield/ Rate(1)
As of and for the year ended December 31,
2014
Interest
Income/
Expense(1) Yield/ Rate(1)
Average
Balance
Average
Balance
2013
Interest
Income/
Expense(1) Yield/ Rate(1)
Average
Balance
Assets
Interest-earning assets:
Loans
Securities:
Taxable
Tax-exempt
Interest-earning balances with
banks
Total interest-earning assets
Cash and due from banks
Intangible assets
Other assets
Allowance for loan losses
Total assets
Liabilities and stockholders'
equity
Interest-bearing liabilities:
Deposits:
$ 754,056 $ 35,076
4.65 % $ 601,238 $ 29,979
4.99 % $ 405,997 $ 21,686
5.34 %
80,516 1,741
448
18,077
2.16 66,384
2.48 12,652
945
394
1.42 39,957
3.11 14,685
402
354
18,136
75
870,785 37,340
5,611
3,194
46,313
(5,636 )
$ 920,267
0.41 13,060
51
4.29 693,334 31,369
5,668
3,235
36,617
(3,877 )
$ 734,977
0.39
30
2,977
4.52 463,616 22,472
7,285
3,124
25,397
(2,737 )
$ 496,685
1.04
2.41
0.60
4.85
60,970
36,712
Interest-bearing demand
Savings deposits
Time deposits
$ 222,730 $ 1,402
54,240
367
343,638 3,481
Total interest-bearing deposits 620,608 5,250
296
Short-term borrowings
Long-term debt
336
Total interest-bearing liabilities 718,290 5,882
Noninterest-bearing deposits
Other liabilities
Stockholders' equity
Total liabilities and
stockholders’ equity
Net interest income/net interest
margin
85,635
9,256
107,086
$ 920,267
$ 31,458
0.63 % $ 173,715 $ 1,078
0.68 52,881
361
1.01 288,837 2,834
0.85 515,433 4,273
54
0.49 28,349
0.92 39,376
348
0.82 583,158 4,675
726
0.62 % $ 113,097 $
0.68 42,774
299
0.98 208,036 2,179
0.83 363,907 3,204
12
0.19
7,627
0.88 24,990
244
0.80 396,524 3,460
0.64 %
0.70
1.05
0.88
0.16
0.98
0.87
67,639
4,809
79,371
47,564
1,527
51,070
$ 734,977
$ 496,685
3.61 %
$ 26,694
3.85 %
$ 19,012
4.10 %
(1)
Interest income and net interest margin are expressed as a percentage of average interest-earning assets outstanding for the
indicated periods. Interest expense is expressed as a percentage of average interest-bearing liabilities for the indicated periods.
Nonaccrual loans were included in the computation of average loan balances but carry a zero yield. The yields include the effect of
loan fees, $1.5 million, $2.3 million and $1.5 million for the years ended December 31, 2015, 2014 and 2013, respectively, and
discounts and premiums that are amortized or accreted to interest income or expense.
49
Volume/Rate Analysis. The following table sets forth a summary of the changes in interest earned and interest paid resulting from
changes in volume and rates for the year ended December 31, 2015 compared to the year ended December 31, 2014 (dollars in
thousands):
Interest income:
Loans
Securities:
Taxable
Tax-exempt
Interest-earning balances with banks
Total interest-earning assets
Interest expense:
Interest-bearing demand deposits
Savings deposits
Time deposits
Short-term borrowings
Long-term debt
Total interest-bearing liabilities
Change in net interest income
Year ended December 31, 2015 vs.
Year ended December 31, 2014
Rate
Volume
Net(1)
$
7,620
$
(2,523 )
$
5,097
201
169
20
8,010
304
9
538
62
(24 )
889
7,121
$
595
(115 )
4
(2,039 )
20
(3 )
109
180
12
318
(2,357 )
$
796
54
24
5,971
324
6
647
242
(12 )
1,207
4,764
$
(1)
Changes in interest due to both volume and rate have been allocated on a pro-rata basis using the absolute ratio value of amounts
calculated.
Noninterest Income
Noninterest income includes, among other things, fees generated from our deposit services and loans originated and held for sale,
securities gains, gains on the sales of consumer and mortgage loans, and a non-recurring bargain purchase gain resulting from the FCB
acquisition in May 2013. We expect to continue to develop new products that generate noninterest income, and enhance our existing
products, in order to diversify our revenue sources.
2015 vs. 2014. Total noninterest income increased $2.4 million, or 42%, to $8.3 million for the year ended December 31, 2015
compared to $5.9 million for the year ended December 31, 3014. The increase is primarily due to the increase in other operating
income and gain on sale of consumer loans.
Gain on sale of loans is the largest component of our noninterest income. Gain on sale of loans increased $1.0 million to $4.4 million
for the year ended December 31, 2015 from $3.4 million for the year ended December 31, 2014. These gains were generated by sales
of mortgage loans and pools of our consumer loans and increased from the prior year as a result of the growth in our consumer loan
originations and sales. The gain on sale of loans recognized for the year ended December 31, 2015 directly related to sales of auto
loans was $3.1 million, compared to $1.7 million for the year ended December 31, 2014. However, as a result of the Bank’s exit from
the indirect auto loan origination business at the end of 2015, we expect our gain on sale of loans to significantly decrease going
forward.
Service charges on deposit accounts include maintenance fees on accounts, account enhancement charges for additional deposit
account features, per item charges and overdraft fees. Service charges on deposits increased 25% to $0.4 million for the year ended
December 31, 2015 compared to $0.3 million for the same period in 2014 as a result of our organic deposit growth.
Gains on the sale of investment securities for the year ended December 31, 2015 increased $0.2 million, or 44%, to $0.5 million from
$0.3 million for the same period in 2014. We sold approximately $27.2 million in securities for the year ended December 31, 2015,
compared to sales of $31.6 million for the year ended December 31, 2014.
Gains on the sale of other real estate owned for the year ended December 31, 2015 decreased $0.3 million, or $150%, resulting in a
loss of $0.1 million from a gain of $0.2 million for the same period in 2014. We sold approximately $2.9 million of other real estate
owned for the year ended December 31, 2015, compared to sales of $1.3 million for the year ended December 31, 2014.
50
Other operating income was $2.2 million for the year ended December 31, 2015 compared to $1.2 million for the same period in 2014.
The increase is mainly attributable to the $1.0 million increase in loan servicing fees on sold loans. This increase is a direct result of
the increase in consumer loan pools and the corresponding growth in our servicing portfolio. In addition to loan servicing fees, other
operating income consists of interchange fees, ATM surcharge income and credit card fees.
2014 vs. 2013. Total noninterest income increased $0.5 million, or 9%, to $5.9 million for the year ended December 31, 2014
compared to $5.4 million for the year ended December 31, 2013. The increase is primarily due to the increase in gain on sale of
consumer loans.
Gain on sale of loans is the largest component of our noninterest income. Gain on sale of loans increased $0.8 million to $3.4 million
for the year ended December 31, 2014 from $2.6 million for the year ended December 31, 2013. These gains were generated by sales
of pools of our consumer loans and increased from the prior year as a result of the growth in our consumer loan originations.
Service charges on deposit accounts include maintenance fees on accounts, account enhancement charges for additional deposit
account features, per item charges and overdraft fees. Service charges on deposits increased 43% to $0.3 million for the year ended
December 31, 2014 as compared to $0.2 million for the same period in 2013 as a result of opening two new branches, one in
Lafayette, Louisiana in the fourth quarter of 2013 and one in Baton Rouge, Louisiana in the third quarter of 2014, as well as our
organic deposit growth.
Gains on the sale of investment securities for the year ended December 31, 2014 decreased $0.1 million, or 24%, to $0.3 million from
$0.4 million for the same period in 2013. We sold approximately $31.6 million in securities for the year ended December 31, 2014,
compared to sales of $16.6 million for the year ended December 31, 2013.
Gains on the sale of other real estate owned for the year ended December 31, 2014 increased $0.1 million, or $137%, to $0.2 million
from $0.1 million for the same period in 2013. We sold approximately $1.3 million of other real estate owned for the year ended
December 31, 2014, compared to sales of $1.6 million for the year ended December 31, 2013.
Other operating income was $1.2 million for the year ended December 31, 2014 compared to $0.6 million for the same period in 2013.
Other operating income consists of interchange fees, ATM surcharge income, loan servicing fees and rental income.
Noninterest Expense
Noninterest expense includes salaries and benefits and other costs associated with the conduct of our operations. We are committed to
managing our costs within the framework of our operating strategy. However, since we are focused on growth both organically and
through acquisition, we expect our expenses to continue to increase as we add employees and physical locations to accommodate our
growing franchise.
2015 vs. 2014. Total noninterest expense was $27.4 million for the year ended December 31, 2015, an increase of $3.0 million, or
12%, from $24.4 million for the year ended December 31, 2014. This increase was a result of increased costs associated with our
expanded operations, including the opening of our Highland branch in Baton Rouge, Louisiana in the third quarter of 2014, our
organic growth, as well as increased costs related to being a publicly-traded company since the Company’s initial public offering in
July 2014, including implementation of Sarbanes-Oxley compliance.
Salaries and employee benefits increased $1.8 million, or 13%, to $16.4 million for the year ended December 31, 2015, compared to
$14.6 million for the year ended December 31, 2014. Staff levels decreased to 168 full-time equivalent employees at December 31,
2015 compared to 179 full-time equivalent employees at December 31, 2014. The decrease in staffing did not occur until late in the
second half of 2015 with the restructuring of certain departments and the Bank’s exit from the indirect auto loan origination business.
In addition, in May 2014, the Company became self-insured for a substantial portion of its potential claims. The Company recognizes
these costs, up to a specified deductible limit, in the period in which a claim is incurred, including with respect to both reported claims
and claims incurred but not yet reported. Costs related to these claims increased $0.6 million for the year ended December 31, 2015
compared to the same period 2014. Also, the Company incurred severance expense of approximately $0.2 million related to the
restructuring of certain departments, including the Bank’s exit from the indirect auto loan origination business at the end of 2015.
Net occupancy and equipment expense increased 9% to $2.4 million for the year ended December 31, 2015 from $2.2 million for the
year ended December 31, 2014. This increase is primarily attributable to the costs associated with our newest branch Baton Rouge,
which opened in the third quarter of 2014.
51
Data processing expenses increased to $1.5 million for the year ended December 31, 2015 from $1.3 million for the year ended
December 31, 2014. This increase is primarily a result of organic growth of our loans and deposits. Data processing expenses are also
related to the number of consumer loans that we service, and fluctuations in this portfolio will affect the amount of data processing
expense.
Other operating expenses include security, business development, FDIC and OFI assessments, bank shares tax, charitable
contributions, personnel training and development, filing fees and duplicating costs. Other operating expenses increased $0.9 million
to $5.7 million for the year ended December 31, 2015 from $4.8 million for the same period in 2014. The increase is primarily the
result of our organic growth. Included in other operating expenses for 2015 is $41,000 of amortization expense related to the
amortization of our core deposit intangible associated with the FCB and SLBB acquisitions.
2014 vs. 2013. Total noninterest expense was $24.4 million for the year ended December 31, 2014, an increase of $5.4 million, or
28%, from $19.0 million for the year ended December 31, 2013. This increase was a result of increased costs associated with our
expanded operations as a result of the FCB acquisition, the expansion into the Lafayette market including the opening of our Lafayette
branch, the opening of our Highland branch in Baton Rouge, and our organic growth.
Salaries and employee benefits increased $2.8 million, or 24%, to $14.6 million for the year ended December 31, 2014, compared to
$11.8 million for the year ended December 31, 2013. Staff levels increased to 179 full-time equivalent employees at December 31,
2014 compared to 163 full-time equivalent employees at December 31, 2013, accounting for most of the increase in salary and
benefits expense. Twenty-four employees joined the Bank upon the completion of the FCB acquisition. Another component of the
increase was the opening of the Lafayette branch in the fourth quarter of 2013.
Net occupancy and equipment expense increased 29% to $2.2 million for the year ended December 31, 2014 from $1.7 million for the
year ended December 31, 2013. This increase is primarily attributable to the costs associated with the two branches we acquired in the
FCB acquisition and the costs associated with our new branches in Lafayette and Baton Rouge.
Data processing expenses increased to $1.3 million for the year ended December 31, 2014 from $0.8 million for the year ended
December 31, 2013. This increase is primarily a result of the growth resulting from the FCB merger, the opening of two new branches
in Lafayette and Baton Rouge, as well as our organic growth. Data processing expenses are also related to the number of consumer
loans that we service, and fluctuations in this portfolio will affect the amount of data processing expense.
Other expenses include an increase in FDIC and OFI assessments of $0.2 million to $0.5 million for the year ended December 31,
2014 compared to $0.3 million for the year ended December 31, 2013 due to our increase in average total assets.
Other operating expenses include security, business development, charitable contributions, training, filing fees and duplicating costs.
Other operating expenses increased $1.1 million to $4.8 million for the year ended December 31, 2014 from $3.9 million for the same
period in 2013. The increase is primarily the result of the FCB acquisition, the opening of two new branches and our organic growth.
Included in other operating expenses for 2014 is $41,000 of amortization expense related to the amortization of our core deposit
intangible associated with the FCB and SLBB acquisitions.
Income Tax Expense
Income tax expense for each of the year ended December 31, 2015 was $3.5 million, compared to $1.1 million at December 31, 2014.
The effective tax rate for the year ending December 31, 2015 and 2014 was 33% and 18%, respectively. The increase in the effective
tax rate is mainly due to the Company’s utilization of its Historic Rehabilitation Tax Credit for the year ended December 31, 2014.
Income tax expense for each of the years ended December 31, 2014 and December 31, 2013 was $1.1 million. The effective tax rate
for the year ending December 31, 2014 and 2013 was 18% and 26%, respectively. As mentioned above, the decrease in the effective
tax rate is mainly due to the Company’s utilization of its Historic Rehabilitation Tax Credit.
Risk Management
The primary risks associated with our operations are credit, interest rate and liquidity risk. Credit and interest rate risk are discussed
below, while liquidity risk is discussed in this section under the heading Liquidity and Capital Resources below.
52
Credit Risk and the Allowance for Loan Losses
General. The risk of loss should a borrower default on a loan is inherent in any lending activity. Our portfolio and related credit risk
are monitored and managed on an ongoing basis by our risk management department, the board of directors’ loan committee and the
full board of directors. We utilize a ten point risk-rating system, which assigns a risk grade to each borrower based on a number of
quantitative and qualitative factors associated with a loan transaction. The risk grade categorizes the loan into one of five risk
categories, based on information about the ability of borrowers to service the debt. The information includes, among other factors,
current financial information about the borrower, historical payment experience, credit documentation, public information and current
economic trends. These categories assist management in monitoring our credit quality. The following describes each of the risk
categories, which are consistent with the definitions used in guidance promulgated by federal banking regulators:
(cid:120) Pass (Loan grades 1-6)—Loans not meeting the criteria below are considered pass. These loans have high credit characteristics
and financial strength. The borrowers at least generate profits and cash flow that are in line with peer and industry standards and
have debt service coverage ratios above loan covenants and our policy guidelines. For some of these loans, a guaranty from a
financially capable party mitigates characteristics of the borrower that might otherwise result in a lower grade.
(cid:120) Special Mention (grade 7)—Loans classified as special mention possess some credit deficiencies that need to be corrected to
avoid a greater risk of default in the future. For example, financial ratios relating to the borrower may have deteriorated. Often, a
special mention categorization is temporary while certain factors are analyzed or matters addressed before the loan is re-
categorized as either pass or substandard.
(cid:120) Substandard (grade 8)—Loans classified as substandard are inadequately protected by the current net worth and paying capacity
of the borrower or the liquidation value of any collateral. If deficiencies are not addressed, it is likely that this category of loan
will result in the Bank incurring a loss. Where a borrower has been unable to adjust to industry or general economic conditions,
the borrower’s loan is often categorized as substandard.
(cid:120) Doubtful (grade 9)—Doubtful loans are substandard loans with one or more additional negative factors that makes full
collection of amounts outstanding, either through repayment or liquidation of collateral, highly questionable and improbable.
(cid:120) Loss (grade 10)—Loans classified as loss have deteriorated to such a point that it is not practicable to defer writing off the loan.
For these loans, all efforts to remediate the loan’s negative characteristics have failed and the value of the collateral, if any, has
severely deteriorated relative to the amount outstanding. Although some value may be recovered on such a loan, it is not
significant in relation to the amount borrowed.
At December 31, 2015 and December 31, 2014, there were no loans classified as doubtful or loss, while there were $6.7 million and
$5.6 million, respectively, of loans classified as substandard and $1.4 million and $0.5 million, respectively, of loans classified as
special mention as of such dates. Of our substandard and special mention loans at December 31, 2015 and December 31, 2014, $1.6
million and $3.7 million, respectively, were acquired in the FCB acquisition and marked to fair value at the time of their acquisition.
At December 31, 2013, we had no doubtful or loss loans, and we had substandard and special mention loans of $4.2 million and $1.2
million, respectively.
An external loan review consultant is engaged annually by the risk management department to review approximately 40% of
commercial loans, utilizing a risk-based approach designed to maximize the effectiveness of the review. In addition, credit analysts
periodically review smaller dollar commercial loans to identify negative financial trends related to any one borrower, any related
groups of borrowers or an industry. All loans not categorized as pass are put on an internal watch list, with quarterly reports to the
board of directors. In addition, a written status report is maintained by our special assets division for all commercial loans categorized
as substandard or worse. We use this information in connection with our collection efforts.
If our collection efforts are unsuccessful, collateral securing loans may be repossessed and sold or, for loans secured by real estate,
foreclosure proceedings initiated. The collateral is sold at public auction for fair market value (based upon recent appraisals), with fees
associated with the foreclosure being deducted from the sales price. The purchase price is applied to the outstanding loan balance. If
the loan balance is greater than the sales proceeds, the deficient balance is charged-off.
53
Allowance for Loan Losses. The allowance for loan losses is an amount that management believes will be adequate to absorb probable
losses inherent in the entire loan portfolio. The appropriate level of the allowance is based on an ongoing analysis of the loan portfolio
and represents an amount that management deems adequate to provide for inherent losses, including collective impairment as
recognized under ASC Topic 450, Contingencies. Collective impairment is calculated based on loans grouped by grade. Another
component of the allowance is losses on loans assessed as impaired under ASC Topic 310, Receivables. The balance of these loans
and their related allowance is included in management’s estimation and analysis of the allowance for loan losses. Other considerations
in establishing the allowance for loan losses include the nature and volume of the loan portfolio, overall portfolio quality, historical
loan loss, review of specific problem loans and current economic conditions that may affect the borrower’s ability to pay, as well as
trends within each of these factors. The allowance for loan losses is established after input from management as well as our risk
management department and our special assets committee. We evaluate the adequacy of the allowance for loan losses on a quarterly
basis. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information
becomes available. The allowance for loan losses was $6.1 million at December 31, 2015, up from $4.6 million at December 31, 2014
and $3.4 million at December 31, 2013, as we increased our loan loss provisioning to reflect our organic loan growth.
A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the
scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Determination of
impairment is treated the same across all classes of loans. Impairment is measured on a loan-by-loan basis for, among others, all loans
of $500,000 or greater, nonaccrual loans and a sample of loans between $250,000 and $500,000. When we identify a loan as impaired,
we measure the extent of the impairment based on the present value of expected future cash flows, discounted at the loan’s effective
interest rate, except when the sole (remaining) source of repayment for the loans is the operation or liquidation of the collateral. In
these cases when foreclosure is probable, we use the current fair value of the collateral, less selling costs, instead of discounted cash
flows. For real estate collateral, the fair value of the collateral is based upon a recent appraisal by a qualified and licensed appraiser. If
we determine that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred
loan fees or costs and unamortized premium or discount), we recognize impairment through an allowance estimate or a charge-off
recorded against the allowance. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on
nonaccrual, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total
principal of an impaired loan is not in doubt and the loan is on nonaccrual, contractual interest is credited to interest income when
received, under the cash basis method.
Impaired loans at December 31, 2015 were $4.0 million, including impaired loans acquired in the FCB acquisition in the amount of
$1.5 million, compared to $3.6 million, including impaired loans acquired in the FCB acquisition in the amount of $1.3 million, at
December 31, 2014. Impaired loans were $4.2 million, including impaired loans acquired in the FCB acquisition in the amount of $3.8
million at December 31, 2013. At December 31, 2015 and December 31, 2014, $0.2 million and $0.1 million, respectively, of the
allowance for loan losses were specifically allocated to impaired loans, while $37,000 of the allowance was specifically allocated to
such loans at December 31, 2013.
The provision for loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate
allowance for loan losses. The provision is based on management’s regular evaluation of current economic conditions in our specific
markets as well as regionally and nationally, changes in the character and size of the loan portfolio, underlying collateral values
securing loans, and other factors which deserve recognition in estimating loan losses. For the year ended December 31, 2015 and
2014, the provision for loan losses was $1.9 million and $1.6 million, respectively, up from $1.0 million in 2013. The increase is due
primarily to the overall growth in our loan portfolio, including our commercial real estate loans.
Acquired SLBB loans had a carrying value of $31.3 million and a fair value of $31.5 million on the acquisition date, while acquired
FCB loans had a carrying value of $78.4 million and a fair value of $77.5 million on the acquisition date. Acquired loans that are
accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”), were
marked to market on the date we acquired the loans to values which, in management’s opinion, reflected the estimated future cash
flows, based on the facts and circumstances surrounding each respective loan at the date of acquisition. We continually monitor these
loans as part of our normal credit review and monitoring procedures for changes in the estimated future cash flows. Because ASC 310-
30 does not permit carry over or recognition of an allowance for loan losses, we may be required to reserve for these loans in the
allowance for loan losses through future provision for loan losses if future cash flows deteriorate below initial projections. We did not
increase the allowance for loan losses for loans accounted for under ASC 310-30 during 2015, 2014 or 2013. There was no provision
for loan losses charged to operating expense attributable to loans accounted for under ASC 310-30 for the years ended December 31,
2015, 2014 and 2013.
54
The following table presents the allocation of the allowance for loan losses by loan category as of the dates indicated (dollars in
thousands).
Mortgage loans on real estate:
Construction and development
1-4 Family
Multifamily
Farmland
Commercial real estate
Commercial and industrial
Consumer
Total
2015
2014
December 31,
2013
2012
2011
$
$
644
1,213
246
22
2,156
513
1,334
6,128
$
$
526
909
137
18
1,571
390
1,079
4,630
$
$
420
567
101
4
992
397
899
3,380
$
$
276
415
18
-
977
332
704
2,722
$
$
385
194
5
-
506
306
350
1,746
The following table presents the amount of the allowance for loan losses allocated to each loan category as a percentage of total loans
as of the dates indicated.
Mortgage loans on real estate:
Construction and development
1-4 Family
Multifamily
Farmland
Commercial real estate
Commercial and industrial
Consumer
Total
2015
2014
December 31,
2013
2012
2011
0.09 %
0.16
0.03
-
0.29
0.07
0.18
0.82 %
0.09 %
0.15
0.02
-
0.25
0.06
0.17
0.74 %
0.08 %
0.11
0.02
-
0.20
0.08
0.18
0.67 %
0.10 %
0.14
0.01
-
0.33
0.12
0.24
0.94 %
0.18 %
0.09
-
-
0.22
0.14
0.16
0.79 %
55
As discussed above, the balance in the allowance for loan losses is principally influenced by the provision for loan losses and by net
loan loss experience. Additions to the allowance are charged to the provision for loan losses. Losses are charged to the allowance as
incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected.
The table below reflects the activity in the allowance for loan losses for the periods indicated (dollars in thousands).
Allowance at beginning of period
Provision for loan losses
Charge-offs:
Mortgage loans on real estate:
Construction and development
1-4 Family
Multifamily
Farmland
Commercial real estate
Commercial and industrial
Consumer
Total charge-offs
Recoveries
Mortgage loans on real estate:
Construction and development
1-4 Family
Multifamily
Farmland
Commercial real estate
Commercial and industrial
Consumer
Total recoveries
Net (charge-offs) recoveries
Balance at end of period
Net charge-offs to:
Loans - average
Allowance for loan losses
Allowance for loan losses to:
Total loans
Nonperforming loans
2015
2014
Year ended December 31,
2013
2012
2011
$
4,630
1,865
$
3,380
1,628
$
2,722
1,026
$
1,746
685
$
1,476
639
(17 )
(78 )
-
-
-
(58 )
(477 )
(630 )
25
12
-
-
1
197
28
263
(367 )
6,128
0.05 %
5.99 %
0.82 %
254 %
$
-
(123 )
-
-
(3 )
(16 )
(317 )
(459 )
1
4
-
-
1
17
58
81
(378 )
4,630
0.07 %
8.16 %
0.74 %
139 %
$
-
-
-
-
-
(118 )
(271 )
(389 )
-
-
-
-
-
-
21
21
(368 )
3,380
0.09 %
10.89 %
0.67 %
227 %
$
-
-
(15 )
-
-
-
(166 )
(181 )
-
-
-
-
448
2
22
472
291
2,722
-0.12 %
-10.69 %
0.94 %
5136 %
$
-
(63 )
-
-
(20 )
(218 )
(77 )
(378 )
-
-
-
-
-
-
9
9
(369 )
1,746
0.20 %
21.13 %
0.79 %
6236 %
$
The allowance for loan losses to total loans ratio increased to 0.82% at December 31, 2015 compared to 0.74% at December 31, 2014.
The allowance for loan losses to nonperforming loans ratio increased to 254% at December 31, 2015 from 139% at December 31,
2014 as the result of a $0.9 million decrease in nonperforming loans. The decrease in the ratio of the allowance for loan losses to
nonperforming loans at December 31, 2014 compared to December 31, 2013 was due to a $1.9 million decrease in nonperforming
loans.
Charge-offs reflect the realization of losses in the portfolio that were recognized previously through the provision for loan losses. Net
charge-offs for each of the years ended December 31, 2015, 2014 and 2013 were $0.4 million, equal to 0.05%, 0.07% and 0.09%,
respectively, of our average loan balance for the respective periods. For the years ended December 31, 2015, 2014 and 2013, the
majority of our charge-offs were indirect consumer loans. Net charge-offs of our indirect consumer loans as a percentage of average
indirect consumer loans for the years ended December 31, 2015, 2014 and 2013 were 0.26%, 0.16% and 0.22%, respectively.
Management believes the allowance for loan losses at December 31, 2015 is sufficient to provide adequate protection against losses in
our portfolio. Although the allowance for loan losses is considered adequate by management, there can be no assurance that this
allowance will prove to be adequate over time to cover ultimate losses in connection with our loans. This allowance may prove to be
inadequate due to unanticipated adverse changes in the economy or discrete events adversely affecting specific customers or
industries. Our results of operations and financial condition could be materially adversely affected to the extent that the allowance is
insufficient to cover such changes or events.
56
Nonperforming assets and restructured loans. Nonperforming assets consist of nonperforming loans and other real estate owned.
Nonperforming loans are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on
which interest continues to accrue. Loans are ordinarily placed on nonaccrual when a loan is specifically determined to be impaired or
when principal and interest is delinquent for 90 days or more. However, management may elect to continue the accrual when the
estimated net available value of collateral is sufficient to cover the principal balance and accrued interest. It is our policy to
discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal.
Nonaccrual loans are returned to an accrual status when the financial position of the borrower indicates there is no longer any
reasonable doubt as to the payment of principal or interest.
Another category of assets which contribute to our credit risk is troubled debt restructurings, or restructured loans. A restructured loan
is a loan for which a concession that is not insignificant has been granted to the borrower due to a deterioration of the borrower’s
financial condition and which are performing in accordance with the new terms. Such concessions may include reduction in interest
rates, deferral of interest or principal payments, principal forgiveness and other actions intended to minimize the economic loss and to
avoid foreclosure or repossession of the collateral. We strive to identify borrowers in financial difficulty early and work with them to
modify their loans to more affordable terms before such loan reaches nonaccrual status. In evaluating whether to restructure a loan,
management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine
whether the proposed concessions will increase the likelihood of repayment of principal and interest. Restructured loans that are not
performing in accordance with their restructured terms that are either contractually 90 days past due or placed on nonaccrual status are
reported as nonperforming loans.
There were eleven loans classified as TDRs at December 31, 2015 that totaled approximately $2.2 million compared to $0.6 million at
December 31, 2014. Nine of the eleven TDRs were acquired from FCB. Ten of the eleven TDRs were considered troubled debt
restructurings due to a modification of term through adjustments to maturity. One restructured loan was considered a TDR due to a
modification of terms through principal payment forbearance, paying interest only for a specified period of time. As of December 31,
2015, three of the restructured loans with a balance of $0.5 million were in default of their modified terms and had been placed on
nonaccrual. As of December 31, 2014, one of the restructured loans with a balance of $0.4 million was in default of its modified terms
and had been placed on nonaccrual.
The following table shows the principal amounts of nonperforming and restructured loans as of the dates indicated. All loans where
information exists about possible credit problems that would cause us to have serious doubts about the borrower’s ability to comply
with the current repayment terms of the loan have been reflected in the table below (dollars in thousands).
2015
2014
December 31,
2013
2012
2011
Nonaccrual loans
Accruing loans past due 90 days or more
Total nonperforming loans
Restructured loans
Total nonperforming and restructured loans
Interest income recognized on nonperforming
and restructured loans
Interest income foregone on nonperforming
and restructured loans
$
$
2,411 $
-
2,411
1,629
4,040 $
3,340 $
-
3,340
226
3,566 $
1,489 $
-
1,489
815
2,304 $
174
105
100
252
169
281
53 $
-
53
-
53 $
2
4
28
-
28
-
28
1
4
Of the total nonaccrual loans at both December 31, 2015 and 2014, $1.1 million, were acquired in the acquisition of FCB. We had
$1.2 million in nonaccrual loans acquired through acquisition at December 31, 2013. Nonperforming loans are comprised of accruing
loans past due 90 days or more and nonaccrual loans. Nonperforming loans outstanding represented 0.32% of total loans at
December 31, 2015, nonperforming loans other than those acquired through an acquisition were 0.17%, and nonperforming acquired
loans were 0.15% at such date. Nonperforming loans outstanding, including acquired nonperforming loans, represented 0.54% and
0.30% of total loans at December 31, 2014 and 2013, respectively.
Other Real Estate Owned. Other real estate owned consists of properties acquired through foreclosure or acceptance of a deed in lieu
of foreclosure. These properties are carried at the lower of cost or fair market value based on appraised value less estimated selling
costs. Losses arising at the time of foreclosure of properties are charged against the allowance for loan losses. Other real estate owned
with a cost basis of $2.9 million and $1.3 million was sold during the years ended December 31, 2015 and 2014, respectively,
resulting in a net loss of $0.1 million and a net gain of $0.2 million for the respective period, compared to a cost basis of $1.6 million
and a net gain of $0.1 million at December 31, 2013. At December 31, 2015, $0.6 million of our other real estate owned was related to
our acquisition of FCB compared to $1.3 million at December 31, 2014.
57
The following table provides details of our other real estate owned as of the dates indicated (dollars in thousands).
Construction and development
1-4 Family
Total other real estate owned
December 31, 2015
December 31, 2014
$
$
616 $
109
725 $
2,130
605
2,735
Changes in our other real estate owned are summarized in the table below for the periods indicated (dollars in thousands).
Balance, beginning of period
Transfers from loans
Transfers from acquired loans
Sales of other real estate owned
Write-downs
Balance, end of period
Interest Rate Risk
Year ended
December 31, 2015
Year ended
December 31, 2014
$
$
2,735 $
950
55
(2,961 )
(54 )
725 $
3,515
-
706
(1,276 )
(210 )
2,735
Market risk is the risk of loss from adverse changes in market prices and rates. Since the majority of our assets and liabilities are
monetary in nature, our market risk arises primarily from interest rate risk inherent in our lending and deposit activities. A sudden and
substantial change in interest rates may adversely impact our earnings and profitability because the interest rates borne by assets and
liabilities do not change at the same speed, to the same extent or on the same basis. Accordingly, our ability to proactively structure
the volume and mix of our assets and liabilities to address anticipated changes in interest rates, as well as to react quickly to such
fluctuations, can significantly impact our financial results. To that end, management actively monitors and manages our interest rate
risk exposure.
The Asset/Liability Committee (“ALCO”) has been authorized by the board of directors to implement our asset/liability management
policy, which establishes guidelines with respect to our exposure to interest rate fluctuations, liquidity, loan limits as a percentage of
funding sources, exposure to correspondent banks and brokers and reliance on non-core deposits. The goal of the policy is to enable us
to maximize our interest income and maintain our net interest margin without exposing the Bank to excessive interest rate risk, credit
risk and liquidity risk. Within that framework, the ALCO monitors our interest rate sensitivity and makes decisions relating to our
asset/liability composition.
We monitor the impact of changes in interest rates on our net interest income using gap analysis. The gap represents the net position of
our assets and liabilities subject to repricing in specified time periods. During any given time period, if the amount of rate-sensitive
liabilities exceeds the amount of rate-sensitive assets, a financial institution would generally be considered to have a negative gap
position and would benefit from falling rates over that period of time. Conversely, a financial institution with a positive gap position
would generally benefit from rising rates.
Within the gap position that management directs, we attempt to structure our assets and liabilities to minimize the risk of either a
rising or falling interest rate environment. We manage our gap position for time horizons of one month, two months, three months,
four to six months, seven to twelve months, 13-24 months, 25-36 months, 37-60 months and more than 60 months. The goal of our
asset/liability management is for the Bank to maintain a net interest income at risk in an up or down 100 basis point environment at
less than (5)%. At December 31, 2015, the Bank was within the policy guidelines for asset/liability management.
58
The following table depicts the estimated impact on net interest income of immediate changes in interest rates at the specified levels
for the periods presented.
Changes in Interest Rates
(in basis points)
As of December 31, 2015
Estimated
Increase/Decrease in
Net Interest Income (1)
+400
+300
+200
+100
-100
-200
-300
(4.10 )%
(3.00 )%
(1.90 )%
(1.00 )%
3.60 %
0.70 %
0.50 %
(1)
The percentage change in this column represents the projected net interest income for 12 months on a flat balance sheet in a
stable interest rate environment versus the projected net interest income in the various rate scenarios.
The computation of the prospective effects of hypothetical interest rate changes requires numerous assumptions regarding
characteristics of new business and the behavior of existing positions. These business assumptions are based upon our experience,
business plans and published industry experience. Key assumptions include asset prepayment speeds, competitive factors, the relative
price sensitivity of certain assets and liabilities, and the expected life of non-maturity deposits. However, there a number of factors
that influence the effect of interest rate fluctuations on us which are difficult to measure and predict. For example, a rapid drop in
interest rates might cause our loans to repay at a more rapid pace and certain mortgage-related investments to prepay more quickly
than projected. This could mitigate some of the benefits of falling rates as are expected when we are in a negatively-gapped position.
Conversely, a rapid rise in rates could give us an opportunity to increase our margins and stifle the rate of repayment on our mortgage-
related loans which would increase our returns. As a result, because these assumptions are inherently uncertain, actual results will
differ from simulated results.
Liquidity and Capital Resources
Liquidity. Liquidity is a measure of the ability to fund loan commitments and meet deposit maturities and withdrawals in a timely and
cost-effective way. Cash flow requirements can be met by generating net income, attracting new deposits, converting assets to cash or
borrowing funds. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit
outflows, loan prepayments, loan sales and borrowings are greatly influenced by general interest rates, economic conditions and the
competitive environment in which we operate. To minimize funding risks, we closely monitor our liquidity position through periodic
reviews of maturity profiles, yield and rate behaviors, and loan and deposit forecasts. Excess short-term liquidity is usually invested in
overnight federal funds sold.
Our core deposits, which are deposits excluding time deposits greater than $250,000 and deposits of municipalities and other political
entities, are our most stable source of liquidity to meet our cash flow needs due to the nature of the long-term relationships generally
established with our customers. Maintaining the ability to acquire these funds as needed in a variety of markets, and within ALCO
compliance targets, is essential to ensuring our liquidity. At December 31, 2015 and 2014, 69% and 67% of our total assets,
respectively, were funded by core deposits.
Our investment portfolio is another alternative for meeting our cash flow requirements. Investment securities generate cash flow
through principal payments and maturities, and they generally have readily available markets that allow for their conversion to cash.
Some securities are pledged to secure certain deposit types or short-term borrowings (such as FHLB advances), which impacts their
liquidity. At December 31, 2015, securities with a carrying value of $88.1 million were pledged to secure deposits or borrowings,
compared to $63.1 million in pledged securities as of December 31, 2014.
59
Other sources available for meeting liquidity needs include advances from the FHLB, repurchase agreements and other borrowings.
FHLB advances are primarily used to match-fund fixed rate loans in order to minimize interest rate risk and also may be used to meet
day to day liquidity needs, particularly if the prevailing interest rate on an FHLB advance compares favorably to the rates that we
would be required to pay to attract deposits. At December 31, 2015, the balance of our outstanding advances with the FHLB was
$127.5 million, an increase from $125.8 million at December 31, 2014. The total amount of the remaining credit available to us from
the FHLB at December 31, 2015 was $174.1 million. Repurchase agreements are contracts for the sale of securities which we own
with a corresponding agreement to repurchase those securities at an agreed upon price and date. Our policies limit the use of
repurchase agreements collateralized by U.S. Treasury and agency securities. We had $39.1 million of repurchase agreements
outstanding as of December 31, 2015, compared to $12.3 million of outstanding repurchase agreements as December 31, 2014.
Finally, we maintain unsecured lines of credit with other commercial banks totaling $35.0 million. The lines of credit mature at
various times within the next twelve months. There were no amounts outstanding under these lines of credit at December 31, 2015 or
2014.
Our liquidity strategy is focused on using the least costly funds available to us in the context of our balance sheet composition and
interest rate risk position. Accordingly, we target growth of noninterest-bearing deposits. Although we cannot directly control the
types of deposit instruments our customers choose, we can influence those choices with the interest rates and deposit specials we offer.
We do not hold any brokered deposits, as defined for federal regulatory purposes, although we do hold QwikRate® deposits which we
obtain via the internet to address liquidity needs when rates on such deposits compare favorably with deposit rates in in our markets.
At December 31, 2015, we held $79.3 million of QwikRate® deposits, up from $52.7 million at December 31, 2014.
The following tables presents, by type, our funding sources, which consist of total average deposits and borrowed funds, as a
percentage of total funds and the total cost of each funding source for the years ended December 31, 2015 and 2014.
Noninterest-bearing demand
Interest-bearing demand
Savings
Time deposits
Short-term borrowings
Borrowed funds
Total deposits and borrowed funds
Percentage of Total
Year ended
December 31,
Cost of Funds
Year ended
December 31,
2015
2014
2015
2014
11 %
28
7
43
7
4
100 %
11 %
27
8
44
4
6
100 %
- %
0.6
0.7
1.0
0.5
0.9
0.7 %
- %
0.6
0.7
1.0
0.2
0.9
0.7 %
We are subject to certain restrictions on dividends under applicable banking laws and regulations. Please refer to the discussion under
the heading “Supervision and Regulation – Dividends” in Item 1, Business, for more information regarding the restrictions on
dividends applicable to the Company and the Bank.
Capital Management. Our primary sources of capital include retained earnings, capital obtained through acquisitions and proceeds
from the sale of our capital stock. We are subject to various regulatory capital requirements administered by the Federal Reserve and
the FDIC. These requirements are described in greater detail under the heading “Supervision and Regulation – Regulatory Capital
Requirements” of Item 1, Business. Those guidelines specify capital tiers, which include the following classifications:
Capital Tiers
Well capitalized
Adequately capitalized
Undercapitalized
Significantly undercapitalized
Critically undercapitalized
Tier 1 Leverage
Ratio
5% or above
4% or above
Less than 4%
Less than 3%
Tier 1 Capital
Ratio
Common Equity
Tier 1 Capital
Ratio
8% or above
6.5% of above
4.5% or above
6% or above
Less than 4.5% Less than 6%
Less than 4%
Less than 3%
Total Capital Ratio
10% or above
8% or above
Less than 8%
Less than 6%
2% or less
60
The Company and the Bank each were in compliance with all regulatory capital requirements as of December 31, 2015 and 2014, and
the Bank was in compliance with all regulatory capital requirements as of December 31, 2013. The Bank also was considered “well-
capitalized” under the FDIC’s prompt corrective action regulations as of these dates. The following table presents the actual capital
amounts and regulatory capital ratios for the Company and the Bank as of the dates presented (dollars in thousands).
December 31, 2015
Investar Holding Corporation:
Tier 1 capital to average assets (leverage)
Tier 1 common equity to risk-weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Investar Bank:
Tier 1 capital to average assets (leverage)
Tier 1 common equity to risk-weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
December 31, 2014
Investar Holding Corporation:
Tier 1 capital to average assets (leverage)
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Investar Bank:
Tier 1 capital to average assets (leverage)
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Off-Balance Sheet Transactions
Actual
Minimum Capital
Requirement to be
Well Capitalized
Amount
Ratio
Amount
Ratio
$
110,574
107,074
110,574
116,702
107,209
107,209
107,209
113,337
$
103,535
103,535
108,165
73,870
73,870
78,500
11.39 % $
11.67
12.05
12.72
11.07
11.71
11.71
12.38
12.61 % $
13.79
14.41
9.00
9.86
10.48
-
-
-
-
-
-
-
-
48,436
59,511
73,244
91,555
5.00
6.50
8.00
10.00
-
-
-
-
-
-
41,026
44,959
74,931
5.00
6.00
10.00
The Bank entered into forward starting interest rate swap contracts to manage exposure against the variability in the expected future
cash flows (future interest payments) attributable to changes in the 1-month LIBOR associated with the forecasted issuances of 1-
month fixed rate debt arising from a rollover strategy. An interest rate swap is an agreement whereby one party agrees to pay a fixed
rate of interest on a notional principal amount in exchange for receiving a floating rate of interest on the same notional amount for a
predetermined period of time, from a second party. The maximum length of time over which the Bank is currently hedging its
exposure to the variability in future cash flows for forecasted transactions is approximately 4.5 years. The total notional amount of the
derivative contracts is $30.0 million.
For each of the years ended December 31, 2015 and 2014, a loss of $0.2 million, net of a $0.1 million tax benefit, was recognized in
“Other comprehensive (loss) income” in the accompanying consolidated statement of other comprehensive income for the change in
fair value of the interest rate swap. The swap contract had a negative fair value of $0.6 million and $0.3 million as of December 31,
2015 and 2014, respectively and has been recorded in “Accrued taxes and other liabilities” in the accompanying consolidated balance
sheets. The Bank expects the hedge to remain fully effective during the remaining term of the swap contract.
The Bank enters into loan commitments and standby letters of credit in the normal course of its business. Loan commitments are made
to meet the financing needs of our customers, while standby letters of credit commit the Bank to make payments on behalf of
customers when certain specified future events occur. The credit risks associated with loan commitments and standby letters of credit
are essentially the same as those involved in making loans to our customers. Accordingly, our normal credit policies apply to these
arrangements. Collateral (e.g., securities, receivables, inventory, equipment, etc.) is obtained based on management’s credit
assessment of the customer.
Loan commitments and standby letters of credit do not necessarily represent future cash requirements, in that while the customer
typically has the ability to draw upon these commitments at any time, these commitments often expire without being drawn upon in
61
full or at all. Virtually all of our standby letters of credit expire within one year. Our unfunded loan commitments and standby letters
of credit outstanding are summarized below as of the dates indicated (dollars in thousands).
Commitments to extend credit:
Loan commitments
Standby letters of credit
December 31, 2015
December 31, 2014
$
149,561 $
382
90,946
534
The Company closely monitors the amount of remaining future commitments to borrowers in light of prevailing economic conditions
and adjusts these commitments as necessary. The Company will continue this process as new commitments are entered into or existing
commitments are renewed.
Additionally, at December 31, 2015, the Company had unfunded commitments of $0.9 million for its investment in Small Business
Investment Company qualified funds.
For each of the years ended December 31, 2015 and 2014, we engaged in no off-balance sheet transactions reasonably likely to have a
material effect on our financial condition, results of operations or cash flows currently or in the future.
Contractual Obligations
The following table presents, as of December 31, 2015, significant fixed and determinable contractual obligations to third parties by
payment date (dollars in thousands).
Deposits without a stated maturity(1)
Time deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Junior subordinated debentures
Total contractual obligations
(1)
Excludes interest.
Less Than
One Year
$ 380,798
191,896
39,099
119,137
-
$ 730,930
One to
Three Years
$
-
143,812
-
5,260
-
$ 149,072
$
Payments Due In:
Three to
Five Years
-
20,900
-
3,100
-
24,000
$
Over Five
Years
$
$
-
-
-
-
3,609
3,609
Total
$ 380,798
356,608
39,099
127,497
3,609
$ 907,611
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Risk Management” in Item 7 hereof is incorporated herein by reference.
62
Item 8. Financial Statements and Supplementary Data
REPORT ON MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Stockholders and Board of Directors
Investar Holding Corporation
Baton Rouge, Louisiana
Investar Holding Corporation (the “Company”) is responsible for the preparation, integrity and fair presentation of the consolidated
financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have
been prepared in conformity with accounting principles generally accepted in the United States of America and necessarily include
some amounts that are based on management’s best estimates and judgments.
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s
internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only
in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect
on the financial statements.
The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by
management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they
are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a
control can be circumvented or overridden, and misstatements due to error or fraud may occur and not be detected. Also, because of
changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will
provide only reasonable assurance with respect to financial statement preparation.
Management, with the participation of the Company’s principal executive officer and principal financial officer, conducted an
assessment of the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2015, based
on criteria for effective internal control over financial reporting described in the “Internal Control - Integrated Framework,” (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has
concluded that, as of December 31, 2015, the Company’s system of internal control over financial reporting is effective and meets the
criteria of the “Internal Control – Integrated Framework.” Postethwaite & Netterville, the Company’s independent registered public
accounting firm that has audited the Company’s financial statements included in this annual report, has issued an attestation report on
the Company’s internal control over financial reporting which is included herein.
Date: March 11, 2016
Date: March 11, 2016
By: /s/ John J. D’Angelo
John J. D’Angelo
President and Chief Executive Officer
By: /s/ Christopher L. Hufft
Christopher L. Hufft
Executive Vice President and Chief Financial Officer
63
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Investar Holding Corporation
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheets of Investar Holding Corporation (the Company) as of December 31,
2015 and 2014, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and
cash flows for each of the years in the three-year period ended December 31, 2015. We have also audited Investar Holding
Corporation’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria). Investar Holding Corporation’s management is responsible for these financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Investar Holding Corporation as of December 31, 2015 and 2014, and the results of its operations and cash flows for each of the years
in the three-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, Investar Holding Corporation maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2015, based on the COSO criteria.
/s/ Postlethwaite & Netterville
Baton Rouge, Louisiana
March 11, 2016
64
INVESTAR HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
December 31,
2015
2014
ASSETS
Cash and due from banks
Interest-bearing balances due from other banks
Federal funds sold
Cash and cash equivalents
Available for sale securities at fair value (amortized cost of $113,828 and $69,838,
respectively)
Held to maturity securities at amortized cost (estimated fair value of $26,271 and
$22,301, respectively)
Loans held for sale
Loans, net of allowance for loan losses of $6,128 and $4,630, respectively
Other equity securities
Bank premises and equipment, net of accumulated depreciation of $5,368 and $3,964,
respectively
Other real estate owned, net
Accrued interest receivable
Deferred tax asset
Goodwill and other intangible assets, net
Other assets
Total assets
LIABILITIES
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Advances from Federal Home Loan Bank
Repurchase agreements
Junior subordinated debt
Accrued taxes and other liabilities
Total liabilities
STOCKHOLDERS’ EQUITY
Preferred stock, $1.00 par value per share; 5,000,000 shares authorized
Common stock, $1.00 par value per share; 40,000,000 shares authorized; 7,305,213
and 7,263,698 shares issued and 7,264,282 and 7,262,085 shares outstanding,
respectively
Treasury stock
Surplus
Retained earnings
Accumulated other comprehensive (loss) income
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
$
$
$
6,313
14,472
181
20,966
113,371
26,408
80,509
739,313
5,835
30,630
725
2,831
1,915
3,175
5,877
1,031,555
90,447
646,959
737,406
127,497
39,099
3,609
14,594
922,205
$
$
5,519
13,493
500
19,512
70,299
22,519
103,396
618,160
5,566
28,538
2,735
2,435
1,097
3,216
1,881
879,354
70,217
557,901
628,118
125,785
12,293
3,609
6,165
775,970
-
-
7,305
(634 )
84,692
18,650
(663 )
109,350
1,031,555
$
7,264
(23 )
84,213
11,809
121
103,384
879,354
See accompanying notes to the consolidated financial statements.
65
INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
For the years ended
December 31,
2014
2013
2015
INTEREST INCOME
Interest and fees on loans
Interest on investment securities
Other interest income
Total interest income
INTEREST EXPENSE
Interest on deposits
Interest on borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Service charges on deposit accounts
Gain on sale of investment securities, net
(Loss) gain on sale of other real estate owned, net
Gain on sale of loans, net
Bargain purchase gain
Fee income on loans held for sale, net
Other operating income
Total noninterest income
Income before noninterest expense
NONINTEREST EXPENSE
Depreciation and amortization
Salaries and employee benefits
Occupancy
Data processing
Marketing
Professional fees
Impairment on investment in tax credit entity
Acquisition expense, including legal
Other operating expenses
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
$
$
35,076
2,189
75
37,340
$
29,979
1,339
51
31,369
5,250
632
5,882
31,458
1,865
29,593
380
489
(105 )
4,368
-
979
2,233
8,344
37,937
1,446
16,398
951
1,508
248
1,075
54
-
5,673
27,353
10,584
3,511
7,073
0.98
0.97
0.03
$
$
$
$
4,273
402
4,675
26,694
1,628
25,066
305
340
230
3,449
-
329
1,207
5,860
30,926
1,326
14,565
833
1,289
329
599
690
-
4,753
24,384
6,542
1,145
5,397
0.98
0.93
0.04
$
$
$
$
$
$
$
$
21,686
756
30
22,472
3,204
256
3,460
19,012
1,026
17,986
214
449
97
2,634
906
457
597
5,354
23,340
893
11,772
793
782
320
295
-
250
3,919
19,024
4,316
1,148
3,168
0.86
0.81
0.05
See accompanying notes to the consolidated financial statements.
66
INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income
Other comprehensive income (loss):
Unrealized (loss) gains on investment securities:
Unrealized (loss) gain, available for sale, net of tax (benefit) expense of
($153), $463 and ($381), respectively
Reclassification of realized gains, net of tax expense of $171, $116 and
$153, respectively
Unrealized (loss) gains, transfer from available for sale to
held to maturity, net of tax (benefit) expense of ($2), ($1), and $10,
respectively
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 $95, $103, and $0,
respectively
Total other comprehensive (loss) income
Total comprehensive income
For the years ended
December 31,
2014
2013
2015
$
7,073
$
5,397
$
3,168
(283 )
(318 )
898
(224 )
(739 )
(296 )
(5 )
(3 )
20
(178 )
(784 )
6,289
$
(200 )
471
5,868
$
-
(1,015 )
2,153
$
See accompanying notes to the consolidated financial statements.
67
INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share data)
Common
Stock
Treasury
Stock
Surplus
Balance, December 31, 2012
Proceeds from sale of stock
Common stock issued for acquisition
Stock issuance cost
Dividends declared, $0.05 per share
Stock-based compensation
Net Income
Other comprehensive loss, net
Balance, December 31, 2013
Common stock issued in offering, net
of direct cost of $4,266
Warrants exercised
Surrendered shares
Shares repurchased
Dividends declared, $0.04 per share
Stock-based compensation
Net income
Other comprehensive income, net
Balance, December 31, 2014
Surrendered shares
Shares repurchased
Options exercised
Dividends declared, $0.03 per share
Stock-based compensation
Net income
Other comprehensive income, net
Balance, December 31, 2015
$
$
$
$
3,208
382
320
-
-
33
-
-
3,943
3,285
22
-
-
-
14
-
-
7,264
-
-
10
-
31
-
-
7,305
$
$
$
$
-
-
-
-
-
-
-
-
-
$
$
-
-
(17 )
(6 )
-
-
-
-
(23 )
(39 )
(572 )
-
-
-
-
-
(634 )
$
$
36,060
4,957
4,170
(23 )
-
117
-
-
45,281
38,443
275
-
-
-
214
-
-
84,213
-
-
125
-
354
-
-
84,692
$
$
$
Retained
Earnings
$
Accumulated
Other
Comprehensive
Income (Loss)
665
$
-
-
-
-
-
-
(1,015 )
(350 )
$
3,620
-
-
-
(179 )
-
3,168
-
6,609
-
-
-
-
(197 )
-
5,397
-
11,809
-
-
-
(232 )
-
7,073
-
18,650
$
$
-
-
-
-
-
-
-
471
121
-
-
-
-
-
-
(784 )
(663 )
Total
Stockholders'
Equity
$
$
$
$
43,553
5,339
4,490
(23 )
(179 )
150
3,168
(1,015 )
55,483
41,728
297
(17 )
(6 )
(197 )
228
5,397
471
103,384
(39 )
(572 )
135
(232 )
385
7,073
(784 )
109,350
See accompanying notes to the consolidated financial statements.
68
INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
For the years ended December 31,
2014
2013
2015
$
7,073
$
5,397
$
3,168
Depreciation and amortization
Provision for loan losses
Amortization of purchase accounting adjustments
Provision for other real estate owned
Net amortization of securities
Bargain purchase gain
Gain on sale of securities, net
Impairment of investment in tax credit entity
Loans held for sale:
Originations
Proceeds from sales
Gain on sale of loans
Loss (gain) on sale of other real estate owned, net
FHLB stock dividend
Stock-based compensation
Deferred taxes
Other
Net change in:
Accrued interest receivable
Other assets
Accrued taxes and other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities
Proceeds from sales of investment securities available for sale
Funds invested in securities available for sale
Funds invested in securities held to maturity
Proceeds from maturities, prepayments and calls of investment securities available for sale
Proceeds from maturities, prepayments and calls of investment securities held to maturity
Proceeds from sale of loans
Proceeds from redemption of other equity securities
Purchase of other equity securities
Net increase in loans
Proceeds from sales of other real estate owned
Proceeds from sales of bank premises and equipment
Purchases of bank premises and equipment
Cash received in acquisition
Purchase of investment in tax credit entity
Net cash used in investing activities
Cash flows from financing activities
Net increase in customer deposits
Net increase in repurchase agreements
Net increase (decrease) in short-term FHLB advances
Proceeds from long-term FHLB advances
Repayment of long-term FHLB advances
Cash dividends paid on common stock
Payments to repurchase common stock
Proceeds from issuance of common stock in initial public offering
Proceeds from sales of common stock
Proceeds from stock options and warrants exercised
Stock issuance cost
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
1,446
1,865
(186 )
54
1,051
-
(489 )
54
(349,684 )
376,939
(4,368 )
105
(14 )
385
(386 )
(4 )
(396 )
(4,015 )
8,086
37,516
27,187
(82,945 )
(5,622 )
11,224
1,663
-
6,813
(7,067 )
(124,041 )
2,857
696
(4,079 )
-
-
(173,314 )
109,391
26,807
13,141
3,000
(14,429 )
(221 )
(572 )
-
-
135
-
137,252
1,454
19,512
20,966
$
1,326
1,628
(366 )
210
1,087
-
(340 )
690
(238,471 )
141,893
(3,449 )
(230 )
(8 )
228
(134 )
(3 )
(600 )
(71 )
3,615
(87,598 )
31,603
(55,901 )
(16,348 )
10,465
385
105,241
1,972
(5,509 )
(223,132 )
1,506
3
(5,142 )
-
(766 )
(155,623 )
95,648
2,089
90,639
7,500
(3,171 )
(194 )
(6 )
41,728
-
297
-
234,530
(8,691 )
28,203
19,512
$
893
1,026
(657 )
121
833
(906 )
(449 )
-
(88,210 )
102,557
(2,634 )
(97 )
(4 )
150
773
(2 )
(365 )
(560 )
285
15,922
16,626
(40,384 )
-
8,530
170
59,333
828
(1,312 )
(197,974 )
1,642
1,306
(9,389 )
9,293
-
(151,331 )
146,632
6,169
(12,120 )
20,700
(7,557 )
(169 )
-
-
5,339
-
(23 )
158,971
23,562
4,641
28,203
See accompanying notes to the consolidated financial statements.
69
INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Amounts in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Income taxes
Interest on deposits and borrowings
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES
Transfer from loans to other real estate owned
Loans originated to sell other real estate owned
For the years ended December 31,
2014
2013
2015
$
$
$
$
4,000 $
5,833 $
1,005 $
- $
1,336 $
4,675 $
706 $
- $
1,727
3,301
1,287
100
See accompanying notes to the consolidated financial statements.
70
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Investar Holding Corporation (the “Company”) was incorporated in 2009 to serve as a holding company for Investar Bank (the
“Bank”), a Louisiana-chartered commercial bank founded in 2006. On November 15, 2013, the Company completed a share exchange
with the shareholders of the Bank, which resulted in the Bank becoming a wholly-owned subsidiary of the Company. Pursuant to this
share exchange, all issued and outstanding common stock of the Bank, and all outstanding and unexercised warrants and options to
purchase additional shares of common stock of the Bank, were exchanged for a like number of shares of common stock of the
Company, and respectively, a like number of warrants and options to purchase additional shares of common stock of the Company.
In July 2014, the Company completed the issuance and sale of 3,285,300 shares of its common stock in its initial public offering,
which amount includes 410,300 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares from
the Company, at a public offering price of $14.00 per share. The shares were offered pursuant to the Company’s Registration
Statement on Form S-1. After deducting underwriting commissions and offering expenses, the Company received net proceeds of
$41.7 million from the sale of such shares.
The consolidated financial statements of Investar Holding Corporation and its wholly-owned subsidiary, the Bank, have been prepared
in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Segments
All of the Company’s banking operations are considered by management to be aggregated in one reportable operating
segment. Because the overall banking operations comprise substantially all of the consolidated operations, no separate segment
disclosures are presented in the accompanying consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates,
and such differences could be material.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses.
While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based
on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically
review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance
based on their judgments about information available to them at the time of their examination. Because of these factors, it is
reasonably possible that the allowance for loan losses may change materially in the near term. However, the amount of the change that
is reasonably possible cannot be estimated.
Other estimates that are susceptible to significant change in the near term relate to the determination of other-than-temporary
impairments of securities and the fair value of financial instruments.
71
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Investment Securities
The Company’s investments in securities are accounted for in accordance with applicable guidance contained in the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), which requires the classification of securities
into one of the following categories:
(cid:120) Securities to be held to maturity: 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.
(cid:120) Securities available for sale: 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 available for sale securities are reported as a net amount in other comprehensive
income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.
Realized gains and losses on the sale of investment securities are determined using the specific-identification method.
The Company follows FASB guidance related to the recognition and presentation of other-than-temporary impairment. The guidance
specifies that if an entity does not have the intent to sell a debt security prior to recovery, the security would not be considered other-
than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not
that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-
than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.
Other Equity Securities
Other equity securities include investments in Federal Home Loan Bank (“FHLB”), Independent Bankers Financial Corporation
(“IBFC”), and First National Bankers Bankshares (“FNBB”) stock, which investments are restricted. These investments are carried at
cost which approximated fair value at December 31, 2015 and 2014.
Loans
The Company’s loan portfolio categories include real estate, commercial and consumer loans. Real estate loans are further categorized
into construction and development, one-to-four 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 that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at unpaid
principal balances, adjusted by an allowance for loan losses. Interest on loans is calculated by using the simple interest method on
daily balances of the principal amount outstanding. Loans are ordinarily placed on nonaccrual when a loan is specifically determined
to be impaired or when principal or interest is delinquent for 90 days or more; however, management may elect to continue the accrual
when the estimated net realizable value of collateral is sufficient to cover the principal balance and the accrued interest. Any unpaid
interest previously accrued on nonaccrual loans is reversed from income. Interest income, generally, is not recognized on specific
impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of
the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received.
The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the
Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal
and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not
classified as impaired. The Company’s impaired loans include troubled debt restructurings and performing and non-performing major
loans for which full payment of principal or interest is not expected. Large groups of smaller balance homogenous loans are
collectively evaluated for impairment. The Company calculates an allowance required for impaired loans based on the present value of
expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of its
collateral. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is required as a
component of the allowance for loan losses. Changes to the valuation allowance are recorded as a component of the provision for loan
losses.
72
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
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.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value. For loans carried at the
lower of cost or fair value, gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income,
and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of
the loan.
Loans Sold with Recourse
The Company has an obligation to repurchase certain mortgage loans and indirect loans sold and to refund certain fees to the
purchaser if the loans fail to perform or prepay within prescribed time periods after the date of sale. Prepayment penalty features also
exist for certain conforming loans as defined in each agreement with investors. Accounting guidance requires a guarantor to recognize,
at the inception of a guarantee, a liability in an amount equal to the fair value of the obligation undertaken in issuing the
guarantee. The Company considers loans sold with recourse to be guarantees.
Allowance for Loan Losses
The adequacy of the allowance for loan losses is determined in accordance with U.S. 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 adjusted 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 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 significant 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 the directional consistency of 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.
73
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Troubled Debt Restructurings
The Company periodically grants concessions to its customers in an attempt to protect as much of its investment as possible and
minimize the risk of loss. These concessions may include restructuring the terms of a customer loan, thereby adjusting the customer’s
payment requirements. In accordance with the FASB’s Accounting Standards Update (“ASU”) 2011-02, Receivables (Topic 310): A
Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, in order to be considered a troubled debt
restructuring (a “TDR”), the Company must conclude that the restructuring constitutes a concession and the customer is experiencing
financial difficulties. The Company defines a concession to a customer as a modification of existing loan terms for economic or legal
reasons that it would otherwise not consider. Concessions are typically granted through an agreement with the customer or are
imposed by a court of law. Concessions include modifying original loan terms to reduce or defer cash payments required as part of the
loan agreement, including but not limited to a reduction of the stated interest rate for the remaining original life of the debt, an
extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk
characteristics, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest receivable on a debt.
In its determination of whether the customer is experiencing financial difficulties, the Company considers numerous indicators,
including but not limited to, whether the customer has declared or is in the process of declaring bankruptcy, whether there is
substantial doubt about the customer’s ability to continue as a going concern, whether the Company believes the customer’s future
cash flows will be insufficient to service the debt in accordance with the contractual terms of the existing agreement for the
foreseeable future, and whether without modification the customer cannot obtain sufficient funds from other sources at an effective
interest rate equal to the current market rate for similar debt for a non-troubled debtor.
If the Company concludes that both a concession has been granted and the concession was granted to a customer experiencing
financial difficulties, the Company identifies the loan as a TDR. For purposes of the determination of an allowance for loan losses on
these TDRs, the loan is reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it
is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicators, the Company
establishes specific reserves for these loans.
Servicing Rights
Primary servicing rights represent the Company’s right to service consumer automobile loans for third-party whole-loan sales and
loans sold as participations. Primary servicing involves the collection of payments from individual borrowers and the distribution of
these payments to the investors.
The Company capitalizes the value expected to be realized from performing specified automobile servicing activities for others as
automobile servicing rights (“ASRs”) when the expected future cash flows from servicing are projected to be more than adequate
compensation for such activities. These capitalized servicing rights are purchased or retained upon sale of consumer automobile loans.
The Company measures all consumer automobile servicing assets and liabilities at fair value. The Company defines servicing rights
based on both the availability of market inputs and the manner in which the Company manages the risks of servicing assets and
liabilities. The Company leverages all available relevant market data to determine the fair value of recognized servicing assets and
liabilities.
The Company calculates the fair value of ASRs using various assumptions including future cash flows, market discount rates,
expected prepayments, servicing costs and other factors. A significant change in prepayments of loans in the servicing portfolio could
result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of ASRs.
As of the years ended December 31, 2015, 2014, and 2013, expected future cash flows from ASRs approximated adequate
compensation for such activities. Accordingly, the Company has not recorded an asset or liability. Total income earned from servicing
activities was approximately $1.6 million, $0.6 million and $0.1 million for the years ended December 31, 2015, 2014, and 2013,
respectively.
Other Real Estate Owned
Real estate acquired through, or in lieu of, foreclosure, or other real estate owned on the consolidated balance sheets, is initially
recorded at fair value at the time of foreclosure, less estimated selling cost, and any related write down is charged to the allowance for
loan losses. Valuations are periodically performed by management and provisions for estimated losses on other real estate owned are
charged to income when fair value is determined to be less than the carrying value.
74
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Costs relative to the development and improvement of properties are capitalized to the extent realizable, whereas ordinary upkeep
disbursements are charged to expense. The ability of the Company to recover the carrying value of real estate is based upon future
sales of the other real estate owned. The ability to affect such sales is subject to market conditions and other factors, many of which
are beyond the Company’s control. Operating income and expense of such properties is included in other operating income or
expense, respectively, on the accompanying consolidated statements of operations. Gain or loss on the disposition of such properties is
included in noninterest income on the consolidated statements of operations.
Bank Premises and Equipment
Bank premises and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed by the straight-line
method and is charged to expense over the estimated useful lives of the assets, which range from 1 to 39 years. Costs of major
additions and improvements are capitalized. Expenditures for maintenance and repairs are expensed as incurred.
Bank Owned Life Insurance
The Company invests in bank owned life insurance (“BOLI”) policies that provide earnings to help cover the cost of employee benefit
plans. The Company is the owner and beneficiary of the life insurance policies it purchased directly on a chosen group of employees.
The policies are carried on the Company’s consolidated balance sheet at their cash surrender value and are subject to regulatory capital
requirements. The determination of the cash surrender value includes a full evaluation of the contractual terms of each policy and
assumes the surrender of policies on an individual-life by individual-life basis. Additionally, the Company periodically reviews the
creditworthiness of the insurance companies that have underwritten the policies. Earnings accruing to the Company are derived from
the general account investments of the insurance companies. Increases in the net cash surrender value of BOLI policies and insurance
proceeds received are not taxable and are recorded in noninterest income in the consolidated statements of operations.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business
combination. Goodwill and other intangible assets deemed to have an indefinite useful life are not amortized but instead are subject to
review for impairment annually, or more frequently if deemed necessary, in accordance with the provisions of FASB ASC Topic 350,
Intangibles – Goodwill and Other. Intangible assets with estimable useful lives are amortized over their respective estimated useful
lives and reviewed for impairment in accordance with FASB ASC Topic 360, Property, Plant, and Equipment. If impaired, the asset is
written down to its estimated fair value. No impairment charges have been recognized through December 31, 2015. Core deposit
intangibles representing the value of the acquired core deposit base are generally recorded in connection with business combinations
involving banks and branch locations. The Company’s policy is to amortize core deposit intangibles over the estimated useful life of
the deposit base. The remaining useful lives of core deposit intangibles are evaluated periodically to determine whether events and
circumstances warrant revision of the remaining period of amortization. All of the Company’s core deposit intangibles are currently
amortized on a straight-line basis over 15 years. See Note 8, Goodwill and Other Intangible Assets, for additional information.
Repurchase Agreements
Securities sold under agreements to repurchase are secured borrowings treated as financing activities and are carried at the amounts at
which the securities will be subsequently reacquired as specified in the respective agreements.
Stock-Based Compensation
The Company accounts for stock-based compensation under the provisions of ASC Topic 718, Compensation - Stock Compensation.
Under this accounting guidance, fair value is established as the measurement objective in accounting for stock awards and requires the
application of a fair value based measurement method in accounting for compensation costs, which is recognized over the requisite
service period. See Note 14, Stockholders’ Equity, for further disclosures regarding stock-based compensation.
Off-Balance Sheet Credit-Related Financial Instruments
The Company accounts for its guarantees in accordance with the provisions of ASC Topic 460, Guarantees. In the ordinary course of
business, the Company has entered into commitments to extend credit, including commitments under credit card agreements,
commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded.
75
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Derivative Financial Instruments
ASC Topic 815, Derivatives and Hedging, requires that all derivatives be recognized as assets or liabilities in the balance sheet at fair
value.
In the course of its business operations, the Company is exposed to certain risks, including interest rate, liquidity and credit risk. The
Company manages its risks through the use of derivative financial instruments, primarily through management of exposure due to the
receipt or payment of future cash amounts based on interest rates. The Company’s derivative financial instruments manage the
differences in the timing, amount and duration of expected cash receipts and payments.
Derivatives which are designated and qualify as a hedge of the exposure to variability in expected future cash flows, or other types of
forecasted transactions, are considered cash flow hedges. The effective portion of the derivative’s gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects
earnings or when the hedge is terminated. The ineffective portion of the gain or loss is reported in earnings immediately.
In applying hedge accounting for derivatives, the Company establishes a method for assessing the effectiveness of the hedging
derivative and a measurement approach for determining the ineffective aspect of the hedge upon the inception of the hedge. These
methods are consistent with the Company’s approach to managing risk. Note 13, Derivative Financial Instruments, describes the
derivative instruments currently used by the Company and discloses how these derivatives impact the Company’s financial position
and results of operations.
Income Taxes
The provision for income taxes is based on amounts reported in the consolidated statements of operations after exclusion of
nontaxable income such as interest on state and municipal securities. Also, certain items of income and expenses are recognized in
different time periods for financial statement purposes than for income tax purposes. Thus, provisions for deferred taxes are recorded
in recognition of such temporary differences.
Deferred taxes are determined utilizing a liability method whereby deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company has adopted accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent
framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.
Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or
sustained upon examination. The term “more likely than not” means a likelihood of more than 50 percent. A tax position that meets
the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a
greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant
information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the
facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are
reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of
deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
Earnings Per Share
Basic earnings per share represents income available to common shareholders divided by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share reflects the additional potential common shares that would
have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result
from the assumed issuance.
76
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents include cash and amounts due from banks and federal funds
sold due to the short-term nature of these items.
Advertising Costs
Advertising and marketing costs are recorded as expenses in the year in which they are incurred. Advertising and marketing costs
charged to operations were approximately $0.2 million, $0.3 million and $0.3 million for the years ended December 31, 2015, 2014
and 2013, respectively.
Comprehensive Income
Comprehensive income includes net income and other comprehensive income or loss, which in the case of the Company includes
unrealized gains and losses on securities and changes in the fair value of interest rate swaps, net of related income taxes.
Acquisition Accounting
Acquisitions are accounted for under the purchase method of accounting. Purchased assets and assumed liabilities are recorded at their
respective acquisition date fair values, and identifiable intangible assets are recorded at fair value. If the consideration given exceeds
the fair value of the net assets received, goodwill is recognized. If the fair value of the net assets received exceeds the consideration
given, a bargain purchase gain is recognized. Fair values are subject to refinement for up to one year after the closing date of an
acquisition as information relative to closing date fair values becomes available.
Purchased loans acquired in a business combination are recorded at their estimated fair value as of the acquisition date. The fair value
of loans acquired is determined using a discounted cash flow model based on assumptions regarding the amount and timing of
principal and interest prepayments, estimated payments, estimated default rates, estimated loss severity in the event of defaults, and
current market rates. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan losses is
not recorded on the acquisition date. The fair value adjustment is amortized over the life of the loan using the effective interest
method.
Acquired Impaired Loans
The Company accounts for acquired impaired loans under FASB 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 the Company will be unable to collect all contractually required
payments. For acquired impaired loans, the Company (a) calculates the contractual amount and timing of undiscounted principal and
interest payments (the “undiscounted contractual cash flows”) and (b) estimates the amount and timing of undiscounted expected
principal and interest payments (the “undiscounted expected cash flows”). Under ASC 310-30, the difference between the
undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable
difference represents an estimate of the loss exposure of principal and interest related to the acquired impaired loan portfolio, and such
amount is subject to change over time based on the performance of such loans.
The excess of expected cash flows at acquisition over the initial fair value of acquired impaired loans is referred to as the “accretable
yield” and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount
of the future cash flows is reasonably estimable. As required by ASC 310-30, the Company periodically re-estimates the expected
cash flows to be collected over the life of the acquired impaired loans. Improvements in expected cash flows over those originally
estimated increase the accretable yield and are recognized as interest income prospectively. Decreases in the amount and changes in
the timing of expected cash flows compared to those originally estimated decrease the accretable yield and usually result in a
provision for loan losses and the establishment of an allowance for loan losses with respect to the acquired impaired loan. The
carrying value of acquired impaired loans is reduced by payments received, both principal and interest, and increased by the portion of
the accretable yield recognized as interest income.
Reclassifications
Certain reclassifications have been made to the 2014 and 2013 financial statements to be consistent with the 2015 presentation.
77
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Recent Accounting Pronouncements
This section briefly describes accounting standards that have been issued, but are not yet adopted, that could have a material effect on
the Company’s financial statements.
FASB ASC Topic 810 “Consolidation” Update No. 2015-02. The FASB issued Update No. 2015-02 in February 2015 to respond to
stakeholders’ concerns about the current accounting for consolidation of certain legal entities. The amendments in the update change
the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities and are
effective for public entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The
adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position.
FASB ASC Topic 835-30 “Interest – Imputation of Interest” Update No. 2015-03. The FASB issued Update No. 2015-03 in April
2015 to simplify presentation of debt issuance costs. The amendments in this Update require that debt issuance costs related to a
recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments
in this Update. For public entities, the amendments in this Update are effective for financial statements issued for fiscal years
beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this standard is not expected to
have a material impact on the Company’s consolidated financial position.
FASB ASC Topic 820 “Fair Value Measurement” Update No. 2015-07. The FASB issued Update No. 2015-07 in May 2015 to
address diversity in practice related to how certain investments measured at net asset value with redemption dates in the future are
categorized within the fair value hierarchy. The amendments in this Update remove the requirement to categorize within the fair value
hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments
also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net
asset value per share practical expedient. For public entities, the amendments in this Update are effective for financial statements
issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this standard
is not expected to have a material impact on the Company’s consolidated financial position.
FASB ASC Topic 606 “Revenue from Contracts with Customers” Update No. 2015-14. The FASB issued Update No. 2015-14 in
August 2015 to defer the effective date of the guidance issued in Update 2014-09, issued in May 2014, in consideration of feedback
received through extensive outreach with preparers, practitioners, and users of financial statements. The guidance in this Update
affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of
nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts).
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to
enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising
from contracts with customers. For public entities, the amendments in this Update are effective for financial statements issued for
fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this standard is not
expected to have a material impact on the Company’s consolidated financial position.
FASB ASC Topic 805 “Business Combinations” Update No. 2015-16. The FASB issued Update No. 2015-16 in August 2015 to defer
the effective date of the guidance issued in Update 2014-09, issued in May 2014, in consideration of feedback received through
extensive outreach with preparers, practitioners, and users of financial statements. The amendments in ASU 2015-16 require that an
acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in
which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial
statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to
the estimated amounts, calculated as if the accounting had been completed at the acquisition date. For public entities, the amendments
in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. The adoption of this standard is not expected to have a material impact on the Company’s consolidated
financial position.
78
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
FASB ASC Topic 825 “Financial Instruments – Overall” Update No. 2016-01. The FASB issued Update No. 2016-01 in January 2016
to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provisions
require investments in equity securities to be measured at fair value through net income, unless they qualify for a practicability
exception, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are
measured under the fair value option to be recognized in other comprehensive income. For public entities, the amendments in this
Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within
those fiscal years. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial
position.
NOTE 2. ACQUISITION ACTIVITY
The Company takes advantage of opportunities to acquire other banking franchises in order to pursue its strategy of increasing its
market presence both within and outside of the Company’s current geographical footprint. Since 2006, the Company has completed
two acquisitions that the Company believes have enhanced shareholder value and the Company’s market presence.
On May 1, 2013, the Bank acquired First Community Bank (“FCB”), which had two locations, one in Hammond, Louisiana, and one
in Mandeville, Louisiana. In connection with the acquisition, the Company recorded approximately $77.5 million in loans, $86.5
million in deposits, a $0.5 million core deposit intangible, and other assets and liabilities of $13.9 million, net. The Bank acquired all
of the outstanding common stock of FCB in a tax-free exchange which resulted in a bargain purchase gain of approximately $0.9
million, recorded in noninterest income for the year ended December 31, 2013. Included in the noninterest expense during 2013 are
non-routine FCB acquisition expenses totaling approximately $0.3 million.
On October 1, 2011, the Bank acquired South Louisiana Business Bank (“SLBB”), a full service commercial bank headquartered in
Prairieville, Louisiana. Both the purchased assets and liabilities assumed were recorded at fair value as of October 1, 2011. The Bank
acquired all of the outstanding common stock of the former SLBB shareholders for a total consideration of approximately $14.7
million. Fair value of net assets assumed including identifiable intangible assets was approximately $12.0 million, and goodwill of
approximately $2.7 million was recognized as a result of the acquisition.
NOTE 3. INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities classified as available for sale are summarized below as of the
dates presented (dollars in thousands).
December 31, 2015
Obligations of other U.S. government agencies and corporations
Obligations of state and political subdivisions
Corporate bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Equity securities
Total available for sale securities
December 31, 2014
Obligations of other U.S. government agencies and corporations
Obligations of state and political subdivisions
Corporate bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Equity securities
Total available for sale securities
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
26,502
$
21,365
15,069
47,703
2,005
1,184
113,828 $
$
73
125
1
72
-
8
279 $
$
(102 )
(23 )
(246 )
(249 )
(16 )
(100 )
(736 ) $
26,473
21,467
14,824
47,526
1,989
1,092
113,371
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
$
4,351
11,616
5,416
46,406
1,497
552
69,838 $
$
31
181
23
364
1
-
600 $
$
(22 )
(57 )
(20 )
(15 )
(7 )
(18 )
(139 ) $
4,360
11,740
5,419
46,755
1,491
534
70,299
$
$
$
$
79
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
The amortized cost and approximate fair value of investment securities classified as held to maturity are summarized below as of the
dates presented (dollars in thousands).
December 31, 2015
Obligations of other U.S. government agencies and corporations
Residential mortgage-backed securities
Obligations of state and political subdivisions
Total held to maturity securities
December 31, 2014
Obligations of other U.S. government agencies and corporations
Residential mortgage-backed securities
Obligations of state and political subdivisions
Total held to maturity securities
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
3,987 $
8,373
14,048
26,408 $
-
$
5
18
23 $
(64 )
$
(91 )
(5 )
(160 ) $
3,923
8,287
14,061
26,271
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
3,979 $
3,469
15,071
22,519 $
$
-
5
-
5 $
$
(165 )
(58 )
-
(223 ) $
3,814
3,416
15,071
22,301
$
$
$
$
The aggregate fair values and aggregate unrealized losses on securities whose fair values are below book values are summarized
below. Due to the nature of the investment and current market prices, these unrealized losses are considered a temporary impairment
of the securities.
The following table presents, by type and number of securities, the age of gross unrealized losses and fair value by investment
category for securities available for sale as of the dates presented (dollars in thousands).
December 31, 2015
Obligations of other U.S. government
agencies and corporations
Obligations of state and political
subdivisions
Corporate bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Equity securities
Total
December 31, 2014
Obligations of other U.S. government
agencies and corporations
Obligations of state and political
subdivisions
Corporate bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Equity securities
Total
Less than 12 Months
12 Months or More
Unrealized
Unrealized
Total
Unrealized
Count
Fair Value Losses
Fair Value Losses
Fair Value Losses
28 $ 14,792 $
(93 ) $
592 $
(9 ) $ 15,384 $
(102 )
14 2,312
29 10,888
62 31,836
3 1,989
517
8
144 $ 62,334 $
(11 ) 1,322
(222 ) 1,225
326
(245 )
(16 )
-
485
(79 )
(666 ) $ 3,950 $
(12 ) 3,634
(24 ) 12,113
(4 ) 32,162
- 1,989
(21 ) 1,002
(70 ) $ 66,284 $
(23 )
(246 )
(249 )
(16 )
(100 )
(736 )
Less than 12 Months
12 Months or More
Unrealized
Unrealized
Total
Unrealized
Count
Fair Value Losses
Fair Value Losses
Fair Value Losses
5 $ 1,770 $
(10 ) $
469 $
(12 ) $ 2,239 $
(22 )
15
813
6 1,782
9 1,339
-
1
1
488
37 $ 6,192 $
(18 )
(6 ) 3,021
547
(1 ) 1,898
252
-
(18 )
-
(53 ) $ 6,187 $
(51 ) 3,834
(2 ) 2,329
(14 ) 3,237
252
488
(86 ) $ 12,379 $
(7 )
-
(57 )
(20 )
(15 )
(7 )
(18 )
(139 )
80
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
The following table presents, by type and number of securities, the age of gross unrealized losses and fair value by investment
category for securities held to maturity as of the dates presented (dollars in thousands).
December 31, 2015
Obligations of other U.S. government
agencies and corporations
Obligations of state and political subdivisions
Residential mortgage-backed securities
Total
December 31, 2014
Obligations of other U.S. government
agencies and corporations
Residential mortgage-backed securities
Total
Less than 12 Months
12 Months or More
Unrealized
Unrealized
Total
Unrealized
Count
Fair Value Losses
Fair Value Losses
Fair Value Losses
2 $ 1,958 $
6,862
1
7 4,469
10 $ 13,289 $
(36 ) $ 1,965 $
-
(5 )
(37 ) 1,932
(78 ) $ 3,897 $
-
(28 ) $ 3,923 $
6,862
(54 ) 6,401
(82 ) $ 17,186 $
(64 )
(5 )
(91 )
(160 )
Less than 12 Months
12 Months or More
Unrealized
Unrealized
Total
Unrealized
Count
Fair Value Losses
Fair Value Losses
Fair Value Losses
2 $
3
5 $
- $
-
- $
- $ 3,814 $
- 2,343
- $ 6,157 $
(165 ) $ 3,814 $
(58 ) 2,343
(223 ) $ 6,157 $
(165 )
(58 )
(223 )
The unrealized losses in the Bank’s investment portfolio, caused by interest rate increases, are not credit issues. The Bank does not
intend to sell the securities and it is not more likely than not that the Bank will be required to sell the investments before recovery of
their amortized cost bases. The Bank does not consider these securities to be other-than-temporarily impaired at December 31, 2015 or
December 31, 2014.
The weighted average tax equivalent yield, amortized cost and approximate fair value of investment debt securities, by contractual
maturity (including mortgage-backed securities), are shown below as of the dates presented (dollars in thousands). Actual maturities
will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
December 31, 2015
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Total debt securities
Securities Available For Sale
Securities Held To Maturity
Weighted
Average T.E.
Yield
Amortized
Cost
Fair
Value
Weighted
Average T.E.
Yield
Amortized
Cost
Fair
Value
- %
2.01
2.81
2.63
$
-
9,979
23,662
79,003
$ 112,644
$
-
9,984
23,494
78,801
$ 112,279
7.17 %
7.17
7.17
3.17
$
$
655
2,950
3,575
19,228
26,408
$
$
657
2,958
3,584
19,072
26,271
December 31, 2014
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Total debt securities
Securities Available For Sale
Securities Held To Maturity
Weighted
Average T.E.
Yield
Amortized
Cost
Fair
Value
Weighted
Average T.E.
Yield
Amortized
Cost
Fair
Value
1.21 %
1.66
2.48
2.33
$
$
100
1,871
17,324
49,991
69,286
$
$
100
1,868
17,433
50,364
69,765
7.07 %
7.07
7.07
3.31
$
$
620
2,815
4,365
14,719
22,519
$
$
620
2,815
4,365
14,501
22,301
81
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
NOTE 4. LOANS
The Company’s loan portfolio, excluding loans held for sale, consists of the following categories of loans as of the dates presented
(dollars in thousands).
Construction and development
1-4 Family
Multifamily
Farmland
Commercial real estate
Total mortgage loans on real estate
Commercial and industrial
Consumer
Total loans
December 31,
2015
2014
$
$
81,863
156,300
29,694
2,955
288,583
559,395
69,961
116,085
745,441
$
$
71,350
137,519
17,458
2,919
225,058
454,304
54,187
114,299
622,790
The table below provides an analysis of the aging of loans as of the dates presented (dollars in thousands).
Past Due and Accruing
December 31, 2015
Construction and development
1-4 Family
Multifamily
Farmland
Commercial real estate
Total mortgage loans on real
estate
Commercial and industrial
Consumer
Total loans
$
90 or more
days
$
30-59 days
129
$
222
-
-
-
60-89 days
-
$
-
-
-
-
351
26
292
669
$
-
1,779
179
1,958
$
Total Past
Due &
Nonaccrual
1,190
$
760
-
-
97
Nonaccrual
1,061
$
538
-
-
97
Current
$ 80,673
155,540
29,694
2,955
288,486
Total Loans
$
81,863
156,300
29,694
2,955
288,583
1,696
-
715
2,411
$
2,047
1,805
1,186
5,038
557,348
68,156
114,899
$ 740,403
559,395
69,961
116,085
$ 745,441
$
Past Due and Accruing
December 31, 2014
Construction and development
1-4 Family
Multifamily
Farmland
Commercial real estate
Total mortgage loans on real
estate
Commercial and industrial
Consumer
Total loans
$
90 or more
days
$
30-59 days
106
$
179
-
-
-
60-89 days
14
$
-
-
-
-
285
2
239
526
$
14
-
47
61
$
Total Past
Due &
Nonaccrual
1,483
$
1,016
-
-
749
Nonaccrual
1,363
$
837
-
-
749
Current
$ 69,867
136,503
17,458
2,919
224,309
Total Loans
$
71,350
137,519
17,458
2,919
225,058
2,949
178
213
3,340
$
3,248
180
499
3,927
451,056
54,007
113,800
$ 618,863
454,304
54,187
114,299
$ 622,790
$
The total December 31, 2015 balance in the table above includes approximately $37.0 million of loans acquired from the FCB and
SLBB acquisitions that were recorded at fair value as of the acquisition dates. Included in the acquired loan balances as of
December 31, 2015 were approximately $0.2 million in loans 30-59 days past due and $1.1 million in nonaccrual loans.
82
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
The total December 31, 2014 balance in the table above includes approximately $45.0 million of loans acquired from the FCB and
SLBB acquisitions that were recorded at fair value as of the acquisition dates. Included in the acquired loan balances as of
December 31, 2014 were approximately $0.3 million in loans 30-59 days past due and $1.1 million in nonaccrual loans.
Credit Quality Indicators
Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as
current financial information, historical payment experience, credit documentation, public information, and current economic trends,
among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in
supervisory guidance:
Pass – Loans not meeting the criteria below are considered pass. These loans have high credit characteristics and financial strength.
The borrowers at least generate profits and cash flow that are in line with peer and industry standards and have debt service coverage
ratios above loan covenants and our policy guidelines. For some of these loans, a guaranty from a financially capable party mitigates
characteristics of the borrower that might otherwise result in a lower grade.
Special Mention – Loans classified as special mention possess some credit deficiencies that need to be corrected to avoid a greater
risk of default in the future. For example, financial ratios relating to the borrower may have deteriorated. Often, a special mention
categorization is temporary while certain factors are analyzed or matters addressed before the loan is re-categorized as either pass or
substandard.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the
borrower or the liquidation value of any collateral. If deficiencies are not addressed, it is likely that this category of loan will result in
the Bank incurring a loss. Where a borrower has been unable to adjust to industry or general economic conditions, the borrower’s loan
is often categorized as substandard.
Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values,
highly questionable and improbable.
Loss – Loans classified as loss are considered uncollectible and of such little value that their continuance as recorded assets is not
warranted. This classification does not mean that the assets have absolutely no recovery or salvage value, but rather it is not practical
or desirable to defer writing off these assets.
The tables below present a summary of the Company’s loan portfolio by credit quality indicator as of the dates presented (dollars in
thousands).
December 31, 2015
Construction and development
1-4 Family
Multifamily
Farmland
Commercial real estate
Total mortgage loans on real estate
Commercial and industrial
Consumer
Total loans
Pass
Special
Mention
$
$
80,759
154,741
29,694
2,955
287,853
556,002
66,694
114,684
737,380
$
$
15
719
-
-
-
734
-
647
1,381
83
Substandard
$
1,089
840
-
-
730
2,659
3,267
754
6,680
Total
81,863
156,300
29,694
2,955
288,583
559,395
69,961
116,085
745,441
$
$
$
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
December 31, 2014
Construction and development
1-4 Family
Multifamily
Farmland
Commercial real estate
Total mortgage loans on real estate
Commercial and industrial
Consumer
Total loans
Pass
Special
Mention
$
$
69,361
135,898
16,403
2,919
224,192
448,773
54,007
113,832
616,612
$
$
340
-
-
-
-
340
-
208
548
$
Substandard
$
1,649
1,621
1,055
-
866
5,191
180
259
5,630
Total
71,350
137,519
17,458
2,919
225,058
454,304
54,187
114,299
622,790
$
$
The Company had no loans that were classified as doubtful or loss as of December 31, 2015 or 2014.
Loan participations and whole loans sold to and serviced for others are not included in the accompanying consolidated balance sheets.
The balances of the participations and whole loans sold were $383.7 million and $189.6 million as of December 31, 2015 and 2014,
respectively. The unpaid principal balances of these loans were approximately $426.9 million and $218.6 million at December 31,
2015 and 2014, respectively.
In the ordinary course of business, the Company makes loans to its executive officers, principal shareholders, directors and to
companies in which these borrowers are principal owners. Loans outstanding to such borrowers (including companies in which they
are principal owners) amounted to approximately $18.0 million and $14.6 million as of December 31, 2015 and December 31, 2014,
respectively. These loans are all current and performing according to the original terms. These loans were made on substantially the
same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with persons not related
to the Company or the Bank and did not involve more than normal risk of collectability or present other unfavorable features.
The table below shows the aggregate amount of loans to such related parties for the years ended December 31, 2015 and 2014 (dollars
in thousands).
Balance, beginning of period
New loans
Repayments
Balance, end of period
Loans Acquired with Deteriorated Credit Quality
December 31,
2015
2014
$
$
14,631
6,600
(3,239 )
17,992
$
$
11,781
6,793
(3,943 )
14,631
The Company elected to account for certain loans acquired in the FCB acquisition 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.
84
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
The following table presents changes in the carrying value, net of allowance for loan losses, of acquired impaired loans, or loans
accounted for under ASC 310-30, for the periods presented (dollars in thousands).
Carrying value, net at December 31, 2013
Accretion to interest income
Net transfers from (to) nonaccretable difference to (from) accretable yield
Payments received
Charge-offs
Transfers to other real estate owned
Carrying value, net at December 31, 2014
Accretion to interest income
Net transfers from (to) nonaccretable difference to (from) accretable yield
Payments received
Charge-offs
Transfers to other real estate owned
Carrying value, net at December 31, 2015
Acquired
Impaired
4,032
161
316
(1,044 )
(59 )
(628 )
2,778
140
110
(232 )
(61 )
(45 )
2,690
$
$
$
The table below shows the changes in the accretable yield on acquired impaired loans for the periods presented below (dollars in
thousands).
Balance, year ended December 31, 2013
Net transfers from (to) nonaccretable difference to (from) accretable yield
Accretion to interest income
Balance, year ended December 31, 2014
Net transfers from (to) nonaccretable difference to (from) accretable yield
Accretion to interest income
Balance, year ended December 31, 2015
Acquired
Impaired
270
316
(161 )
425
110
(140 )
395
$
$
$
NOTE 5. ALLOWANCE FOR LOAN LOSSES
The table below shows a summary of the activity in the allowance for loan losses for the years ended December 31, 2015, 2014 and
2013 (dollars in thousands).
Balance, beginning of period
Provision for loan losses
Loans charged-off
Recoveries
Balance, end of period
2015
December 31,
2014
2013
$
$
4,630
1,865
(630 )
263
6,128
$
$
3,380
1,628
(459 )
81
4,630
$
$
2,722
1,026
(389 )
21
3,380
85
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
The following tables outline the activity in the allowance for loan losses by collateral type for the years ended December 31, 2015,
2014 and 2013, and show both the allowance and portfolio balances for loans individually and collectively evaluated for impairment
as of December 31, 2015, 2014 and 2013 (dollars in thousands).
Allowance for Loan Losses and Recorded Investment in Loans Receivable
December 31, 2015
Construction &
Development Farmland 1-4 Family Multifamily Real Estate
Commercial Commercial &
Industrial
Consumer Total
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Ending allowance balance for loans
individually evaluated for
impairment
Ending allowance balance for loans
collectively evaluated for
impairment
Ending allowance balance for loans
acquired with deteriorated credit
quality
Loans receivable:
Balance of loans individually
evaluated for impairment
Balance of loans collectively
evaluated for impairment
Total period-end balance
Balance of loans acquired with
deteriorated credit quality
$
$
$
$
$
$
$
526 $
(17 )
25
110
644 $
909 $
18 $
(78 )
-
12
-
4
370
22 $ 1,213 $
137 $
-
-
109
246 $
1,571 $
-
1
584
2,156 $
390 $ 1,079 $ 4,630
(630 )
(477 )
(58 )
263
28
197
(16 )
1,865
704
513 $ 1,334 $ 6,128
-
-
-
-
-
- $
220 $
220
644 $
22 $ 1,213 $
246 $
2,156 $
513 $ 1,114 $ 5,908
- $
- $
- $
- $
- $
- $
- $
-
1,242 $
- $ 1,419 $
- $
630 $
- $
754 $ 4,045
80,621 2,955 154,881 29,694 287,953
81,863 $ 2,955 $ 156,300 $ 29,694 $ 288,583 $
69,961 115,331 741,396
69,961 $ 116,085 $ 745,441
737 $
- $
852 $
1,062 $
- $
- $
39 $ 2,690
86
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Ending allowance balance for loans
individually evaluated for
impairment
Ending allowance balance for loans
collectively evaluated for
impairment
Ending allowance balance for loans
acquired with deteriorated credit
quality
Loans receivable:
Balance of loans individually
evaluated for impairment
Balance of loans collectively
evaluated for impairment
Total period-end balance
Balance of loans acquired with
deteriorated credit quality
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Ending allowance balance for loans
individually evaluated for
impairment
Ending allowance balance for loans
collectively evaluated for
impairment
Ending allowance balance for loans
acquired with deteriorated credit
quality
Loans receivable:
Balance of loans individually
evaluated for impairment
Balance of loans collectively
evaluated for impairment
Total period-end balance
Balance of loans acquired with
deteriorated credit quality
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
December 31, 2014
Construction &
Development Farmland 1-4 Family Multifamily Real Estate
Commercial Commercial &
Industrial
Consumer Total
$
$
420 $
-
1
105
526 $
4 $
-
-
14
18 $
567 $
(123 )
4
461
909 $
101 $
-
-
36
137 $
992 $
(3 )
1
581
1,571 $
397 $
(16 )
17
(8 )
899 $ 3,380
(459 )
(317 )
81
58
439
1,628
390 $ 1,079 $ 4,630
$
- $
- $
- $
- $
- $
- $
70 $
70
$
$
$
$
$
526 $
18 $
909 $
137 $
1,571 $
390 $ 1,009 $ 4,560
- $
- $
- $
- $
- $
- $
- $
-
1,543 $
- $
837 $
- $
749 $
179 $
260 $ 3,568
69,807 2,919 136,682 17,458 224,309
71,350 $ 2,919 $ 137,519 $ 17,458 $ 225,058 $
54,008 114,039 619,222
54,187 $ 114,299 $ 622,790
820 $
- $
858 $
1,054 $
- $
- $
46 $ 2,778
December 31, 2013
Construction &
Development Farmland 1-4 Family Multifamily Real Estate
Commercial Commercial &
Industrial
Consumer Total
$
$
$
$
$
$
$
$
276 $
-
-
144
420 $
- $
-
-
4
4 $
415 $
-
-
152
567 $
18 $
-
-
83
101 $
977 $
-
-
15
992 $
332 $
(118 )
-
183
397 $
704 $ 2,722
(389 )
(271 )
21
21
445
1,026
899 $ 3,380
- $
- $
- $
- $
- $
- $
37 $
37
420 $
4 $
567 $
101 $
992 $
397 $
862 $ 3,343
- $
- $
- $
- $
- $
- $
- $
-
1,649 $
- $ 1,040 $
969 $
555 $
140 $
157 $ 4,510
61,521
63,170 $
830 103,645 13,317 156,808
830 $ 104,685 $ 14,286 $ 157,363 $
32,525 130,939 499,585
32,665 $ 131,096 $ 504,095
1,477 $
- $
996 $
967 $
545 $
- $
47 $ 4,032
87
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Impaired Loans
The Company considers a loan to be impaired when, based on current information and events, the Company determines that it will not
be able to collect all amounts due according to the loan agreement, including scheduled interest payments. Determination of
impairment is treated the same across all classes of loans. When the Company identifies a loan as impaired, it measures the
impairment based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the
sole (remaining) source of repayment for the loans is the operation or liquidation of the collateral. In these cases when foreclosure is
probable, the Company uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If the Company
determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred
loan fees or costs and unamortized premium or discount), the Company recognizes impairment through an allowance estimate or a
charge-off to the allowance.
When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual, all payments are
applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not
in doubt and the loan is on nonaccrual, contractual interest is credited to interest income when received, under the cash basis method.
The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance
amount, if applicable. Also presented is the average recorded investment of the impaired loans and the related amount of interest
recognized during the time within the period that the impaired loans were impaired. The average balances are calculated based on the
month-end balances of the loans during the period reported (dollars in thousands).
Recorded
Investment
As of and for the year ended December 31, 2015
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
With no related allowance recorded:
Construction and development
1-4 Family
Commercial real estate
Total mortgage loans on real estate
$
Commercial and industrial
Consumer
Total
With related allowance recorded:
Consumer
Total
Total loans:
Construction and development
1-4 Family
Commercial real estate
Total mortgage loans on real estate
Commercial and industrial
Consumer
Total
$
1,242
1,419
630
3,291
-
159
3,450
595
595
1,242
1,419
630
3,291
-
754
4,045
$
$
1,241
1,416
629
3,286
-
159
3,445
595
595
1,241
1,416
629
3,286
-
754
4,040
$
$
$
-
-
-
-
-
-
-
220
220
-
-
-
-
-
220
220
$
1,349
1,522
844
3,715
66
266
4,047
210
210
1,349
1,522
844
3,715
66
476
4,257
$
$
17
52
49
118
45
26
189
15
15
17
52
49
118
45
41
204
88
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Recorded
Investment
As of and for the year ended December 31, 2014
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
$
$
With no related allowance recorded:
Construction and development
1-4 Family
Commercial real estate
Total mortgage loans on real estate
$
Commercial and industrial
Consumer
Total
With related allowance recorded:
Consumer
Total
Total loans:
Construction and development
1-4 Family
Commercial real estate
Total mortgage loans on real estate
Commercial and industrial
Consumer
Total
With no related allowance recorded:
Construction and development
1-4 Family
Multifamily
Commercial real estate
Total mortgage loans on real estate
Commercial and industrial
Consumer
Total
With related allowance recorded:
Consumer
Total
$
$
Total loans:
Construction and development
1-4 Family
Multifamily
Commercial real estate
Total mortgage loans on real estate
Commercial and industrial
Consumer
Total
$
1,543
837
749
3,129
179
79
3,387
180
180
1,543
837
749
3,129
179
260
3,568
Recorded
Investment
1,649
1,040
969
555
4,213
140
21
4,374
136
136
1,649
1,040
969
555
4,213
140
157
4,510
1,542
837
749
3,128
179
79
3,386
180
180
1,542
837
749
3,128
179
259
3,566
$
$
-
-
-
-
-
-
-
70
70
-
-
-
-
-
70
70
$
$
1,530
900
764
3,194
312
97
3,603
179
179
1,530
900
764
3,194
312
276
3,782
As of and for the year ended December 31, 2013
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
1,409
1,018
967
545
3,939
122
18
4,079
133
133
1,409
1,018
967
545
3,939
122
151
4,212
$
$
-
-
-
-
-
-
-
-
37
37
-
-
-
-
-
-
37
37
$
$
1,425
1,025
910
563
3,923
133
76
4,132
138
138
1,425
1,025
910
563
3,923
133
214
4,270
$
$
$
$
41
30
24
95
1
10
106
4
4
41
30
24
95
1
14
110
Interest
Income
Recognized
25
45
671
19
760
-
2
762
5
5
25
45
671
19
760
-
7
767
$
89
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Troubled Debt Restructurings
In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession for
other than an insignificant period of time to the borrower that the Company would not otherwise consider, the related loan is classified
as a troubled debt restructuring (“TDR”). The Company strives to identify borrowers in financial difficulty early and work with them
to modify their loans to more affordable terms before such loans reach nonaccrual status. These modified terms may include rate
reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid
foreclosure or repossession of the collateral. In cases where the Company grants the borrower new terms that provide for a reduction
of either interest or principal, the Company measures any impairment on the restructuring as previously noted for impaired loans.
Loans classified as TDRs, consisting of eleven credits, totaled approximately $2.2 million at December 31, 2015 compared to $0.6
million at December 31, 2014. Nine of the eleven of the Company’s TDRs were acquired from FCB. Ten of the eleven credits were
considered troubled debt restructurings due to a modification of term through adjustments to maturity. One restructured loan was
considered a TDR due to a modification of terms through principal payment forbearance, paying interest only for a specified period of
time. As of December 31, 2015, three of the restructured loans with a balance of $0.5 million were in default of their modified terms
and had been placed on nonaccrual. As of December 31, 2014, one of the restructured loans with a balance of $0.4 million was in
default of its modified terms and had been placed on nonaccrual.
The table below presents the TDR pre- and post-modification outstanding recorded investments by loan categories for loans modified
during the years ended December 31, 2015 and 2014 (dollars in thousands).
December 31, 2015
December 31, 2014
Pre-
Post-
Modification Modification
Outstanding Outstanding
Pre-
Post-
Modification Modification
Outstanding Outstanding
Troubled debt restructurings
Construction and development
1-4 Family
Commercial real estate
Commercial and industrial
Consumer
$
Recorded
Recorded
Number of Recorded
Number of Recorded
Contracts Investment Investment Contracts Investment Investment
180
28
355
981
-
630
-
1
45
-
581
1,639
28 $
981 $
630
-
-
1,639 $
180 $
355
-
1
45
581 $
1
3
2
-
-
4
1
-
1
1
$
$
$
At December 31, 2015, there were no loans modified under troubled debt restructurings during the previous twelve month period that
subsequently defaulted during the year ended December 31, 2015. At December 31, 2014, there was one one-to-four family loan in the
amount of $0.4 million that was modified under troubled debt restructurings during the previous twelve month period that
subsequently defaulted during the year ended December 31, 2014.
90
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
The following is a summary of accruing and nonaccrual TDRs and the related loan losses by portfolio type as of the dates presented
(dollars in thousands).
December 31, 2015
Construction and development
1-4 Family
Commercial real estate
Consumer
Total
December 31, 2014
Construction and development
1-4 Family
Commercial and industrial
Consumer
Total
TDRs
Accruing
Nonaccrual
Total
Related
Allowance
$
$
$
$
180
878
532
39
1,629
180
-
1
45
226
$
$
$
$
-
449
97
-
546
-
355
-
-
355
$
$
$
$
180
1,327
629
39
2,175
180
355
1
45
581
$
$
$
$
-
-
-
-
-
-
-
-
-
The table below includes the average recorded investment and interest income recognized for TDRs for the years ended December 31,
2015 and December 31, 2014 (dollars in thousands).
December 31, 2015
Construction and development
1-4 Family
Commercial real estate
Consumer
Total
December 31, 2014
Construction and development
Commercial real estate
Commercial and industrial
Consumer
Total
December 31, 2013
Construction and development
Commercial real estate
Commercial and industrial
Total
TDRs
Average Recorded
Investment
Interest Income
Recognized
$
$
$
$
$
$
181
1,240
371
42
1,834
187
359
2
48
596
459
360
4
823
$
$
$
$
$
$
13
52
9
6
80
11
19
-
4
34
19
14
-
33
91
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
NOTE 6. OTHER REAL ESTATE OWNED
The table below shows the activity in other real estate owned for the periods presented (dollars in thousands).
Balance, beginning of period
Transfers from non-acquired loans
Transfers from acquired loans
Other real estate sold
Write-downs
Balance, end of period
December 31,
2015
2014
$
$
2,735 $
950
55
(2,961 )
(54 )
725 $
3,515
-
706
(1,276 )
(210 )
2,735
As of December 31, 2015 and December 31, 2014, other real estate owned related to the acquisition of FCB totaled approximately
$0.6 million and $1.3 million, respectively. There was no other real estate owned related to the acquisition of SLBB at December 31,
2015 or December 31, 2014.
NOTE 7. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following as of the dates indicated (dollars in thousands).
Land
Buildings and improvements
Furniture and equipment
Software
Construction-in-progress
Less: Accumulated depreciation and amortization
Bank premises and equipment, net
December 31,
2015
2014
$
$
10,460 $
16,887
6,350
668
1,633
(5,368 )
30,630 $
9,035
15,808
5,932
548
1,179
(3,964 )
28,538
Depreciation and amortization charged to noninterest expense was approximately $1.4 million, $1.3 million and $0.9 million for the
years ended December 31, 2015, 2014 and 2013, respectively.
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill was acquired during the year ended December 31, 2011 as a result of the SLBB acquisition on October 1, 2011. The
carrying amount of goodwill as of December 31, 2015 and 2014 was $2.7 million.
For the purposes of evaluating goodwill, the Company has determined that it operates only one reporting unit. The Company
performed a qualitative assessment of goodwill and determined that it was not more likely than not that the fair value of the reporting
unit was less than the carrying amount at December 31, 2015 or 2014.
The table below shows a summary of the core deposit intangible assets activity for the periods presented (dollars in thousands).
Gross carrying amount
Accumulated amortization
Net carrying amount
December 31,
2015
2014
$
$
617 $
(126 )
491 $
617
(85 )
532
Amortization expense on the core deposit intangible assets recorded in other operating expenses totaled approximately $41,000 for
each of the years ended December 31, 2015 and 2014, and $31,000 for the year ended December 31, 2013. Amortization of the core
deposit intangible assets is estimated to be approximately $41,000 each year for the next twelve years.
92
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
NOTE 9. INVESTMENT IN TAX CREDIT ENTITY
In December 2014, the Company acquired a limited partner interest in a tax-advantaged limited partnership whose purpose was to
invest in an approved Federal Historic Rehabilitation tax credit project. This investment is accounted for using the cost method of
accounting and is included in “Other assets” in the accompanying consolidated balance sheets. The limited partnership is considered
to be a variable interest entity (“VIE”). The VIE has not been consolidated because the Company is not considered the primary
beneficiary. The Company’s investment in the limited partnership was evaluated for impairment at the end of the reporting period,
and, as a result, the Company recorded impairment expense of $0.1 million and $0.7 million for the years ended December 31, 2015
and 2014, respectively. At December 31, 2015 and 2014, the Company had $0.9 million invested in this partnership. The investment
generated historic tax credits of $1.0 million, all of which was recognized in the year ended December 31, 2014. The Company did not
make any loans related to this real estate project. Based on the structure of this transaction, the Company expects to recover its
investment solely through use of the tax credits that were generated by the investment.
NOTE 10. DEPOSITS
Deposits consisted of the following as of the dates presented (dollars in thousands).
Noninterest-bearing demand deposits
NOW accounts
Money market deposit accounts
Savings accounts
Time deposits
Total deposits
December 31,
2015
2014
$
$
90,447 $
140,503
96,113
53,735
356,608
737,406 $
70,217
116,644
77,589
53,332
310,336
628,118
The table below summarizes outstanding time deposits as of the dates indicated (dollars in thousands).
$0 to $99,999
$100,000 to $249,999
$250,000 and above
December 31,
2015
2014
$
$
321,804 $
13,395
21,409
356,608 $
263,472
13,714
33,150
310,336
The contractual maturities of time deposits of $100,000 or more outstanding are summarized in the table below as of the dates
presented (dollars in thousands).
Time remaining until maturity:
Three months or less
Over three through six months
Over six through twelve months
Over one year through three years
Over three years
December 31,
2015
2014
$
$
4,675 $
10,039
12,912
5,710
1,468
34,804 $
24,193
4,788
7,825
8,549
1,509
46,864
93
The approximate scheduled maturities of time deposits for each of the next five years are shown below (dollars in thousands).
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
2016
2017
2018
2019
2020
$
$
191,896
123,308
20,504
13,186
7,714
356,608
Public fund deposits as of December 31, 2015 and December 31, 2014 totaled approximately $17.5 million, and $6.9 million,
respectively. The funds were secured by U.S. government securities with a fair value of approximately $16.9 million as of
December 31, 2015 and $7.1 million as of December 31, 2014.
As of December 31, 2015 and December 31, 2014, total deposits outstanding to executive officers, principal shareholders, directors
and to companies in which they are principal owners amounted to approximately $28.1 million and $48.9 million, respectively.
NOTE 11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements for repurchase amounted to $39.1 million and $12.3 million as of December 31, 2015 and
December 31, 2014, respectively, and mature on a daily basis. These funds were secured by investment securities with fair values of
approximately $41.9 million and $12.7 million as of December 31, 2015 and December 31, 2014, respectively. The interest rate on
these agreements was 0.20% at December 31, 2015 and December 31, 2014.
NOTE 12. OTHER BORROWED FUNDS
Federal Home Loan Bank Advances
Maturity amounts and the weighted average rate of FHLB advances by year of maturity were as follows as of the dates presented
(dollars in thousands).
Fixed rate advances maturing:
2015
2016(a)
2017(b)
2018
2020
Amount
Weighted Average Rate
December 31, 2015
December 31, 2014
December 31, 2015
December 31, 2014
-
119,137
4,160
1,100
3,100
127,497 $
104,339
15,534
4,712
850
350
125,785
-
0.40
0.97
1.00
1.52
0.45 %
0.16
0.75
0.96
0.93
1.50
0.27 %
$
(a) Amortizing advances due 2016, requiring monthly principal and interest of $15
(b) Amortizing advances due 2017, requiring monthly principal and interest of $47
As of December 31, 2015, these advances are collateralized by approximately $272.3 million of the Company’s loan portfolio and
$29.3 million of the Company’s investment securities in accordance with the Advance Security and Collateral Agreement with the
FHLB.
As of December 31, 2015, the Company had an additional $174.1 million available under its line of credit with the FHLB. In addition,
the Company has outstanding unsecured lines of credit with its correspondent banks available to assist in the management of short-
term liquidity. At December 31, 2015, the available lines of credit totaled approximately $35.0 million, with no outstanding balance
reflected on the consolidated balance sheet.
94
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Junior Subordinated Debt
On May 1, 2013, in connection with the acquisition of FCB, the Company assumed the common securities of First Community
Louisiana Statutory Trust I, a Delaware statutory trust, that was initially established in March 2006 by First Community Holding
Company, the parent bank holding company for FCB, for the purpose of issuing corporation-obligated mandatorily redeemable
preferred capital securities to third-party investors. The trust used the proceeds from the issuance of their preferred capital securities
and common securities (collectively referred to as “capital securities”) to buy floating rate junior subordinated debentures issued by
FCB (subsequently assumed by the Company through their acquisition of FCB). The debentures are the trust’s only assets and interest
payments from the debentures finance the distributions paid on the capital securities. Distributions on the capital securities are payable
quarterly at a floating rate of three month LIBOR + 1.77%. The capital securities are subject to mandatory redemption, in whole or in
part, upon repayment of the debentures. Under the terms of the Indenture dated March 27, 2006, the junior subordinated debentures
will mature on June 15, 2036. Under applicable regulatory guidelines, these junior subordinated debentures qualify as Tier 1 Capital.
NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS
The Company currently holds interest rate swap contracts to manage exposure against the variability in the expected future cash flows
(future interest payments) attributable to changes in the 1-month LIBOR associated with the forecasted issuances of 1-month fixed
rate debt arising from a rollover strategy. An interest rate swap is an agreement whereby one party agrees to pay a fixed rate of interest
on a notional principal amount in exchange for receiving a floating rate of interest on the same notional amount, for a predetermined
period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. The maximum
length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted
transactions is approximately 4.5 years. The total notional amount of the derivative contracts is $30.0 million.
For each of the years ended December 31, 2015 and 2014, a loss of $0.2 million, net of a $0.1 million tax benefit, was recognized in
“Other comprehensive income (loss)” (“OCI”) in the accompanying consolidated statements of other comprehensive income for the
change in fair value of the interest rate swap. There was no gain or loss recognized in OCI related to the swap contracts for the year
ended December 31, 2013 as the contracts were effective until 2014. The swap contract had a negative fair value of $0.6 million and
$0.3 million at December 31, 2015 and 2014, respectively, and has been recorded in “Accrued taxes and other liabilities” in the
accompanying consolidated balance sheets. The accumulated loss of $0.4 million included in “Accumulated other comprehensive
(loss) income” in the accompanying consolidated balance sheets would be reclassified to current earnings if the hedge transaction
becomes probable of not occurring. The Company expects the hedge to remain fully effective during the remaining term of the swap
contract.
95
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
NOTE 14. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company’s Articles of Incorporation give the Company’s board of directors the authority to issue up to 5,000,000 shares of
preferred stock. As of December 31, 2015, there are no preferred shares outstanding. The preferred shares are considered “blank
check” preferred stock. This type of preferred stock allows the board of directors to fix the designations, preferences and relative,
participating, optional or other special rights, and qualifications and limitations or restrictions of any series of preferred stock without
further shareholder approval.
Common Stock
The table below displays the Company’s common stock activity for the periods indicated.
Common Stock Outstanding
Outstanding at December 31, 2012
Issuances
Stock warrant activity
Restricted stock activity
Outstanding at December 31, 2013
Issuances
Stock warrant activity
Restricted stock activity
Outstanding at December 31, 2014
Issuances
Repurchases
Stock option activity
Restricted stock activity
Outstanding at December 31, 2015
Shares
3,210,816
708,397
200
25,701
3,945,114
3,296,176
21,996
(1,201 )
7,262,085
11,225
(36,856 )
10,125
17,703
7,264,282
In July 2014, the Company issued 3,285,300 shares of its common stock as a result of its initial public offering (the “IPO”).
Warrants
On October 1, 2011, in connection with the SLBB acquisition, the Bank issued 130,875 stock warrants with an exercise price of
$13.33 per share. In connection with the share exchange discussed above in Note 1, Summary of Significant Accounting Policies, the
warrants were exchanged for a like amount of warrants to acquire shares of Company common stock at the same exercise price. These
warrants, which are currently exercisable, expire on July 1, 2018. All other warrants to acquire shares of Company common stock
expired on or before December 31, 2014.
96
The following table summarizes the Company’s warrant activity for the periods indicated.
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
$13.50 Per Share
Issued September 1, 2007, expired September 30, 2014(1)
Balance, beginning of period
Issued
Forfeited
Exercised
Balance, end of period
$13.50 Per Share
Issued March 21, 2009, expired December 31, 2014
Balance, beginning of period
Issued
Forfeited
Exercised
Balance, end of period
$13.33 Per Share
Issued October 1, 2011, expire July 1, 2018
Balance, beginning of period
Issued
Forfeited
Exercised
Balance, end of period
2015
December 31,
2014
2013
-
-
-
-
-
-
-
-
-
-
49,903
-
(34,990 )
(14,913 )
-
12,720
-
(5,637 )
(7,083 )
-
50,103
-
(200 )
-
49,903
12,720
-
-
-
12,720
130,875
-
-
-
130,875
130,875
-
-
-
130,875
130,875
-
-
-
130,875
(1) The original expiration date of April 30, 2014 was extended in connection with the IPO.
97
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Stock Options
At the completion of the IPO in July 2014, the Company issued 216,000 stock options to key personnel that vest at one-sixth
increments on the grant date anniversary of each of the following six years.
In 2015, the Company issued 64,333 stock options to key personnel that vest at one-fifth increments on the grant date anniversary of
each of the following five years.
The table below summarizes the Company’s stock option activity for the periods indicated.
Outstanding at December 31, 2012
Issued
Forfeited
Exercised
Outstanding at December 31, 2013
Issued
Forfeited
Exercised
Outstanding at December 31, 2014
Issued
Forfeited
Exercised
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Weighted
Average
Weighted
Average
Remaining
Contractual
Shares
Price
Term (Years)
30,311 $
-
-
(7,500 )
22,811 $
216,000
-
-
238,811 $
64,333
(14,667 )
(10,125 )
278,352 $
47,351
13.33
-
-
13.33
13.33
14.00
-
-
13.94
15.74
14.00
13.33
14.37
13.82
5.88
4.88
8.96
8.42
7.00
At December 31, 2015, the shares underlying total outstanding stock options had an intrinsic value of $0.9 million. The shares
underlying exercisable stock options had an intrinsic value of approximately $0.2 million.
Stock-Based Compensation
Equity Incentive Plan. The Company’s 2014 Long-Term Incentive Compensation Plan (the “Plan”) authorizes the grant of various
types of equity grants and awards, such as restricted stock, stock options and stock appreciation rights, to eligible participants, which
include all of the Company’s and Bank’s employees and non-employee directors. The Plan has reserved 600,000 shares of common
stock for grant, award or issuance to directors and employees, including shares underlying granted options. The Plan is administered
by the Compensation Committee of the Company’s board of directors, which determines, within the provision of the Plan, those
eligible employees to whom, and the times at which, awards shall be granted. The Compensation Committee, in its discretion, may
delegate its authority and duties under the Plan to specified officers; however, only the Compensation Committee may approve the
terms of grants and awards to the Company’s executive officers.
Stock Options. The Company uses a Black-Scholes option pricing model to estimate the fair value of stock-based awards. The Black-
Scholes option pricing model incorporates various and highly subjective assumptions, including expected term and expected volatility.
Stock option expense in the accompanying consolidated statements of operations for the years ended December 31, 2015 and 2014
was $0.2 million and $0.1 million, respectively. There was no stock option expense recognized for the year ended December 31, 2013.
At December 31, 2015, there was $0.7 million of unrecognized compensation cost related to stock options that is expected to be
recognized over a weighted average period of 4.4 years.
98
The table below shows the assumptions used for the stock options granted during the years ended December 31, 2015 and 2014.
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Dividend yield
Expected volatility
Risk-free interest rate
Expected term (in years)
Weighted-average grant date fair value
2015
2014
0.17 %
18.48 %
1.79 %
7.0
3.75
$
0.36 %
19.01 %
2.17 %
7.0
3.44
$
Time Vested Restricted Stock Awards. The Company has issued shares of time vested restricted stock with vesting terms ranging from
one to six years. The total stock-based compensation expense for these awards is determined based on the market price of the
Company’s common stock at the grant date applied to the total number of shares granted and is amortized over the vesting period.
The Company issued a total of 36,434 shares of restricted stock to employees and directors for the year ended December 31, 2015. Of
the restricted stock granted in 2015, 30,305 shares will vest over five years and 6,129 shares will vest over two years.
The Company issued a total of 11,824 shares of restricted stock to employees for the year ended December 31, 2014. Of the restricted
stock granted in 2014, 3,335 shares will vest over five years and 8,489 shares will vest over six years.
The Company issued a total of 31,572 shares of restricted stock to employees and directors for the year ended December 31, 2013. Of
the restricted stock granted in 2013, 2,450 shares vested in one year and 29,122 shares will vest over five years. These restricted shares
were exchanged for a like number of restricted shares of the Company common stock in connection with the share exchange on
November 15, 2013.
No shares of restricted stock may be sold, assigned, transferred or pledged until vested. The holders of the restricted stock receive
dividends and have the right to vote the shares. The unearned compensation related to these awards is amortized to compensation
expense over the vesting period.
As of December 31, 2015, 2014, and 2013 unearned stock-based compensation associated with these awards totaled approximately
$0.8 million, $0.5 million and $0.5 million, respectively. The $0.8 million of unrecognized compensation cost related to time vested
restricted stock at December 31, 2015 is expected to be recognized over a weighted average period of 3.5 years.
The following table summarizes the unvested restricted stock award activity for the years ended December 31, 2015 and
December 31, 2014.
Balance, beginning of period
Granted
Forfeited
Earned and issued
Balance, end of period
December 31,
2015
2014
Shares
Weighted Avg
Grant Date
Fair Value
Shares
Weighted Avg
Grant Date
Fair Value
42,889 $
36,434
(5,044 )
(13,687 )
60,592 $
13.96
15.50
14.29
13.99
14.85
44,090 $
11,824
(536 )
(12,489 )
42,889 $
13.99
13.85
14.00
13.97
13.96
NOTE 15. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) defined contribution plan (the “Plan”) which covers employees over the age of twenty-one who
have completed 90 days of credited service, as defined by the Plan. The Plan allows employees to defer a percentage of their salaries
subject to certain limits based on federal tax laws. The Company makes matching contributions up to 4% of the employee’s annual
salary (subject to certain maximum compensation amounts as prescribed in Internal Revenue Service guidance). Contributions by the
Company and participants are immediately vested. The Plan also allows for a discretionary Company contribution. Although no such
contribution has been made as of December 31, 2015, the discretionary component vests in increments of 20% annually over a period
of five years based on the employees’ years of service.
99
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Employer matching contributions to the Plan for the years ended December 31, 2015, 2014 and 2013 were approximately $0.4
million, $0.4 million and $0.2 million respectively.
The Company maintains a deferred compensation plan for a former FCB employee. A single premium immediate annuity policy was
purchased in which the former employee is the beneficiary. Under this policy, the beneficiary will receive monthly payments of
$2,000 through 2020.
NOTE 16. INCOME TAXES
The income tax expense included in the consolidated statements of operations is displayed in the table below for the years ended
December 31, 2015, 2014 and 2013 (dollars in thousands).
Current
Deferred
2015
December 31,
2014
2013
$
$
$
3,897
(386 )
3,511 $
$
1,279
(134 )
1,145 $
375
773
1,148
The provision for federal income taxes differs from that computed by applying the federal statutory rate of 35% in 2015 and 34% in
both 2014 and 2013, as indicated in the following analysis for the years ended December 31, 2015, 2014 and 2013 (dollars in
thousands).
Tax based on statutory rate
(Decrease) increase resulting from:
Effect of tax-exempt income
Purchase accounting
Acquisition cost
Historical tax credits
Other
Total income tax expense
Effective rate
2015
December 31,
2014
2013
$
3,704 $
2,224 $
(142 )
-
-
(62 )
11
3,511 $
33.2 %
(118 )
-
-
(1,002 )
41
1,145 $
17.5 %
$
1,468
(112 )
(300 )
48
-
44
1,148
26.1 %
The Company records deferred income tax on the tax effect of changes in timing differences.
100
The net deferred tax asset was comprised of the following items as of the dates indicated (dollars in thousands).
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Deferred tax liabilities:
Depreciation
FHLB stock dividend
Basis difference in acquired assets and liabilities
Unrealized gain on available for sale securities
Gross deferred tax liability
Deferred tax assets:
Provision for loan losses
Provision for other real estate losses
Unrealized loss on available for sale securities
Unamortized start-up cost
Net operating loss carryforward
Deferred gain on sale of other real estate
Basis difference in acquired assets and liabilities
Historical tax credit
Other
Gross deferred tax assets
Net deferred tax asset
2015
December 31,
2014
2013
$
$
$
(1,402 ) $
(5 )
(26 )
-
(1,433 ) $
1,588
328
357
147
412
35
-
247
234
3,348
1,915 $
(1,435 ) $
(16 )
-
(62 )
(1,513 ) $
879
517
-
165
617
-
46
226
160
2,610
1,097 $
(1,303 )
(30 )
-
-
(1,333 )
377
544
180
187
833
90
180
-
147
2,538
1,205
The Company acquired net operating loss (“NOL”) carryforwards through the tax free acquisitions of FCB and SLBB. As of
December 31, 2015 and December 31, 2014, the Company’s NOL carryforwards were approximately $1.2 million and $1.8 million,
respectively, with expiration dates as follows: $0.2 million in 2031; and $1.0 million in 2033.
As of December 31, 2015 and December 31, 2014, the Company’s general business credit was $12,000 which expires in 2028.
The Company files income tax returns under U.S. federal jurisdiction and the state of Louisiana, although the state of Louisiana does
not assess an income tax on income resulting from banking operations. With few exceptions, the Company is no longer subject to U.S.
federal and state examinations by tax authorities for years before 2011.
NOTE 17. FAIR VALUES OF FINANCIAL INSTRUMENTS
In accordance with FASB ASC Topic 820, Fair Value Measurement and Disclosure, disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, is required. Fair value of a financial instrument is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of future cash flows, and the fair value estimates may not
be realized in an immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent
the underlying value of the Company.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not
a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there
has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use
of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants
would transact at the measurement date under current market conditions depends on the facts and circumstances and requires use of
significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current
market conditions.
101
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities measured at fair value in three
levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair
value.
Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability
to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active
exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or
liabilities.
Level 2—Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the asset or liability.
Level 3—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing
models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value
requires significant management judgment or estimation.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the
fair value measurement.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
Cash and Due from Banks – For these short-term instruments, fair value is the carrying value. Cash and due from banks is classified in
level 1 of the fair value hierarchy.
Federal Funds Sold/Purchased and Securities Sold under Repurchase Agreements – The fair value is the carrying value based on the
short-term nature of these items. The Company classifies these assets in level 1 of the fair value hierarchy.
Investments – Where quoted prices are available in an active market, the Company classifies these securities within level 1 of the
valuation hierarchy. Securities are defined as both long and short positions. Level 1 securities include highly liquid government bonds
and exchange-traded equities.
If quoted market prices are not available, the Company estimates fair values using pricing models and discounted cash flows that
consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and
credit spreads. Examples of such instruments, which would generally be classified within level 2 of the valuation hierarchy, include
Government Sponsored Enterprise obligations, corporate bonds and other securities. Mortgage-backed securities are included in level
2 if observable inputs are available. In certain cases where there is limited activity or less transparency around inputs to the valuation,
the Company classifies these securities in level 3.
Loans – For variable-rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four family residential), credit card loans, and other consumer
loans are based on quoted market prices of similar instruments sold in conjunction with securitization transactions, adjusted for
differences in loan characteristics. Fair values for other loans (for example, commercial real estate and investment property mortgage
loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using market interest rates for comparable
loans. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where
applicable. The Company classifies loans in level 3 of the fair value hierarchy.
Loans held for sale are measured using quoted market prices when available. If quoted market prices are not available, comparable
market values or discounted cash flow analyses may be utilized. The Company classifies these assets in level 3 of the fair value
hierarchy.
102
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Other Real Estate Owned – The fair values are estimated based on recent appraisal values of the property less costs to sell the
property, as other real estate owned is valued at the lower of cost or fair value of the property, less estimated costs to sell. Certain
inputs used in appraisals are not always observable, and therefore other real estate owned may be classified in level 3 within the fair
value hierarchy. When inputs are observable, these assets are classified in level 2 of the fair value hierarchy.
Deposit Liabilities—The fair values disclosed for noninterest-bearing demand deposits are, by definition, equal to the amount payable
on demand at the reporting date (that is, their carrying amounts). These noninterest-bearing deposits are classified in level 2 of the fair
value hierarchy. The carrying amounts of variable-rate deposit accounts (for example interest-bearing checking, savings and money
market accounts), fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest
rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits. All interest-bearing
deposits are classified in level 3 of the fair value hierarchy.
Short-Term Borrowings—The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-
term borrowings maturing within 90 days approximate their fair values. The Company classifies these borrowings in level 2 of the fair
value hierarchy.
Long-Term Borrowings – The fair values of long-term borrowings are estimated using discounted cash flows analyses based on the
Company’s current incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company’s long-
term debt is therefore classified in level 3 of the fair value hierarchy.
Commitments – The fair value of commitments to extend credit was not significant.
Derivative Instruments – The fair value for interest rate swap agreements are based upon the amounts required to settle the contracts.
These derivative instruments are classified in level 2 of the fair value hierarchy.
103
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Fair Value of Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below as of the dates indicated (dollars in thousands).
Quoted Prices in
Active Markets for Significant Other Unobservable
Significant
Fair Value
Identical Assets
(Level 1)
Observable Inputs
(Level 2)
Inputs
(Level 3)
December 31, 2015
Assets:
Obligations of other U.S. government agencies and corporations $
Obligations of state and political subdivisions
Corporate bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Equity securities
Total assets
$
26,473 $
21,467
14,824
47,526
1,989
1,092
113,371 $
- $
-
-
-
-
1,092
1,092 $
26,473 $
11,072
13,688
47,526
1,989
-
100,748 $
-
10,395
1,136
-
-
-
11,531
Liabilities:
Derivative financial instruments
$
581 $
- $
581 $
December 31, 2014
Assets:
Obligations of other U.S. government agencies and corporations $
Obligations of state and political subdivisions
Corporate bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Equity securities
Total assets
$
4,360 $
11,740
5,419
46,755
1,491
534
70,299 $
- $
-
-
-
-
534
534 $
4,360 $
11,740
5,419
46,755
1,491
-
69,765 $
Liabilities:
Derivative financial instruments
$
303 $
- $
303 $
-
-
-
-
-
-
-
-
The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company’s ability to observe inputs to
the valuation may cause reclassification of certain assets or liabilities within the fair value hierarchy. The table below provides a
reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or Level 3 inputs (dollars in
thousands).
Obligations of
State and Political
Subdivisions
Corporate
Bonds
Total
Balance at December 31, 2014
Realized gains (losses) included in net income
Unrealized gains (losses) included in other comprehensive
income
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
Balance at December 31, 2015
$
$
- $
-
-
10,395
-
-
-
10,395 $
- $
-
-
1,136
-
-
-
1,136 $
-
-
-
11,531
-
-
-
11,531
There were no liabilities measured at fair value on a recurring basis using Level 3 inputs at December 31, 2015, 2014 and 2013. For
the year ended December 31, 2015, there were no gains or losses included in earnings, nor were there unrealized gains or losses
related to the change in fair value of the assets measured on a recurring basis using significant unobservable inputs held at the end of
the period.
104
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Fair Value of Assets Measured on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis are summarized below as of the dates indicated; there were no liabilities
measured on a nonrecurring basis at December 31, 2015 or 2014 (dollars in thousands).
Quoted Prices in
Active Markets for Significant Other Unobservable
Identical Assets
Significant
Observable Inputs
(Level 2)
Inputs
(Level 3)
Fair Value
(Level 1)
December 31, 2015
Impaired loans
Other real estate owned
Total
December 31, 2014
Impaired loans
Other real estate owned
Total
$
$
$
$
335 $
35
370 $
78 $
2,210
2,288 $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
335
35
370
78
2,210
2,288
The estimated fair values of the Company’s financial instruments at December 31, 2015 and December 31, 2014 are shown below
(dollars in thousands).
Financial assets:
Cash and due from banks
Federal funds sold
Investment securities
Other equity securities
Loans, net of allowance
Loan held for sale
Financial liabilities:
Deposits, noninterest-bearing
Deposits, interest-bearing
FHLB short-term advances and repurchase agreements
FHLB long-term advances
Junior subordinated debt
Derivative financial instruments
$
$
Carrying
Amount
Estimated
Fair Value
Level 1
Level 2
Level 3
December 31, 2015
20,785 $
181
139,779
5,835
739,313
80,509
20,785 $
181
139,642
5,835
738,614
80,509
20,785 $
181
1,092
-
-
-
- $
-
112,958
5,835
-
-
-
-
25,592
-
738,614
80,509
90,447 $
646,959
158,236
8,360
3,609
581
89,427 $
630,613
158,236
8,455
3,217
581
$
-
-
-
-
-
-
89,427
$
-
158,236
-
-
581
-
630,613
-
8,455
3,217
-
105
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
Financial assets:
Cash and due from banks
Federal funds sold
Investment securities
Other equity securities
Loans, net of allowance
Loans held for sale
Financial liabilities:
Deposits, noninterest-bearing
Deposits, interest-bearing
FHLB short-term advances and repurchase agreements
FHLB long-term advances
Junior subordinated debt
Derivative financial instruments
NOTE 18. REGULATORY MATTERS
$
$
Carrying
Amount
Estimated
Fair Value
Level 1
Level 2
Level 3
December 31, 2014
19,012 $
500
92,818
5,566
618,160
103,396
19,012 $
500
92,600
5,566
619,279
103,396
19,012 $
500
534
-
-
-
- $
-
92,066
5,566
-
-
-
-
-
-
619,279
103,396
70,217 $
557,901
116,632
21,446
3,609
303
70,217 $
560,667
116,632
21,493
3,608
303
-
$
-
-
-
-
-
70,217
$
-
116,632
-
-
303
-
560,667
-
21,493
3,608
-
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the financial statements. Under capital adequacy guidelines, the Bank must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and to
average assets (as defined).
As of December 31, 2015 and 2014, the most recent notifications from the FDIC categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-
based, Tier 1 leverage capital ratios as set forth in the table below. There are no conditions or events since those notifications that
management believes have changed the Bank’s category.
106
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2015 and December 31, 2014 are presented in
the tables below (dollars in thousands).
Actual
Capital Adequacy
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2015
Tier 1 leverage capital
Investar Holding Corporation
Investar Bank
Common Equity Tier 1 risk-
based capital
Investar Holding Corporation
Investar Bank
Tier 1 risk-based capital
Investar Holding Corporation
Investar Bank
Total risk-based capital
Investar Holding Corporation
Investar Bank
December 31, 2014
Tier 1 leverage capital
Investar Holding Corporation
Investar Bank
Tier 1 risk-based capital
Investar Holding Corporation
Investar Bank
Total risk-based capital
Investar Holding Corporation
Investar Bank
$
$
110,574
107,209
11.39 % $
11.07 % $
38,836
38,749
4.00 %
4.00 % $
NA
48,436
NA
5.00 %
$
$
107,074
107,209
11.67 % $
11.71 % $
41,281
41,200
4.50 %
4.50 % $
NA
59,511
NA
6.50 %
$
$
110,574
107,209
12.05 % $
11.71 % $
55,042
54,933
6.00 %
6.00 % $
NA
73,244
NA
8.00 %
$
$
116,702
113,337
12.72 % $
12.38 % $
73,389
73,244
8.00 %
8.00 % $
NA
91,555
NA
10.00 %
$
$
103,535
73,870
12.61 % $
9.00 % $
32,843
32,821
4.00 %
4.00 % $
NA
41,026
NA
5.00 %
$
$
103,535
73,870
13.79 % $
9.86 % $
30,029
29,973
4.00 %
4.00 % $
NA
44,959
NA
6.00 %
$
$
108,165
78,500
14.41 % $
10.48 % $
60,058
59,945
8.00 % $
8.00 % $
74,931
74,931
NA
10.00 %
Applicable Federal and State statutes and regulations impose restrictions on the amounts of dividends that may be declared by the
Company. In addition to the formal statutes and regulations, regulatory authorities also consider the adequacy of the Company’s total
capital in relation to its assets, deposits and other such items and, as a result, capital adequacy considerations could further limit the
availability of dividends from the Company. In the event the Company is in default or has deferred interest payments on subordinated
debentures, the Company would be restricted from paying dividends.
In July 2013, the federal banking regulatory agencies issued a final rule which revises the regulatory capital framework for financial
institutions. The final rule (also known as the Basel III capital rules) covers a number of aspects pertaining to capital requirements.
These include:
(cid:120) Prompt Corrective Action Capital Category Thresholds - The following thresholds have been established for an institution to be
deemed adequately capitalized:
Total Risk-Based Capital Ratio
Tier 1 Risk-Based Capital Ratio
Common Equity Tier 1 Capital Ratio
Tier 1 Leverage Ratio
8.0 %
6.0 %
4.5 %
4.0 %
(cid:120) Establishment of a Capital Conservation Buffer - The Capital Conservation Buffer is phased in through 2019.
(cid:120) Changes in risk-weighting of assets.
107
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
(cid:120) Opt-out Election of Accumulated Other Comprehensive Income from Common Equity Tier 1 Capital.
Financial institutions became subject to the final rule on January 1, 2015, although the rules will not be fully phased in until January 1,
2019.
Management is currently evaluating the provisions of the final rule and its expected impact on the Company and the Bank.
Management believes that at December 31, 2015, the Company and the Bank would have met all new capital adequacy requirements
on a fully phased-in basis if such requirements were then effective. There can be no assurances that the Basel III capital rules will not
be revised before the effective date and expiration of the phase-in periods.
NOTE 19. COMMITMENTS AND CONTINGENCIES
Unfunded Commitments
The Company is a party to financial instruments with off-balance sheet risk entered into in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit consisting of loan commitments
and standby letters of credit, which are not included in the accompanying financial statements.
Commitments to extend credit are agreements to lend money with fixed expiration dates or termination clauses. The Company applies
the same credit standards used in the lending process when extending these commitments, and periodically reassesses the customer’s
creditworthiness through ongoing credit reviews. Since some commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. Collateral is obtained based on the Company’s
assessment of the transaction. Essentially all standby letters of credit issued have expiration dates within one year. At December 31,
2015 and December 31, 2014, the Company’s commitments to extend credit totaled approximately $149.9 million and $91.5 million,
respectively.
Additionally, at December 31, 2015, the Company had unfunded commitments of $0.9 million for its investment in Small Business
Investment Company qualified funds.
Required Reserves
The Company is required to maintain average reserves at the Federal Reserve Bank. There were approximately $12.7 million and
$12.9 million in reserves required at December 31, 2015 and December 31, 2014, respectively.
Bank Premises
In August 2014, the Company entered into an agreement to construct a 2,240 square foot building located at 525 East New River Road
in Gonzales, Louisiana. The Company was approved by the FDIC to open a new branch facility. The Company has submitted an
application and is awaiting approval from the Louisiana Office of Financial Institutions. The cost to construct the branch facility was
approximately $1.1 million. Opening date of this location is estimated to be in the second quarter of 2016.
Insurance
Effective May 1, 2014, the Company is obligated for certain costs associated with its insurance program for employee health. The
Company is self-insured for a substantial portion of its potential claims. The Company recognizes its obligation associated with these
costs, up to specified deductible limits in the period in which a claim is incurred, including with respect to both reported claims and
claims incurred but not reported. The claims costs are estimated based on historical claims experience. The reserves for insurance
claims are reviewed and updated by management on a quarterly basis.
NOTE 20. CONCENTRATIONS OF CREDIT
Substantially all of the Company’s loans and commitments have been granted to customers in the Company’s market area. The
concentrations of credit by type of loan are set forth in Note 4, Loans. The distribution of commitments to extend credit approximates
the distribution of loans outstanding.
The Company maintains deposit accounts and federal funds sold with correspondent banks which may, periodically, exceed the
federally insured amount.
108
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
NOTE 21. TRANSACTIONS WITH RELATED PARTIES
The Bank has made, and expects in the future to continue to make in the ordinary course of business, loans to directors and executive
officers of the Company, the Bank, and their affiliates. In management’s opinion, these loans were made in the ordinary course of
business at normal credit terms, including interest rate and collateral requirements, and do not represent more than normal credit risk.
See Note 4, Loans, for more information regarding lending transactions between the Company and these related parties.
During 2015 and 2014, certain executive officers and directors of the Company and the Bank, including companies with which they
are affiliated, were deposit customers of the Bank. See Note 10, Deposits, regarding total deposits outstanding to these related parties.
The Company has transactions with related parties for which the Company believes the terms and conditions are comparable to terms
that would have been available from a third party that was unaffiliated with the Company. The following describes transactions since
January 1, 2013, in addition to the ordinary banking relationships described above, in which the Company has participated in which
one or more of its directors, executive officers or other related persons had or will have a direct or indirect material interest.
Thomas C. Besselman, Sr., one of the Company’s directors, is the former owner and previously served as president of The Besselman
& Little Agency, Inc. Mr. Besselman sold his interest in The Besselman & Little Agency, Inc. in 2012. Gallagher Benefit Services,
successor in interest to The Besselman & Little Agency, wrote the Company’s employee benefits insurance until it became self-
insured, effective May 1, 2014. The Company paid commissions of approximately $70,000 for the year ended December 31, 2013 for
such insurance. Effective May 1, 2014, the Company pays Gallagher Benefit Services an annual fee of $60,000 for the administration
of its benefit programs.
Both The Besselman & Little Agency and Gallagher Benefit Services paid a referral fee to the Company for referrals of clients to The
Besselman & Little Agency or Gallagher Benefit Services for their insurance needs. The Company received referral fees of
approximately $70,000, $74,000 and $60,000 for the years ended December 31, 2015, 2014 and 2013, respectively, from Gallagher
Benefit Services.
Mr. Besselman is also the owner of H.R. Solutions, LLC, located in Baton Rouge, Louisiana, which provides the Company’s payroll
processing services. The Company paid fees of approximately $76,000, $44,000 and $98,000 for the years ended December 31, 2015,
2014 and 2013, respectively, to H.R. Solutions, LLC.
The Company has engaged in a number of transactions with Joffrion Commercial Division, LLC and Joffrion Construction, Inc., each
a commercial construction company owned and managed by Gordon H. Joffrion, one of the Company’s directors. The Company
selected Joffrion Commercial Division, LLC’s bid to construct a building in Lafayette, Louisiana, to serve as the Company’s first
branch in the Lafayette area. The Company paid approximately $1.7 million to Joffrion Commercial Division, LLC for construction of
this facility, which was completed in 2013.
Joffrion Commercial Division, LLC was awarded the bid in the amount of $1.0 million for demolition and renovation of the third floor
of the Clerk of Court building the Company purchased in Baton Rouge, Louisiana to serve as the Company’s Operations Center. The
Company paid approximately $0.9 million to Joffrion Commercial Division, LLC for the demolition and renovation of this facility,
which was completed in 2014.
In December 2013, the Company selected Joffrion Commercial Division, LLC’s bid to construct a new Baton Rouge branch located at
18101 Highland Market Drive, Baton Rouge, Louisiana. The Company paid approximately $0.9 million for the construction of this
branch which was completed in 2014.
Joffrion Commercial Division, LLC was awarded the bid in the amount of $0.9 million for the construction of the new location for the
Prairieville branch. The Company paid Joffrion Commercial Division, LLC $0.9 million related to the construction of the new branch
location, which was completed in February 2015.
In August 2014, the Company selected Joffrion Commercial Division, LLC’s bid to construct a building in Gonzales, Louisiana,
which was completed in 2015 and is expected to open in 2016. The Company paid approximately $1.1 million for the construction of
this branch.
The Company believes that the terms and conditions of all of its transactions with Joffrion Commercial Division, LLC are comparable
to terms that would have been available from a third party unaffiliated with the Company or the Bank.
109
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
NOTE 22. PARENT ONLY BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH
FLOWS
BALANCE SHEETS
(dollars in thousands)
ASSETS
Cash and due from bank
Available for sale securities at fair value (amortized cost of $677 and $0, respectively)
Accounts receivable
Federal income tax receivable
Investment in bank subsidiary
Investment in trust
Investment in tax credit entity
Deferred tax asset
Other assets
Total assets
LIABILITIES
Junior subordinated debt
Accounts payable
Accrued interest payable
Due to bank subsidiary
Dividend payable
Total liabilities
STOCKHOLDERS’ EQUITY
Common stock
Treasury stock
Surplus
Retained earnings
Accumulated other comprehensive (loss) income
Total stockholders’ equity
$
$
$
December 31,
2015
2014
1,901 $
607
100
512
109,485
109
169
258
58
$
113,199
3,609 $
170
4
3
63
3,849
7,305
(634 )
84,692
18,650
(663 )
109,350
27,995
-
29
1,167
77,442
109
162
238
-
107,142
3,609
94
4
-
51
3,758
7,264
(23 )
84,213
11,809
121
103,384
Total liabilities and stockholders’ equity
$
113,199
$
107,142
110
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
STATEMENTS OF OPERATIONS
(dollars in thousands)
Revenue
Dividends received from bank subsidiary
Dividends on corporate stock
Gain on sale of investment securities, net
Undistributed net income of bank subsidiary
Partnership income
Interest income from investment in trust
Total revenue
Expense
Interest on junior subordinated debt
Management fees to bank subsidiary
Impairment of investment in tax credit entity
Other expense
Total expense
Income before income tax benefit
Income tax benefit
Net income
For the year ended December 31,
2014
2015
$
$
- $
8
68
7,504
2
2
7,584
75
366
54
358
853
6,731
342
7,073 $
498
-
-
4,640
24
2
5,164
76
245
690
141
1,152
4,012
1,385
5,397
111
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
STATEMENTS OF CASH FLOWS
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net loss to net cash provided by operating activities:
For the year ended December 31,
2014
2015
$
7,073 $
5,397
Undistributed earnings of bank subsidiary
Gain on sale of available for sale securities
Impairment of investment in tax credit entity
Net change in:
Income tax receivable
Other assets
Deferred tax asset
Accrued other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contributed to bank subsidiary
Purchases of investment securities available for sale
Proceeds from the sale of investment securities available for sale
Investment in tax credit entity
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowing
Repayment of short-term borrowing
Cash dividends paid on common stock
Payment to repurchase common stock
Proceeds from stock options and warrants exercised
Proceeds from issuance of common stock in IPO
Net cash (used in) provided by financing activities
Net (decrease) increase in cash
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest on borrowings
(7,504 )
(68 )
54
655
257
5
200
672
(25,500 )
(972 )
364
-
(26,108 )
-
-
(221 )
(572 )
135
-
(658 )
(26,094 )
27,995
1,901 $
(4,640 )
-
690
(1,160 )
86
(226 )
7
154
(13,300 )
-
-
(766 )
(14,066 )
5,000
(5,000 )
(194 )
(6 )
297
41,728
41,825
27,913
82
27,995
75 $
76
$
$
112
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
NOTE 23. EARNINGS PER SHARE
The following is a summary of the information used in the computation of basic and diluted earnings per common share for the years
ended December 31, 2015, 2014 and 2013 (in thousands, except share data).
Net income available to common stockholders
Weighted average number of common shares outstanding
used in computation of basic earnings per common share
Effect of dilutive securities:
Restricted stock
Stock options
Stock warrants
Weighted average number of common shares outstanding
plus effect of dilutive securities used in computation
of diluted earnings per common share
Basic earnings per share
Diluted earnings per share
2015
December 31,
2014
2013
$
7,073
$
5,397
$
3,168
7,214,045
5,533,514
3,667,929
5,861
21,150
16,952
41,467
22,811
179,510
32,141
29,773
193,532
7,258,008
0.98 $
0.97 $
5,777,302
0.98 $
0.93 $
3,923,375
0.86
0.81
$
$
NOTE 24. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share data)
Year Ended December 31, 2015
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Earnings per common share - basic
Earnings per common share - diluted
(dollars in thousands, except per share data)
Year Ended December 31, 2014
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense (benefit)
Net income
Earnings per common share - basic
Earnings per common share - diluted
First Quarter Second Quarter Third Quarter Fourth Quarter
$
$
$
$
8,800 $
1,301
7,499
700
6,799
2,540
6,424
2,915
965
1,950 $
0.27 $
0.27 $
9,187 $
1,407
7,780
400
7,380
2,066
6,682
2,764
951
1,813 $
0.25 $
0.25 $
9,480 $
1,528
7,952
400
7,552
2,167
7,013
2,706
850
1,856 $
0.26 $
0.26 $
9,873
1,646
8,227
365
7,862
1,571
7,234
2,199
745
1,454
0.20
0.20
First Quarter Second Quarter Third Quarter Fourth Quarter
7,407 $
1,158
6,249
448
5,801
1,509
5,729
1,581
514
1,067 $
0.27 $
0.26 $
8,182 $
1,182
7,000
505
6,495
1,959
6,313
2,141
699
1,442 $
0.20 $
0.20 $
8,822
1,245
7,577
430
7,147
1,325
6,955
1,517
(491 )
2,008
0.28
0.27
$
$
$
$
6,957 $
1,090
5,867
245
5,622
1,066
5,385
1,303
424
879 $
0.23 $
0.21 $
113
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements
NOTE 25. SUBSEQUENT EVENTS
Management has evaluated all subsequent events and transactions that occurred after December 31, 2015 up through the date that the
financial statements were available to be issued and determined that there were no events that require disclosure. No events or changes
in circumstances were identified that would have an adverse impact on the financial statements.
114
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, the Company carried out an evaluation under the
supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer (the
Company’s principal executive and financial officers), of the effectiveness of the design and operation of the Company’s disclosure
controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective for ensuring that
information the Company is required to disclose in reports that it files or submits under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes to internal control over financial reporting during the fourth quarter of 2015 that have materially affected, or
are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management’s annual report on internal control over financial reporting and the report thereon of Postlethwaite & Netterville are
included herein under Item 8, Financial Statements and Supplementary Data.
Item 9B. Other Information
None.
115
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Except as provided below, the information required by Item 10 is incorporated by reference to the Company’s Definitive Proxy
Statement for its 2016 Annual Meeting of Shareholders (the “2016 Proxy Statement”).
Code of Conduct and Ethics
The Company has adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to its chief
executive officer, chief financial officer, chief accounting officer and any other senior financial officers, and the Company has also
adopted a Code of Conduct that applies to all of the Company’s directors, officers and employees. The full text of the Code of Ethics
for the Chief Executive Officer and Senior Financial Officers and the Code of Conduct can be found by clicking on “Corporate
Governance” under the “Investor Relations” tab on the Company’s website, www.investarbank.com, and then by clicking on “Code of
Ethics for the Chief Executive Officer and Senior Financial Officers” or “Code of Conduct,” as applicable. The Company intends to
satisfy the disclosure requirement under Item 5.05(c) of Form 8-K regarding an amendment to, or waiver from, a provision of the
Company’s Code of Ethics for the Chief Executive Officer and Senior Financial Officers by posting such information on its website,
at the address specified above.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference to the Company’s 2016 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Stock Ownership
Except as provided below, the information required by Item 12 is incorporated by reference to the Company’s 2016 Proxy Statement.
Securities Authorized for Issuance under Equity Compensation Plans
The following table presents certain information regarding our equity compensation plan as of December 31, 2015.
Plan category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders(1)
Total
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights
Weighted-average exercise price
of outstanding options, warrants
and rights
Number of securities remaining
available for future issuance
under equity compensation plans
-
278,352 $
278,352 $
-
14.37
14.37
-
230,431
230,431
(1) The Investar Holding Corporation 2014 Long-Term Incentive Compensation Plan (the “Equity Incentive Plan”) was adopted by
the Company’s board of directors on January 15, 2014, and the plan was amended on March 13, 2014. Because the Company was
a private corporation at the time of the adoption of the Equity Incentive Plan, shareholder approval of the plan was not required,
nor was such approval obtained. A total of 600,000 shares of common stock has been reserved for grant, award or issuance in the
form of stock options and restricted stock under the Equity Incentive Plan. As of December 31, 2015, 230,431 shares remain
available for grant, award or issuance.
Item 13. Certain Relationships and Related Transactions, and Directors Independence
The information required by Item 13 is incorporated by reference to the Company’s 2016 Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 is incorporated by reference to the Company’s 2016 Proxy Statement.
116
Item 15. Exhibits and Financial Statement Schedules
(a) Documents Filed as Part of this Report.
PART IV
(1) The following financial statements are incorporated by reference from Item 8 hereof:
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
(2) All schedules for which provision is made in the applicable accounting regulations of the SEC are omitted because of the
absence of conditions under which they are required or because the required information is included in the consolidated
financial statements and related notes thereto.
(3) The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index.
117
EXHIBIT INDEX
Exhibit
Number
2.1
Description
Agreement and Plan of Exchange dated August 1, 2013, by and
between Investar Holding Corporation and Investar Bank, as
amended (the “Agreement and Plan of Exchange”)
Location
Exhibit 2.1 to the Registration Statement on Form S-1
of the Company filed May 16, 2014 and incorporated
herein by reference
3.1
Restated Articles of Incorporation of Investar Holding Corporation Exhibit 3.1 to the Registration Statement on Form S-1
of the Company filed May 16, 2014 and incorporated
herein by reference
3.2
By-laws of Investar Holding Corporation
4.1
Specimen Common Stock Certificate
Exhibit 3.2 to the Pre-Effective Amendment No. 1 to
the Registration Statement on Form S-1/A of the
Company filed June 4, 2014 and incorporated herein by
reference
Exhibit 4.1 to the Registration Statement on Form S-1
of the Company filed May 16, 2014 and incorporated
herein by reference
10.1*
10.2*
Incentive
Investar Holding Corporation 2014 Long-Term
Compensation Plan, as amended by Amendment No. 1 to Investar
Holding Corporation 2014 Long Term Incentive Plan
Exhibit 10.1 to the Registration Statement on Form S-1
of the Company filed May 16, 2014 and, as to
Amendment No.1, Exhibit 99.2 to the Registration
Statement on Form S-8 of the Company filed October
31, 2014, each of which is incorporated herein by
reference
Form of Stock Option Grant Agreement under 2014 Long-Term
Incentive Compensation Plan
Exhibit 10.2 to the Registration Statement on Form S-1
of the Company filed May 16, 2014 and incorporated
herein by reference
10.3*
Form of Restricted Stock Award Agreement under 2014 Long-
Term Incentive Compensation Plan for Employees
Filed herewith
10.4*
Form of Restricted Stock Award Agreement under 2014 Long-
Term Incentive Compensation Plan for Non-Employee Directors
Filed herewith
10.5
10.6
10.7
Form of Notice of Exchange and Assumption relating to options
exchanged in connection with Agreement and Plan of Exchange
Exhibit 10.4 to the Registration Statement on Form S-1
of the Company filed May 16, 2014 and incorporated
herein by reference
Form of Notice of Exchange and Assumption relating to restricted
stock exchanged in connection with Agreement and Plan of
Exchange
Exhibit 10.5 to the Registration Statement on Form S-1
of the Company filed May 16, 2014 and incorporated
herein by reference
Form of Notice of Exchange and Assumption relating to warrants
exchanged in connection with Agreement and Plan of Exchange
Exhibit 10.6 to the Registration Statement on Form S-1
of the Company filed May 16, 2014 and incorporated
herein by reference
21
Subsidiaries of the Registrant
Exhibit 21 to the Registration Statement on Form S-1 of
the Company filed May 16, 2014 and incorporated
herein by reference
23
Consent of Postlethwaite and Netterville, APAC
Filed herewith
31.1
31.2
32.1
Rule 13a-14(a) Certification of Principal Executive Officer of the
Company in accordance with Section 302 of the Sarbanes-Oxley
Act of 2002
Filed herewith
Rule 13a-14(a) Certification of Principal Financial Officer of the
Company in accordance with Section 302 of the Sarbanes-Oxley
Act of 2002
Filed herewith
Section 1350 Certification of Principal Executive Officer of the
Company in accordance with Section 906 of the Sarbanes-Oxley
Act of 2002
Filed herewith
118
32.2
Section 1350 Certification of Principal Financial Officer of the
Company in accordance with Section 906 of the Sarbanes-Oxley
Act of 2002
Filed herewith
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
Filed herewith
Filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
Filed herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
Filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document
Filed herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to
Item 15(b) of Form 10-K.
The Company does not have any long-term debt instruments under which securities are authorized exceeding ten percent of the total
assets of the Company and its subsidiaries on a consolidated basis. The Company will furnish to the Securities and Exchange
Commission, upon its request, a copy of all long-term debt instruments.
119
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 11, 2016
by: /s/John J. D’Angelo
INVESTAR HOLDING CORPORATION
John J. D’Angelo
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date indicated.
Date: March 11, 2016
by: /s/John J. D’Angelo
John J. D’Angelo
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: March 11, 2016
by: /s/Christopher L. Hufft
Christopher L. Hufft
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 11, 2016
by: /s/Rachel P. Cherco
Rachel P. Cherco
Executive Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Date: March 11, 2016
by: /s/James M. Baker
James M. Baker
Director
Date: March 11, 2016
by: /s/Thomas C. Besselman, Sr.
Thomas C. Besselman, Sr.
Director
Date: March 11, 2016
by: /s/James H. Boyce, III
James H. Boyce, III
Director
120
Date: March 11, 2016
by: /s/Robert M. Boyce, Sr.
Robert M. Boyce, Sr.
Director
Date: March 11, 2016
by: /s/Robert L. Freeman
Robert L. Freeman
Director
Date: March 11, 2016
by: /s/William H. Hidalgo, Sr.
William H. Hidalgo, Sr.
Chairman of the Board
Date: March 11, 2016
by: /s/Gordon H. Joffrion, III
Gordon H. Joffrion, III
Director
Date: March 11, 2016
by: /s/David J. Lukinovich
David J. Lukinovich
Director
Date: March 11, 2016
by: /s/Suzanne O. Middleton
Suzanne O. Middleton
Director
Date: March 11, 2016
by: /s/Andrew C. Nelson, M.D.
Andrew C. Nelson, M.D.
Director
Date: March 11, 2016
by: /s/Carl R. Schneider, Jr.
Date: March 11, 2016
Carl R. Schneider, Jr.
Director
by: /s/Frank L. Walker
Frank L. Walker
Director
121
Investar Holding Corporation
7244 Perkins Road
Baton Rouge, Louisiana 70808
(225) 227-2222
www.investarbank.com