Investar Holding Corporation

2019 Annual Report

H O L D I N G   C O R P O R AT I O N

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President & Chief Executive Officer 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________

FORM 10-K
_____________________________________

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019 
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the transition period from                       to
Commission File Number: 001-36522
____________________________________________________

H O L D I N G   C O R P O R AT I O N

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.)

10500 Coursey Blvd., Baton Rouge, Louisiana 70816
(Address of principal executive offices, including zip code)
(225) 227-2222
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $1.00 par value per share

ISTR

The Nasdaq Global Market

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 YY

    No  

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  

    No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for 
the past 90 days.    Yes  

    No 

uu
u

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes 

    No  

d

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act:

Large accelerated filer
Non-accelerated filer

Accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or 
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

ff

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes 

    No  

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 
28, 2019, was approximately $219.1 million.

The number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date, is as follows: Common stock, $1.00 par 
value per share, 10,941,552 shares outstanding as of March 11, 2020.

Portions of the Definitive Proxy Statement relating to the 2020 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, 2019.

DOCUMENTS INCORPORATED BY REFERENCE

TABLE OF CONTENTS

PART I

Item 1.
Business ..........................................................................................................................................................
Item 1A. Risk Factors ....................................................................................................................................................
Item 1B. Unresolved Staff Comments...........................................................................................................................
Properties ........................................................................................................................................................
Item 2.
Legal Proceedings...........................................................................................................................................
Item 3.
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.........................................................................
Financial Statements and Supplementary Data ..............................................................................................
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ........................
Item 9A. Controls and Procedures .................................................................................................................................
Item 9B. Other Information ...........................................................................................................................................

PART III

Item 10. Directors, Executive Officers and Corporate Governance .............................................................................
Item 11. Executive Compensation ................................................................................................................................

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ......
Item 12.
Item 13. Certain Relationships and Related Transactions, and Directors Independence..............................................
Principal Accounting Fees and Services.........................................................................................................
Item 14.
PART IV

Item 15. Exhibits, Financial Statement Schedules........................................................................................................
Form 10-K Summary......................................................................................................................................
Item 16.

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136

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, National Association (the “Bank”), a national bank chartered by the Office of the Comptroller of Currency (“OCC”). The
Bank was originally chartered as a Louisiana commercial bank in 2006 and converted to a national bank in July 2019. 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. Our primary areas of operation are south Louisiana (approximately 86% of our total deposits as of 
December 31, 2019), including Baton Rouge, New Orleans, Lafayette, and their surrounding areas; as of March 1, 2019, southeast 
Texas, including Houston and its surrounding area; and as of November 1, 2019, west Alabama, including York and its surrounding
area. These markets are served from our executive and operations center located in Baton Rouge and from 30 full service branches
located throughout our market areas. We have experienced significant growth since the Bank was chartered, completing six whole-
bank acquisitions, as described below in more detail, and establishing additional branches in our market areas. On December 20,
2019, we announced a definitive agreement to acquire Cheaha Financial Group, Inc., with four branches in Calhoun County in
northeast Alabama.

As of December 31, 2019, on a consolidated basis, the Company had total assets of $2.1 billion, net loans of $1.7 billion, total 
deposits of $1.7 billion, and stockholders’ equity of $242.0 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.

The information set forth in this Annual Report on Form 10-K is as of March 13, 2020, 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, and lines of credit.
For business customers, we target small to medium-sized businesses and 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.

Lending Activities. Income generated by our lending activities represents a substantial portion of our total revenue. For the years
ended December 31, 2019, 2018 and 2017, income from our lending activities comprised 85%, 85% and 84%, respectively, of 
our total revenue. Over the last three fiscal years, we have increased our focus on commercial real estate loans and commercial
and industrial loans, including adding and expanding a new Commercial and Industrial division in early 2018.

3

Lending to Businesses. Our lending to small to medium-sized businesses falls into three general categories:

•  Commercial real estate loans. Approximately 48% of our total loans at December 31, 2019 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 10 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. We also manage risk by avoiding concentrations in any 
one business or industry.

•  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. Commercial and 
industrial loans accounted for approximately 19% of our total loans at December 31, 2019.

Commercial  lending  generally  involves  different  risks  from  those  associated  with  commercial  real  estate  lending  or 
construction lending. Although commercial loans may be collateralized by equipment or other business assets (including
real estate, if available as collateral), the repayment of these types of loans depends primarily on the creditworthiness and 
projected cash flow of the borrower (and any guarantors). Thus, the general business conditions of the local economy and 
the borrower’s ability to sell its products and services, thereby generating sufficient operating revenue to repay us under 
the agreed upon terms and conditions, are the chief considerations when assessing the risk of a commercial loan. The 
liquidation of collateral, if any, is considered a secondary source of repayment because equipment and other business assets 
may, among other things, be obsolete or of limited resale value. We actively monitor certain financial measures of the 
borrower, including advance rate, cash flow, collateral value and other appropriate credit factors.

•  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 12% of 
our total loans at December 31, 2019. 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 18 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 70% 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
due to the dynamics of construction projects, changes in interest rates, the long-term financing market, and state and local 
government regulations. One such risk is that loan funds are advanced upon the security of the property under construction,
which is of uncertain value prior to the completion of construction. Thus, it is more difficult to accurately evaluate 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. 
We  also  manage  risk  by  using  specific  underwriting  policies  and  procedures  for  these  types  of  loans  and  by  avoiding 
excessive concentrations in any one business or industry.

4

Lending to Individuals. We make the following types of loans to our individual customers:

•

Residential  real  estate.  One-to-four  family  residential  real  estate  loans,  including  second  mortgage  loans,  comprised 
approximately 19% of our total loans at December 31, 2019. 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. 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.

•  Consumer loans. Consumer loans represented 2% of our total loans at December 31, 2019. We make these loans (which 
are normally fixed-rate loans) to individuals for a variety of personal, family and household purposes, 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 credit analysts review a borrower’s past credit 
history, credit scores, past income level, debt history and, when applicable, cash flow, debt to income ratio, and payment 
to income, 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 key consumer economic measures and upon the borrower’s financial 
stability and is more likely to be adversely affected by divorce, job loss, illness and personal hardships than repayment of 
other loans. A shortfall in the value of any collateral also may pose a risk of loss to us for these types of loans.

Indirect auto loans historically comprised the largest component of our consumer loans, however, only 44% of our total 
consumer loans were indirect auto loans at December 31, 2019. We were an indirect lender for our auto loans, meaning 
that the loans were 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 helped 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 indirect auto loan portfolio for its duration.
At December 31, 2019, the weighted average remaining term of the indirect auto loan portfolio was 2 years.

Deposits. We offer a broad base of deposit products and services to our individual and business clients, including savings, checking, 
and money market accounts, debit cards and mobile banking with smartphone deposit capability, as well as a variety of certificates
of deposit and individual retirement accounts. We also offer a reciprocal deposit product that allows customers to deposit funds
in excess of the $250,000 FDIC insurance limit and have the funds insured by the FDIC. For our business clients, we offer a
competitive suite of cash management products which include, but are not limited to, remote deposit capture, virtual vault, electronic 
statements, positive pay, ACH origination and wire transfer, investment sweep accounts and enhanced business internet banking.

Other Banking Services. The 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, interactive teller machines, video 
banking, debit cards and mobile wallet payment options. We have also associated with nationwide networks of automated teller 
machines, enabling the Bank’s customers to use ATMs throughout our markets and other regions. We offer merchant card services 
through a third-party vendor and a business 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 including 
whole-bank acquisitions and strategic branch acquisitions. 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. Acquisitions completed since January 
1, 2017 and any pending acquisitions are discussed below.

5

Acquisition of Citizens Bancshares, Inc. On July 1, 2017, the Company completed its acquisition of Citizens Bancshares, Inc. 
(“Citizens”) and its wholly-owned subsidiary, Citizens Bank, headquartered in Ville Platte, Louisiana, with two additional branch
locations in Mamou and Pine Prairie, Louisiana. The Company acquired all of the outstanding common stock of the former Citizens
shareholders for a total cash consideration of $45.8 million. The Company acquired assets with a fair value of approximately
$250.7 million, including $129.2 million in loans, assumed $212.2 million in deposits, and recognized $9.1 million in goodwill.

Acquisition of BOJ Bancshares, Inc. On December 1, 2017, the Company completed its acquisition of BOJ Bancshares, Inc.
(“BOJ”) and its wholly-owned subsidiary, The Highlands Bank, headquartered in Jackson, Louisiana, with four additional branch 
locations  in  Baton  Rouge,  Slaughter,  St.  Francisville,  and  Zachary,  Louisiana. The  Company  acquired  all  of  the  outstanding 
common stock of the former BOJ shareholders for a total consideration of $22.7 million, $3.95 million of which was cash with 
the remaining consideration in the form of 799,559 shares of the Company’s common stock. The Company acquired assets with
a fair value of approximately $152.1 million, including $102.4 million in loans, assumed $125.8 million in deposits, and recognized 
$5.7 million in goodwill.

Acquisition of Mainland Bank. On March 1, 2019, the Company completed its acquisition of Mainland Bank (“Mainland”),
headquartered in Texas City, Texas, with two additional branch locations in Houston and Dickinson, Texas. The Company acquired 
all of the outstanding common stock of the former Mainland shareholders for a total consideration of $18.6 million in the form 
of 763,849 shares of the Company’s common stock. The Company acquired assets with a fair value of  approximately $128.4
million, including $82.4 million in loans, assumed $107.6 million in deposits, and recognized $4.5 million in goodwill.

Acquisition of Bank of York. On November 1, 2019, the Company completed its acquisition of Bank of York, headquartered in
York, Alabama, with an additional branch location in Livingston, Alabama. The Company acquired all of the outstanding common 
stock of the former Bank of York shareholders for a total cash consideration of $15.0 million. Bank of York was also permitted 
under the terms of the merger agreement to make a special pre-closing cash distribution to its shareholders in an aggregate amount 
of approximately $1.0 million. The Company acquired assets with a fair value of approximately $102.0 million, including $46.1 
million in loans, assumed $85.0 million in deposits, and recognized $4.2 million in goodwill.

Acquisition of two branches from PlainsCapital Bank. On February 21, 2020, the Bank completed its previously announced 
acquisition and assumption of certain assets, deposits and other liabilities associated with the Alice and Victoria, Texas locations 
of PlainsCapital Bank, a wholly-owned subsidiary of Hilltop Holdings Inc. The Bank acquired approximately $45.9 million in 
loans and $37.3 million in deposits. In addition, the Bank acquired substantially all the fixed assets at the branch locations, and 
assumed the leases for the branch facilities.

aa

Definitive Agreement with Cheaha Financial Group, Inc. On December 20, 2019 the Company announced that it has entered 
into a definitive agreement (the “Agreement”) to acquire Cheaha Financial Group, Inc. (“Cheaha”), headquartered in Oxford, 
Alabama, and its wholly-owned subsidiary, Cheaha Bank. According to the terms of the Agreement, the Company will pay $80.00
in cash consideration for each share of Cheaha common stock, for an aggregate value of approximately $41.1 million. At December
31,  2019,  Cheaha  Bank  had  approximately $209.6  million in  assets, $119.6  million in  net  loans,  $179.0  million in  deposits, 
and $28.1 million in stockholders’ equity. Cheaha Bank offers a full range of banking products and services to individuals and 
small businesses from four branch locations in Calhoun County, Alabama.

De Novo Branches

During our last three fiscal years, we have opened five full-service branch locations in Louisiana, consisting of two locations in
the Baton Rouge market, one location in the New Orleans market, one location in the Lake Charles market, and one location in 
the Lafayette market, in addition to the branches we acquired through our acquisition activity described above. We expect to open
two de novo branches in 2020.

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.

6

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. 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.

uu

The following table sets forth certain information about our total deposits, and our share of total deposits, in specified locations,
and is shown as of June 30, 2019, which is the latest date for which such information is available.

Location

Investar Total Deposits

Investar Share of Deposits

Baton Rouge, Louisiana
New Orleans, Louisiana
Lafayette, Louisiana
Evangeline Parish, Louisiana(1)
East and West Feliciana Parishes,
Louisiana(1)
Houston, Texas
Sumter County, Alabama(1)

(in millions)

$

749
198
171
190

132

113
82

4.0%
1.0
2.5
30.2

27.6

0.1
41.8

(1)

Evangeline Parish, East and West Feliciana Parishes, and Sumter County are not included in Metropolitan Statistical Areas but are included in this table 
to reflect the deposit balances of our acquired branches in these parishes and county. The branches in Sumter County were not acquired from Bank of 
York until November 1, 2019, but are shown on a pro forma basis.

Supervision and Regulation

General. Banking is highly regulated under federal and state law. The following is a brief summary of certain aspects of that 
regulation which are material to us, and does not purport to be a complete description of all regulations that affect us or all aspects 
of those regulations. To the extent particular statutory and regulatory provisions are described, the description is qualified in its 
entirety by reference to the particular statute or regulation. 

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. The Bank is a national bank chartered under the laws of the 
United States by the OCC and is subject to supervision, regulation and examination by the OCC. 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 Federal Deposit Insurance Corporation’s 
(“FDIC”) 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.

aa

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 has required many new rules to be issued by federal regulatory agencies over the last 
several years, and will continue to profoundly affect how financial institutions will be regulated in the future.

7

The Dodd-Frank Act, among other things:

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

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;

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;

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;

increased the minimum reserve ratio for the Deposit Insurance Fund from 1.15% to 1.35%;

permanently increased the deposit insurance coverage amount from $100,000 to $250,000;

required the federal banking agencies to make their capital requirements for insured depository institutions countercyclical,
so that capital requirements increase in times of economic expansion and decrease in times of economic contraction;

directed the Federal Reserve to establish interchange fees for debit cards under a restrictive “reasonable and proportional 
cost” per transaction standard;

limited the ability of banking organizations to sponsor or invest in private equity and hedge funds and to engage in proprietary
trading;

increased regulation of consumer protections regarding mortgage originations, including originator compensation, minimum
repayment standards, prepayment consideration, and mortgage servicing;

restricted the preemption of select state laws by federal banking law applicable to national banks and disallowed subsidiaries
and affiliates of national banks from availing themselves of such preemption;

authorized national and state banks to establish de novo branches in any state that would permit a bank chartered in that stateaa
to open a branch at that location; and

repealed the federal prohibition on the payment of interest on commercial demand deposits, thereby permitting depository 
institutions to pay interest on business transaction and other accounts.

Some of these provisions have had and may continue to 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 have operated 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 ongoing implementation. 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.

t

8

Regulatory Capital Requirements

Capital Adequacy. The Federal Reserve Board monitors the capital adequacy of the Company, on a consolidated basis, and the 
OCC monitors 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 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.

u

aa

Under the current regulatory framework, we are required to maintain the following minimum regulatory capital ratios:

•  A ratio of common equity Tier 1 capital to total risk-weighted assets of at least 4.5%;

•  A ratio of Tier 1 capital to total risk-weighted assets of at least 6.0%;

•  A ratio of Tier 1 capital plus Tier 2 capital to total risk-weighted assets of at least 8.0%; and

•  A leverage ratio (Tier 1 capital to adjusted total assets) of at least 4.0%.

In addition to these minimum regulatory capital ratios, the regulations establish a capital conservation buffer with respect to the 
first three capital ratios listed above. Specifically, banking organizations must hold common equity Tier 1 capital in excess of their 
minimum risk-based capital ratios by at least 2.5% of risk-weighted assets in order to avoid limits on capital distributions (including 
dividend payments, discretionary payments on Tier 1 instruments, and stock buybacks) and certain discretionary bonus payments
to executive officers. Thus, when including the 2.5% capital conservation buffer, a bank holding company and bank’s minimum
ratio of common equity Tier 1 capital to total risk-weighted assets becomes 7%, its minimum ratio of Tier 1 capital to total risk-
weighted assets becomes 8.5%, and its minimum ratio of total capital to total risk-weighted assets becomes 10.5%.

We were in compliance with all applicable minimum regulatory capital requirements as of December 31, 2019.  

The required capital ratios set forth above are minimums, and the Federal Reserve and the OCC may determine that a banking
organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a safe and 
sound  manner.  Risks  such  as  concentration  of  credit  risks  and  the  risk  arising  from  non-traditional  activities,  as  well  as  the 
institution’s exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution’s ability
to manage those risks are important factors that are to be taken into account by the federal banking agencies in assessing an
institution’s overall capital adequacy.

The federal banking agencies finalized a rule in November 2019 that allows bank holding companies and banks with less than 
$10.0 billion in total consolidated assets and limited amounts of certain assets and off balance sheet exposures and a bank leverage
ratio  of  greater  than  9%  to  elect  to  use  the  Community  Bank  Leverage  Ratio  (“CBLR”)  framework. A  community  banking
organization electing to use the CBLR framework would have a simplified capital regime and would be considered well capitalized
as long as it had a leverage ratio of greater than 9%. It is uncertain if we will elect to use the CBLR framework.

Furthermore, in December 2018, the U.S. federal banking agencies finalized rules that would permit bank holding companies and 
banks to phase-in, for regulatory capital purposes, the day-one impact of the new current expected credit loss accounting rule in
retained earnings over a period of three years commencing with time of adoption of the new standard. For further discussion of 
the new current expected credit loss accounting rule, see Note 1 to the consolidated financial statements and also see “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” in Item1A, Risk Factors.

9

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the OCC 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.

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 that, if undertaken, could have a material adverse effect 
on  the  institution’s  operations  or  financial  condition.  For  example,  only  a  well-capitalized  depository  institution  may  accept 
brokered deposits without prior regulatory approval. 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 OCC 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 thet
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, 2019, the Bank met the requirements to be categorized 
as well capitalized under the prompt corrective action framework as currently in effect.

Acquisitions by Bank Holding Companies

Federal 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.

10

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,”  and  its  subsidiary  banks  controlled  by  it  have  at  least  a
“satisfactory” Community Reinvestment Act rating. 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:tt
banking  activities  by  banking  regulators;  securities  activities  by  securities  regulators;  and  insurance  activities  by  insurance
regulators.

ff

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.

y

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, the 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 the 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 rr
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.

aa

The Bank is also subject to certain restrictions on dividends under federal laws, regulations and policies. In general, under OCC 
regulations, the Bank may pay dividends to us without the approval of the OCC only so long as the amount of the dividend does 
not exceed the Bank’s net income earned during the current year combined with its retained net income (net of dividends paid) of 
the immediately preceding two years. The Bank must obtain the approval of the OCC for any amount in excess of this threshold. 
Further, a national bank may not pay a dividend in excess of its undivided profits. In addition, under federal law, the Bank mayaa
not pay any dividend to us if it is undercapitalized or the payment of the dividend would cause it to become undercapitalized. The 
OCC 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 OCC, the Bank is engaged in
an unsound practice (which could include the payment of dividends even within the legal requirements noted above), the OCC 
may require, generally after notice and hearing, the Bank to cease such practice. The OCC has indicated that paying dividends 
that deplete a depository institution’s capital base to an inadequate level would be an unsafe banking practice.

11

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 expanded the coverage and scope of the limitations on affiliate
transactions within a banking organization, including an expansion of the types of transactions that are covered transactions to
include credit exposures related to derivatives, repurchase agreements and securities lending arrangements and an increase in thet
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.

m

t

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.

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, regulations may limit discretionary bonus payments to bank executives if the institution’s regulatory capital 
ratios fail to exceed certain thresholds.

y

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. Action by the FDIC to replenish the Deposit 
Insurance Fund when needed, as well as the changes contained in the Dodd-Frank Act, could result in higher assessment rates,
which could reduce our profitability or otherwise negatively impact our operations.

t
n

aa

Branching and Interstate Banking

Under federal law, the Bank is permitted to establish additional branch offices within Louisiana, subject to the approval of the 
OCC. 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. 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

The Bank is required under the Community Reinvestment Act, or CRA, and related OCC 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 OCC
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.

12

Concentrated Commercial Real Estate Lending Regulations

The  federal  bank  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 nonresidential 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, 2019, the Company did not have a concentration in commercial real estate as defined by the regulatory 
guidance.

Financial Privacy and Cybersecurity 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” uu
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.

t

Federal  banking  regulators  regularly  issue  guidance  regarding  cybersecurity  intended  to  enhance  cyber  risk  management. A 
financial institution is expected to implement multiple lines of defense against cyber-attacks. Financial institutions are also expected 
to implement procedures designed to address the risks posed by potential cyber threats, and to allow the institution to respond and 
recover effectively after a cyber-attack. The Company has adopted procedures designed to comply with the regulatory cybersecurity
guidance.

d

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 the Bank, will continue to
be examined for consumer compliance by their primary federal bank regulator.

rr

13

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.” The Bureau’s
rules, 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. The rules extend the
requirement that creditors verify and document a borrower’s income and assets to include all information that creditors rely on inn
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 rules also define “qualified
mortgages,” imposing both underwriting standards 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.

aa

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.

n

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.

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.

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14

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

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,aa
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.

mm

Employees

As of December 31, 2019, we had 324 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.

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

15

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.

tt

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 and geopolitical matters.

Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding 
loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is 
highly dependent upon the business environment in the primary markets where we operate and in the U.S. as a whole. Unfavorable 
or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or 
business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest 
rates, high unemployment, natural disasters, pandemics or fear of pandemics, or a combination of these or other factors. As of 
December 31, 2019, our primary markets were south Louisiana (approximately 86% of our total deposits of $1.7 billion), southeast 
Texas (approximately 7% of our total deposits) and west Alabama (approximately 7% of our total deposits). We also had pending 
our acquisition of Cheaha Financial Group, Inc., with approximately $179.0 million in deposits in east Alabama as of December 
31, 2019.

Since January 2020, the coronavirus outbreak which has spread to many countries including the U.S., and the fear of further spread 
of the coronavirus, have caused significant disruption in the international and U.S. economies and financial markets. Further spread 
of the coronavirus could cause additional quarantines, cancellation of events and travel, business and school shutdowns, reduction
in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial
market instability. Accordingly, further spread, or the fear of further spread, of the coronavirus could have a material adverse effect 
on our business in many ways, including but not limited to by reducing customer’s willingness to enter into loans, impairing the
ability of our borrowers to repay their loans, reducing the value of collateral securing the loans, and disrupting our operations, 
which could have a material adverse impact on our business, financial conditions, results of operations and cash flows.

While economic conditions in our primary markets of south Louisiana, southeast Texas, and, following our recent acquisition of 
Bank of York, west Alabama, generally have improved after the end of the most recent economic recession in 2009, concerns exist
regarding the strength and length of the recovery. A return of recessionary conditions and/or negative developments in the domestic 
and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, 
and our ongoing operations, costs and profitability. Declines in real estate value and sales volumes and high unemployment levels
may result in higher than expected loan delinquencies and a decline in demand for our products and services. These negative 
events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition. 

In addition, geopolitical matters, including international political unrest, disruptions in international trade patterns, and slow growth 
in sectors of the global economy, as well as acts of terrorism, war and other violence could result in disruptions or volatility in the 
financial markets, which could reduce the value of our assets or reduce liquidity. These negative events could have a material 
adverse effect on our results of operations and financial condition, including our liquidity position, and may affect our ability to 
access capital.

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16

Our business strategy includes the continuation of our multi-state 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 primarily through de novo branching and through the acquisition of other financial institutions. Since
our bank was founded in June 2006, through December 31, 2019, we have opened 12 de novo branches and completed six whole 
bank acquisitions. As of December 31, 2019, we had pending the acquisition of Cheaha Financial Group, Inc., with four branch 
locations in Calhoun County, Alabama, and the acquisition of two branch locations in the Texas cities of Alice and Victoria from 
PlainsCapital Bank, which was completed on February 21, 2020. During
2019, we expanded our operations outside our historical 
l
i
south Louisiana base and into Texas and Alabama, progressing towards our goal to build a premier regional community bank.We 
south Louisiana base and into Texas and Alabama, progressing towards our goal to build a premier regional community bank.
intend to continue pursuing a multi-state 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:

d d

id

hi

i

• 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.

•

•

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.

De Novo Branching; Branch Acquisitions. 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 de novo 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, or other factors. We may also be unable to identify and acquire suitable operating
branches. 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. During the last three fiscal years, we have opened five de novo
branches, and we expect to open two de novo branches in 2020.

•  Expansion into New Markets. As we grow into new markets in Louisiana, Texas, Alabama and potentially 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. Competition for qualified personnel in these markets may be intense, and there may be a 
limited number of qualified persons with knowledge of and experience in the commercial banking industry in these markets.
Even if we identify individuals that we believe could assist us in establishing a presence in a new market, we may be unable 
to recruit these individuals away from other banks or may be unable to do so at a reasonable cost. In addition, we may face
difficulties in identifying and gaining access to customers. Prior to our acquisition of Mainland in the first quarter of 2019,
we operated exclusively in Louisiana. With our acquisition of Mainland, we entered Texas, and we subsequently entered 
Alabama with our acquisition of Bank of York in November 2019. The financial services industry in these areas is highly
competitive, and the challenges of operating in three states may be greater than we anticipate.

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.

17

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 they
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.

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. In addition, 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. In addition, a cybersecurity event impacting us or our customers’ data could have a negative impact on our reputation
and could materially damage our customers’ confidence in, and willingness to do business with, us. Damage to our reputation 
could also adversely affect our credit ratings and access to capital markets.

Our  business  is  concentrated  in  southern  Louisiana,  southeast  Texas,  and  western Alabama,  and  an  economic  downturn
affecting these areas may magnify the adverse effects and consequences to us.

We currently conduct our operations primarily in southern Louisiana, and more specifically, in the Baton Rouge, New Orleans
and Lafayette metropolitan areas and in the greater Houston, Texas area. In November 2019, we entered western Alabama with 
our acquisition of Bank of York and currently have pending our acquisition of Cheaha Financial Group, Inc. in eastern Alabama. 
At December 31, 2019, approximately 69% of the secured loans in our total loan portfolio were secured by properties and other 
collateral located in Louisiana, while approximately 62% of the loans in our loan portfolio (measured by dollar amount) were 
made to borrowers who live or work in either the Baton Rouge, New Orleans or Lafayette metropolitan areas. At December 31, 
2019, approximately 3% of the secured loans in our total loan portfolio were secured by properties and other collateral located ind
Texas, and 3% were secured by properties and other collateral located in Alabama. Our pending acquisition of Cheaha Financial 
Group, Inc., if completed, would more than double our loans secured by properties and other collateral in Alabama. This geographic 
concentration imposes a greater risk to us than to our competitors in the area who maintain significant operations outside of our 
selected markets. Accordingly, any regional or local economic downturn, or natural or man-made disaster, that affects southern
Louisiana,  southeast  Texas, Alabama,  or  existing  or  prospective  property  or  borrowers  in  such  areas  may  affect  us  and  our 
profitability  more  significantly  and  more  adversely  than  our  more  geographically  diversified  competitors.  Deterioration  in 
economic conditions in the markets we serve could result in one or more of the following:

• 

• 

• 

• 

an increase in loan delinquencies;

an increase in problem assets and foreclosures;

a decrease in the demand for our products and services;

a decrease in the value of collateral for loans, especially real estate, in turn reducing our customers’ borrowing power,
the value of assets associated with problem loans and collateral coverage; and/or

• 

a decrease in supply of customer deposits, which could impact our liquidity.

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  selected  markets  and  these 
businesses are adversely affected, our financial condition and results of operations may be negatively affected.

18

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,m
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 experienced significant volatility and a decline in oil and gas prices. For example, Brent crude prices declined from
highs above $100 per barrel in mid-2014 to lows below $40 per barrel in late 2015 and early 2016. Prices generally rose to levels
above $70 per barrel in the third quarter of 2018 before declining to close at $50.57 at the end of 2018, and closed at $35.79 on
March 11, 2020. While we consider our exposure to the energy sector to not be significant, comprising approximately 3.7% of 
total loans at December 31, 2019, should the price of oil and gas decline further and/or remain at a low price for an extended 
period, the general economic conditions particularly in our south Louisiana and southeast Texas 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, 2019, approximately 79% 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 
but its value may deteriorate during the time the credit is extended. Declines in real estate values in our 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.

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Commercial real estate loans may expose us to greater risks than our other real estate loans.

Our loan portfolio includes commercial real estate loans, which are secured by owner-occupied and nonowner-occupied commercial 
properties. As of December 31, 2019, our owner-occupied commercial real estate loans totaled $352.3 million, or 21% of our total 
loan portfolio and our nonowner-occupied commercial real estate loans totaled $378.7 million, or 22% of our total loan portfolio.

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.
Weak economic conditions may impair the borrower’s business operations and typically slow the execution of new leases.  Such
economic conditions may also lead to existing lease turnover. As a result of these factors, vacancy rates for retail, office and 
industrial space may increase. High vacancy rates could also result in rents falling. The combination of these factors could result 
in deterioration in the fundamentals underlying the commercial real estate market and the deterioration in value of some of our
loans. 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.

ff

Our portfolio of commercial and industrial loans has grown as a proportion of our total loans, and may expose us to greater 
risk than other loans.

Our portfolio of commercial and industrial loans has grown from 11% of total loans at December 31, 2017 to 19% at December 
31, 2019. These loans primarily consist of working capital lines of credit and equipment loans, typically secured by accounts 
receivable or inventory, or the relevant equipment. Repayment of these loans generally comes from the generation of cash flow 
as the result of the borrower’s business operations. Commercial lending generally involves different risks from those associated 
with commercial real estate lending or construction lending. Although commercial loans may be collateralized by 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 
19

upon terms and conditions, are the chief considerations when assessing the risk of a commercial and industrial loan. The liquidation
of collateral, if any, is considered a secondary source of repayment because equipment and other business assets may, among other 
things, be obsolete or of limited resale value.

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.

Our business depends on our ability to successfully measure and manage credit risk. As a lender, we are exposed to the risk that 
the principal of and interest on a loan will not be paid timely or at all and that the value of any collateral supporting a loan will be 
insufficient to cover any exposure to loss on a loan. Management 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 loana
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, 2019, our allowance for loan losses as percentages of total loans and nonperforming loans was 0.63% and 
171.1%, respectively. The determination of the appropriate level of the allowance is inherently subjective, involves a high degree
of judgment and complexity, 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.

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.

aa

Commercial and industrial and commercial real estate loans generally are viewed as having more risk of default than residential
real estate loans or other loans or investments. These types of loans are also typically larger than residential real estate loans and 
other consumer loans. Because the loan portfolio contains a significant number of commercial and industrial and commercial real
estate loans with relatively large balances, the deterioration of a material amount of these loans may cause a significant increase 
in our allowance for loan losses, non-performing assets, TDRs and/or past due loans. An increase in our allowance for loan losses,
non-performing assets, TDRs, and/or past due loans could result in a loss of earnings, or an increase in loan charge-offs, which
would have an adverse impact on our results of operations and financial condition.

In addition, in June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard (ASU No.
2016-13), referred to as Current Expected Credit Loss (“CECL”) that requires that the measurement of all expected credit losses
for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable
forecasts, and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as 
well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the new standard amends the 
accounting for credit losses on purchased financial assets with credit deterioration. We are currently evaluating the potential impact 
of this new accounting standard on our financial statements. The adoption of ASU 2016-13 is likely to result in an increase in the 
allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known
and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be 
incurred over the life of the portfolio. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, 
we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan
portfolio, as well as the prevailing economic conditions and forecasts, as of the adoption date. This amendment was originally 
effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, but the FASB
has since delayed the effective date such that ASU 2016-13 will currently be effective for us, as a smaller reporting company, on 
January 1, 2023.  We expect to adopt the standard as soon as practicable, based upon progress on our implementation plan. Adoption
prior to the revised effective date of January 1, 2023 is permitted by the ASU.

20

In December 2018, the FDIC, Federal Reserve and Office of the Comptroller of the Currency issued a final rule to allow a banking
organization to elect to phase in the regulatory capital impact over a three-year period commencing with time of adoption of the 
new standard. A failure to effectively measure the impact of the new CECL standard may result in significant overstatement or 
understatement  of  our  allowance  for  loan  and  lease  losses,  and  in  the  event  of  an  understatement,  may  necessitate  that  we
significantly increase our allowance for loan and lease losses, which could adversely affect our net income.

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.

y

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.

Changes in interest rates could have an adverse effect on our profitability.

The majority of our assets and liabilities are monetary in nature and, as a result, we are subject to significant risk from changes
in interest rates. Changes in interest rates may affect our net interest income as well as the valuation of our assets and liabilities. 
We cannot predict with certainty changes in interest rates, which are affected by many factors beyond our control, including
inflation, recession, unemployment, money supply, competition for loans and deposits, domestic and international events, changes
in the United States and other financial markets and the policies of the Federal Reserve. Our earnings depend significantly on our 
net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities, and 
interest expense on interest-bearing liabilities, such as deposits and borrowings. We expect to 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 move
contrary to our position, this “gap” may work against us, and our earnings may be adversely affected.

aa

When interest-bearing liabilities mature or reprice more quickly, or to a greater degree than interest-earning assets in a period, an
increase in interest rates could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly,
or to a greater degree than interest-bearing liabilities, falling interest rates could reduce net interest income. Additionally, anyy
increase in the general level of interest rates may also, among other things, adversely affect our current borrowers’ ability to repay
variable rate loans, the demand for loans and our ability to originate loans and decrease loan prepayment rates, or could increase
the cost of the Company’s deposits. Conversely, a decrease in the general level of interest rates, among other things, may lead tod
prepayments on our loan and mortgage-backed securities portfolios, which could result in decreased yields on earning assets.
Volatility in interest rates may increase competition for deposits, and raise the cost of deposits. Accordingly, changes in the general 
level of market interest rates may adversely affect our net yield on interest-earning assets, loan origination volume and our overall
results. 

21

Although our asset-liability management strategy is designed to control and mitigate exposure to the risks related to changes in
the general level of market interest rates, those rates are affected by many factors outside of our control, including inflation, 
recession, unemployment, money supply, international disorder, instability in domestic and foreign financial markets and policies
of various governmental and regulatory agencies, particularly the Board of Governors of the Federal Reserve. Adverse changes 
in the U.S. monetary policy or in economic conditions could materially and adversely affect us. We may not be able to accurately 
predict the likelihood, nature and magnitude of those changes or how and to what extent they may affect our business. We also 
may not be able to adequately prepare for or compensate for the consequences of such changes. Any failure to predict and prepare 
for changes in interest rates or adjust for the consequences of these changes may adversely affect our earnings and capital levels
and overall results.

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. For additional information, see Item 7, Management’s Discussion and 
Analysis of Financial Condition and Results of Operations - Risk Management - Interest Rate Risk.

Changes in the method pursuant to which the LIBOR and other benchmark rates are determined could adversely impact our 
business and results of operations.

Our floating-rate funding, certain hedging transactions and certain of the products we offer, such as floating-rate loans, determine
their applicable interest rate or payment amount by reference to a benchmark rate, such as LIBOR, or to an index, currency, basket 
or other financial metric. LIBOR and certain other benchmark rates are the subject of recent national, international, and other
regulatory guidance and proposals for reform. In July 2017, the Chief Executive of the Financial Conduct Authority announced 
that the Financial Conduct Authority intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR 
after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed 
after 2021. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide
submissions for the calculation of LIBOR. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as
an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such 
changes in views or alternatives may be on the markets for LIBOR-linked financial instruments. Certain of our LIBOR-based 
financial products and contracts, including, but not limited to, hedging products, debt obligations, investments and loans, extend 
beyond 2021. We are in the process of assessing the impact that a cessation or market replacement of LIBOR would have on these
various products and contracts.

Loss of deposits or a change in deposit mix could increase the Company’s funding costs.

’

Deposits are a low cost and stable source of funding.  We compete with banks and other financial institutions for deposits.  Funding
costs could increase if the Company loses deposits and replaces them with more expensive sources of funding, customers may
shift their deposits into higher cost products, or the Company may need to raise its interest rates to avoid losing deposits. Higher 
funding costs reduce the Company’s net interest margin, net interest income and net income.

uu

By engaging in derivative transactions, we are exposed to credit and market risk, which could adversely affect our profitability tt
and financial condition.

We manage interest rate risk by utilizing derivative instruments, such as interest rate swap contracts, 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 area
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.

22

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, in the greater Houston, Texas area, and in west Alabama. Our selected markets
are susceptible to major hurricanes, floods, tropical storms, tornadoes and other natural disasters and adverse weather, the nature
and severity of which can be difficult to predict. These natural disasters can disrupt our operations, cause widespread propertytt
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. In addition, Hurricane Katrina in August 2005 and the historic flooding of Baton Rouge and surrounding areas in August 
2016 had significant impacts in several markets in which we conduct business. Hurricane Harvey caused significant damage and 
flooding in Texas when it made landfall in August 2017. The severity and impact of future severe weather events are difficult to
predict and may be exacerbated by global climate change. 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 uu
other products and services.

aa

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.

We have historically sold 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.

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 the 
Bank, on a stand-alone basis, must meet regulatory requirements. Also, we may need capital to finance our growth, including 
through acquisitions. During 2019, we sold $25.0 million of subordinated notes structured to qualify as tier 2 capital, and $30.0 
million of common stock, in part to fund 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.

23

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. Our ability to compete successfully depends on a
number of factors, including customer convenience, quality of service, personal contacts, pricing and range of products. If we are
unable to successfully compete, our business, financial condition, results of operations and growth prospects will be materially
adversely affected.

Our integration of the operations of recently acquired companies may be more difficult, costly or time-consuming than expected,
and the anticipated benefits and cost savings of these acquisitions by the Company may not be realized.

The acquisition component of the Company’s growth strategy depends on the successful integration of our acquisitions. During 
2019, we completed the acquisitions of Mainland and Bank of York, and on December 20, 2019 announced the pending acquisition 
of Cheaha. Additionally, on February 21, 2020, we completed the acquisition and assumption of certain assets and liabilities of
two PlainsCapital Bank branches. The acquisition of Mainland represented the Company’s first expansion outside Louisiana, and 
the  acquisition  of  Bank  of York  was  the  Company’s  first  expansion  into Alabama.  Prior  to  the  closing  of  an  acquisition,  the 
Company and acquired business operated independently from each other. The success of the acquisitions or proposed acquisitions,
including anticipated benefits and cost savings, will depend, in part, on the Company’s ability to successfully combine and integrate
the businesses within the Company’s projected timeframe in a manner that permits growth opportunities and does not materially
disrupt existing customer relationships or result in decreased revenues due to loss of customers.

A number of factors could affect the Company’s ability to successfully combine its business with acquired businesses, including
the following:

• 

• 

• 

• 

• 

• 

the potential for unexpected costs, delays and challenges that may arise in integrating the acquisition into the Company’s
existing business;

unexpected obstacles to the Company’s ability to realize the expected cost savings and synergies from the acquisition;

the Company’s ability to retain key employees and maintain relationships with significant customers and depositors of the 
acquired business;

diversion of management’s attention and resources during integration efforts;

challenges related to operating at new locations and in two new states; and

discovery following the acquisition of previously unknown liabilities associated with the acquired business.

If the Company encounters significant difficulties in the integration process, the anticipated benefits of the acquisitions or any
proposed acquisition may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve the anticipated 
benefits of the acquisition or proposed acquisition in the timeframes projected by the Company could result in increased costs and 
decreased revenues. This could have a dilutive effect on the combined company’s earnings per share. If the Company is unable 
to successfully integrate the business it acquires, the Company’s business, financial condition and results of operations may be
materially adversely affected.

We may face risks with respect to future acquisitions.

When we attempt to expand our business in Louisiana, Texas, Alabama and potentially other states through mergers and acquisitions, 
we seek targets that are culturally similar to us, have experienced management, have relationship-based business models, have 
minimal legacy credit issues 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:

• 

• 

• 

the time and costs associated with identifying and evaluating potential acquisition and merger targets;

inaccuracies in the estimates and judgments used to evaluate credit, operations, management and market risks with respect 
to the target institution;

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;

24

• 

• 

• 

• 

• 

our ability to finance an acquisition and possible dilution to our existing shareholders;

the diversion of our management’s attention to the negotiation of a transaction;

the incurrence of an impairment of goodwill associated with an acquisition and adverse effects on our results of operations;

entry into new markets where we lack experience; and

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:

• 

• 

• 

• 

• 

• 

• 

• 

customer loss and revenue loss;

the loss of key employees;

the disruption of our operations and business;

our inability to achieve expected cost savings and synergies;

our inability to maintain and increase competitive presence;

greater than expected negative effects of any divestitures required by regulatory authorities;

possible inconsistencies in standards, control procedures and policies; and/or

unexpected problems with operations, personnel, technology, credit and costs, or reduced cost savings.

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.

n

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.

aa

a

The Company may not be able to complete announced acquisitions.

We must generally satisfy a number of meaningful conditions before we can complete an announced acquisition of another bank 
or bank holding company, including federal and/or state regulatory approvals. In determining whether to approve a proposed bank
or bank holding company acquisition, bank regulators will consider, among other factors, the effect of the acquisition on competition, 
financial condition and future prospects, including current and projected capital ratios and levels, the competence, experience and 
integrity of management and record of compliance with laws and regulations, the convenience and the needs of the communities 
to be served. We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted.
In specific cases, we may be required to sell banks or branches, or take other actions as a condition to receiving regulatory approval. 
An inability to satisfy other conditions necessary to consummate an acquisition transaction, such as third-party litigation, a judicial 
order blocking the transaction or lack of shareholder approval, could also prevent us from completing an announced acquisition.

aa

If the goodwill that we record in connection with a business acquisition becomes impaired, it could require charges to earnings, s
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.

25

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, 2019, our goodwill totaled $26.1 million, $8.7 million of which was recognized 
in 2019 in connection with two acquisitions. 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.

Factors outside our control could result in impairment of or losses with respect to our investment securities.

Under applicable accounting standards, we are required to review our securities portfolio periodically for the presence of other-
than-temporary impairment, taking into consideration current market conditions, the extent and nature of changes in fair value,
issuer rating changes and trends, volatility of earnings, current analysts’ evaluations, our ability and intent to hold securities until 
a recovery of fair value, as well as other factors. Adverse developments with respect to one or more of the foregoing factors may
require us to deem particular securities to be other-than-temporarily impaired, with the credit related portion of the reduction in 
the value recognized as a charge to the results of operations in the period in which the impairment occurs. Market volatility may
make it difficult to value certain securities. Subsequent valuations, in light of factors prevailing at that time, may result in significant 
changes in the values of these securities in future periods.

Any of these factors could require us to recognize further impairments in the value of our securities portfolio, which may have an
adverse effect on our results of operations in future periods. 

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 tor
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 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).

h

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.

26

Cyber-attacks or other security breaches could adversely affect our operations, net income or reputation.

As part of our banking business, we collect, use and hold sensitive data concerning individuals and businesses with whom we 
have a banking relationship. Threats to data security, including unauthorized access and cyber-attacks, rapidly emerge and change,
exposing us to additional costs for protection or remediation and competing time constraints to secure our data in accordance with
customer  expectations  and  statutory  and  regulatory  requirements.  The  increasing  sophistication  of  cyber-criminals  makes  it 
extremely difficult to keep up with new threats and could result in a breach of our data security. Patching and other measures to
protect existing systems and servers could be inadequate, especially on systems that are being retired. Controls employed by our uu
information  technology  department  and  third-party  vendors  could  prove  inadequate.  We  could  also  experience  a  breach  by 
intentional or negligent conduct on the part of our employees or other internal sources or by merchants using our customers’ debit 
and credit cards, software bugs or other technical malfunctions, or other causes. Cyber threats are rapidly evolving and we may
not be able to anticipate or prevent all such attacks. As a result of any of these threats, our computer systems and/or our customer 
accounts could become vulnerable to misappropriation of confidential information, account takeover schemes or cyber-fraud. Our 
systems and those of our third-party vendors may become vulnerable to damage or disruption due to circumstances beyond our 
or their control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and 
malware.

A breach of our security that results in unauthorized access to our data could result in violations of applicable privacy and other 
laws and expose us to a disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines 
and penalties, customer notification requirements, significant increases in compliance and insurance costs, increases in costs for 
measures to minimize these risks, loss of confidence in our security measures, and reputational damage, any of which could 
individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition, prospects,
and shareholder value.

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. We may not be able to anticipate all cyber security breaches or 
implement effective preventative measures against such breaches.

We face significant operational and other risks related to our activities, which could expose us to negative publicity, litigation 
and/or regulatory action.

tt

We are exposed to many types of operational risks, including business continuity, process, third party, information technology,
human resource, model, and fraud risks. Our fraud risks include fraud committed by external parties against the Company or our 
customers and fraud committed internally by our associates. Certain fraud risks, including identity theft and account takeover may
increase as a result of customers’ account or personally identifiable information being obtained through breaches of retailers’ or 
other third parties’ networks. We have established processes and procedures intended to identify, measure, monitor, mitigate, report 
and analyze these risks; however, there are inherent limitations to our risk management strategies as there may exist, or develop 
in the future, risks that we have not appropriately anticipated, monitored or identified. If our risk management framework proves
ineffective, we could suffer unexpected losses, we may have to expend resources detecting and correcting the failure in our systems
and we may be subject to potential claims from third parties and government agencies. We may also suffer severe reputational 
damage. Any of these consequences could adversely affect our business, financial condition or results of operations. In particular,
the  unauthorized  disclosure,  misappropriation,  mishandling  or  misuse  of  personal,  non-public,  confidential  or  proprietary
information of customers could result in significant regulatory consequences, reputational damage and financial loss.

Because the nature of the financial services industry involves a high volume of transactions, certain errors may be repeated or
compounded before they are discovered and successfully rectified. The Company’s necessary dependence upon automated systems 
to record and process our transaction volume may further increase the risk that technical flaws or associate tampering or manipulation 
of those systems will result in losses that are difficult to detect. We also may be subject to disruptions of our operating systems 
arising  from  events  that  are  wholly  or  partially  beyond  our  control  (for  example,  computer  viruses  or  electrical  or 
telecommunications outages), which may give rise to disruption of service to customers and to financial loss or liability. The
Company is further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be
subject to the same risk of fraud or operational errors by their respective employees we are) and to the risk that the Company (or 
our vendors’) business continuity and data security systems prove to be inadequate.

27

Our success depends on our ability to respond to the threats and opportunities of fintech innovation.

Fintech developments, such as bitcoin or other types of cryptocurrency and the development of alternative payment systems, have
the  potential  to  disrupt  the  financial  industry  and  change  the  way  banks  do  business.  Investment  in  new  technology  to  stay 
competitive would result in significant costs and increased risks of cyber-attacks. Our success depends on our ability to adapt tot
the pace of the rapidly changing technological environment, which is crucial to retention and acquisition of customers. On July
31, 2018, the Office of the Comptroller of the Currency announced it will grant limited-purpose national bank charters to fintech
companies that offer bank products and services. The federal charter would allow fintech companies to operate nationwide under 
a single set of national standards, without needing to seek state-by-state licenses or joining with brick-and-mortar banks, which
could have the effect of allowing fintech companies to more easily compete with us for financial products and services in the 
communities we serve. In October 2019, a federal district court blocked the OCC’s ability to issue such charters. The OCC has
filed an appeal which is still pending.

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.

ff

t

We may be subject to increased litigation which could result in legal liability and damage to our reputation.

The Company and the Bank have been named from time to time as defendants in litigation relating to our businesses and activities. 
Litigation may include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. 
We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental 
and self-regulatory agencies regarding our business. These matters also could result in adverse judgments, settlements, fines,
penalties, injunctions or other relief.

In addition, in recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the 
basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise 
that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has
assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other 
creditors or shareholders. Substantial legal liability or significant regulatory action against us could materially adversely affect 
our business, financial condition or results of operations, or cause significant harm to our reputation.

28

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 under federal and state banking laws and regulations that govern 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. The Dodd-Frank Wall Street Reform and Consumer Protection Act 
of 2010, which was signed into law on July 21, 2010, significantly changed the bank regulatory structure and affected a wide
range of areas of financial institutions and their holding companies.  For example, it, among other things,  (i) established the Bureau 
of Consumer Financial Protection which has broad rulemaking and enforcement authority over consumer financial products and 
services, (ii) increased the regulation of consumer protections regarding residential mortgage originations and servicing, and (iii)
limited the interchange fees payable on debit card transactions. 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,  which  could  have  a  material  adverse  effect  on  our  business,  financial 
condition, results of operations and growth prospects.

u

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.

Federal regulators periodically examine our business, and we may be required to remediate adverse examination findings.

The financial services industry is subject to intense scrutiny from bank supervisors in the examination process and aggressive 
enforcement of regulations on both the federal and state levels. The Federal Reserve, and the OCC, 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. Failure to comply with any applicable regulations and supervisory expectations related thereto 
could result in fines, penalties, lawsuits, regulatory sanctions, reputation damage or restrictions on business.

r

29

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. We are generally unable to control the amount of premiums that we are required to pay for FDIC 
deposit insurance. 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. 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.

ff

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 OCC’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.

a

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.

In addition, bank regulatory agencies consider the effectiveness of a financial institution’s anti-money laundering activities and 
other regulatory compliance matters when reviewing bank mergers and bank holding company acquisitions.  Accordingly, non-
compliance with the applicable regulations could materially impair the Company’s ability to enter into or complete mergers and 
acquisitions.

30

Our use of third-party vendors and our other ongoing third-party business relationships are subject to increasing regulatory
requirements and attention.

We regularly use third-party vendors as part of our business. We also have substantial ongoing business relationships with other 
third parties. These types of third-party relationships are subject to increasingly demanding regulatory requirements and attention
by our federal bank regulators. Regulation requires us to perform due diligence and ongoing monitoring and control over our third-
party  vendors  and  other  ongoing  third-party  business  relationships.  In  certain  cases  we  may  be  required  to  renegotiate  our 
agreements with these vendors to meet these requirements, which could increase our costs. We expect that our regulators will hold 
us responsible for deficiencies in our oversight and control of our third party relationships and in the performance of the parties 
with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and 
control over our third-party vendors or other ongoing third party business relationships or that such third parties have not performed 
appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial 
penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect our business,
financial condition or results of operations.

rr
aa

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:

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

actual or anticipated variations in our quarterly and annual operating results, financial condition or asset quality;

changes in general economic or business conditions, both domestically and internationally;

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;

changes in the credit, mortgage and real estate markets

the number of securities analysts covering us;

our creditworthiness;

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;

changes in market valuations or earnings of companies that investors deemed comparable to us;

the average daily trading volume of our common stock;

future issuances of our common stock or other securities;

changes in dividends on our common stock;

additions or departures of key personnel;

perceptions in the marketplace regarding our competitors and/or us;

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving
our competitors or us; and

other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the
financial services industry.

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.

31

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 uu
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, 2019, we had 11,228,775 shares outstanding and 357,214 shares subject to
options granted under our incentive plan. On December 19, 2019, we sold 1,290,323 shares of our common stock in a private 
placement and have registered those shares for resale under the Securities Act of 1933, as amended (the “Securities Act”). Becauseaa
our other outstanding shares of common stock either were issued in an offering registered under 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 8% of shares
outstanding as of December 31, 2019) and 168,216 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 or may be issued in a private placement and registered for 
resale under the Securities Act.

aa

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. In addition, our existing and future debt agreements limit, or may
limit, our ability to pay dividends. Under the terms of our 5.125% Fixed-to-Floatings Rate Subordinated Notes due 2020, we may 
not pay a dividend if either our parent company or the Bank, both immediately prior to the declaration of the dividend and after 
giving effect to the payment of the dividend, would not maintain regulatory capital ratios that are as “well capitalized” levels for 
regulatory capital purposes. We are also prohibited from paying dividends upon and during the continuance of any Event of Default 
under such notes.

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 statutes and regulations require, among other things, that the Bank maintain certain levels of capital in order 
to pay a dividend. Further, 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.

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:

d

• 

• 

• 

• 

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;

enable our board of directors to increase the size of the board and fill the vacancies created by the increase;

enable our board of directors to amend our by-laws without shareholder approval;

require advance notice for director nominations and other shareholder proposals; and

32

• 

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.

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.

33

Item 1B. Unresolved Staff Comments

Not applicable.

34

Item 2. Properties

Our main office, which serves as our executive and operations center, is located at 10500 Coursey Boulevard in Baton Rouge, 
Louisiana. In addition, we operate 30 branch offices located in Ascension (2), East Baton Rouge (6), Jefferson (2), Lafayette (2),
Livingston (1), St. Tammany (1), Tangipahoa (1) West Baton Rouge (1), East Feliciana (2), West Feliciana (1), Evangeline (3) 
and Calcasieu (1) Parishes, Louisiana, three branch offices located in Galveston (2) and Houston (1) Counties, Texas, two branch
offices located in Sumter County, Alabama and, as of February 21, 2020, two branch offices located in Victoria (1) and Jim Wells 
(1) Counties, Texas. We also have a stand-alone automated teller machine in Baton Rouge, Louisiana and one stand-alone interactive
teller machine in Lake Charles, Louisiana.

We own our main office and all of our branch offices in Louisiana and Alabama, with the exception of one leased branch location, 
opened in October 2019. Each of our owned branch facilities is a stand-alone building, equipped with an automated teller machine,
on-site parking, and drive-up access. Of the branches acquired from Mainland, located in Texas, one location is owned and two 
are leased properties. Both branches acquired from PlainsCapital, also located in Texas, are leased properties. We believe that our 
facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.

t

We also own two tracts of land in East Baton Rouge Parish and a tract of land in each of the following parishes: St. Mary Parish;
Lafayette Parish; Jefferson Parish; and Calcasieu Parish. Each tract of land has been designated as a future branch location. The
tract of land in Calcasieu Parish is currently being developed and will operate as a full-service branch location in 2020. The timing 
of the development of the remaining tracts of land is uncertain. In addition, we lease a building in our New Orleans market that 
has been designated as a future branch location. 

35

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 operations, cash flows, growth prospects or capital levels, nor were 
any such proceedings terminated during the fourth quarter of 2019.

aa
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36

Item 4. Mine Safety Disclosures

Not applicable.

37

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is listed on the Nasdaq Global Market (the “Nasdaq”) under the symbol “ISTR.” As of March 11, 2020, there 
were approximately 750 holders of record of our common stock.

Dividend Policy

The Company has paid a quarterly dividend since 2011 and intends to continue to declare dividends on a quarterly basis. The 
declaration of dividends is at the discretion of our board of directors and will depend on our financial performance, future prospects,
regulatory requirements and other factors deemed relevant by the board of directors.

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.  
In addition, our existing and future debt agreements limit, or may limit, our ability to pay dividends. Under the terms of our 5.125%
Fixed-to-Floating Rate Subordinated Notes due 2029, we may not pay a dividend if either our parent company or the Bank, both
immediately prior to the declaration of the dividend and after giving effect to the payment of the dividend, would not maintain
regulatory capital ratios that are at “well capitalized” levels for regulatory capital purposes. We are also prohibited from paying 
dividends upon and during the continuance of any Event of Default under such notes. Finally, our ability to pay dividends may 
be limited on account of the junior subordinated debentures that we assumed through acquisitions. We must make payments on 
the junior subordinated debentures before any dividends can be paid on our common stock.

aa

t

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.

Stock Performance Graph

The following graph compares the cumulative total shareholder return on the Company’s common stock over a measurement 
period beginning January 1, 2015 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 $1 billion and $5 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 January 1, 2015, the date our common stock began publicly trading on the Nasdaq, and that all dividends were
reinvested.

38

Index

Investar Holding Corporation

Russell 3000

SNL U.S. Bank $1B-$5B

Investar Holding Corporation

Russell 3000

SNL U.S. Bank $1B-$5B

Investar Holding Corporation

Russell 3000

SNL U.S. Bank $1B-$5B

$

$

$

12/31/2014

6/30/2015

12/31/2015

6/30/2016

100.00

$

109.85

$

127.33

$

100.00

100.00

101.94

105.82

100.48

111.94

111.41

104.12

110.49

12/31/2016

6/30/2017

12/31/2017

6/30/2018

135.28

$

166.41

$

175.35

$

113.27

161.04

123.39

161.37

137.21

171.69

201.73

141.63

186.49

12/31/2018

6/30/2019

12/31/2019

181.86

$

175.30

$

130.02

150.42

154.35

165.05

177.70

170.35

182.85

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, 2019 to October 31, 2019

November 1, 2019 to November 30, 2019

December 1, 2019 to December 31, 2019

(a) Total Number of 
Shares (or Units)
Purchased(1)

(b) Average Price
Paid per Share (or
Unit)

127

$

—

—

127

$

23.70

—

—

23.70

(c ) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs

(d) Maximum Number (or 
Approximate Dollar 
Value) of Shares (or 
Units) That May Be
Purchased Under the
Plans or Programs (2)

—

—

—

—

326,334

326,334

326,334

326,334

(1)

(2)

Shares surrendered to cover the payroll taxes due upon the vesting of restricted stock.

On February 5, 2019, the Company announced that its board of directors authorized the repurchase of an additional 300,000 shares of the Company’s 
common stock under its stock repurchase plan, in addition to the 86,240 shares that were remaining as authorized for repurchase at December 31, 2018.
On June 26, 2019, the Company announced that its board of directors authorized the repurchase of an additional 300,000 shares of the Company’s common 
stock.

39

Unregistered Sales of Equity Securities

Information regarding the Company’s unregistered sales of equity securities during the period covered by this report has been 
previously included in the Current Report on Form 8-K.

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.

40

Item 6. Selected Financial Data

The following table sets forth selected historical financial information and other data as of and for the years ended December 31,
2019,  2018,  2017,  2016,  and  2015.  The  selected  financial  data  is  derived  from  our  audited  historical  consolidated  financial
statements. The 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)

Financial Condition Data

Total assets

2019(1)

2018

As of December 31,
2017(1)

2016

2015

$

2,148,916

$

1,786,469

$

1,622,734

$

1,158,960

$

1,031,555

Total gross loans, net of allowance for loan losses

1,681,275

1,391,371

1,250,888

Allowance for loan losses

Investment securities

Goodwill and other intangible assets

Noninterest-bearing deposits

Interest-bearing deposits

Total deposits

Total borrowings

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

819,822

6,128

139,779

3,175

90,447

646,959

737,406

170,205

11,969

109,350

2015

37,340

5,882

31,458

1,865

29,593

8,344

27,353

10,584

3,511

7,073

10,700

274,214

31,035

351,905

1,355,801

1,707,706

183,318

127,223

241,976

2019(1)

9,454

265,047

19,787

217,457

1,144,274

1,361,731

232,549

27,150

182,262

7,891

235,561

19,926

216,599

1,008,638

1,225,237

212,553

64,018

172,729

886,375

7,051

183,142

3,234

108,404

799,383

907,787

126,499

12,809

112,757

As of and for the year ended December 31,
2017(1)

2016

2018

$

89,443

$

73,891

$

53,346

$

43,152

$

24,625

64,818

1,908

62,910

6,216

48,168

20,958

4,119

16,839

16,521

57,370

2,570

54,800

4,318

41,882

17,236

3,630

13,606

10,829

42,517

1,540

40,977

3,815

32,342

12,450

4,248

8,202

8,413

34,739

2,079

32,660

5,468

26,639

11,489

3,609

7,880

41

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

Total equity to total assets
Tangible equity to tangible assets(4)
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

2019(1)

As of and for the year ended December 31,
2017(1)

2018

2016

$

$

1.68

1.66

0.23

21.55

18.79

$

1.41

1.39

0.17

19.22

17.13

$

0.96

0.96

0.10

18.15

16.06

$

1.11

1.10

0.04

15.88

15.42

2015

0.98

0.97

0.03

15.05

14.62

11,228,775

9,931,497

9,484,219

9,538,891

9,514,926

8,399,584

7,101,851

7,107,187

7,264,282

7,214,045

10,031,018

9,664,843

8,456,928

7,149,834

7,258,008

0.85%

0.81%

0.62%

0.71%

0.77%

8.21

3.51

67.81

3.28

13.55

0.30%

0.37

0.63

171.09

0.04

7.68

3.61

67.89

3.40

12.09

0.54%

0.42

0.67

158.94

0.08

5.65

3.39

69.80

3.19

10.78

0.46%

0.29

0.63

214.43

0.07

6.99

3.32

66.25

3.14

3.80

0.52%

0.22

0.79

356.16

0.14

6.60

3.61

68.72

3.42

3.26

0.30%

0.32

0.82

254.16

0.05

11.26%

10.20%

10.64%

9.73%

10.60%

9.96

10.45

11.67

12.03

15.02

9.20

9.81

11.15

11.59

13.46

9.53

10.66

11.75

12.24

14.22

9.48

10.10

11.4

11.75

12.47

10.32

11.39

0.1167

12.05

12.72

(1)

(2)

(3)

(4)

Selected consolidated financial data includes the effect of mergers from the date of each merger. On July 1, 2017, the Company acquired Citizens Bancshares, 
Inc. and its wholly-owned subsidiary, Citizens Bank, by merger with and into the Company and Bank, respectively. On December 1, 2017, the Company
acquired BOJ Bancshares, Inc. and its wholly-owned subsidiary, The Highlands Bank, by merger with and into the Company and Bank, respectively. On 
March 1, 2019, the Company acquired Mainland Bank, by merger with and into the Bank. On November 1, 2019, the Company acquired Bank of York, 
by merger with and into the Bank. References in this document to assets purchased and liabilities assumed in acquisition transactions reflect the fair value
of such assets and liabilities on the date of acquisition, unless the context indicates otherwise.

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.

aa

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.

y

t

42

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, National Association (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. Certain risks, uncertainties and other factors, including those set forth
under Item 1A, Risk Factors in Part I, and elsewhere in this Annual Report on Form 10-K, may cause actual results to differ 
materially from those projected results discussed in the forward-looking statement appearing in this discussion and analysis.

aa

ff

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:

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

business and economic conditions generally and in the financial services industry in particular, whether nationally, regionally
or in the markets in which we operate; including evolving risks to economic activity posed by the coronavirus;

our ability to achieve organic loan and deposit growth, and the composition of that growth;

changes (or the lack of changes) in interest rates, yield curves and interest rate spread relationships that affect our loan and 
deposit pricing;

possible  cessation  or  market  replacement  of  LIBOR  and  the  related  effect  on  our  LIBOR-based  financial  products  and 
contracts, including, but not limited to, hedging products, debt obligations, investments, and loans;

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;

our dependence on our management team and our ability to attract and retain qualified personnel;

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;

inaccuracy of the assumptions and estimates we make in establishing our allowance for loan losses and other estimates;

the concentration of our business within our geographic areas of operation in Louisiana, Texas and Alabama;

concentration of credit exposure;

any deterioration in asset quality and higher loan charge-offs, and the time and effort necessary to resolve problem assets;

a reduction in liquidity, including as a result of a reduction in the amount of deposits we hold or other sources of liquidity;tt

our potential growth, including our entrance or expansion into new markets, and the need for sufficient capital to support 
that growth;

difficulties in identifying attractive acquisition opportunities and strategic partners that will complement our relationship
banking approach;

our ability to complete any pending acquisitions and efficiently integrate completed acquisitions into our operations, meet 
the regulatory requirements related to such acquisitions, retain the customers of acquired businesses and grow the acquired 
operations;

• 

the impact of litigation and other legal proceedings to which we become subject;

43

• 

• 

• 

• 

• 

• 

• 

data processing system failures and errors;

cyber attacks and other security breaches;

competitive pressures in the commercial finance, retail banking, mortgage lending and consumer finance industries, as well 
as the financial resources of, and products offered by, competitors;

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;

changes in the scope and costs of FDIC insurance and other coverages;

governmental monetary and fiscal policies;

hurricanes, floods, 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

• 

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.

mm

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, National Association, we provide full banking services, excluding trust 
services, tailored primarily to meet the needs of individuals and small to medium-sized businesses. Our primary areas of operation
are south Louisiana (approximately 86% of our total deposits as of December 31, 2019), including Baton Rouge, New Orleans, 
Lafayette and their surrounding areas; as of March 1, 2019, southeast Texas, including Houston and its surrounding area; and as
of November 2019, west Alabama, including York and its surrounding area. 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, including whole-bank acquisitions and strategic branch acquisitions. We currently operate 30 full service
branches, including three branches from our acquisition of  Mainland Bank on March 1, 2019 (in Texas City, Houston and Dickinson, 
Texas), two branches from our acquisition of Bank of York on November 1, 2019 (in York and Livingston, Alabama) and two
branches acquired in February 2020 from PlainsCapital Bank (in Alice and Victoria, Texas). We have completed six whole-bank 
acquisitions since 2011 and regularly review acquisition opportunities. In addition to our branches acquired through acquisitions, 
during our last three fiscal years, we opened five de novo branch locations.

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 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.

44

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, financial analysts and 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,yy
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).

r

Total stockholders’ equity - GAAP

$

241,976

$

182,262

$

172,729

$

112,757

$

109,350

2019

2018

2017

2016

2015

As of and for the year ended December 31,

Adjustments:

Goodwill
Core deposit intangible

Trademark intangible

Tangible equity

Total assets - GAAP

Adjustments:

Goodwill

Core deposit intangible

Trademark intangible

Tangible assets

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

Efficiency ratio(1)
Noninterest expense

Net interest income
Noninterest income

Efficiency ratio

$

$

$

$

$

$

26,132

4,803

100

210,941

2,148,916

26,132

4,803

100

$

$

17,424

2,263

100

162,475

1,786,469

17,424

2,263

100

$

$

17,086

2,740

100

152,803

1,622,734

17,086

2,740

100

$

$

2,684

450

100

109,523

1,158,960

2,684

450

100

$

$

2,684

491

—

106,175

1,031,555

2,684

491

—

2,117,881

$

1,766,682

$

1,602,808

$

1,155,726

$

1,028,380

11,228,775
21.55

(2.76)

18.79

11.26%

(1.30)

9.96%

48,168

64,818

6,216

$

$

$

9,484,219
19.22

(2.09)

17.13

10.20%

(1.00)

9.20%

41,882

57,370

4,318

$

$

$

9,514,926
18.15

(2.09)

16.06

10.64%

(1.11)

9.53%

32,342

42,517

3,815

$

$

$

7,101,851
15.88

(0.46)

15.42

9.73%

(0.25)

9.48%

26,639

34,739

5,468

$

$

$

7,264,282
15.05

(0.43)

14.62

10.60%

(0.28)

10.32%

27,353

31,458

8,344

67.81%

67.89%

69.80%

66.25%

68.72%

(1)

Calculated as noninterest expense divided by the sum of net interest income (before provision for loan losses) and noninterest income.

45

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.

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.

aa

46

Intangible Assets.  Our  intangible  assets  consist  of  goodwill,  core  deposit  intangibles,  and  a  trademark  intangible.  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. 

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.

•

•

•

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.

47

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 anaa
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.

mm

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, particularly stock
options, requires us to make assumptions regarding dividend yields, expected stock price volatility, and the expected life of thet
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.

aa

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 thet
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.

aa

We recognize interest and penalties on income taxes as a component of income tax expense.

Overview of Financial Condition and Results of Operations

Net income for the year ended December 31, 2019 totaled $16.8 million, or $1.66 per diluted share, compared to $13.6 million,
or $1.39 per diluted share, for the year ended December 31, 2018. This represents a $3.2 million, or a 23.8%, increase in net 
income. The increase can mainly be attributed to the Company’s year-over-year interest-earning asset growth.

Key components of the Company’s performance during the year ended December 31, 2019 are summarized below.

•  Total assets grew to $2.1 billion at December 31, 2019, an increase of 20.3% from $1.8 billion at December 31, 2018.

•  Total loans, net of allowance for loan losses at December 31, 2019 were $1.7 billion, an increase of $289.9 million, or 

20.8% compared to $1.4 billion at December 31, 2018.

48

•  Total deposits were $1.7 billion at December 31, 2019, an increase of $346.0 million, or 25.4%, compared to deposits of 
$1.4 billion at December 31, 2018. Noninterest-bearing deposits increased $134.4 million, or 61.8%, to $351.9 million 
compared to $217.5 million at December 31, 2018.

•  Net  interest  income  for  the  year  ended  December 31,  2019  was  $64.8  million,  an  increase  of  $7.4  million,  or  13.0%, 
compared to $57.4 million for the year ended December 31, 2018. This increase was mainly driven by growth in interest-
earning assets with an increase in interest income of $15.6 million compared to the year ended December 31, 2018, with
$12.6 million due to an increase in volume and $3.0 million due to an increase in rate. The increase in interest income was 
partially  offset  by  an  increase  in  interest-bearing  liabilities  resulting  in  an  increase  in  interest  expense  of  $8.1  million
compared to the year ended December 31, 2018, with $2.0 million due to an increase in volume and $6.1 million due to an 
increase in rate.

•  The Bank completed two acquisitions during the year ended December 31, 2019. The acquisition of Mainland Bank in
Texas City, Texas was completed on March 1, 2019, and the acquisition of Bank of York in York, Alabama was completed 
on November 1, 2019. See further discussion in Acquisitions below.

•  The Bank opened two new branch locations during the fourth quarter of 2019. One branch is located in Lafayette, Louisiana,  
and the other branch is located in Westlake, Louisiana and is the Bank’s first branch in the Lake Charles market area.

•  The Company repurchased 359,906 shares of its common stock through its stock repurchase program at an average price

of $23.09 during the year ended December 31, 2019.

Certain Events That Affect Year-over-Year Comparability

Acquisitions.  On March 1, 2019, the Company completed the acquisition of Mainland Bank (“Mainland”), a Texas state bank 
located in Texas City, Texas. The Company acquired 100% of Mainland’s outstanding common shares for approximately $18.6 
million in the form of 763,849 shares of the Company’s common stock. The acquisition of Mainland expanded the Company’s 
branch footprint into Texas and increased the core deposit base to help position the Company to continue to grow. On the date of 
acquisition, Mainland had total assets with a fair value of approximately $128.4 million, $82.4 million in loans, and $107.6 million
in deposits, and served the residents of Harris and Galveston counties through three branch locations. The Company recorded a 
core deposit intangible and goodwill of $2.4 million and $4.5 million, respectively, related to the acquisition of Mainland.

On November 1, 2019, the Company completed the acquisition of Bank of York, an Alabama state bank located in York, Alabama. 
All of the issued and outstanding shares of Bank of York common stock were converted into aggregate cash merger consideration 
of $15.0 million. On the date of acquisition, Bank of York had total assets with a fair value of $102.0 million, $46.1 million in
loans,  and  $85.0  million  in  deposits,  and  served  the  residents  of  Sumter  County  through  two  branch  locations  and  one  loan
production office in Tuscaloosa County. The Company recorded a core deposit intangible and goodwill of $0.9 million and $4.2
million, respectively, related to the acquisition of Bank of York.

Debt and Equity Raise.  During the fourth quarter of 2019, we completed both a subordinated debt issuance and a common stock 
offering. We issued and sold $25.0 million in fixed-to-floating rate subordinated notes due in 2029. The common stock offering 
generated net proceeds of $28.5 million through the issuance of 1.3 million common shares at a price of $23.25 per share. The
proceeds from the subordinated debt issuance and common stock offering were raised for general corporate purposes and potential
strategic acquisitions.

Change in Tax Laws.  On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA made broad 
and complex changes to the U.S. tax code that affected the Company’s income tax rate in 2017 and 2018, including requiring the
revaluation of the Company’s deferred tax assets and liabilities as of December 31, 2017 as a result of the lower corporate tax
rates to be realized beginning January 1, 2018. The TCJA reduced the U.S. federal corporate income tax rate from 35% to 21%.

Discussion and Analysis of Financial Condition

Total assets were $2.1 billion at December 31, 2019, an increase of 20.3% from total assets of $1.8 billion at December 31, 2018. 
Our total assets of $1.8 billion at December 31, 2018 represents a 10.1% increase from total assets of $1.6 billion at December
31, 2017. The growth experienced since December 31, 2017 can be attributed to organic growth of the Company through the hiring
of a number of key bankers, including experienced commercial lenders, five de novo branch openings, as well as two acquisitions
completed in 2019 which added assets with a fair value of $230.4 million.

49

Loans

General. Loans constitute our most significant asset, comprising 79%, 78%, and 78% of our total assets at December 31, 2019,
2018 and 2017, respectively. Loans increased $291.2 million, or 20.8%, to $1.7 billion at December 31, 2019 from $1.4 billion
at December 31, 2018. Loans increased $142.0 million, or 11.3%, to $1.4 billion at December 31, 2018 from $1.3 billion at 
December 31, 2017.

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).

2019

2018

December 31,

2017

2016

2015

Percentage 
of
Total
Loans

Amount

Percentage
of
Total
Loans

Amount

Percentage
of
Total
Loans

Amount

Percentage
of
Total
Loans

Amount

Percentage
of
Total 
Loans

Amount

Mortgage loans on
real estate:

Construction and 
land development

1-4 Family

Multifamily

Farmland

Commercial real
estate

321,489

60,617

27,780

Owner-occupied

352,324

Nonowner-
occupied

Commercial and 
industrial

Consumer

378,736

323,786

29,446

$ 197,797

11.7% $ 157,946

11.3% $ 157,667

12.5% $ 90,737

10.2% $ 81,863

11.0%

19.0

3.6

1.6

20.8

22.4

19.2

1.7

287,137

50,501

21,356

298,222

328,782

210,924

45,957

20.5

3.6

1.5

21.3

23.5

15.0

3.3

276,922

51,283

23,838

22.0

4.1

1.9

177,205

42,759

8,207

19.8

4.8

0.9

156,300

29,694

2,955

272,433

21.6

180,458

20.2

137,752

264,931

21.0

200,258

22.4

150,831

135,392

76,313

10.8

6.1

85,377

108,425

9.6

12.1

69,961

116,085

21.0

4.0

0.4

18.5

20.2

9.4

15.5

Total loans

$ 1,691,975

100% $ 1,400,825

100% $ 1,258,779

100% $ 893,426

100% $ 745,441

100%

Our focus on a relationship-driven banking strategy and the hiring of experienced commercial lenders are the primary reasons for 
our organic loan growth. Over the last three fiscal years, we have increased our focus on commercial real estate loans and commercial 
and industrial loans, including adding and expanding a new Commercial and Industrial division in early 2018. In addition, we 
completed two acquisitions in 2017 and two acquisitions in 2019.

The decrease in the consumer loan portfolio during this period is primarily a result of pay-downs of portfolio loans. At December 
31, 2019, indirect auto loans made up 43.7% of the consumer loan portfolio. The Company discontinued accepting indirect auto 
loan applications on December 31, 2015 and expects its consumer loan portfolio as a percentage of the total loan portfolio to 
continue to decrease over time. At December 31, 2019, the weighted average remaining term of the indirect auto loan portfolio
was 2.0 years.

At  December  31,  2019,  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 $676.1 million, an increase of $167.0 million, or 
32.8%, compared to the business lending portfolio of $509.1 million at December 31, 2018. The business lending portfolio at 
December 31, 2018 increased $101.3 million, or 24.8%, compared to $407.8 million at December 31, 2017.

The following table sets forth loans outstanding at December 31, 2019, 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.

50

(dollars in thousands)

Mortgage loans on real estate:

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

Construction and land development

$

146,587

$

26,422

$

19,189

$

5,314

$

285

$

197,797

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

49,782

2,953

7,714

30,052

40,376

182,280

6,500

466,244

122,513

343,731

$

$

88,504

30,177

11,720

157,603

165,852

95,196

20,196

595,670

553,251

42,419

47,054

24,730

7,280

91,555

126,765

31,137

2,567

24,600

111,549

321,489

184

315

55,790

45,673

6,931

178

2,573

751

17,324

70

8,242

5

60,617

27,780

352,324

378,736

323,786

29,446

$

$

350,277

342,240

$

$

138,985

137,734

$

$

140,799

131,275

$

$

1,691,975

1,287,013

8,037

1,251

9,524

404,962

466,244

$

595,670

$

350,277

$

138,985

$

140,799

$

1,691,975

$

$

$

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, 2019 and 
December 31, 2018, we had no concentrations of loans exceeding 10% of total loans other than loans in the categories listed in 
the table above.

Investment Securities

We  purchase  investment  securities  primarily  to  provide  a  source  for  meeting  liquidity  needs,  with  return  on  investment  as  a
secondary  consideration.  We  also  use  investment  securities  as  collateral  for  certain  deposits  and  other  types  of  borrowing.
Investment securities represented 13% of our total assets and totaled $274.2 million at December 31, 2019, an increase of $9.2
million, or 3.5%, from $265.0 million at December 31, 2018. The investment securities balance at December 31, 2018 represented 
a $29.4 million, or 12.5%, increase from $235.6 million at December 31, 2017. The increase in investment securities at December 31, 
2019 compared to December 31, 2018 and 2017 resulted from purchases of multiple investment types in our current portfolio.

r

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).

2019

December 31,

2018

2017

Balance

Percentage
of
Portfolio

Balance

Percentage
of
Portfolio

Balance

Percentage
of
Portfolio

Obligations of U.S. government agencies and 
corporations

$

Obligations of state and political subdivisions

Corporate bonds

Residential mortgage-backed securities

Commercial mortgage-backed securities

Equity securities

33,651

42,936

19,163

106,868

71,596

—

12.3% $

15.7

6.9

39.0

26.1

—

7,870

44,685

15,509

140,294

56,689

—

3.0% $

16.9

5.8

52.9

21.4

—

8,168

47,098

16,210

115,614

47,629

842

3.5%

20.0

6.9

49.0

20.2

0.4

Total investment securities

$

274,214

100% $

265,047

100% $

235,561

100%

51

The investment portfolio consists of available for sale and held to maturity securities. We do not hold any investments classified 
as trading. 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 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.

ff

Effective January 1, 2018, per the requirements of the FASB’s Accounting Standards Update (“ASU”) 2016-01, the carrying values 
of the Company’s equity securities historically included in the available for sale securities portfolio are included in equity securities
on the consolidated balance sheet and are adjusted for unrealized gains or losses with any changes being recognized in net income 
in the consolidated statement of income.

Typically, our investment securities are available for sale. There were no purchases of held to maturity securities during the years 
ended December 31, 2019, 2018 and 2017. In the year ended December 31, 2019, we purchased $110.4 million of investment 
securities, compared to purchases of $72.3 million and $104.2 million of investment securities during the years ended December 31,
2018 and 2017, respectively. During the year ended December 31, 2019, we also sold $65.6 million of investment securities, the
majority of which were sold during the second quarter of 2019, as we sought to better position the balance sheet for potential 
reductions  in  short  term  interest  rates.  Mortgage-backed  securities  represented  65%,  68%,  and  61%  of  the  available  for  sale 
securities we purchased in 2019, 2018 and 2017, respectively. Of the remaining securities purchased in 2019, 2018 and 2017, 
29%, 25%, and 33%, respectively, were U.S. government agency securities, while 4%, 1%, and 3%, respectively, were municipal 
securities. We only purchase corporate bonds that are investment grade securities issued by seasoned corporations.

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, 2019 (dollars in thousands).

One Year or Less

After One Year
Through Five Years

After Five Years
Through Ten Years

After Ten Years

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Held to maturity:

Obligations of states and political 

subdivisions

Residential mortgage-backed securities

$

790

—

5.88% $

3,575

5.88% $

5,122

5.88% $

—

—%

—

—

—

—

—

4,922

2.85

Available for sale:

Obligations of U.S. government agencies 

and corporations

Obligations of states and political 

subdivisions

Corporate bonds

Residential mortgage-backed securities

Commercial mortgage-backed securities

—

—

2,608

2.11

26,907

3.35

4,136

3.26

2,174

1.94

—

—

—

—

—

—

4,694

4,139

197

1,887

2.34

3.53

3.07

2.78

13,552

15,106

294

10,692

2.64

3.65

2.87

2.49

12,500

—

100,457

58,761

4.15

—

2.47

2.89

$

2,964

$ 17,100

$ 71,673

$ 180,776

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 21%.

Premises and Equipment

Bank premises and equipment increased $10.7 million, or 26.6%, to $50.9 million at December 31, 2019 from $40.2 million at 
December 31, 2018. The increase was mainly attributable to the completion of two acquisitions which added $3.5 million in bank 
premises and equipment, the addition of right-of-use assets related to leases of $3.3 million, and the addition of two de novo
branches. Bank premises and equipment increased $2.7 million, or 7.2%, to $40.2 million at December 31, 2018 from $37.5 million
at December 31, 2017. The increase was primarily due to the addition of a de novo branch, equipment upgrades at branches
acquired in 2017, and the interactive teller machine launched in 2018. 

52

Deferred Tax Liability/Asset

At December 31, 2019, the net deferred tax liability was $0.1 million, compared to net deferred tax assets of $1.1 million and $1.3 
million at December 31, 2018 and 2017, respectively. The decrease in the deferred tax asset to a net deferred tax liability at 
December 31, 2019 compared to December 31, 2018 is mainly attributable to the increase in the unrealized gain on available for 
sale (“AFS”) securities during the period.

The Bank acquired net operating loss carryforwards as a result of acquisitions. At December 31, 2019, we held approximately
$0.5 million in net operating loss carryforwards that expire in 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 $0.1 million to offset our taxable income each year through 2023. 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.

Deposits

The  following  table  sets  forth  the  composition  of  our  deposits  and  the  percentage  of  each  deposit  type  to  total  deposits  at 
December 31, 2019, 2018 and 2017 (dollars in thousands).

2019

Amount

351,905

335,478

198,999

115,324

706,000

Percentage of
Total
Deposits

20.6% $

19.6

11.7

6.8

41.3

December 31,

2018

Amount

217,457

295,212

179,340

104,146

565,576

Percentage of
Total
Deposits

16.0% $

21.7

13.2

7.6

41.5

2017

Amount

Percentage of
Total
Deposits

216,599

208,683

146,140

117,372

536,443

17.7%

17.0

11.9

9.6

43.8

$

1,707,706

100.0% $

1,361,731

100.0% $

1,225,237

100.0%

Noninterest-bearing demand deposits

$

Interest-bearing demand deposits

Money market deposit accounts

Savings accounts

Time deposits

Total deposits

Total deposits were $1.7 billion at December 31, 2019, an increase of $346.0 million, or 25.4%, from total deposits of $1.4 billion
at December 31, 2018. The Company acquired approximately $84.8 million in deposits from Bank of York in the fourth quarter 
of 2019 and $107.6 million in deposits from Mainland Bank in the first quarter of 2019. The remaining increase is due to organic
growth. Total deposits at December 31, 2018 increased $136.5 million, or 11.1%, from total deposits of $1.2 billion at December
31, 2017 due to organic growth. 

The following table shows the contractual maturities of certificates of deposit and other time deposits greater than $100,000 at 
December 31, 2019 and 2018 (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

December 31,

2019

2018

Certificates of
Deposit

Other Time
Deposits

Certificates of
Deposit

Other Time
Deposits

$

89,995

$

2,162

$

76,435

$

74,759

198,801

90,541

13,935

1,421

1,852

4,954

1,629

72,177

100,215

67,820

9,737

1,488

220

1,840

4,704

1,835

$

468,031

$

12,018

$

326,384

$

10,087

53

Borrowings

Total borrowings include securities sold under agreements to repurchase, advances from the Federal Home Loan Bank (“FHLB”), 
unsecured lines of credit with First National Bankers Bank (“FNBB”) and TIB-The Independent BankersBank (“TIB”) totaling 
$60.0 million, subordinated debt and junior subordinated debentures.

Securities sold under agreements to repurchase increased $1.0 million to $3.0 million at December 31, 2019 from $2.0 million at
December 31, 2018. Our advances from the FHLB were $131.6 million at December 31, 2019, a decrease of $74.9 million from 
FHLB advances of $206.5 million at December 31, 2018 as we utilized available capital to pay off a portion of advances. There 
were no funds drawn on the unsecured lines of credit at December 31, 2019 or 2018.

The average balances and cost of funds of short-term borrowings at December 31, 2019, 2018 and 2017 are summarized in the
table below (dollars in thousands).

Average Balances

December 31,

Cost of Funds

December 31,

2019

2018

2017

2019

2018

2017

Federal funds purchased and other short-

term borrowings

Securities sold under agreements to 

repurchase

Total short-term borrowings

$

$

110,603

$

126,670

$

96,774

2.09%

1.84%

1.37%

2,936

18,420

32,335

113,539

$

145,090

$

129,109

1.32

2.07%

0.99

1.73%

0.33

1.11%

2029 Notes. On November 12, 2019, Investar Holding Corporation (“Investar”) issued $25.0 million in aggregate principal amount 
of its 5.125% Fixed-to-Floating Rate Subordinated 2029 Notes due 2029 (“2029 Notes”) at 100% of their face amount in a private 
placement to certain institutional and other accredited investors. The 2029 Notes have a maturity date of December 30, 2029.
From and including the date of issuance to, but excluding December 30, 2024, the 2029 Notes will bear interest at an initial fixed 
rate of 5.125% per annum, payable semi-annually in arrears. From and including December 30, 2024 and thereafter, the 2029 
Notes will bear interest at a floating rate equal to the then-current three-month LIBOR as calculated on each applicable date of 
determination, or an alternative rate determined in accordance with the terms of the 2029 Notes if the three-month LIBOR cannot
be determined, plus 3.490%, payable quarterly in arrears.

Investar may redeem the 2029 Notes, in whole or in part, on or after December 30, 2024 or, in whole but not in part, under certain
limited circumstances set forth in the 2029 Notes. Any redemption by Investar would be at a redemption price equal to 100% of 
the principal balance being redeemed, together with any accrued and unpaid interest to the date of redemption.

Principal and interest on the 2029 Notes are not subject to acceleration, except upon certain bankruptcy-related events. The 2029 
Notes are unsecured, subordinated obligations of Investar and rank junior in right of payment to Investar’s current and future
senior indebtedness and to Investar’s obligations to its general creditors. The 2029 Notes are obligations of Investar only and are
not obligations of, and are not guaranteed by, any of the Investar’s subsidiaries. The 2029 Notes are structured to qualify as Tier 
2 capital for regulatory capital purposes.

d

2027 Notes. On March 24, 2017, Investar issued $18.6 million in aggregate principal amount of its 6.00% Fixed-to-Floating Rate 
Subordinated Notes due 2027 (the “2027 Notes”), at 100% of the aggregate principal amount of the 2027 Notes in an offering
registered under the Securities Act of 1933, as amended.

The 2027 Notes will mature on March 30, 2027. From and including the date of issuance, but excluding March 30, 2022, the 2027 
Notes will bear interest at an initial fixed rate of 6.00% per annum, payable semi-annually. From and including March 30, 2022
and thereafter, the 2027 Notes will bear interest at a floating rate equal to the then-current three-month LIBOR (but not less than 
zero) as calculated on each applicable date of determination, plus 3.945%, payable quarterly.

Principal and interest on the 2027 Notes are not subject to acceleration, except upon certain bankruptcy-related events. The 2027 
Notes are unsecured subordinated obligations of Investar. The 2027 Notes are subordinated in right of payment to the payment of
Investar’s existing and future senior indebtedness, including all of its general creditors. The 2027 Notes are obligations of Investar 
only and are not obligations of, and are not guaranteed by, any of the Investar’s subsidiaries. Investar may, beginning with the 
interest payment date of March 30, 2022, and on any interest payment date thereafter, redeem the 2027 Notes, in whole or in part,rr
at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest 
to but excluding the date of redemption. The 2027 Notes are structured to qualify as Tier 2 capital for regulatory capital purposes.

54

Junior subordinated debt of $5.9 million and $5.8 million at December 31, 2019 and 2018, respectively, represents the junior 
subordinated debentures that we assumed in connection with our acquisitions of BOJ Bancshares, Inc. in 2017 and First Community
Bank (“FCB”) in 2013.

Results of Operations

Performance Summary

2019 vs. 2018. For the year ended December 31, 2019, net income was $16.8 million, or $1.68 per basic common share and $1.66
per diluted common share, compared to net income of $13.6 million, or $1.41 per basic common share and $1.39 per diluted 
common share, for the year ended December 31, 2018. The increases in basic and diluted earnings per common share and net 
income were primarily driven by an increase in net interest income resulting from both organic loan growth and loans acquired 
during 2019, as well as an increase in the yields on interest-earning assets, offset, in part, by an increase in the cost of funds. The 
increase in net interest income was partially offset by an increase in noninterest expense.

uu

Return on average assets increased to 0.85% for the year ended December 31, 2019 from 0.81% for the year ended December 31, 
2018.  Return  on  average  equity  was  8.21%  for  the  year  ended  December 31,  2019  compared  to  7.68%  for  the  year  ended 
December 31, 2018. The increase in both return on average assets and return on average equity is mainly attributable to the $3.2
million increase in net income.

2018 vs. 2017. For the year ended December 31, 2018, net income was $13.6 million, or $1.41 per basic common share and $1.39 
per diluted common share, compared to net income of $8.2 million, or $0.96 per basic and diluted common share, for the year 
ended December 31, 2017. The increases in basic and diluted earnings per common share and net income were primarily driven 
by higher levels of net interest income resulting from both organic loan growth and loans acquired during 2017, as well as an 
increase in the yields on interest-earning assets, offset, in part, by an increase in the cost of funds. The increase in net interest 
income was partially offset by an increase in noninterest expense.

Return on average assets increased to 0.81% for the year ended December 31, 2018 from 0.62% for the year ended December 31, 
2017. Return on average equity was 7.68% for the year ended December 31, 2018 compared to 5.65% for the year ended December 
31, 2017. The increase in both return on average assets and return on average equity is mainly attributable to the $5.4 million
increase in net income.

Net Interest Income and Net Interest Margin

Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets 
and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest 
income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments and rates paid 
on deposits and other borrowings, the level of nonperforming loans, and the amount of noninterest-bearing liabilities supporting
earning assets.

The primary factors affecting net interest margin are changes in interest rates, competition, and the shape of the interest rate yield 
curve. The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the 
general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Funds target 
rate, which is the cost to banks of immediately available overnight funds, was lowered on December 16, 2008 to a historic low of 
0% to 0.25%, where it remained until December 16, 2015, when the target rate was increased slightly to 0.50% to 0.75%. Since 
December 31, 2015, the Federal Funds target rate increased a total of 175 basis points and remained at 2.25% to 2.50%, as of 
December 19, 2018, until it was lowered to 2.00 to 2.25% on July 31, 2019. The Federal Reserve further reduced the rate by 25
basis points on both September 18, 2019 to 1.75 to 2.00% and October 30, 2019 to 1.50 to 1.75%. On March 3, 2020, the Federal 
Reserve lowered the Federal Funds target rate to 1.00 to 1.25%, which the Federal Reserve stated was in response to the evolving
risks to economic activity posed by the coronavirus.

r

55

2019 vs. 2018. Net interest income increased 13.0% to $64.8 million for the year ended December 31, 2019 from $57.4 million
for the same period in 2018. Net interest margin was 3.51% for the year ended December 31, 2019, a decrease of 10 basis points 
from 3.61% for the year ended December 31, 2018. The increase in net interest income resulted from increases in both the volume
of interest-earning assets and the yield earned on those assets, partially offset by an increase in the volume of and rate paid ond
interest-bearing liabilities. These changes were driven both by organic loan and deposit growth and growth due to acquisitions 
during 2019, and the current interest rate environment. For the year ended December 31, 2019, average loans and average investment 
securities increased approximately $233.6 million and $15.4 million, respectively, while average interest-bearing deposits increased 
approximately $221.0 million and average total borrowings decreased approximately $29.2 million compared to the same period 
in 2018.

Interest income was $89.4 million for the year ended December 31, 2019 compared to $73.9 million for the same period in 2018. 
Loan interest income made up substantially all of our interest income for the years ended December 31, 2019 and 2018. Interest 
on our commercial real estate loans, commercial and industrial loans, and one-to-four family residential real estate loans constituted 
the three largest components of our loan interest income for the year ended December 31, 2019 at 81% of total interest income
on  loans.  Interest  on  our  commercial  real  estate  loans,  one-to-four  family  residential  real  estate  loans,  and  construction  and 
development loans constituted the three largest components of our loan interest income for the year ended December 31, 2018 at 
78% of total interest income on loans. The overall yield on interest-earning assets increased 19 basis points to 4.84% for the year 
ended December 31, 2019 compared to 4.65% for the same period in 2018. The loan portfolio yielded 5.26% for the year ended 
December 31, 2019 compared to 5.11% for the year ended December 31, 2018, while the yield on the investment portfolio was 
2.73% for the year ended December 31, 2019 compared to 2.57% for the year ended December 31, 2018.

Interest expense was $24.6 million for the year ended December 31, 2019, an increase of $8.1 million compared to interest expense 
of $16.5 million for the year ended December 31, 2018. While there was an increase in the volume of interest-bearing liabilities, 
the increase in interest expense is mainly attributable to the increase in the rate paid for these liabilities for the year ended December 
31, 2019 compared to December 31, 2018. The Federal Funds target rate increased 100 basis points during the year ended December
31, 2018, which affects the rate the Company pays for immediately available overnight funds, long-term borrowings, and deposits, 
and did not experience a slight decrease until July 31, 2019, as discussed above. For the year ended December 31, 2019, the cost 
of interest-bearing deposits increased 44 basis points to 1.53% and the cost of interest-bearing liabilities increased 38 basis points
to 1.67% compared to the same period in 2018.

2018 vs. 2017. Net interest income increased 34.9% to $57.4 million for the year ended December 31, 2018 from $42.5 million 
for the same period in 2017. Net interest margin was 3.61% for the year ended December 31, 2018, up 22 basis points from 3.39%
for the year ended December 31, 2017. The increase in net interest income resulted from increases in both the volume of interest 
earning assets and the yield earned on those assets, partially offset by an increase in both the volume of and rate paid on interest 
bearing liabilities. These changes were driven both by organic loan and deposit growth and growth due to acquisitions during 
2017, and the current interest rate environment. For the year ended December 31, 2018, average loans and average investment 
securities increased approximately $292.8 million and $43.9 million, respectively, compared to the same period in 2017, while 
average interest-bearing deposits and average short- and long-term borrowings increased approximately $188.9 million and $63.8 
million, respectively.

Interest income was $73.9 million for the year ended December 31, 2018 compared to $53.3 million for the same period in 2017.
Loan interest income made up substantially all of our interest income for the years ended December 31, 2018 and 2017. Interest 
on  our  commercial  real  estate  loans,  one-to-four  family  residential  real  estate  loans  and  construction  and  development  loans 
constituted the three largest components of our loan interest income for the years ended December 31, 2018 and December 31,
2017 at 78% and 76%, respectively, of total interest income on loans. The overall yield on interest-earning assets increased 40
basis points to 4.65% for the year ended December 31, 2018 compared to 4.25% for the same period in 2017. The loan portfolio
yielded 5.11% for the year ended December 31, 2018 compared to 4.72% for the year ended December 31, 2017, while the yield 
on the investment portfolio was 2.57% for the year ended December 31, 2018 compared to 2.37% for the year ended December 
31, 2017.

Interest expense was $16.5 million for the year ended December 31, 2018, an increase of $5.7 million compared to interest expense
of $10.8 million for the year ended December 31, 2017. While there was an increase in the cost of interest-bearing liabilities, the 
increase in interest expense is mainly attributable to the $252.6 million increase in the volume of these liabilities for the year ended 
December 31, 2018 compared to December 31, 2017. In addition, the Federal Funds target rate increased 100 basis points during 
the year ended December 31, 2018, which affects the rate the Company pays for immediately available overnight funds, long term 
borrowings, and deposits. For the year ended December 31, 2018, the cost of interest-bearing deposits increased 15 basis points
to 1.09% and the cost of interest-bearing liabilities increased 24 basis points to 1.29% compared to the same period in 2017.

56

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, 2019, 2018 and 2017. Averages presented below are daily averages 
(dollars in thousands).

As of and for the year ended December 31,

2019

Interest
Income/
Expense(1)

Average
Balance

Yield/ 
Rate(1)

Average
Balance

2018

Interest
Income/
Expense(1)

Yield/ 
Rate(1)

Average
Balance

2017

Interest
Income/
Expense(1)

Yield/ 
Rate(1)

$ 1,539,886

$

80,954

5.26% $ 1,306,264

$

66,750

5.11% $ 1,013,502

$

47,863

4.72%

240,751

31,780

34,905

1,847,322

22,969

26,107

90,949

(9,969)

6,650

790

1,049

89,443

2.76

2.49

3.00

4.84

222,948

34,159

5,793

815

24,126

533

1,587,497

73,891

2.60

2.39

2.21

4.65

180,769

32,427

4,265

790

28,524

428

1,255,222

53,346

2.36

2.44

1.50

4.25

17,219

19,927

73,472

(8,491)

15,534

8,892

61,387

(7,368)

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

$ 1,977,378

$ 1,689,624

$ 1,333,667

Liabilities and stockholders’
equity

Interest-bearing liabilities:

Deposits:

Interest-bearing demand

$

510,148

$

5,308

1.04% $

394,336

$

3,206

0.81% $

317,755

$

2,223

0.70%

Savings deposits

Time deposits

Total interest-bearing deposits

Short-term borrowings

Long-term debt

110,936

641,630

1,262,714

113,539

98,017

501

13,498

19,307

2,348

2,970

Total interest-bearing liabilities

1,474,270

24,625

0.45

2.10

1.53

2.07

3.03

1.67

116,544

530,881

567

7,621

1,041,761

11,394

145,090

95,692

2,511

2,616

1,282,543

16,521

0.49

1.44

1.09

1.73

2.73

1.29

78,444

456,690

852,889

129,109

47,922

446

5,381

8,050

1,430

1,349

1,029,920

10,829

0.57

1.18

0.94

1.11

2.81

1.05

Noninterest-bearing deposits

Other liabilities

Stockholders’ equity

283,274

14,717

205,117

Total liabilities and stockholders’

equity

$ 1,977,378

Net interest income/net interest

margin

220,068

9,817

177,196

147,856

10,782

145,109

$ 1,689,624

$ 1,333,667

$

64,818

3.51%

$

57,370

3.61%

$

42,517

3.39%

(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 of $1.9 million, $2.1 million and $1.4 million for the years ended December 31, 2019, 2018 and 2017, respectively,
and discounts and premiums that are amortized or accreted to interest income or expense.

57

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, 2019 compared to the year ended December 31, 2018 (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, 2019 vs.
Year ended December 31, 2018

Volume

Rate

Net(1)

$

11,939

$

2,265

$

14,204

462

(57)

238

12,582

941

(27)

1,590

(546)

64

2,022

395

32

278

2,970

1,161

(39)

4,287

383

290

6,082

$

10,560

$

(3,112) $

857

(25)

516

15,552

2,102

(66)

5,877

(163)

354

8,104

7,448

(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, gains on the sales of fixed assets and 
securities, servicing fees and fee income on serviced loans, interchange fees, and earnings on the Company’s bank owned life 
insurance policies. We expect to continue to develop new products that generate noninterest income, and enhance our existing
products, in order to diversify our revenue sources.

aa

2019 vs. 2018. Total noninterest income increased $1.9 million, or 44.0%, to $6.2 million for the year ended December 31, 2019
compared to $4.3 million for the year ended December 31, 2018. The increase is primarily due to the $0.9 million increase in other 
operating income and the $0.6 million increase in the fair value of equity securities. Other operating income includes, among other 
things, credit card, ATM and wire fees, and income recorded on an equity method investment. The increase in other operating
income for the year ended December 31, 2019 is mainly attributable to increased activity, in part due to the completion of two 
acquisitions in 2019.

Service charges on deposit accounts is the largest component of our noninterest income for the year ended December 31, 2019. 
These service charges include maintenance fees on accounts, account enhancement charges for additional deposit account features,
per item charges, overdraft fees, and treasury management charges. Service charges on deposit accounts increased 26.6% to $1.8 
million for the year ended December 31, 2019 compared to $1.5 million for the same period in 2018.

Servicing fees and fee income on serviced loans decreased $0.4 million, or 38.4%, to $0.6 million, for the year ended December 
31, 2019. This decrease is a result of the Bank exiting the indirect auto loan origination business at the end of 2015. Since thet
Bank did not originate auto loans for sale during the years ended December 31, 2019 and 2018, the servicing portfolio, which 
experienced regularly scheduled paydowns, was not replaced with new loans. We expect servicing fees and fee income on serviced 
loans to decrease over time until all serviced loans are paid off. At December 31, 2019, the weighted average remaining term of
the indirect auto loan portfolio was 2.0 years.

Interchange fees, which are fees earned on the usage of the Bank’s credit and debit cards, increased $0.2 million, or 19.5%, to
$1.1 million for year ended December 31, 2019 from $0.9 million for same period in 2018. The increase in interchange fees can
primarily be attributed to the increase in the volume of debit and credit card transactions following the Company’s acquisitions 
in 2019.

58

Income from bank owned life insurance increased $0.1 million to $0.7 million for the year ended December 31, 2019 from $0.6
million for the same period in 2018. This increase reflects increased interest earned on the Company’s bank owned life insurance 
policies.

Change in the fair value of equity securities for the year ended December 31, 2019 was an increase of $0.6 million and represents
the change in the fair value of marketable equity securities that, prior to January 1, 2018, were included as AFS investment securities 
in the Company’s consolidated balance sheet. With the adoption of ASU 2016-01 on January 1, 2018, equity securities can no 
longer be classified as AFS, and, therefore, marketable equity securities are disclosed as equity securities on the balance sheet 
with changes in the fair value reflected in noninterest income.

Gains on the sale of investment securities for the year ended December 31, 2019 increased to $0.3 million from $14,000 for the 
same period in 2018. We sold approximately $65.6 million in securities during the year ended December 31, 2019 compared to
sales of $7.0 million during the year ended December 31, 2018. 

2018 vs. 2017. Total noninterest income increased $0.5 million, or 13.2%, to $4.3 million for the year ended December 31, 2018 
compared to $3.8 million for the year ended December 31, 2017. The increase is primarily due to the $0.7 million increase in
service charges on deposit accounts driven by the $261.1 million increase in average deposit balances.

Service charges on deposit accounts is the largest component of our noninterest income for the year ended December 31, 2018. 
These service charges include maintenance fees on accounts, account enhancement charges for additional deposit account features,
per item charges, overdraft fees, and treasury management charges. Service charges on deposit accounts increased 89.4% to $1.5 
million for the year ended December 31, 2018 compared to $0.8 million for the same period in 2017.

Servicing fees and fee income on serviced loans decreased $0.5 million, or 35.0%, to $1.0 million, for the year ended December 
31, 2018. This decrease is a result of the Bank exiting the indirect auto loan origination business at the end of 2015. Since thet
Bank did not originate auto loans for sale during the years ended December 31, 2018 and 2017, the servicing portfolio, which 
experienced regularly scheduled paydowns, was not replaced with new loans. We expect servicing fees and fee income on serviced 
loans to decrease over time until all serviced loans are paid off. At December 31, 2018, the weighted average remaining term of
the indirect auto loan portfolio was 2.7 years.

Interchange fees, which are fees earned on the usage of the Bank’s credit and debit cards, increased $0.4 million, or 73.6%, to
$0.9 million for year ended December 31, 2018 from $0.5 million for same period in 2017. The increase in interchange fees can
primarily be attributed to the increase in the volume of debit and credit card transactions following the Company’s acquisitions 
in 2017.

Income from bank owned life insurance increased $0.4 million to $0.6 million for the year ended December 31, 2018 from $0.2
million for the same period in 2017. This increase reflects increased interest earned on the Company’s bank owned life insurance
policies.

Change in the fair value of equity securities for the year ended December 31, 2018 was a decrease of $0.3 million and represents 
the change in the fair value of marketable equity securities that, prior to January 1, 2018, were included as available for sale 
investment securities in the Company’s consolidated balance sheet. With the adoption of ASU 2016-01 on January 1, 2018, equity
securities can no longer be classified as available for sale, and, therefore, marketable equity securities are disclosed as equity
securities on the balance sheet with changes in the fair value reflected in noninterest income.

Gains on the sale of investment securities for the year ended December 31, 2018 decreased to $14,000 from $0.3 million for the 
same period in 2017. We sold approximately $7.0 million in securities during the year ended December 31, 2018 compared to
sales of $106.4 million during the year ended December 31, 2017.

Other operating income, which, among other items, consists of ATM fees and wire fees, was $0.5 million for the year ended 
December 31, 2018 compared to $0.3 million for the same period in 2017. The increase is mainly attributable to a $0.2 million
increase in ATM fees resulting from increased activity.

59

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 aa
our growing franchise. We focus on creating synergies promptly after completing an acquisition, as this is important to our earnings
success.

rr

tt

2019 vs. 2018. Total noninterest expense was $48.2 million for the year ended December 31, 2019, an increase of $6.3 million,
or 15.0%, from $41.9 million for the year ended December 31, 2018. This increase was driven by the increases in salaries and 
employee benefits, depreciation and amortization, and other operating expenses. 

Salaries and employee benefits increased $3.2 million, or 12.5%, to $28.6 million for the year ended December 31, 2019, compared 
to $25.5 million for the year ended December 31, 2018. The increase in salaries and employee benefits is mainly attributable the
increase in employees following the acquisitions of Mainland and Bank of York, and the additional staff needed for the two de 
novo branches opened in October and December 2019.

Depreciation and amortization increased $0.9 million, or 35.6%, to $3.5 million for the year ended December 31, 2019, compared 
to $2.6 million for the year ended December 31, 2018. The increase in depreciation and amortization was driven by the addition
of approximately $3.5 million in fixed assets acquired from Mainland and Bank of York. There were also various projects throughout 
the year, including equipment upgrades at acquired branches, as well as the addition of two de novo branches in the fourth quarter 
of 2019.

rr

Other operating expenses include security, business development, FDIC and OFI assessments, bank shares and property taxes,
charitable contributions, personnel training and development, filing fees, and other costs related to the operation of our business.
Other operating expenses increased $0.7 million, or 8.7%, to $8.3 million for the year ended December 31, 2019 from $7.7 million
for the same period in 2018. The increase in other operating expenses was primarily related to increases in software and telephone
expenses and bank shares tax.

Occupancy expense increased $0.5 million, or 33.3% to $1.8 million for the year ended December 31, 2019 from $1.4 million for 
the year ended December 31, 2018. This increase is primarily attributable to building rent, as the Bank acquired leases from 
Mainland for two of its branch locations and entered into a lease for one of the de novo branches opened in 2019.

2018 vs. 2017. Total noninterest expense was $41.9 million for the year ended December 31, 2018, an increase of $9.5 million,
or 29.5%, from $32.3 million for the year ended December 31, 2017. This increase is mainly attributable to the increases in botht
salaries and employee benefits and other operating expenses.

Salaries and employee benefits increased $6.8 million, or 36.3%, to $25.5 million for the year ended December 31, 2018, compared 
to $18.7 million for the year ended December 31, 2017. The increase in salaries and employee benefits is a result of the increase
in employees following the acquisitions of Citizens and BOJ, the additional staff needed for the two de novo branches opened in
June 2017, as well as the addition of the Commercial and Industrial lending group, including commercial lenders and related 
support staff, as well as other officers during the year ended December 31, 2018.

Other operating expenses include security, business development, FDIC and OFI assessments, bank shares and property taxes,
charitable contributions, personnel training and development, filing fees, and other costs related to the operation of our business.
Other operating expenses increased $2.0 million, or 34.0%, to $7.7 million for the year ended December 31, 2018 from $5.7
million for the same period in 2017. The increase in other operating expenses is mainly attributable to a full year of operating the 
additional eight branch locations acquired from Citizens and BOJ, both of which were completed during the year ended December 
31, 2017.

Occupancy expense increased $0.2 million, or 19.8% to $1.4 million for the year ended December 31, 2018 from $1.2 million for 
the year ended December 31, 2017. This increase is primarily attributable to repair and maintenance costs and utilities for existing
Bank premises, including the eight branch locations acquired and two de novo branches opened during 2017.

60

Income Tax Expense

2019 vs. 2018. Income tax expense for the year ended December 31, 2019 was $4.1 million compared to $3.6 million at December 
31, 2018. The effective tax rate for the years ended December 31, 2019 and 2018 was 19.7% and 21.1%, respectively. The income
tax expense for the year ended December 31, 2018 includes a $0.6 million charge as a result of the revaluation of the Company’s
deferred tax assets and liabilities required following the enactment of the TCJA.

2018 vs. 2017. Income tax expense for the year ended December 31, 2018 was $3.6 million compared to $4.2 million at December 
31, 2017. The effective tax rate for the years ended December 31, 2018 and 2017 was 21.1% and 34.1%, respectively. The decrease
in the Company’s effective tax rate for the year ended December 31, 2018 is a direct result of the TCJA, which lowered the 
corporate income tax rate from 35% to 21%. Refer to Note 17 to the Consolidated Financial Statements for further discussion of 
the TCJA.

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.

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 10 point risk-rating system, which assigns a risk grade to each borrower based on an
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:

•

•

•

•

•

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.

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.

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.

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.

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, 2019 and December 31, 2018, there were no loans classified as loss, while there were $0.1 million of loans 
classified as doubtful, $8.7 million and $9.5 million, respectively, of loans classified as substandard, and $4.4 million and $0.2
million, respectively, of loans classified as special mention as of such dates. Of our aggregate $13.2 million and $9.7 million
doubtful, substandard and special mention loans at December 31, 2019 and December 31, 2018, respectively, $7.1 million and 
$7.5 million, respectively, were acquired and marked to fair value at the time of their acquisition. At December 31, 2017, we had 
no doubtful or loss loans, and we had substandard and special mention loans of $5.7 million and $3.1 million, respectively.

61

An external loan review consultant is engaged annually by the risk management department to review 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 anaa
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.

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 $10.7 million at December 31, 
2019, an increase compared to $9.5 million at December 31, 2018 and $7.9 million at December 31, 2017, 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 thett
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 thet
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.

tt

Impaired loans at December 31, 2019, which include all TDRs and nonaccrual loans individually evaluated for impairment for 
purposes of determining the allowance for loan losses, were $2.5 million compared to $3.3 million at December 31, 2018, and 
$3.0 million at December 31, 2017. At December 31, 2019 and December 31, 2018, $0.1 million and $0.2 million, respectively, 
of the allowance for loan losses were specifically allocated to impaired loans, while $0.3 million of the allowance was specifically
allocated to such loans at December 31, 2017.

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 years ended December 31,
2019, 2018 and 2017, the provision for loan losses was $1.9 million, $2.6 million, and $1.5 million, respectively. The provision
recorded in each year is primarily due to the overall organic growth in our loan portfolio.

62

Total loans acquired from Mainland and Bank of York had carrying values of $83.6 million and $46.0 million, respectively, and 
fair values of $82.4 million and $46.1 million, respectively, 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. If future cash flows are not reasonably estimable, 
the Company accounts for the acquired loans using the cash basis method. 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 2019, 2018 or 2017. 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, 2019,
2018 and 2017.

The following table presents the allocation of the allowance for loan losses by loan category as of the dates indicated (dollars in 
thousands).

2019

2018

2017

2016

2015

December 31,

Mortgage loans on real estate:

Construction and development

$

1-4 Family

Multifamily

Farmland

Commercial real estate

Commercial and industrial
Consumer

Total

$

1,201
1,490

387

101

4,424

2,609

488

$

1,038
1,465

331

81

4,182

1,641

716

$

945
1,287

332

60

3,599

693

975

$

579
1,377

355

60

2,499

759

1,422

$

10,700

$

9,454

$

7,891

$

7,051

$

644
1,213

246

22

2,156

513

1,334

6,128

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 (dollars in thousands).

Mortgage loans on real estate:

Construction and development

1-4 Family

Multifamily

Farmland

Commercial real estate

Commercial and industrial

Consumer

Total

2019

2018

2017

2016

2015

December 31,

0.07%

0.07%

0.07%

0.06%

0.09%

0.09

0.02

0.01

0.26

0.15

0.03

0.10

0.02

0.01

0.30

0.12

0.05

0.10

0.03

—

0.29

0.06

0.08

0.15

0.04

0.01

0.28

0.09

0.16

0.16

0.03

—

0.29

0.07

0.18

0.63%

0.67%

0.63%

0.79%

0.82%

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.

d

63

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

Commercial real estate

Commercial and industrial
Consumer

Total charge-offs

Recoveries

Mortgage loans on real estate:

Construction and development

1-4 Family

Commercial real estate

Commercial and industrial
Consumer

Total recoveries

Net charge-offs

Balance at end of period

Net charge-offs to:

Loans - average

Allowance for loan losses

Allowance for loan losses to:

Total loans

Nonperforming loans

Year ended December 31,

2019

2018

2017

2016

2015

$

$

9,454

1,908

$

7,891

2,570

$

7,051

1,540

$

6,128

2,079

4,630

1,865

(51)

(62)

(24)

(252)

(411)

(800)

27

27

1

26

57

138

(662)

(24)

(167)

—

(481)

(513)

(1,185)

12

29

—

55

82

178

(1,007)

—

—

—

(270)

(495)

(765)

34

7

—

—

24

65

(27)

(57)

(526)

—

(618)

(1,228)

14

13

1

20

24

72

(700)

(1,156)

$

10,700

$

9,454

$

7,891

$

7,051

$

0.04%

6.19%

0.63%

171%

0.08%

10.65%

0.67%

159%

0.07%

8.87%

0.63%

214%

0.14%

16.39%

0.79%

356%

(17)

(78)

—

(58)

(477)

(630)

25

12

1

197

28

263

(367)

6,128

0.05%

5.99%

0.82%

254%

The allowance for loan losses to total loans ratio decreased to 0.63% at December 31, 2019 compared to 0.67% at December 31, 
2018 while the allowance for loan losses to nonperforming loans ratio increased to 171% at December 31, 2019 from 159% at 
December 31, 2018. 

The decrease in the ratio of the allowance for loan losses to total loans is primarily the result of acquired loans. As a result of the 
Mainland and Bank of York acquisitions in 2019, the Company is holding acquired loans that are carried net of a fair value 
adjustment for credit and interest rate marks and are only included in the allowance calculation to the extent that the reserve
requirement calculated when using management’s model used to reserve for its legacy loans exceeds the fair value adjustment. 
These acquired loans, which are included in our total loan balance, were not included in the allowance calculation for the years 
ended December 31, 2019, which caused the decrease in the allowance for loan losses to total loans compared to December 31, 
2018.

Nonperforming loans were $6.3 million, or 0.37% of total loans, at December 31, 2019, an increase of $0.4 million compared to
$5.9 million, or 0.42% of total loans, at December 31, 2018. Included in nonperforming loans are loans acquired in 2017 and 2019
with a balance of $4.6 million at December 31, 2019, or 73% of 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 the year ended December 31, 2019 were $0.7 million, or 0.04% of the average loan balance. Net charge-offs 
for the years ended December 31, 2018 and 2017 were $1.0 million and $0.7 million respectively, equal to 0.08% and 0.07%, 
respectively, of the average loan balance for the respective periods. For the years ended December 31, 2019, 2018, and 2017, the 
largest category of our charge-offs was consumer loans. Net charge-offs of consumer loans as a percentage of average consumer 
loans for the years ended December 31, 2019, 2018, and 2017 were 1.1%, 0.7%, and 0.5%, respectively. 

64

Management believes the allowance for loan losses at December 31, 2019 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.

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 (“TDR”). A 
TDR 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  subsequently  performs  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 loans reach 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. TDRs that are not performing in accordance with their restructured terms that are either contractually 90 days past duedd
or placed on nonaccrual status are reported as nonperforming loans.

ff

There were 18 loans, or credits, classified as TDRs at December 31, 2019 that totaled approximately $1.5 million compared to 24
credits totaling $2.2 million at December 31, 2018. Ten of the TDRs had a modification of terms through adjustments to maturity,yy
seven were restructured through a reduction in the interest rate to a rate lower than the current market rate, and one restructured 
loan was considered a TDR due to forgiveness of interest due on the loan. At December 31, 2019 and 2018, two and three of the 
TDRs, respectively, were in default of their modified terms and are included in nonaccrual loans. The Company individually
evaluates each TDR for allowance purposes, primarily based on collateral value, and excludes these loans from the loan population 
that is evaluated by applying qualitative factors.

tt

The following table shows the principal amounts of nonperforming and restructured loans as of the dates indicated. All loans for 
which 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).

2019

2018

2017

2016

2015

December 31,

Nonaccrual loans

Accruing loans past due 90 days or more

Total nonperforming loans

TDRs
Total nonperforming and restructured loans

Interest income recognized on nonperforming and 

restructured loans

Interest income foregone on nonperforming and 

restructured loans

$

$

$

$

5,490

$

5,891

$

3,547

$

1,978

$

795

6,285

1,020

7,305

144

300

$

$

$

58

5,949

1,248

7,197

315

164

$

$

$

134

3,681

1,621

5,302

185

104

$

$

$

1

1,979

2,399

4,378

169

159

$

$

$

2,411

—

2,411

1,629

4,040

174

252

Of the total nonaccrual loans at December 31, 2019 and 2018, $3.9 million and $3.8 million, respectively, were acquired. We had
$2.4 million in nonaccrual loans acquired through acquisition at December 31, 2017. Nonperforming loans are comprised of 
accruing loans past due 90 days or more and nonaccrual loans. Nonperforming loans outstanding represented 0.37%, 0.42%, and 
0.29% of total loans at December 31, 2019, 2018 and 2017, respectively.

65

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 $5.1 million and $0.1 million was sold during the years ended December 31, 2019 and 2018,
respectively, resulting in a net gain of $2,000 and a net loss of $24,000 for the respective period, compared to a cost basis of $0.6 
million and a net gain of $27,000 for the year ended December 31, 2017.

r

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

Farmland

Commercial real estate

Total other real estate owned

December 31, 2019

December 31, 2018

$

$

— $

133

—

—

133

$

122

15

204

3,270

3,611

Changes in our other real estate owned are summarized in the table below for the periods indicated (dollars in thousands).

Balance, beginning of period

Additions

Acquired other real estate owned

Sales of other real estate owned

Write-downs

Balance, end of period

Interest Rate Risk

Year ended
December 31, 2019

Year ended
December 31, 2018

$

$

3,611

$

181

1,507

(5,148)

(18)

133

$

3,837

496

—

(155)

(567)

3,611

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.

Net interest income simulation is the Bank’s primary tool for benchmarking near term earnings exposure. Given the ALCO’s
objective to understand the potential risk/volatility embedded within the current mix of assets and liabilities, standard rate scenario 
simulations assume total assets remain static (i.e. no growth). 

The Bank may also use a standard gap report in its interest rate risk management process. The primary use for the gap report is to
provide supporting detailed information to the ALCO’s discussion. The Bank has particular concerns with the utility of the gap 
report as a risk management tool because of difficulties in relating gap directly to changes in net interest income. Hence, the income 
simulation is the key indicator for earnings-at-risk since it expressly measures what the gap report attempts to estimate.

Short term interest rate risk management tactics are decided by the Committee where risk exposures exist out into the 1 to 2-year 
horizon. Tactics are formulated and presented to the Committee for discussion, modification, and/or approval. Such tactics may
include asset and liability acquisitions of appropriate maturities in the cash market, loan and deposit product/pricing strategy
modification, and derivatives hedging activities to the extent such activity is authorized by the Board of Directors.

66

Since the impact of rate changes due to mismatched balance sheet positions in the short-term can quickly and materially affect 
the current year’s income statement, they require constant monitoring and management.

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, 2019, the Bank was within the policy guidelines for asset/liability management.

tt

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.

As of December 31, 2019

Changes in Interest Rates
(in basis points)

+300

+200

+100

-100

Estimated
Increase/Decrease in
Net Interest Income (1)

—%

(0.1)%

0.1%

(3.0)%

(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 are 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, and borrowings are greatly influenced by general interest rates, economic conditions, and thett
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 both December 31, 2019 and 2018, 68% and 66% of 
our total assets, respectively, were funded by core deposits.

aa

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,  2019,  securities  with  a  carrying  value  of  $89.5  million  were  pledged  to  secure  deposits  or 
borrowings, compared to $77.6 million in pledged securities at December 31, 2018.

67

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, 2019, the balance of our outstanding advances with the 
FHLB was $131.6 million, a decrease from $206.5 million at December 31, 2018. The total amount of the remaining credit available
to us from the FHLB at December 31, 2019 was $594.6 million. At December 31, 2019, our FHLB borrowings were collateralized 
by approximately $707.4 million of the Company’s loan portfolio and $28.1 million of the Company’s investment securities.

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 to those collateralized by U.S. 
Treasury and agency securities. We had $3.0 million of repurchase agreements outstanding at December 31, 2019, compared to 
$2.0 million at December 31, 2018. 

We maintain unsecured lines of credit with FNBB and TIB totaling $60.0 million. These lines of credit are Fed Funds lines of 
credit and are used for overnight borrowing only. There were no outstanding balances on our unsecured lines of credit at December 
31, 2019 or 2018.

In addition, at December 31, 2019 and 2018 we had $43.6 million and $18.6 million in aggregate principal amount of subordinated
debt outstanding, respectively. For additional information, see Note 11 to our consolidated financial statements and see Item 7, 
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Discussion and Analysis of Financial 
Condition - Borrowings.

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. As of December 31, 2019, we do not hold any brokered deposits, as defined for federal regulatory purposes, although we
do hold QwickRate® deposits, included in our time deposit balances, to address liquidity needs when rates on such deposits 
compare favorably with deposit rates in our markets. At December 31, 2019, we held $101.8 million of QwickRate® deposits, an
increase compared to $56.7 million at December 31, 2018.

The following table 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, 2019 and 2018.

Noninterest-bearing demand

Interest-bearing demand

Savings

Time deposits

Short-term borrowings

Borrowed funds

Percentage of Total Average Deposits
and Borrowed Funds

Cost of Funds

Year ended December 31,

Year ended December 31,

2019

2018

2019

2018

16%

15%

—%

—%

29

6

37

6

6

26

8

35

10

6

1.04

0.45

2.10

2.07

3.03

0.81

0.49

1.44

1.73

2.73

Total deposits and borrowed funds

100%

100%

1.40%

1.10%

Capital Management. Our primary sources of capital include retained earnings, capital obtained through acquisitions and proceeds 
from the sale of our capital stock and subordinated debt. We may issue capital stock and debt securities from time to time to fund 
acquisitions and support our organic growth. During 2019, we issued $25.0 million of subordinated notes and during 2017 we 
issued $18.6 million of subordinated notes, both structured to qualify as Tier 2 capital for regulatory capital purposes. For additional 
information see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Discussion
and Analysis of Financial Condition - Borrowings. 

ff

68

In 2019, we issued 1,290,323 shares of common stock for net proceeds of $28.5 million. We also issued 763,849 shares of common
stock in connection with our acquisition of Mainland in 2019 and 799,559 shares of common stock in connection with our acquisition
of BOJ in 2017. During 2019, we paid $2.2 million in dividends compared to $1.5 million in 2018 and $0.7 million in 2017. Our 
board of directors has authorized a share repurchase program and during 2019 we paid $8.3 million to repurchase our shares,
compared to $3.4 million in 2018 and $0.5 million in 2017. At December 31, 2019, we had 326,334 shares of our common stock 
remaining authorized for repurchase under the program. During the first quarter of 2020, we repurchased 325,105 shares at an 
average price of $20.35. On March 10, 2020, the Board of Directors approved an additional 300,000 shares of the Company’s 
common stock for repurchase.

For additional information, see Notes 2, 11 and 14 to our consolidated financial statements. We are subject to 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. We are also subject to additional legal and contractual restrictions 
on dividends. Please refer to the discussion under the heading “Dividend Policy” in Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities and under the heading “Common Stock - Dividend 
Restrictions” in Note 14 to our consolidated financial statements.

We are subject to various regulatory capital requirements administered by the Federal Reserve and the OCC. 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:

f

Capital Tiers(1)

Well capitalized

Adequately capitalized

Undercapitalized

Significantly undercapitalized

Critically undercapitalized

Tier 1 Leverage
Ratio

Common Equity
Tier 1 Capital
Ratio

Tier 1 Capital
Ratio

Total Capital
Ratio

Ratio of
Tangible to Total
Asset

5% or above

6.5% or above

8% or above

10% or above

4% or above

4.5% or above

6% or above

8% or above

Less than 4%

Less than 4.5%

Less than 6%

Less than 8%

Less than 3%

Less than 3%

Less than 4%

Less than 6%

2% or less

2% or less

(1)

In order to be well capitalized or adequately capitalized, a bank must satisfy each of the required ratios in the table.  In order to be undercapitalized or significantly   

undercapitalized, a bank would need to fall below just one of the relevant ratio thresholds in the table.

The Company and the Bank each were in compliance with all regulatory capital requirements as of December 31, 2019, 2018 and 
2017. The Bank also was considered “well-capitalized” under the OCC’s prompt corrective action regulations as of these dates.

69

The following table presents the actual capital amounts and regulatory capital ratios for the Company and the Bank as of the datesaa
presented (dollars in thousands).

December 31, 2019

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, 2018

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

Off-Balance Sheet Transactions

Actual

Minimum Capital Requirement to be
Well Capitalized

Amount

Ratio

Amount

Ratio

$

$

215,550

209,050

215,550

269,171

222,316

222,316

222,316

233,111

172,050

165,550

172,050

199,786

187,735

187,735

187,735

197,256

10.45% $

11.67

12.03

15.02

10.77

12.43

12.43

13.03

9.81% $

11.15

11.59

13.46

10.72

12.67

12.67

13.31

—

—

—

—

103,223

116,289

143,124

178,906

—

—

—

—

87,570

96,349

118,583

148,229

—%

—

—

—

5.00

6.50

8.00

10.00

—%

—

—

—

5.00

6.50

8.00

10.00

Swap Contracts.  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 4.6y
years. At December 31, 2019, the Bank had one derivative contract with a notional amount of $50.0 million, while it had five 
derivative contracts with a total notional amount of $50.0 million at December 31, 2018.

For the years ended December 31, 2019 and 2018, a gain of $0.1 million, net of a $14,000 tax expense, and a gain of $0.1 million, 
net  of  a  $22,000  tax  expense,  respectively,  was  recognized  in  “Other  comprehensive  income  (loss)”  in  the  accompanying 
consolidated statement of other comprehensive income for the change in fair value of the interest rate swap. The swap contracts
had a fair value of $0.7 million and $0.6 million as of December 31, 2019 and 2018, respectively, and have been recorded in “Other 
assets”  in the accompanying consolidated balance sheets. The Bank expects the hedge to remain fully effective during the remaining 
term of the swap contract.

t

In the third quarter of 2019, the Company began entering into interest rate swaps that allow commercial loan customers to effectively
convert  a  variable-rate  commercial  loan  agreement  to  a  fixed-rate  commercial  loan  agreement.  Under  these  agreements,  the 
Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves
to effectively swap the customer’s variable-rate loan into a fixed-rate loan. The Company then enters into a corresponding swap
agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps
with both the customers and third parties are not designated as hedges under FASB Accounting Standards Codification (“ASC”)
Topic 815, Derivatives and Hedging, and are marked to market through earnings. As the interest rate swaps are structured to offset 

ff

70

each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an
impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which
may impact earnings as required by FASB ASC Topic 820, Fair Value Measurements. The Company did not recognize any gains 
or losses in other income resulting from fair value adjustments during the year ended December 31, 2019.

Unfunded Commitments.  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. The credit risk associated with these commitments is evaluated 
in a manner similar to the allowance for loan losses. The reserve for unfunded lending commitments is included in other liabilities
in the balance sheet. At December 31, 2019 and 2018, the reserve for unfunded loan commitments was $95,000 and $66,000,
respectively.

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 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, 2019

December 31, 2018

$

242,180

$

11,475

263,002

11,114

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, 2019, the Company had unfunded commitments of $38,000 for its investment in Small Business 
Investment Company qualified funds.

For each of the years ended December 31, 2019 and 2018, 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, 2019, significant fixed and determinable contractual obligations to third parties
by payment date (dollars in thousands).

Deposits without a stated maturity(1)
Time deposits(1)
Securities sold under agreements to repurchase(1)
Federal Home Loan Bank advances(2)
Subordinated debt(2)
Junior subordinated debentures(2)
Operating lease commitment

Total contractual obligations
(1)

(2)

Excludes interest.
Excludes unamortized premiums and discounts.

Payments Due In:

Less Than
One Year

One to
Three Years

Three to
Five Years

Over Five
Years

Total

$

1,001,706

$

— $

— $

— $

1,001,706

542,841

2,995

53,100

—

—

398

141,385

—

—

—

—

811

21,774

—

23,500

—

—

730

—

—

55,000

43,600

6,702

2,027

706,000

2,995

131,600

43,600

6,702

3,966

$

1,601,040

$

142,196

$

46,004

$

107,329

$

1,896,569

71

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
7
of Operations – Risk Management” in Item 7 hereof is incorporated herein by reference.

72

Item 8. Financial Statements and Supplementary Data

g
Management’s Report on Internal Control over Financial Reporting

p

p

g

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, 2019, 
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, 2019, the Company’s system of internal control over financial reporting is
effective and meets the criteria of the “Internal Control – Integrated Framework.” 

As permitted, management excluded from its assessment the operations of Bank of York, acquired on November 1, 2019. Loans
and  deposits  acquired  and  excluded  from  management’s  assessment  of  internal  controls  over  financial  reporting  comprised 
approximately 3% and 7% of consolidated total loans and deposits, respectively, at December 31, 2019.

Ernst & Young LLP, 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 13, 2020

Date: March 13, 2020

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

73

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Investar Holding Corporation 

Opinion on Internal Control over Financial Reporting 

We have audited Investar Holding Corporation’s internal control over financial reporting as of December 31, 2019, 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).  In  our  opinion,  Investar  Holding  Corporation  (the  Company) 
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the
COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment 
of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Bank of 
York, which is included in the 2019 consolidated financial statements of the Company and constituted 3% and 7% of consolidated 
loans and deposits, respectively, as of December 31, 2019. Our audit of internal control over financial reporting of the Companynn
also did not include an evaluation of the internal control over financial reporting of Bank of York.

aa

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements
of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three  years in the period ended 
December 31, 2019, and the related notes and our report dated March 13, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible 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 the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.

uu

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material 
respects. 

aa

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for 
our opinion.

Definition and Limitations of Internal Control over Financial Reporting

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.

a

74

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.

/s/ Ernst & Young LLP

New Orleans, Louisiana
March 13, 2020

75

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Investar Holding Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Investar Holding Corporation (the Company) as of December 
31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and 
cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, 
the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2019 ended, in conformity with U.S. generally accepted accounting principles. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated March 13, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are 
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable 
rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the 
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error 
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether 
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, 
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting 
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial 
statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

New Orleans, Louisiana
March 13, 2020

76

INVESTAR HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)

December 31,

2019

2018

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 $258,104 and $253,504, 
respectively)

Held to maturity securities at amortized cost (estimated fair value of $14,480 and 
$15,805, respectively)

Loans, net of allowance for loan losses of $10,700 and $9,454, respectively

Equity securities

Bank premises and equipment, net of accumulated depreciation of $12,432 and 
$9,898, respectively

Other real estate owned, net

Accrued interest receivable

Deferred tax asset

Goodwill and other intangible assets, net

Bank owned life insurance

Other assets

Total assets

LIABILITIES

Deposits:

Noninterest-bearing

Interest-bearing

Total deposits

Advances from Federal Home Loan Bank

Repurchase agreements

Subordinated debt, net of unamortized issuance costs

Junior subordinated debt

Accrued taxes and other liabilities

Total liabilities

STOCKHOLDERS’ EQUITY

Preferred stock, no par value per share; 5,000,000 shares authorized

Common stock, $1.00 par value per share; 40,000,000 shares authorized; 11,228,775
and 9,484,219 shares issued and outstanding, respectively

Surplus

Retained earnings

Accumulated other comprehensive income (loss)

Total stockholders’ equity

Total liabilities and stockholders’ equity

$

23,769

$

20,539

387

44,695

259,805

14,409

1,681,275

19,315

50,916

133

7,913

—

31,035

32,014

7,406

15,922

1,212

6

17,140

248,981

16,066

1,391,371

13,562

40,229

3,611

5,553

1,145

19,787

23,859

5,165

$

$

2,148,916

$

1,786,469

351,905

$

1,355,801

1,707,706

131,600

2,995

42,826

5,897

15,916

217,457

1,144,274

1,361,731

206,490

1,999

18,215

5,845

9,927

1,906,940

1,604,207

—

11,229

168,658

60,198

1,891

241,976

$

2,148,916

$

—

9,484

130,133

45,721

(3,076)

182,262

1,786,469

See accompanying notes to the consolidated financial statements.

77

INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share data)

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 fixed assets, net
Gain (loss) on sale of other real estate owned, net
Servicing fees and fee income on serviced loans
Interchange fees
Income from bank owned life insurance
Change in the fair value of equity securities
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
Acquisition expense
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

For the years ended December 31,

2019

2018

2017

$

80,954
7,440
1,049
89,443

$

66,750
6,608
533
73,891

19,307
5,318
24,625
64,818

1,908
62,910

1,840
262
(11)
2
593
1,114
703
341
1,372
6,216
69,126

3,462
28,643
1,837
2,360
260
1,189
2,090
8,327
48,168
20,958
4,119
16,839

1.68
1.66
0.23

$

$

11,394
5,127
16,521
57,370

2,570
54,800

1,453
14
98
(24)
963
932
628
(267)
521
4,318
59,118

2,553
25,469
1,378
2,090
237
1,051
1,445
7,659
41,882
17,236
3,630
13,606

1.41
1.39
0.17

$

$

47,863
5,055
428
53,346

8,050
2,779
10,829
42,517

1,540
40,977

767
292
127
27
1,482
537
245
—
338
3,815
44,792

1,865
18,681
1,150
1,690
422
950
1,868
5,716
32,342
12,450
4,248
8,202

0.96
0.96
0.10

$

$

$

See accompanying notes to the consolidated financial statements.

78

INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)

Net income

Other comprehensive income (loss):

Unrealized gain (loss) on investment securities:

Unrealized gain (loss), available for sale, net of tax expense 
(benefit) of $1,362, ($419), and $88, respectively

Reclassification of realized gain, net of tax expense of $56, $3, and 
$61, respectively

Unrealized loss, transfer from available for sale to held to maturity, 
net of tax benefit of $0, $0, and $0, respectively

Fair value of derivative financial instruments

Change in fair value of interest rate swap designated as a cash flow
hedge, net of tax expense of $14, $22, and $107, respectively

Total other comprehensive income (loss)

Total comprehensive income

For the years ended December 31,

2019

2018

2017

$

16,839

$

13,606

$

8,202

5,123

(206)

(1)

51

4,967

(1,576)

(11)

(2)

84

(1,505)

$

21,806

$

12,101

$

330

(231)

(1)

402

500

8,702

See accompanying notes to the consolidated financial statements.

79

INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share data)

Balance, December 31, 2016

$

7,102

$

81,499

$

26,227

$

(2,071) $

112,757

Common
Stock

Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders’
Equity

Common stock issued in offering, net of direct 
costs of $1,991

Common stock issued in acquisition, net of 
issuance costs

Surrendered shares

Shares repurchased

Options and warrants exercised

Dividends declared, $0.10 per share

Stock-based compensation and other activity

Net tax effect of stock-based compensation

Net income
Other comprehensive income, net(1)
Balance, December 31, 2017

Surrendered shares

Shares repurchased

Options and warrants exercised

Dividends declared, $0.17 per share

Stock-based compensation

Reclassification of tax effects of the Tax Cuts 
and Jobs Act(2)
Net income

Other comprehensive loss, net

Impact of adoption of new accounting 
standards(3)
Balance, December 31, 2018

Common stock issued in offering, net of direct 
costs of $1,475

Common stock issued in acquisition, net of 
issuance costs

Surrendered shares

Shares repurchased

Options and warrants exercised

Dividends declared, $0.23 per share

Stock-based compensation

Net income

Other comprehensive income, net

1,624

30,885

800

(8)

(23)

87

—

(67)

—

—

—

17,896

(160)

(483)

1,085

—

853

7

—

—

—

—

—

—

—

(948)

—

—

8,202

(278)

—

—

—

—

—

—

—

—

—

500

32,509

18,696

(168)

(506)

1,172

(948)

786

7

8,202

222

$

9,515

$

131,582

$

33,203

$

(1,571) $

172,729

(9)

(132)

76

—

34

—

—

—

—

(210)

(3,236)

960

—

1,037

—

—

—

—

—

—

—

(1,640)

—

557

13,606

—

(5)

—

—

—

—

—

—

—

(1,505)

—

(219)

(3,368)

1,036

(1,640)

1,071

557

13,606

(1,505)

(5)

$

9,484

$

130,133

$

45,721

$

(3,076) $

182,262

1,290

27,235

764

(11)

(360)

21

—

41

—

—

17,873

(272)

(7,966)

266

—

1,389

—

—

—

—

—

—

—

(2,362)

—

16,839

—

—

—

—

—

—

—

—

—

4,967

28,525

18,637

(283)

(8,326)

287

(2,362)

1,430

16,839

4,967

Balance, December 31, 2019

$

11,229

$

168,658

$

60,198

$

1,891

$

241,976

(1)

(2)

(3)

The Tax Cuts and Jobs Act (“TCJA”), enacted on December 22, 2017, required the revaluation of the Company’s deferred tax assets and liabilities as of 
December 31, 2017 as a result of the lower corporate tax rates to be realized beginning January 1, 2018. The $0.3 million adjustment to retained earnings
represents the reclassification of the tax effects, or “stranded OCI” remaining in accumulated other comprehensive income after the revaluation of the
Company’s deferred tax assets and liabilities.

r

The $0.6 million adjustment to retained earnings for the period ended December 31, 2018 represents a reclassification of the tax effects of the TCJA.

Represents the impact of adopting ASU No. 2016-01. See Note 1 to the consolidated financial statements for more information.

See accompanying notes to the consolidated financial statements.

80

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 (used in) operating activities:

For the years ended December 31,

2019

2018

2017

$

16,839

$

13,606

$

8,202

Depreciation and amortization

Provision for loan losses

Amortization of purchase accounting adjustments

Provision for other real estate owned

Net amortization of securities

Gain on sale of investment securities, net

Loss (gain) on sale of fixed assets, net

(Gain) loss on sale of other real estate owned, net

FHLB stock dividend

Stock-based compensation

Deferred taxes

Net change in value of bank owned life insurance

Amortization of subordinated debt issuance costs

Change in the fair value of equity securities

Net change in:

Accrued interest receivable

Other assets

Accrued taxes and other liabilities

Net cash provided by operating activities

Cash flows from investing activities

Proceeds from sales of investment securities available for sale

Purchases of securities available for sale

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 redemption or sale of equity securities

Purchases of equity securities

Net increase in loans

Proceeds from sales of other real estate owned

Purchases of other real estate owned

Proceeds from sales of fixed assets

Purchases of fixed assets

Purchase of bank owned life insurance

Purchase of other investments

Distributions from investments

Cash acquired from Mainland Bank

Cash acquired from Bank of York, net of cash paid

Cash paid for Citizens Bank, net of cash acquired

Cash acquired from BOJ Bancshares, Inc., net of cash paid

Net cash used in investing activities

3,462

1,908

(1,425)

18

712

(262)

11

(2)

(336)

1,430

153

(703)

53

(341)

(1,925)

(2,015)

990

18,567

65,834

(110,431)

39,578

1,623

2,986

(7,040)

(162,025)

5,150

—

—

(7,918)

(5,023)

(95)

162

38,365

35,771

—

—

2,553

2,570

(2,180)

567

478

(14)

(98)

24

(239)

1,071

841

(628)

46

267

(865)

995

(2,582)

16,412

7,021

(72,258)

30,545

1,884

1,299

(4,265)

(141,505)

132

(257)

19

(4,936)

—

(119)

39

—

—

—

—

1,865

1,540

(489)

183

1,114

(292)

(127)

(27)

(99)

786

245

(245)

35

—

(321)

(639)

(2,274)

9,457

106,448

(104,209)

29,295

2,021

2,000

(4,844)

(133,708)

591

—

625

(2,081)

(15,000)

(711)

24

—

—

(1,235)

22,436

(98,348)

(103,063)

(182,401)

81

INVESTAR HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Amounts in thousands)

Cash flows from financing activities

Net increase (decrease) in customer deposits

Net decrease in repurchase agreements

Net (decrease) increase 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 common stock offering, net of issuance costs

Proceeds from stock options and warrants exercised

Proceeds from other borrowings

Repayments of other borrowings

Proceeds from subordinated debt, net of issuance costs

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

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

Transfer from bank premises and equipment to other assets

For the years ended December 31,

2019

2018

2017

153,403

(9,329)

(86,400)

23,500

(12,000)

(2,167)

(8,326)

28,525

287

—

—

24,558

112,051

27,555

17,140

136,644

(19,936)

22,900

75,000

(58,100)

(1,468)

(3,368)

—

1,036

—

—

—

152,708

(13,281)

30,421

$

$

$

44,695

$

17,140

$

4,190

$

2,555

$

24,396

16,139

133

$

—

239

$

—

(20,467)

(17,152)

43,500

55,000

(20,603)

(722)

(506)

32,509

1,172

78

(1,078)

18,133

89,864

973

29,448

30,421

4,375

10,201

42

1,146

See accompanying notes to the consolidated financial statements.

82

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Investar Holding Corporation (the “Company”) is a financial holding company headquartered in Baton Rouge, Louisiana, that 
provides, through its wholly-owned subsidiary, Investar Bank, National Association (the “Bank”), full banking services, excluding 
trust services, tailored primarily to meet the needs of individuals and small to medium-sized businesses throughout its markets in 
south Louisiana, southeast Texas and west Alabama.

Basis of Presentation

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”) and to 
generally accepted practices within the banking industry.

Segments

While our chief decision maker monitors the revenue streams of the various banking products and services, operations are managed 
and financial performance is evaluated on a Company-wide basis. Accordingly, 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 uu
of the change that is reasonably possible cannot be estimated.

aa

Other estimates that are susceptible to significant change in the near term relate to the allowance for off-balance sheet credit losses, 
the fair value of stock-based compensation awards, the determination of other-than-temporary impairments of securities, and the
fair value of financial instruments.

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:

• 

Securities to be held to maturity (“HTM”): bonds, notes, and debentures for which the Company has the positive intent and 
ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income 
using the interest method over the period to maturity.

83

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

• 

Securities available for sale (“AFS”): available for sale securities consist of bonds, notes, and debentures that are available
to meet the Company’s operating needs. These securities are reported at fair value.

Unrealized holding gains and losses, net of tax, on 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 debt and equity securities are determined using the specific-identification 
method and average price method, respectively.

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 bet
considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it 
is more likely than not that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit 
component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive
income.

Equity Securities

The Company is a member of the Federal Home Loan Bank (“FHLB”) system. Members of the FHLB are required to own a
certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is
carried at cost, is restricted as to redemption, and is periodically evaluated for impairment based on ultimate recovery of par value.
Both cash and stock dividends are reported as income. Equity securities also include investments in our other correspondent banks 
including  Independent  Bankers  Financial  Corporation  (“IBFC”)  and  First  National  Bankers  Bank  (“FNBB”)  stock.  These
investments are carried at cost which approximates fair value. The balance of equity securities in our correspondent banks at 
December 31, 2019 and 2018 was $17.2 million and $11.9 million, respectively.

r

In addition, at December 31, 2018, equity securities include securities previously held as available for sale securities prior to 
January 1, 2018. See Impact of New Accounting Pronouncements below for more details. These securities are marketable securities
in corporate stocks and totaled $2.1 million at December 31, 2019.

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.

aa

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at the
unpaid principal balance outstanding, net of purchase premiums or discounts, deferred income (net of costs), any direct principal
charge-offs, and an allowance for loan losses. Interest on loans is calculated by using the effective interest rate on daily balances 
of the principal amount outstanding. Loan origination fees, net of direct loan origination costs, and commitment fees, are deferred 
and amortized as an adjustment to yield over the life of the loan, or over the commitment period, as applicable.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments 
were due. Loans are ordinarily placed on nonaccrual when a loan is specifically determined to be impaired or when principal or 
interest is delinquent for 90 days or more; however, management may elect to continue the accrual when the estimated net realizable 
value of collateral is sufficient to cover the principal balance and the accrued interest. Any unpaid interest previously accrued on
nonaccrual loans is reversed from income. Interest income, generally, is not recognized on specific impaired loans unless the
likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal
balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. A loan may be
returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal
and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period of repayment 
performance by the borrower.

84

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the
Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered 
by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled 
principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally 
are  not  classified  as  impaired. The  Company’s  impaired  loans  include  troubled  debt  restructurings  and  performing  and  non-
performing loans for which full payment of principal or interest is not expected. Large groups of smaller balance 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.

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.

See Acquisition Accounting and Acquired Impaired Loans below for accounting treatment of loans acquired through business
acquisitions.

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.

b

f

The  allowance  consists  of  allocated  and  general  components. The  allocated  component  relates  to  loans  that  are  classified  as
impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value
or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-
classified loans and is based on historical loss experience adjusted for qualitative factors. Based on management’s review and 
observations made through qualitative review, management may apply qualitative adjustments to determine loss estimates at a
group  and/or  portfolio  segment  level  as  deemed  appropriate.  Management  has  an  established  methodology  to  determine  the 
adequacy of the allowance for loan losses that assesses the risks and losses inherent in its portfolio and portfolio segments. The 
Company utilizes an internally developed model that requires judgment to determine the estimation method that fits the credit risk 
characteristics of the loans in its portfolio and portfolio segments. Qualitative and environmental factors that may not be directly
reflected in quantitative estimates include: asset quality trends, changes in loan concentrations, new products and process changes,
changes and pressures from competition, changes in lending policies and underwriting practices, trends in the nature and volume
of the loan portfolio, changes in experience and depth of lending staff and management and national and regional economic trends.
The Company also considers third party or comparable company loss data. Changes in these factors are considered in determining
changes in the allowance for loan losses. The impact of these factors on the Company’s qualitative assessment of the allowance 
for loan losses can change from period to period based on management’s assessment of the extent to which these factors are already 
reflected in historic loss rates. The uncertainty inherent in the estimation process is also considered in evaluating the allowance 
for loan losses.

a

In the ordinary course of business, the Bank enters into commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments
is evaluated in a manner similar to the allowance for loan losses. The reserve for unfunded lending commitments is included in
other liabilities in the consolidated balance sheet. At December 31, 2019 and 2018 the reserve for unfunded loan commitments
was $95,000 and $66,000, respectively.

85

Troubled Debt Restructurings

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

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”) 2011-2, 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.

Other Real Estate Owned

Real estate acquired through 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 expense when fair value is determined to be less than the carrying value.

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 income. Gain or loss on the disposition of such properties 
is included in noninterest income on the consolidated statements of income.

rr

tt

Bank Premises and Equipment

Land is carried at cost. Buildings 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.
Gains  or  losses  on  the  disposition  of  land,  buildings,  and  equipment  are  included  in  noninterest  income  on  the  consolidated 
statements of income.

mm

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 income.

86

Goodwill and Other Intangible Assets

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

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. 

u

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, 2019. 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. The Company’s core deposit intangibles are currently amortized using 
the sum-of-the-years-digits basis over 10 to 15 years. See Note 8, Goodwill and Other Intangible Assets, for additional information.

aa

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 share-based payment 
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. The impact of forfeitures of share-based payment awards on compensation expense
is  recognized  as  forfeitures  occur.  See  Note  15,  Stock-Based  Compensation,  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.

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. Derivatives executed with the same counterparty are generally subject to master netting arrangements, however, fair 
value amounts recognized for derivative financial instruments and fair value amounts recognized for the right/obligation to reclaim/
return cash collateral are not offset for financial reporting purposes.

ff

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.

87

Income Taxes

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

The provision for income taxes is based on amounts reported in the consolidated statements of income 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.

a

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.

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

Revenue Recognition

The Company recognizes revenue in the consolidated statements of income as it is earned and when collectability is reasonably
assured. The primary source of revenue is interest income from interest-earning assets, which is recognized on the accrual basis
of accounting using the effective interest method. The recognition of revenues from interest-earning assets is based upon formulas
from underlying loan agreements, securities contracts, or other similar contracts. Noninterest income is recognized on the accrual 
basis of accounting as services are provided or as transactions occur. Noninterest income includes fees from deposit accounts, 
merchant services, ATM and debit card fees, servicing fees, and other miscellaneous services and transactions.

rr

Earnings Per Share

Basic earnings per share is calculated using the two-class method. The two-class method is an earnings allocation formula that 
determines  earnings  per  share  separately  for  common  stock  and  participating  securities  according  to  dividends  declared  and 
participation  rights  in  undistributed  earnings.  Under  this  method,  all  earnings  distributed  and  undistributed,  are  allocated  to
participating securities and common shares based on their respective rights to receive dividends. Unvested share-based payment 
awards that contain nonforfeitable rights to dividends are considered participating securities (i.e. unvested time-vested restricted 
stock), not subject to performance based measures. 

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted-average number 
of common shares outstanding during the period. Diluted earnings per share is calculated in a manner similar to that of basic
earnings per share except that the weighted average number of common shares outstanding is increased to include the number of 
additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting 
from the exercise of stock options and warrants) were issued during the period, computed using the treasury stock method.

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.

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.

88

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

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. The fair value adjustment for performing acquired loans is accreted over the life of the loan using thet
effective interest method. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan 
losses is not recorded on the acquisition date. Subsequent to acquisition, acquired performing loans are evaluated using a similar 
allowance methodology as the legacy portfolio. An allowance for credit losses is only recorded to the extent that the required 
reserves exceed the unaccreted fair value adjustment.

ff

ff

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. 

d

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. If future cash flows are not reasonably estimable, the Company 
accounts for the acquired loans using the cash basis method.

a

Share Repurchases

Effective January 1, 2015, companies incorporated under Louisiana law became subject to the Louisiana Business Corporation 
Act. Provisions of the Louisiana Business Corporation Act eliminate the concept of treasury stock. Rather, shares purchased by 
the Company constitute authorized but unissued shares. Accounting principles generally accepted in the United States of America
state that accounting for treasury stock shall conform to state law. The Company’s consolidated financial statements as of December 
31, 2019, 2018 and 2017 reflect this change. The cost of shares purchased by the Company has been allocated to common stock 
and surplus balances.

Reclassifications

Certain reclassifications have been made to the 2018 and 2017 financial statements to conform to the 2019 presentation. 

Tax Cuts and Jobs Act

Public law No. 115-97, known as the Tax Cuts and Jobs Act (the “TCJA”), enacted on December 22, 2017, reduced the U.S. federal 
corporate tax rate from 35% to 21% effective January 1, 2018. Also on December 22, 2017, the SEC issued Staff Accounting 
Bulletin  No.  118  (“SAB  118”),  which  provided  guidance  on  accounting  for  tax  effects  of  the Tax Act.  SAB  118  provided  a
measurement period of up to one year from the enactment date to complete the accounting. Any adjustments during this measurement 
period were to be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting
period when such adjustments were determined. Based on the information available and current interpretation of the rules, the 
Company recorded the impact of the reduction in the corporate tax rate and remeasurement of certain deferred tax assets and 
liabilities. The amount recorded in the fourth quarter of 2017 related to the remeasurement of the Company’s deferred tax balance
resulted in additional income tax expense of $0.3 million. An additional $0.6 million was expensed in the first quarter of 2018
due to the remeasurement of the Company’s deferred tax balance. All necessary adjustments were recorded during the measurement 
period allowed by SAB 118.

89

Impact of New Accounting Pronouncements

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

ASU 2016-01, Financial Instruments - Overall (Topic 825) became effective for the Company on January 1, 2018. This ASU 
makes targeted amendments to the guidance for recognition, measurement, presentation and disclosure of financial instruments.
ASU 2016-01 requires equity investments, other than equity method investments, to be measured at fair value with changes in 
fair value recognized in net income. The ASU requires a cumulative-effect adjustment to retained earnings as of the beginning of 
the reporting period of adoption to reclassify the cumulative change in fair value of equity securities previously recognized in
accumulated other comprehensive income (AOCI). The adoption of the guidance resulted in an insignificant cumulative-effect 
adjustment that decreased retained earnings, with offsetting related adjustments to deferred taxes and AOCI. The adoption of this 
ASU also resulted in equity securities previously classified as AFS securities to be classified as equity securities at fair value in
the Company’s December 31, 2018 consolidated balance sheet. ASU 2016-01 also emphasizes the existing requirement to use
exit prices to measure fair value for disclosure purposes and clarifies that entities should not make use of a practicability exception
in determining the fair value of loans. Accordingly, we refined the calculation used to determine the disclosed fair value of our 
loans held for investment portfolio as part of adopting this standard. The refined calculation did not have a significant impact on 
our fair value disclosures. See Note 18. Fair Values of Financial Instruments. 

As a result of the adoption of ASU 2016-01, $1.4 million of equity securities was reclassified from AFS securities to equity 
securities in the first quarter of 2018. At December 31, 2019 and 2018, equity securities include $2.1 million and $1.7 million,
respectively, of exchange-traded equity securities that are measured at fair value with changes in fair value recognized in net
income. The remaining balance of equity securities at December 31, 2019 and 2018 consists of stock in correspondent banks and 
is measured at cost, which approximates fair value, adjusted for any observable market transactions less any impairment. ASU 
2016-01 also requires that other investments previously accounted for using the cost method be measured at fair value with changes
in fair value recognized in net income. These investments, which had balances of $1.4 million at both December 31, 2019 and 
2018,  are  included  in  other  assets  in  the  consolidated  balance  sheet  and  represent  investments  in  small  business  investment 
companies without readily determinable fair values. These investments are measured at fair value using the net asset value of thet
investment and any changes in fair value are recognized in net income.

ASU 2018-07, Compensation - Stock Compensation (Topic 718) was effective for the Company on January 1, 2019. ASU 2018-07 
expands the scope of Topic 718 to include share-based payments issued to nonemployees for goods or services and supersedes
Subtopic 505-50, “Equity – Equity-Based Payments to Non-Employees.” The adoption of ASU 2018-07 did not have a material
impact on the Company’s consolidated financial statements.

ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities was effective 
for the Company on January 1, 2019. ASU 2017-12 amends the hedge accounting model in Topic 815 to enable entities to better 
portray  the  economics  of  their  risk  management  activities  in  the  financial  statements  and  enhance  the  transparency  and 
understandability of hedge results. The amendments expand an entity’s ability to hedge nonfinancial and financial risk components 
and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure
and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented 
in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements
and modifies the accounting for components excluded from the assessment of hedge effectiveness. Given the current level of 
derivatives designated as hedges, this ASU did not have a material impact on our consolidated financial statements.

ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable 
Debt Securities, was effective for the Company on January 1, 2019. The amendments in the ASU shorten the amortization period 
for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the
earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues
to be amortized to maturity. The adoption of this ASU did not have a material impact on the Company’s consolidated financial 
statements. 

90

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

ASU 2016-02, Leases (Topic 842) was effective for the Company on January 1, 2019. The ASU intends to increase transparency
and comparability among organizations by recognizing lease assets and lease liabilities and disclosing key information about 
leasing arrangements. The ASU requires lessees to recognize the following for all leases (with the exception of short-term leases) 
at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured 
on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements
were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts 
with Customers. The new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees 
must  recognize  lease  assets  and  lease  liabilities.  Lessees  (for  capital  and  operating  leases)  and  lessors  (for  sales-type,  direct 
financing, and operating leases) may apply a modified retrospective transition approach for leases existing at, or entered into after, 
the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would 
not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors 
may also elect to apply the amendments in the ASU through a cumulative-effect adjustment to retained earnings as of the beginning
of the first reporting period in which the guidance is effective. 

The Company historically has owned all property and equipment, although it entered an operating lease for a future branch location 
on December 31, 2018. The Company adopted the ASU on January 1, 2019, using the modified retrospective approach, and 
recognized a right-of-use asset and related lease liability of $1.2 million. During the year ended December 31, 2019, the Companyaa
acquired leases from Mainland and entered into a new lease for one of its de novo branches. At December 31, 2019, the right-of-
use  asset  and  related  lease  liability  were  $3.3  million  and  $3.4  million,  respectively,  and  are  recorded  in  Bank  premises  and 
equipment and Other liabilities on the consolidated balance sheet.

Recent Accounting Pronouncements

This section briefly describes accounting standards that have been issued, but are not yet adopted, that could impact the Company’s 
financial statements.

aa

FASB ASC Topic 250 “Intangibles - Goodwill and Other - Internal Use Software (Subtopic 250-40): Customer’s Accounting for 
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” Update No. 2018-15. In August 
2018, the FASB issued ASU 2018-15. This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement)
that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to 
capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the
balance  sheet  as  amounts  prepaid  for  the  hosted  service,  if  any  (generally  as  an  “other  asset”). The  capitalized  costs  will  be 
amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement 
line item as the fees paid for the hosted service. ASU 2018-15 is effective for the Company on January 1, 2020. Early adoption is
permitted, including adoption in any interim period. The adoption of ASU 2018-15 is not expected to have a material impact on 
the Company’s consolidated financial statements.

FASB ASC Topic 820 “Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value 
Measurement” Update No. 2018-13. In August 2018, the FASB issued ASU 2018-13, which modifies the disclosure requirements
for  fair  value  measurements  by  removing,  modifying,  or  adding  certain  disclosures. ASU  2018-13  removes  the  disclosure 
requirement detailing the amount of and reasons for transfers between Level 1 and Level 2 and the valuation processes for Level
3 fair value measurements will be removed. In addition, this ASU modifies the disclosure requirement for investments in certain
entities that calculate net asset value. Lastly, ASU 2018-13 adds a disclosure requirement for changes in unrealized gains and 
losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of thet
reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements.
ASU 2018-13 is effective for the Company on January 1, 2020. The removed and modified disclosures will be adopted on a 
retrospective basis, and the new disclosures will be adopted on a prospective basis. The adoption of ASU 2018-13 is not expected 
to have a material impact on the Company’s consolidated financial statements. 

FASB ASC Topic 350 “Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment” ASU No. 2017-04. The 
FASB issued ASU No. 2017-04 in January 2017. This ASU simplifies how an entity is required to test goodwill for impairment 
by eliminating Step 2 from the goodwill impairment test. Therefore, any carrying amount which exceeds the reporting unit’s fair
value, up to the amount of goodwill recorded, will be recognized as an impairment loss. ASU 2017-04 will be effective for the 
Company on January 1, 2020. The amendments will be applied prospectively on and after the effective date. Based on recent 
goodwill impairments tests, which did not require the application of Step 2, the Company does not expect the adoption of this
ASU to have a material impact.

91

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

a

uu

FASB ASC Topic 326 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” Update
No. 2016-13. The FASB issued ASU No. 2016-13 in June 2016. The ASU requires the measurement of all expected credit losses
for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable 
forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as 
well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting
for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. We are currently
evaluating the potential impact of ASU 2016-13 on our financial statements. In that regard, we have formed a cross-functional
working group, under the direction of our Chief Financial Officer and our Chief Risk Officer. The working group is comprised of
individuals  from  various  functional  areas  including  credit,  risk  management,  finance  and  information  technology.  We  have 
developed  an  implementation  plan  to  include  assessment  of  processes,  portfolio  segmentation,  model  development,  system 
requirements and the identification of data and resource needs, among other things. We have also selected a third-party vendor 
solution to assist us in the application of ASU 2016-13. The adoption of ASU 2016-13 is likely to result in an increase in the 
allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known
and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be
incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected 
credit losses on debt securities. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we 
expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and 
securities portfolios, as well as the prevailing economic conditions and forecasts, as of the adoption date. This amendment was
originally effective for the Company beginning January 1, 2020, including interim periods within those fiscal years. In July 2019, 
the FASB proposed changes that would delay the effective date for smaller reporting companies, as defined by the SEC, and other
non-SEC reporting entities. In October 2019, the FASB voted in favor of finalizing its proposal to delay the effective date of this
standard to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As a result, ASU 
2016-13 will be effective for the Company on January 1, 2023. The Company expects to adopt the standard as soon as practicable,
based upon progress on the implementation plan, as adoption prior to the revised effective date of January 1, 2023 is permitted
by the ASU.

n

NOTE 2. BUSINESS COMBINATIONS

Mainland Bank 

On March 1, 2019, the Company completed the acquisition of Mainland Bank (“Mainland”) located in Texas City, Texas. The
Company acquired 100% of Mainland’s outstanding common shares for an aggregate merger consideration of 763,849 shares of 
the Company’s common stock, for a total of approximately $18.6 million. The acquisition of Mainland expanded the Company’s
branch footprint into the greater Houston, Texas market, and added $128.4 million in total assets, $82.4 million in loans, and 
$107.6 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded 
$4.5 million of goodwill. There were certain adjustments to the initial calculation of goodwill during the open measurement period 
in 2019 which were not material. Goodwill resulted from a combination of synergies and cost savings, expansion into Texas with 
the addition of three branch locations, and enhanced products and services.

The table below shows the allocation of the consideration paid for Mainland’s common equity to the acquired identifiable assets
and liabilities assumed and the goodwill generated from the transaction (dollars in thousands). The fair values listed below, primarily
related to loans and deferred tax assets and liabilities, are subject to refinement for up to one year after the closing date of the
acquisition as additional information becomes available.

92

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

Purchase price:

Stock issued

Fair value of assets acquired:

Cash and cash equivalents

Loans

Other real estate owned

Bank premises and equipment

Core deposit intangible asset

Other assets

Total assets acquired

Fair value of liabilities acquired:

Deposits

Repurchase agreements

Other liabilities

Total liabilities assumed

Fair value of net assets acquired

Goodwill

$

18,637

38,365

82,431

1,507

2,550

2,439

1,081

128,373

107,646

4,684

1,883

114,213

14,160

4,477

$

Fair value adjustments to assets acquired and liabilities assumed are generally amortized using the effective yield method over
periods consistent with the average life, useful life and/or contractual term of the related assets and liabilities.

The fair value of net assets acquired includes a fair value adjustment to loans as of the acquisition date. The adjustment for the 
acquired loan portfolio is based on current market interest rates, and the Company’s initial evaluation of credit losses identified.
No loans acquired from Mainland were considered to be purchased credit impaired loans. The contractually required principal 
and interest payments of the loans acquired from Mainland are $91.9 million, of which $1.3 million is not expected to be collected.

Bank of York

On November 1, 2019, the Company completed the acquisition of Bank of York located in York, Alabama. The Company acquired 
100% of Bank of York’s outstanding common shares for an aggregate merger consideration of $15.0 million. The acquisition of 
Bank of York expanded the Company’s branch footprint into the west Alabama market. The acquisition added $102.0 million in 
total assets, $46.1 million in loans, and $85.0 million in deposits. As consideration paid was in excess of the net fair value of 
acquired assets, the Company recorded $4.2 million of goodwill. Goodwill resulted from a combination of synergies and cost 
savings, and expansion into Alabama with the addition of two branch locations. 

The table below shows the allocation of the consideration paid for Bank of York’s common equity to the acquired identifiable
assets and liabilities assumed and the goodwill generated from the transaction (dollars in thousands). The fair values listed below, 
primarily related to loans and deferred tax assets and liabilities, are subject to refinement for up to one year after the closing date 
of the acquisition as additional information becomes available.

93

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

Purchase price:
Cash paid

Fair value of assets acquired:
Cash and cash equivalents
Investments
Loans
Bank premises and equipment
Core deposit intangible asset
Bank owned life insurance
Other assets
Total assets acquired

Fair value of liabilities acquired:
Deposits
Repurchase agreements
Other liabilities
Total liabilities assumed

Fair value of net assets acquired
Goodwill

$

15,000

50,771
451
46,127
917
931
2,429
351
101,977

85,004
5,641
562
91,207

10,770
4,230

$

The fair value of net assets acquired includes a fair value adjustment to loans as of the acquisition date. The adjustment for the 
acquired loan portfolio is based on current market interest rates, and the Company’s initial evaluation of credit losses identified.
The total contractually required principal and interest payments of the loans acquired from Bank of York are $51.5 million, of 
which $0.9 million is not expected to be collected.

Loans acquired from Bank of York that are considered to be purchased credit impaired loans had a balance of $0.3 million. The 
total contractually required principal and interest payments of these loans are $0.3 million, of which $0.1 million is not expected 
to be collected. 

The change in goodwill and other intangibles at December 31, 2019 compared to December 31, 2018 is primarily attributable to
the goodwill and core deposit intangibles recorded as a result of the Mainland and Bank of York acquisitions.

Acquisition Expense

Acquisition related costs of $2.1 million and $1.4 million are included in acquisition expenses in the accompanying consolidated 
statements of income for the years ended December 31, 2019 and 2018, respectively. These costs include system conversion and 
integrating operations charges for Mainland and legal and consulting expenses related to the acquisitions of Mainland and Bank 
of York, as well as the system conversion and integrating operations charges for the acquisition of BOJ Bancshares, Inc. which
closed on December 1, 2017.

94

NOTE 3. INVESTMENT SECURITIES

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

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

December 31, 2019

,

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Obligations of U.S. government agencies and corporations

$

33,651

$

Obligations of state and political subdivisions

Corporate bonds

Residential mortgage-backed securities

Commercial mortgage-backed securities

32,920

19,245

100,948

71,340

100

541

192

1,083

564

$

(100) $

(12)

(274)

(85)

(308)

Fair
Value

33,651

33,449

19,163

101,946

71,596

Total

$

258,104

$

2,480

$

(779) $

259,805

December 31, 2018

,

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Obligations of U.S. government agencies and corporations

$

7,946

$

Obligations of state and political subdivisions

Corporate bonds

Residential mortgage-backed securities

Commercial mortgage-backed securities

34,875

16,166

136,768

57,749

Total

$

253,504

$

14

6

53

336

108

517

$

(90) $

(895)

(710)

(2,177)

(1,168)

Fair
Value

7,870

33,986

15,509

134,927

56,689

$

(5,040) $

248,981

Proceeds from sales of investment securities AFS and gross realized gains and losses are summarized below as of the dates presented 
(dollars in thousands). 

Proceeds from sale

Gross gains

Gross losses

Twelve months ended December 31,

2019

2018

2017

$

$

$

65,834

608

$

$

(346) $

7,021

35

$

$

(21) $

106,448

342

(50)

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

December 31, 2019

,

Obligations of state and political subdivisions

Residential mortgage-backed securities

Total

December 31, 2018

,

Obligations of state and political subdivisions

Residential mortgage-backed securities

Total

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

$

$

$

$

9,487

4,922

14,409

Amortized
Cost

10,699

5,367

16,066

$

$

$

$

14

57

71

Gross
Unrealized
Gains

2

—

2

$

$

$

$

— $

—

9,501

4,979

— $

14,480

Gross
Unrealized
Losses

(111) $

(152)

(263) $

Fair
Value

10,590

5,215

15,805

The number of AFS securities, fair value, and unrealized losses, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, are summarized below as of the dates presented (dollars in thousands).

95

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

December 31, 2019

,

Obligations of U.S. government agencies and 

corporations

Obligations of state and political subdivisions

Corporate bonds

Residential mortgage-backed securities

Commercial mortgage-backed securities

Less than 12 Months

12 Months or More

Total

Count

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

21

10

21

32

57

$ 19,980

$

(94) $

212

495

12,341

29,072

(1)

(5)

(56)

(274)

955

371

7,829

6,190

2,516

$

(6) $ 20,935

$

(11)

(269)

(29)

(34)

583

8,324

18,531

31,588

(100)

(12)

(274)

(85)

(308)

(779)

Total

141

$ 62,100

$

(430) $ 17,861

$

(349) $ 79,961

$

December 31, 2018

,

Obligations of U.S. government agencies and 

corporations

Obligations of state and political subdivisions

Corporate bonds

Residential mortgage-backed securities

Commercial mortgage-backed securities

Less than 12 Months

12 Months or More

Total

Count

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

15

63

27

193

94

$

469

$

— $

5,304

$

(90) $

5,773

$

13,716

6,793

24,868

5,156

(330)

(225)

(245)

(42)

19,270

5,763

79,517

39,560

(565)

(485)

(1,932)

(1,126)

32,986

12,556

104,385

44,716

(90)

(895)

(710)

(2,177)

(1,168)

Total

392

$ 51,002

$

(842) $ 149,414

$

(4,198) $ 200,416

$

(5,040)

The number of HTM securities, fair value, and unrealized losses, aggregated by investment category and length of time that 
individual securities have been in a continuous unrealized loss position, are summarized below as of the dates presented (dollars aa
in thousands).

December 31, 2019

,

Less than 12 Months

12 Months or More

Total

Count

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Obligations of state and political subdivisions

— $

— $

— $

— $

— $

— $

Residential mortgage-backed securities

—

—

—

—

—

—

Total

— $

— $

— $

— $

— $

— $

—

—

—

December 31, 2018

,

Obligations of state and political subdivisions

Residential mortgage-backed securities

Total

Less than 12 Months

12 Months or More

Total

Count

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

1

9

10

$

$

— $

— $

1,761

(35)

1,761

$

(35) $

5,468

3,454

8,922

$

$

(111) $

(117)

5,468

5,215

(228) $ 10,683

$

$

(111)

(152)

(263)

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, 2019 or December 31, 2018.

ff

96

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

The 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, 2019
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

December 31, 2018
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

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

2,174

$

2,175

$

790

$

13,525

66,551

175,854

13,675

66,568

177,387

3,575

5,122

4,922

792

3,582

5,126

4,980

258,104

$

259,805

$

14,409

$

14,480

Securities Available For Sale

Securities Held to Maturity

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

3,734

$

3,730

$

755

$

10,681

44,255

194,834

10,600

43,460

191,191

3,405

960

10,946

253,504

$

248,981

$

16,066

$

755

3,406

961

10,683

15,805

$

$

$

$

NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES

The Company’s loan portfolio consists of the following categories of loans as of the dates presented (dollars in thousands).

December 31,

2019

2018

Construction and development

$

197,797

$

1-4 Family

Multifamily

Farmland

Commercial real estate

Total mortgage loans on real estate

Commercial and industrial

Consumer

Total loans

321,489

60,617

27,780

731,060

1,338,743

323,786

29,446

$

1,691,975

$

157,946

287,137

50,501

21,356

627,004

1,143,944

210,924

45,957

1,400,825

Unamortized premiums and discounts on loans, included in the total loans balances above, were $2.1 million and $1.4 million at 
December 31, 2019 and 2018, respectively and unearned income on loans was $0.9 million and $0.5 million at December 31, 
2019 and 2018, respectively.

97

Nonaccrual and Past Due Loans

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments 
were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment 
obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may
be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis
of current financial information, if available, and/or current information with regard to our collateral position. Regulatory provisions 
would typically require the placement of a loan on nonaccrual status if (i) principal or interest has been in default for a period of 
90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest 
is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When
interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to
the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payment of principal and interest amounts contractually duedd
are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the
borrower.

The tables below provide an analysis of the aging of loans as of the dates presented (dollars in thousands).

Accruing

December 31, 2019

Current

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or
More Past
Due

Nonaccrual

Total Past
Due &
Nonaccrual

Acquired
Impaired
Loans

Total Loans

Construction and 
development

1-4 Family

Multifamily

Farmland

Commercial real estate

Total mortgage loans on
real estate

Commercial and industrial

Consumer

Total loans

$ 197,318

$

317,572

60,617

25,516

727,423

133

998

—

—

1,193

1,328,446

2,324

323,446

28,443

171

339

$

32

$

— $

314

$

479

$

— $

197,797

1,923

3,472

413

—

—

14

459

19

95

138

—

—

657

795

—

—

—

—

141

2,378

137

531

—

—

2,005

445

—

2,264

1,632

321,489

60,617

27,780

731,060

5,956

4,341

1,338,743

327

965

13

38

323,786

29,446

$ 1,680,335

$

2,834

$

573

$

795

$

3,046

$

7,248

$

4,392

$ 1,691,975

Accruing

December 31, 2018

Construction and 
development

1-4 Family

Multifamily

Farmland

Commercial real estate

Total mortgage loans on
real estate

Commercial and industrial

Consumer

Total loans

Current

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or
More Past
Due

Nonaccrual

Total Past
Due &
Nonaccrual

Acquired
Impaired
Loans

Total Loans

$ 157,202

$

175

$

— $

— $

556

$

731

$

13

$

157,946

284,205

50,392

19,092

624,244

1,101

109

—

66

1,135,135

1,451

209,399

44,493

221

375

41

—

—

—

41

45

51

—

—

—

—

—

—

—

1,300

2,442

—

—

683

2,539

64

994

109

—

749

4,031

330

1,420

490

—

2,264

2,011

4,778

1,195

44

287,137

50,501

21,356

627,004

1,143,944

210,924

45,957

$ 1,389,027

$

2,047

$

137

$

— $

3,597

$

5,781

$

6,017

$ 1,400,825

98

Portfolio Segment Risk Factors

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

The following describes the risk characteristics relevant to each of the Company’s loan portfolio segments.

Construction and Development.  Construction and development loans are generally made for the purpose of acquisition and 
development of land to be improved through the construction of commercial and residential buildings. The successful repayment 
of these types of loans is generally dependent upon a commitment for permanent financing from the Company, or from the sale 
of the constructed property. These loans carry more risk than commercial or residential real estate loans due to the dynamics of 
construction projects, changes in interest rates, the long-term financing market, and state and local government regulations. One
such risk is that loan funds are advanced upon the security of the property under construction, which is of uncertain value prior 
to the completion of construction. Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project 
and to calculate related loan-to-value ratios. The Company attempts to minimize the risks associated with construction lending
by limiting loan-to-value ratios as described above. In addition, as to speculative development loans, the Company generally
makes such loans only to borrowers that have a positive pre-existing relationship with us. The Company manages risk by using 
specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations in any one business 
or industry.

1-4 Family.  The 1-4 Family portfolio mainly consists of residential mortgage loans to consumers to finance a primary residence. 
The majority of these loans are secured by properties located in the Company’s market areas and carry risks associated with the
creditworthiness of the borrower and changes in the value of the collateral and loan-to-value-ratios. The Company manages these
risks through policies and procedures such as limiting loan-to-value ratios at origination, employing experienced underwriting 
personnel, requiring standards for appraisers, and not making subprime loans. 

Multifamily.  Multifamily loans are normally made to real estate investors to support permanent financing for multifamily residential 
income producing properties that rely on the successful operation of the property for repayment. This management mainly involves
property maintenance and collection of rents due from tenants. This type of lending carries a lower level of risk, as compared to
other commercial lending. In addition, underwriting requirements for multifamily properties are stricter than for other non-owner-
occupied property types. The Company manages this risk by avoiding concentrations with any particular customer.

Farmland.  Farmland loans are often for land improvements related to agricultural endeavors and may include construction of 
new specialized facilities. These loans are usually repaid through the conversion to permanent financing, or if scheduled loan
amortization begins, for the long-term benefit of the borrower’s ongoing operations. Underwriting generally involves intensive
analysis  of  the  financial  strength  of  the  borrower  and  guarantor,  liquidation  value  of  the  subject  collateral,  the  associated 
unguaranteed exposure, and any available secondary sources of repayment, with the greatest emphasis given to a borrower’s 
capacity to meet cash flow coverage requirements as set forth by Bank policies.

Commercial Real Estate. Commercial real estate loans are extensions of credit secured by owner occupied and non-owner occupied 
collateral. Underwriting generally involves intensive analysis of the financial strength of the borrower and guarantor, liquidation
value of the subject collateral, the associated unguaranteed exposure, and any available secondary sources of repayment, with the 
greatest emphasis given to a borrower’s capacity to meet cash flow coverage requirements as set forth by Bank policies. Repayment 
is commonly derived from the successful ongoing operations of the property. General market conditions and economic activity
may impact the performance of these types of loans, including fluctuations in the value of real estate, new job creation trends, and 
tenant vacancy rates. The Company attempts to limit risk by analyzing a borrower’s cash flow and collateral value on an ongoing
basis. The Company also typically requires personal guarantees from the principal owners of the property, supported by a review
of their personal financial statements, as an additional means of mitigating our risk. The Company manages risk by avoiding 
concentrations in any one business or industry.

aa

t

Commercial and Industrial.  Commercial and industrial loans receive similar underwriting treatment as commercial real estate
loans in that the repayment source is analyzed to determine its ability to meet cash flow coverage requirements as set forth by
Bank policies. Repayment of these loans generally comes from the generation of cash flow as the result of the borrower’s business 
operations. Commercial lending generally involves different risks from those associated with commercial real estate lending or 
construction lending. Although commercial loans may be collateralized by equipment or other business assets (including real
estate, if available as collateral), the repayment of these types of loans depends primarily on the creditworthiness and projected 
cash flow of the borrower (and any guarantors). Thus, the general business conditions of the local economy and the borrower’s
ability to sell its products and services, thereby generating sufficient operating revenue to repay us under the agreed upon terms 
and conditions, are the chief considerations when assessing the risk of a commercial loan. The liquidation of collateral, if any, is
considered a secondary source of repayment because equipment and other business assets may, among other things, be obsolete 
or of limited resale value. The Company actively monitors certain financial measures of the borrower, including advance rate, 
cash flow, collateral value and other appropriate credit factors.

99

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

Consumer.  Consumer loans are offered by the Company in order to provide a full range of retail financial services to its customers
and include auto loans, credit cards, and other consumer installment loans. Typically, the Company evaluates the borrower’s 
repayment ability through a review of credit scores and an evaluation of debt to income ratios. Repayment of consumer loans
depends upon key consumer economic measures and upon the borrower’s financial stability, and is more likely to be adversely 
affected by divorce, job loss, illness and personal hardships than repayment of other loans. A shortfall in the value of any collateral
also may pose a risk of loss to the Company for these types of loans. Indirect auto loans comprised the largest component of our 
consumer loans, representing 44% of our total consumer loans at December 31, 2019. At December 31, 2019, the weighted average 
remaining term of the indirect auto loan portfolio was 2 years. We exited the indirect auto lending business at the end of 2015.

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.

r

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 category and credit quality indicator 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

Pass

$

196,873

$

318,549

60,617

25,516

729,921

1,331,476

318,519

28,775

December 31, 2019

Special
Mention

Substandard

Doubtful

Total

610

714

—

—

—

1,324

2,910

128

$

314

$

— $

2,198

—

2,264

1,139

5,915

2,264

543

28

—

—

—

28

93

—

197,797

321,489

60,617

27,780

731,060

1,338,743

323,786

29,446

$

1,678,770

$

4,362

$

8,722

$

121

$

1,691,975

100

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

Pass

Special
Mention

Substandard

Doubtful

Total

December 31, 2018

Construction and development

$

157,360

$

— $

586

$

— $

1-4 Family

Multifamily

Farmland

Commercial real estate

Total mortgage loans on real estate

Commercial and industrial

Consumer

Total loans

285,692

50,501

19,092

625,670

1,138,315

207,941

44,798

$

1,391,054

$

69

—

—

—

69

—

167

236

1,303

—

2,264

1,334

5,487

2,983

992

$

9,462

$

73

—

—

—

73

—

—

73

157,946

287,137

50,501

21,356

627,004

1,143,944

210,924

45,957

$

1,400,825

The Company had no loans that were classified as loss at December 31, 2019 or 2018.

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 $82.8 million and $135.4 million as of December 31, 2019
and 2018, respectively. The unpaid principal balances of these loans were approximately $174.7 million and $187.6 million at 
December 31, 2019 and 2018, respectively.

In  the  ordinary  course  of  business,  the  Company  makes  loans  to  related  parties  including  its  executive  officers,  principal
shareholders, directors and their immediate family members, as well as to companies in which these individuals are principal
owners. Loans outstanding to such related party borrowers amounted to approximately $98.1 million and $93.0 million as of 
December 31, 2019 and December 31, 2018, respectively.

The table below shows the aggregate principal balance of loans to such related parties for the years ended December 31, 2019 and 
2018 (dollars in thousands).

Balance, beginning of period

New loans/changes in relationship

Repayments/changes in relationship

Balance, end of period

December 31,

2019

2018

93,021

$

20,903

(15,831)

98,093

$

31,153

79,639

(17,771)

93,021

$

$

During  the  year  ended  December 31,  2018,  a  company  of  which  a  director  is  the  principal  owner  purchased  a  $0.7  million
substandard loan from the Bank for $0.7 million. The substandard loan was made to a related party of the director. The Company
did not record a gain or loss on the sale of the loan because the proceeds approximated the Bank’s recorded investment. 

Loans Acquired with Deteriorated Credit Quality

The  Company  accounts  for  certain  loans  acquired  as  acquired  impaired  loans  under ASC  310-30  due  to  evidence  of  credit 
deterioration at acquisition and the probability that the Company will be unable to collect all contractually required payments.

There were no changes in the accretable yield on acquired impaired loans for the years ended December 31, 2019 and 2018.

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, 2019, 2018
and 2017 (dollars in thousands).

Balance, beginning of period

Provision for loan losses

Loans charged-off

Recoveries

Balance, end of period

2019

December 31,

2018

2017

9,454

$

7,891

$

1,908

(800)

138

2,570

(1,185)

178

10,700

$

9,454

$

7,051

1,540

(765)

65

7,891

$

$

101

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, 2019,
2018 and 2017, and show both the allowance and portfolio balances for loans individually and collectively evaluated for impairment 
as of December 31, 2019, 2018 and 2017 (dollars in thousands).

Construction
&
Development

Farmland

1-4 Family Multifamily

Commercial
Real Estate

Commercial
&
Industrial

Consumer

Total

December 31, 2019

Allowance for loan losses:

Beginning balance

$

1,038

$

Charge-offs

Recoveries

Provision

(51)

27

187

81

—

—

20

$

1,465

$

331

$

4,182

$

1,641

$

716

$

9,454

(62)

27

60

—

—

56

(24)

1

265

(252)

26

1,194

Ending balance

$

1,201

$

101

$

1,490

$

387

$

4,424

$

2,609

$

Ending allowance balance for 
loans individually evaluated 
for impairment

Ending allowance balance for 
loans acquired with 
deteriorated credit quality

Ending allowance balance for 
loans collectively evaluated for 
impairment

Loans receivable:

Balance of loans individually 
evaluated for impairment

Balance of loans acquired with 
deteriorated credit quality

Balance of loans collectively 
evaluated for impairment

—

—

—

—

—

—

—

—

—

—

—

—

1,201

101

1,490

387

4,424

2,609

347

10,559

247

—

—

1,662

2,264

445

—

—

47

1,632

93

13

498

38

2,547

4,392

197,550

25,516

319,382

60,617

729,381

323,680

28,910

1,685,036

Total period-end balance

$

197,797

$ 27,780

$ 321,489

$

60,617

$

731,060

$

323,786

$ 29,446

$ 1,691,975

Construction
&
Development

Farmland

1-4 Family Multifamily

Commercial
Real Estate

Commercial
&
Industrial

Consumer

Total

December 31, 2018

(411)

57

126

488

141

—

(800)

138

1,908

$

10,700

141

—

Allowance for loan losses:

Beginning balance

$

945

$

Charge-offs

Recoveries

Provision

(24)

12

105

Ending balance

$

1,038

$

Ending allowance balance for 
loans individually evaluated 
for impairment

Ending allowance balance for 
loans acquired with 
deteriorated credit quality

Ending allowance balance for 
loans collectively evaluated for 
impairment

Loans receivable:

Balance of loans individually 
evaluated for impairment

Balance of loans acquired with 
deteriorated credit quality

Balance of loans collectively 
evaluated for impairment

—

—

1,038

339

13

60

—

—

21

81

—

—

81

—

$

1,287

$

332

$

3,599

$

693

$

975

$

7,891

(167)

29

316

—

—

(1)

—

—

583

(481)

55

1,374

$

1,465

$

331

$

4,182

$

1,641

$

—

—

—

—

—

—

—

—

(513)

(1,185)

$

82

172

716

236

—

178

2,570

9,454

236

—

1,465

331

4,182

1,641

480

9,218

1,177

2,264

490

—

—

761

76

2,011

1,195

916

44

3,269

6,017

157,594

19,092

285,470

50,501

624,232

209,653

44,997

1,391,539

Total period-end balance

$

157,946

$ 21,356

$ 287,137

$

50,501

$

627,004

$

210,924

$ 45,957

$ 1,400,825

102

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

December 31, 2017

Construction
&
Development

Farmland

1-4 Family Multifamily

Commercial
Real Estate

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 acquired with 
deteriorated credit quality

Ending allowance balance for 
loans collectively evaluated for 
impairment

Loans receivable:

Balance of loans individually 
evaluated for impairment

Balance of loans acquired with 
deteriorated credit quality

Balance of loans collectively 
evaluated for impairment

579

$

$

—

34

332

945

—

—

945

182

285

60

—

—

—

60

—

—

60

—

$

1,377

$

355

$

2,499

$

759

$

1,422

$

7,051

—

7

(97)

—

—

(23)

—

—

1,100

$

1,287

$

332

$

3,599

$

—

—

—

—

—

—

(270)

(495)

—

204

693

—

—

24

24

$

975

$

304

—

(765)

65

1,540

7,891

304

—

1,287

332

3,599

693

671

7,587

1,136

—

640

—

1,086

3,044

4,161

1,486

1,012

2,087

1,329

4

10,364

157,200

19,677

274,300

50,271

534,637

134,063

75,223

1,245,371

Total period-end balance

$

157,667

$ 23,838

$ 276,922

$

51,283

$

537,364

$

135,392

$ 76,313

$ 1,258,779

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.

ff

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 contain information on the Company’s impaired loans, which include troubled debt restructurings (“TDR”), 
discussed  in  more  detail  below,  and  nonaccrual  loans  individually  evaluated  for  impairment  for  purposes  of  determining  the 
allowance for loan losses. The average balances are calculated based on the month-end balances of the loans during the period 
reported (dollars in thousands).

103

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

As of and for the year ended December 31, 2019

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

With no related allowance recorded:

Construction and development

$

247

$

269

$

— $

328

$

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

1,662

—

47

1,956

93

188

2,237

310

310

247

1,662

—

47

1,956

93

498

1,745

—

50

2,064

96

205

2,365

347

347

269

1,745

—

50

2,064

96

552

$

2,547

$

2,712

$

—

—

—

—

—

—

—

141

141

—

—

—

—

—

—

141

141

1,507

36

700

2,571

33

328

2,932

324

324

328

1,507

36

700

2,571

33

652

$

3,256

$

14

32

—

7

53

—

—

53

—

—

14

32

—

7

53

—

—

53

104

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

As of and for the year ended December 31, 2018

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

With no related allowance recorded:

Construction and development

$

339

$

359

$

— $

237

$

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

1,177

761

2,277

76

215

2,568

701

701

339

1,177

761

2,277

76

916

1,180

777

2,316

77

237

2,630

738

738

359

1,180

777

2,316

77

975

$

3,269

$

3,368

$

—

—

—

—

—

—

236

236

—

—

—

—

—

236

236

1,455

878

2,570

278

410

3,258

588

588

237

1,455

878

2,570

278

998

$

3,846

$

13

39

20

72

—

—

72

—

—

13

39

20

72

—

—

72

As of and for the year ended December 31, 2017

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

With no related allowance recorded:

Construction and development

$

182

$

202

$

— $

338

$

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

1,136

640

1,958

—

168

2,126

918

918

182

1,136

640

1,958

—

1,086

1,169

654

2,025

—

217

2,242

956

956

202

1,169

654

2,025

—

1,173

$

3,044

$

3,198

$

105

—

—

—

—

—

—

304

304

—

—

—

—

—

304

304

1,344

620

2,302

122

380

2,804

738

738

338

1,344

620

2,302

122

1,118

$

3,542

$

13

76

46

135

—

1

136

1

1

13

76

46

135

—

2

137

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 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 in which the Company grants the borrower new terms that provide for a reduction of either 
interest or principal, or otherwise include a concession, the Company identifies the loan as a TDR and measures any impairment 
on the restructuring as previously noted for impaired loans.

tt

Loans classified as TDRs, consisting of 18 credits, totaled approximately $1.5 million at December 31, 2019, compared to 24
credits totaling $2.2 million at December 31, 2018. Ten of the restructured loans were considered TDRs due to modification of 
terms through adjustments to maturity, seven of the restructured loans were considered TDRs due to a reduction in the interest 
rate to a rate lower than the current market rate, and one restructured loan was considered a TDR due to forgiveness of interest 
due on the loan. At December 31, 2019, two of the TDRs were in default of their modified terms and are included in nonaccrual 
loans. At December 31, 2018, three of the TDRs were in default of their modified terms and were included included in nonaccrual
loans. The Company individually evaluates each TDR for allowance purposes, primarily based on collateral value, and excludes
these loans from the loan population that is collectively evaluated for impairment (ASC 450).

two

At December 31, 2019 and 2018, there were no available balances on loans classified as TDRs that the Company was committed 
to lend.

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, 2019 and 2018 (dollars in thousands).

Troubled debt restructuringsg

Construction and development

1-4 Family

Commercial and industrial

December 31, 2019

December 31, 2018

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of
Contracts

$

$

— $

—

—

—

—

—

2

8

2

— $

—  

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

$

$

$

403

587

12

403

587

12

1,002

$

1,002

Number of
Contracts

—

—

—

There were no loans modified under troubled debt restructurings during the previous twelve month period that subsequently 
defaulted during the year ended December 31, 2019.

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, 2019

,

Construction and development

1-4 Family

Total

December 31, 2018

,

Construction and development

1-4 Family

Commercial real estate

Commercial and industrial

Total

Accruing

Nonaccrual

Total

Related
Allowance

TDRs

$

$

$

$

$

$

$

220

800

1,020

239

919

78

12

$

$

$

287

176

463

284

190

468

—

507

976

1,483

$

$

523

$

1,109

546

12

1,248

$

942

$

2,190

$

—

—

—

—

—

—

—

—

106

 
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

The  table  below  includes  the  average  recorded  investment  and  interest  income  recognized  for  TDRs  for  the  years  ended 
December 31, 2019, 2018 and 2017 (dollars in thousands).

December 31, 2019

,

Construction and development

1-4 Family

Commercial real estate

Commercial and industrial

Total

December 31, 2018

,

Construction and development

1-4 Family

Commercial real estate

Commercial and industrial

Consumer

Total

December 31, 2017

,

Construction and development

1-4 Family

Commercial real estate

Consumer

Total

TDRs

Average Recorded
Investment

Interest Income
Recognized

$

$

$

$

$

$

515

$

1,014

264

2

1,795

$

$

308

948

553

8

2

1,819

$

159

$

1,255

592

2

2,008

$

14

51

7

—

72

13

45

20

—

—

78

13

76

46

2

137

NOTE 5. 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

Additions

Acquired other real estate owned

Sales of other real estate owned

Write-downs

Balance, end of period

December 31,

2019

2018

$

$

3,611

$

181

1,507

(5,148)

(18)

133

$

3,837

496

—

(155)

(567)

3,611

As of December 31, 2019 and December 31, 2018, other real estate owned related to acquisitions totaled approximately $0.1 
million and $0.3 million, respectively. At December 31, 2019, approximately $1.3 million of loans secured by real estate were in 
the process of foreclosure.

107

NOTE 6. 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

Right-of-use asset

Less: Accumulated depreciation and amortization

Bank premises and equipment, net

December 31,

2019

2018

13,851

$

31,926

10,915

1,373

1,974

3,309

(12,432)

50,916

$

10,820

28,147

8,832

1,329

999

—

(9,898)

40,229

$

$

Depreciation and amortization related to bank premises and equipment charged to noninterest expense was approximately $2.6 
million, $2.1 million and $1.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.

NOTE 7. LEASES

On January 1, 2019, the Company adopted ASU 2016-02, Leases, as further explained in Note 1, Summary of Significant Accounting
Policies. The Company’s primary leasing activities relate to certain real estate leases entered into in support of the Company’s
branch operations. Prior to the Mainland acquisition on March 1, 2019, the Company leased only one of its properties, a future 
branch location expected to be opened in 2020. With the Mainland acquisition, the Company increased its branch network by three
branches, of which two are operated under lease agreements. In addition, the Company entered into a lease agreement in the third 
quarter of 2019 for its second location in the Lafayette, Louisiana market, which opened on October 28, 2019. The Company’s 
branch locations operated under lease agreements have all been designated as operating leases. The Company does not lease
equipment under operating leases, nor does it have leases designated as finance leases. 

The Company determines if an arrangement is a lease at inception. Operating leases, with the exception of short-term leases, are 
included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in Bank premises and equipment, net and
Accrued taxes and other liabilities, respectively, in the consolidated balance sheets. ROU assets represent the right to use an
underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments
over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate
based on the information available at the commencement date in determining the present value of lease payments. The operating 
lease ROU asset also includes any lease pre-payments made and excludes lease incentives. The Company’s lease terms may include
options to extend or terminate the lease. When it is reasonably certain that the Company will exercise an option to extend a lease, 
the extension is included in the lease term when calculating the present value of lease payments. 

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements 
with lease and non-lease components, which the Company has elected to account for separately, as the non-lease component 
amounts are readily determinable. No operating lease expense was recorded in the year ended December 31, 2018 as the Company 
had no operating leases until December 31, 2018.

Quantitative information regarding the Company’s operating leases is presented below as of and for the year ended December 31, 
2019 (dollars in thousands).

Total operating lease cost

Weighted-average remaining lease term (in years)
Weighted-average discount rate

$

341

10.4
3.1%

As  of  December 31,  2019,  the  Company’s  lease  ROU  assets  and  related  lease  liabilities  were  $3.3  million  and  $3.4  million, 
respectively, and have remaining terms ranging from 4 to 12 years, including extension options if the Company is reasonably 
certain they will be exercised.

108

Future minimum lease payments due under non-cancelable operating leases at December 31, 2019 are presented below (dollars
in thousands).

2020
2021
2022
2023
2024
Thereafter

Total

$

$

398
403

408
405
325
2,027

3,966

At December 31, 2019, the Company had not entered into any material leases that have not yet commenced.

NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS

At December 31, 2019, goodwill and other intangible assets totaled $31.0 million and included no accumulated impairment losses.
The Company’s intangible assets consist of goodwill, core deposit intangible assets arising from acquisitions, and a trademark 
intangible that was acquired during the year ended December 31, 2016. The Company has determined that the core deposit intangible 
assets have finite lives and amortizes them over the estimated useful lives of the assets.

Goodwill was recorded during the year ended December 31, 2019 as a result of the acquisitions of Mainland and Bank of York,
discussed in Note 2, Business Combinations. The carrying amount of goodwill acquired from Mainland and Bank of York as of 
December 31, 2019 was $4.5 million and $4.2 million, respectively. The trademark intangible had a carrying value of $0.1 million
at December 31, 2019 and 2018.

In accordance with ASC 350, Intangibles-Goodwill and Other, the Company reviews the carrying value of indefinite-lived intangible
assets at least annually, or more frequently if certain impairment indicators exist. The Company performed its annual impairment 
testing on October 31, 2019 and determined that there was no impairment to its goodwill or trademark intangible asset.

The table below shows a summary of the core deposit intangible assets as of the dates presented (dollars in thousands).

Gross carrying amount

Accumulated amortization

Net carrying amount

December 31,

2019

2018

$

$

6,467

(1,664)

4,803

$

$

3,097

(834)

2,263

The Company acquired core deposit intangibles of $2.4 million and $0.9 million in the Mainland and Bank of York acquisitions, 
respectively, during the year ended December 31, 2019. Core deposit intangibles are being amortized over their estimated useful
lives, which range from 10 to 15 years. Amortization expense for the core deposit intangible assets recorded in depreciation and 
amortization totaled approximately $0.8 million, $0.5 million, and $0.2 million for the years ended December 31, 2019, 2018 and
2017, respectively. The future amortization schedule for the Company’s core deposit intangible assets is displayed in the table
below. The weighted average amortization period remaining for core deposit intangibles is 8.8 years.

(dollars in thousands)

2020
2021

2022
2023

2024

Thereafter

$

$

960
854

747
641

534

1,067

4,803

109

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

NOTE 9. DEPOSITS

Deposits consisted of the following as of the dates presented (dollars in thousands).

Noninterest-bearing demand deposits

Interest-bearing demand deposits

Money market deposit accounts

Savings accounts

Time deposits

Total deposits

December 31,

2019

2018

351,905

$

335,478

198,999

115,324

706,000

217,457

295,212

179,340

104,146

565,576

1,707,706

$

1,361,731

$

$

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,

2019

2018

$

$

225,951

$

345,040

135,009

706,000

$

229,105

236,031

100,440

565,576

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,

2019

2018

$

$

92,157

$

76,179

200,654

95,495

15,564

480,049

$

77,923

72,397

102,055

72,524

11,572

336,471

The approximate scheduled maturities of time deposits for each of the next five years are shown below (dollars in thousands).

2020

2021

2022

2023

2024

$

$

542,841

102,051

39,334

12,843

8,931

706,000

Public fund deposits as of December 31, 2019 and 2018 totaled approximately $103.4 million and $85.0 million, respectively.
The funds were secured by securities with a fair value of approximately $89.4 million and $74.0 million as of  December 31, 2019
and 2018, respectively.

As  of  December 31,  2019  and  2018,  total  deposits  outstanding  to  executive  officers,  principal  shareholders,  directors  and  to
companies in which they are principal owners amounted to approximately $76.3 million and $49.4 million, respectively.

110

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

NOTE 10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

We utilize securities sold under agreements to repurchase (“repurchase agreements”) to facilitate the needs of our customers and 
to facilitate secured short-term funding needs. Repurchase agreements are stated at the amount of cash received in connection
with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based 
on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with t
our safekeeping agents.

Repurchase agreements mature on a daily basis. The balances of repurchase agreements were $3.0 million and $2.0 million at 
December 31, 2019 and December 31, 2018, respectively. These funds were secured by investment securities with fair values of 
approximately $2.9 million and $3.5 million at December 31, 2019 and December 31, 2018, respectively. The interest rate paid 
for repurchase agreements is tiered, based on balance, and is indexed to the Federal Funds Rate. The weighted average interest 
rate on repurchase agreements was 0.75% and 1.67% at December 31, 2019 and December 31, 2018, respectively. The weighted-
average rate paid for repurchase agreements during the year ended December 31, 2019 was 1.32% and the weighted average rate
for the years ended December 31, 2018 and 2017 was 0.99% and 0.33%, respectively.

NOTE 11. SUBORDINATED DEBT SECURITIES

On November 12, 2019, the Company issued and sold $25.0 million in aggregate principal amount of its 5.125% Fixed-to-Floating 
Rate Subordinated Notes (the “2029 Notes”) due December 30, 2029. Beginning on December 30, 2024, the Company may redeem
the 2029 Notes, in whole or in part, at their principal amount plus any accrued and unpaid interest. The 2029 Notes bear an interest 
rate of 5.125% per annum until December 30, 2024, on which date the interest rate will reset quarterly to an annual interest rate 
equal  to  the  then-current  three-month  LIBOR  as  calculated  on  each  applicable  date  of  determination,  or  an  alternative  rate 
determined in accordance with the terms of the 2029 Notes if the three-month LIBOR cannot be determined, plus 349.0 basis 
points.

On March 24, 2017, the Company issued and sold $18.6 million in aggregate principal amount of its 6.00% Fixed-to-Floating
Rate Subordinated Notes (the “2027 Notes”) due March 30, 2027. Beginning on March 30, 2022, the Company may redeem the 
2027 Notes, in whole or in part, at their principal amount plus any accrued and unpaid interest. The 2027 Notes bear an interest 
rate of 6.00% per annum until March 30, 2022, on which date the interest rate will reset quarterly to an annual interest rate equal 
to the then-current LIBOR plus 394.5 basis points.

The carrying value of subordinated debt was $42.8 million at December 31, 2019. The subordinated debt securities are recorded 
net of issuance costs of $0.8 million, which are being amortized using the straight-line method over the lives of the respective
securities.

NOTE 12. OTHER BORROWED FUNDS

Federal Home Loan Bank Advances

FHLB advances and weighted average interest rates at the end of the period by contractual maturity are summarized as of the 
dates presented (dollars in thousands).

Fixed rate advances maturing:

2019

2020

2024

2028

2033

ASC 805 Fair Value Adjustment

Amount

Weighted Average Rate

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

$

$

— $

53,100

23,500

25,000

30,000

—

131,600

$

148,400

3,100

—

25,000

30,000

(10)

206,490

—%

2.46%

1.74

1.81

1.77

1.88

—

1.52

—

1.77

1.88

—

1.79%

2.28%

As of December 31, 2019, these advances are collateralized by approximately $707.5 million of the Company’s loan portfolio and 
$28.1 million of the Company’s investment securities in accordance with the Advance Security and Collateral Agreement with 
the FHLB. As of December 31, 2019, the Company had an additional $594.6 million available under its line of credit with the 
FHLB.

111

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

At  December 31,  2019,  the  FHLB  advances  contractually  maturing  in  2028  and  2033  are  fixed  rate,  nonamortizing  puttable
advances. Under the terms of these advances, the Bank sells the FHLB options to terminate the fixed rate advances at specified 
points in time prior to the stated maturity dates. The FHLB may terminate the advances on quarterly option exercise dates until
maturity. 

Lines of Credit

In  addition,  the  Company  has  outstanding  unsecured  lines  of  credit  with  its  correspondent  banks  available  to  assist  in  the 
management of short-term liquidity. Any balances drawn on these lines of credit mature daily. At December 31, 2019, the available
balance  on  the  unsecured  lines  of  credit  totaled  approximately  $60.0  million,  with  no  outstanding  balance  reflected  on  the 
consolidated balance sheet. 

Junior Subordinated Debt

The following table provides a summary of the Company’s junior subordinated debentures (dollars in thousands).

Face Value

Carrying Value

Maturity Date

Variable Interest
Rate

Interest Rate at
December 31, 2019

First Community Louisiana Statutory Trust I

$

3,609

$

3,609

June 2036

BOJ Bancshares  Statutory Trust I

3,093

2,288 December 2034

$

6,702

$

5,897

3-month LIBOR 
+ 1.77%

3-month LIBOR 
+ 1.90%

3.66%

3.79%

These debentures are unsecured obligations due to trusts that are unconsolidated subsidiaries. The debentures were issued in 
conjunction with the trusts’ issuances of obligated capital securities. The trusts used the proceeds from the issuances of their capital
securities to buy floating rate junior subordinated deferrable interest debentures that bear the same interest rate and terms as the 
capital securities. These debentures are the trusts’ only assets and the interest payments from the debentures finance the distributions 
paid on the capital securities. These debentures rank junior and are subordinate in the right of payment to all other debt of the 
Company.

tt

t

As part of the purchase accounting adjustments made with the BOJ acquisition on December 1, 2017, the Company adjusted the
carrying value of the junior subordinated debentures to fair value as of the acquisition date. The discount on the debentures will
continue to be amortized through maturity and recognized as a component of interest expense.

The debentures may be called by the Company at par plus any accrued interest. Interest on the debentures is calculated quarterly. 
The distribution rate payable on the capital securities is cumulative and payable quarterly in arrears. The Company has the right 
to defer payments of interest on the debentures at any time by extending the interest payment period for a period not exceeding
20 consecutive quarters with respect to each deferral period, provided that no extension period may extend beyond the redemption 
or maturity date of the debentures.

The debentures are included on the consolidated balance sheet as liabilities; however, for regulatory purposes, the carrying value
of these obligations are eligible for inclusion in Tier I regulatory capital, subject to certain limitations. The total carrying values
of $5.9 million and $5.8 million were allowed in the calculation of Tier I regulatory capital at December 31, 2019 and 2018, 
respectively. 

NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS

As part of its liability management, the Company utilizes pay-fixed interest rate swaps 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. 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 4.6 
years. As of December 31, 2019, the Company had one interest rate swap agreement with a notional amount of $50.0 million
designated as a cash flow hedge, while it had five derivative contracts with a total notional amount of $50.0 million at December 
31, 2018. The derivative contract is between the Company and a single counterparty. To mitigate credit risk, securities are pledged 
to the Company by the counterparty in an amount greater than or equal to the gain position of the derivative contracts.

112

For the year ended December 31, 2019, a gain of $51,000, net of a $14,000 tax expense, was recognized in “Other comprehensive 
(loss) income” (“OCI”) in the accompanying consolidated statements of other comprehensive income for the change in fair value 
of the interest rate swap contracts. For the years ended December 31, 2018 and December 31, 2017, a gain of $0.1 million, net of
a $22,000 tax expense, and a gain of $0.4 million, net of a $0.1 million tax expense, respectively, was recognized in OCI in the
accompanying  consolidated  statements  of  other  comprehensive  income  for  the  change  in  fair  value  of  the  interest  rate  swap 
contracts.

The swap contracts had a fair value of $0.7 million and $0.6 million at December 31, 2019 and 2018, respectively, and have been
recorded in “Other assets” in the accompanying consolidated balance sheets. The accumulated gain of $0.5 million included in 
“Accumulated other comprehensive income (loss)” 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.

Customer Derivatives – Interest Rate Swaps 

In the third quarter of 2019, the Company began entering into interest rate swaps that allow commercial loan customers to effectively 
convert  a  variable-rate  commercial  loan  agreement  to  a  fixed-rate  commercial  loan  agreement.  Under  these  agreements,  the 
Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves
to effectively swap the customer’s variable-rate loan into a fixed-rate loan. The Company then enters into a corresponding swap
agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps
with both the customers and third parties are not designated as hedges under FASB Accounting Standards Codification (“ASC”) 
Topic 815, Derivatives and Hedging, and are marked to market through earnings. As the interest rate swaps are structured to offset 
each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an 
impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which 
may impact earnings as required by FASB ASC Topic 820, Fair Value Measurements. The Company did not recognize any gains 
or losses in other income resulting from fair value adjustments during the year ended December 31, 2019.

ff

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. At December 31, 2019, there were 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 Company’s Articles of Incorporation give the Company’s board of directors the authority to issue up to 40,000,000 shares of
common stock. At December 31, 2019, there were 11,228,775 common shares outstanding compared to 9,484,219 and 9,514,926 
at December 31, 2018 and 2017, respectively.

On March 1, 2019, the Company issued 763,849 shares of its common stock as consideration for the acquisition of Mainland. On 
December 20, 2019 the Company completed a private placement of 1,290,323 shares of its common stock at a price of $23.25 per 
share. The private offering generated net proceeds of $28.5 million. 

In addition, the Company repurchased 359,906 shares of its common stock through its stock repurchase program at an average 
price of $23.09 during the year ended December 31, 2019. 

Dividend Restrictions. In the ordinary course of business, the Company is dependent upon dividends from the Bank to provide
funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the
amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would 
cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared 
exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend 
restrictions and while maintaining its “well capitalized” status, at December 31, 2019, the Bank could pay aggregate dividends of 
up to $38.6 million to the Company without prior regulatory approval. 

113

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

Under the terms of the junior subordinated debentures, assumed through acquisition, the Company has the right at any time during 
the term of the debentures to defer the payment of interest. In the event that the Company elects to defer interest on the debentures, 
it may not, with certain exceptions, declare or pay any dividends or distributions on its common stock or purchase or acquire anyaa
of its common stock.

Under the terms of the Company’s 5.125% Fixed -to-Floating Rate Subordinated Notes due 2029, the Company may not pay a 
dividend if either the parent company or the Bank, both immediately prior to the declaration of the dividend and after giving effect 
to the payment of the dividend, would not maintain regulatory capital ratios that are at “well capitalized” levels for regulatory
purposes (but with respect to the parent company, only if it is required to measure and report such ratios on a consolidated basis 
under applicable law). The Company is also prohibited form paying dividends upon and during the continuance of any Event of 
Default under such notes.

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.

Accumulated Other Comprehensive Income (Loss)

Activity within the balances in accumulated other comprehensive income (loss), net is shown in the tables below (dollars in
thousands).

For the years ended December 31, 

Beginning
of Period

2019

Net
Change

End of 
Period

Beginning
of Period

2018

Net
Change

End of 
Period

Beginning
of Period

2017

Net
Change

End of 
Period

$

(1,647) $ 5,123

$

3,476

$

(71) $ (1,576) $ (1,647)

$

(401) $

330

$

(71)

(1,925)

(206)

(2,131)

(1,914)

(11)

(1,925)

(1,683)

(231)

(1,914)

5

(1)

4

7

(2)

5

491

51

542

407

84

491

8

5

(1)

7

402

407

$

(3,076) $ 4,967

$

1,891

$ (1,571) $ (1,505) $ (3,076)

$ (2,071) $

500

$ (1,571)

Unrealized gain (loss), 
available for sale, net 

Reclassification of realized 
gain, net

Unrealized loss, transfer from
available for sale to held to 
maturity, net

Change in fair value of 
interest rate swap designated 
as a cash flow hedge, net

Accumulated other 
comprehensive income (loss)

NOTE 15. STOCK-BASED COMPENSATION

Equity Incentive Plan.  The Company’s 2017 Long-Term Incentive Compensation Plan (the “Plan”) authorizes the grant of various 
types of equity awards, such as restricted stock, restricted stock units, stock options and stock appreciation rights to eligible
participants, which include all of the Company’s employees, non-employee directors, and consultants. The Plan has reserved 
600,000 shares of common stock for grant, award or issuance to eligible participants, including shares underlying granted options.
The Plan is administered by the Compensation Committee of the Company’s Board of Directors, which determines, within the 
provisions of the Plan, those eligible employees to whom, and the times at which, grants and awards will be made. 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 and directors. At 
December 31, 2019, approximately 396,411 shares remain available for grant.

Stock Options

During the years ended December 31, 2019, 2018 and 2017, the Company granted 36,984, 31,788 and 36,177 stock options, 
respectively, to key personnel that vest in one-fifth increments on the grant date anniversary of each of the following five years.

114

The table below summarizes the Company’s stock option activity for the periods indicated.

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

Stock Options

p

Shares

Weighted Average Price

Weighted Average
Remaining Contractual
Term (Years)

Outstanding at December 31, 2016

319,364

$

Granted

Forfeited

Exercised

Outstanding at December 31, 2017

Granted

Forfeited

Exercised

Outstanding at December 31, 2018

Granted

Forfeited

Exercised

Outstanding at December 31, 2019

Exercisable at December 31, 2019

36,177

(5,334)

(27,290)

322,917

31,788

(1,644)

(12,415)

340,646

36,984

—

(20,416)

357,214

209,610

14.36

20.25

14.00

13.70

15.09

20.25

14.00

14.07

15.98

24.40

—

14.06

16.96

15.19

7.67

7.19

6.49

5.93

5.27

At December 31, 2019, the shares underlying total outstanding stock options had an intrinsic value of $2.5 million. The shares 
underlying exercisable stock options had an intrinsic value of approximately $1.8 million.

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 subjective assumptions, including expected term and expected volatility. Stock option
expense in the accompanying consolidated statements of income for the years ended December 31, 2019, 2018, and 2017 was
$0.3  million,  $0.3  million  and  $0.2  million,  respectively. At  December 31,  2019,  there  was  $0.6  million
  of  unrecognized 
compensation cost related to stock options that is expected to be recognized over a weighted average period of 3.0 years.

was 

The table below shows the assumptions used for the stock options granted during the years ended December 31, 2019 and 2018.

Dividend yield

Expected volatility

Risk-free interest rate

Expected term (in years)

2019

2018

0.82%

27.26%

2.63%

6.5

Weighted-average grant date fair value

$

7.30

$

0.52%

24.99%

2.68%

6.5

7.16

Restricted Stock and Restricted Stock Units

Under the Plan, the Company may grant restricted stock, restricted stock units, and other stock-based awards to Plan participants, 
subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While
restricted stock is subject to forfeiture, restricted stock participants may exercise full voting rights and will receive all dividends 
paid with respect to the restricted shares. Restricted stock units do not have voting rights and do not receive dividends or dividend 
equivalents.  The  restricted  stock  and  restricted  stock  units  granted  under  the  Plan  is  typically  subject  to  a  vesting  period. 
Compensation expense for restricted stock and restricted stock units is determined based on the market price of the Company’s
common stock at the grant date and is applied to the total number of shares or units granted and is recognized on a straight-line 
basis over the requisite service period of generally five years for employees and two years for non-employee directors. Upon 
vesting of restricted stock and restricted stock units, the benefit of tax deductions in excess of recognized compensation expense
is reflected as an income tax benefit in the Consolidated Statements of Income.

dd

Historically, the Company has granted restricted stock awards to Plan participants. Beginning in 2019, the Company granted time
vested restricted stock units (“RSUs”) to its non-employee directors and certain officers of the Company with vesting terms ranging
from two years to five years. 

115

 
INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

The Company granted a total of 79,439 restricted stock units to employees and directors for the year ended December 31, 2019. 
Of the restricted stock units issued in 2019, 68,430 shares will vest over five years and 11,009 shares will vest over two years.

The Company granted a total of 60,260 shares of restricted stock to employees and directors for the year ended December 31, 
2018. Of the restricted stock issued in 2018, 51,263 shares will vest over five years and 8,997 shares will vest over two years.

The Company granted a total of 54,724 shares of restricted stock to employees for the year ended December 31, 2017. Of the 
restricted stock issued in 2017, 48,288 shares will vest over five years and 6,436 shares will vest over two years.

Compensation expense related to restricted stock and restricted stock units in the accompanying consolidated statements of income
for the years ended December 31, 2019, 2018, and 2017 was $1.1 million, $0.8 million and $0.6 million, respectively. The unearned 
compensation related to these awards is amortized to compensation expense over the vesting period. As of December 31, 2019,
2018 and 2017, unearned stock-based compensation associated with these awards totaled approximately $2.8 million, $2.1 million
and $1.5 million, respectively. The $2.8 million of unrecognized compensation cost related to time vested restricted stock and 
restricted stock units at December 31, 2019 is expected to be recognized over a weighted average period of 3.3 years.

The following table summarizes the RSA and RSU activity for the years ended December 31, 2019 and December 31, 2018.

December 31,

2019

2018

Shares

Weighted Avg
Grant Date Fair
Value

Shares

Weighted Avg
Grant Date Fair
Value

135,848

$

79,439

(5,828)

(41,243)

168,216

$

20.47

24.46

23.70

19.65

22.43

112,688

$

60,260

(3,441)

(33,659)

135,848

$

17.28

24.01

20.73

16.75

20.47

Balance, beginning of period

Granted

Forfeited

Earned and issued

Balance, end of period

NOTE 16. EMPLOYEE BENEFIT PLANS

The Company maintains a 401(k) defined contribution plan (the “401(k) Plan”) which covers employees over the age of twenty-
one who have completed 90 days of credited service, as defined by the 401(k) Plan. The 401(k) 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  401(k)  Plan  also  allows  for  
discretionary Company contributions in the form of cash or Company stock. Contributions in the form of Company stock are held 
in a portion of the 401(k) Plan that qualifies as an employee stock ownership plan (“ESOP”). The Company made a $0.2 million
contribution in the year ended December 31, 2019. The discretionary components vest in increments of 20% annually over a period
of five years based on the employees’ years of service.

Employer matching contributions to the 401(k) Plan for the year ended December 31, 2019 were approximately $0.8 million. For 
the years ended December 31, 2018 and 2017, employer matching contributions were approximately $0.7 million and $0.5 million, 
respectively.

In 2018, the Bank entered into Salary Continuation Agreements (“SCA”) with certain of the Company’s executive officers. The
SCAs  represent  unfunded,  non-qualified  deferred  compensation  arrangements  under  the  Internal  Revenue  Code  of  1986,  as
amended. The SCAs between the Bank and each officer, as supplemented in 2019, provide that the officer shall receive annual 
payments of a fixed amount upon attaining the age of 65, with such payments payable monthly over a period of 120 months (10 
years). Each officer is also entitled to certain reduced payments following a termination of employment prior to attaining age 65
(other than a termination due to death or with cause), which payments shall be made on the same schedule mentioned above.

116

The Company maintains a deferred compensation plan for a former employee of First Community Bank (“FCB”), a bank acquired 
by  the  Company  in  2013. 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. The Company also maintains 
a deferred compensation plan for a former employee of Citizens Bank (“Citizens”), a liability for which was assumed in the
Citizens acquisition in 2017. Under the deferred compensation agreement, the former employee will receive monthly payments
of $5,500 through May of 2030. 

At December 31, 2019 and 2018, the Company had a liability of $1.6 million and $1.1 million, respectively, in Accrued taxes and
other liabilities on the consolidated balance sheets related to these deferred compensation plans.

NOTE 17. INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA made broad and complex changes
to the U.S. tax code that affected the Company’s income tax rate in 2017, including requiring the revaluation of the Company’s
deferred tax assets and liabilities as of December 31, 2017 as a result of the lower corporate tax rates to be realized beginning 
January 1, 2018. The TCJA reduced the U.S. federal corporate income tax rate from 35% to 21% and established new tax laws
that affected 2018. 

The income tax expense included in the consolidated statements of income is displayed in the table below for the years ended 
December 31, 2019, 2018 and 2017 (dollars in thousands).

Current

Deferred

Total income tax expense

2019

December 31,

2018

2017

$

$

3,966

153

4,119

$

$

2,789

841

3,630

$

$

4,003

245

4,248

The Company’s income tax expense for each of the years ended December 31, 2018 and 2017 includes total charges of $0.3 million
related to the revaluation of its deferred tax assets and liabilities as a result of the TCJA. 

The provision for federal income taxes differs from that computed by applying the federal statutory rate of 21% in 2019 and 2018, 
and  35%  in  2017,  as  indicated  in  the  following  analysis  for  the  years  ended  December 31,  2019,  2018  and  2017  (dollars  in 
thousands).

Tax based on statutory rate

Increase (decrease) resulting from:

Effect of tax-exempt income

Acquisition costs

Historical tax credits

Effect of tax rate change

Other

Total income tax expense

Effective rate

2019

December 31,

2018

2017

4,401

$

3,619

$

4,258

(250)

32

6

—

(70)

(249)

29

6

338

(113)

4,119

$

19.7%

3,630

$

21.1%

(422)

174

10

292

(64)

4,248

34.1%

$

$

The Company records deferred income tax on the tax effect of changes in timing differences.

117

The net deferred tax liability or 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

Unrealized gain on available for sale securities

Basis difference in acquired assets and liabilities

Operating lease right-of-use asset

Other

Gross deferred tax liability

Deferred tax assets:

Allowance for loan losses

Provision for other real estate losses

Unrealized loss on available for sale securities

Net operating loss carryforward

Deferred compensation

Basis difference in acquired assets and liabilities

Historical tax credit

Employee and director stock awards

Operating lease liability

Other

Gross deferred tax assets

Net deferred tax (liability) asset

December 31,

2019

2018

$

(2,903) $

(2,515)

(122)

(502)

(1,123)

(695)

(88)

(5,433)

(79)

—

(785)

—

(20)

(3,399)

2,219

1,915

—

—

564

372

481

155

419

709

419

$

5,338

(95) $

274

818

128

225

442

160

306

—

276

4,544

1,145

The Company acquired net operating loss (“NOL”) carryforwards through tax free acquisitions. As of December 31, 2019 and 
December 31, 2018, the Company’s NOL carryforwards were approximately $0.5 million and $0.6 million, respectively, and 
expire in 2033.

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. The Company is open to examination in the U.S. and 
the state of Louisiana for tax years ended December 31, 2016 through December 31, 2019.

NOTE 18. FAIR VALUES OF FINANCIAL INSTRUMENTS

In  accordance  with  FASB ASC  Topic  820,  Fair  Value  Measurement  and  Disclosure  (“ASC  820”),  disclosure  of  fair  value 
information about financial instruments, whether or not recognized in the balance sheet, is required. The 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 under current market conditions. 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.

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.

r

118

Fair Value Hierarchy

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

In accordance with ASC 820, 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 upon quoted prices for identical assets or liabilities traded in active markets.

Level 2 – Valuation is based upon observable inputs other than quoted prices included in level 1, such as quoted prices for similar 
assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or 
other inputs that are observable or can be corroborated by observable market data.

Level 3 – Valuation is based upon unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar 
techniques that use significant unobservable inputs.

a

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 – The fair value is the carrying value. The Company classifies these assets in level 1 of the fair value hierarchy.

Investment Securities and Equity Securities – Where quoted prices are available in an active market, the Company classifies the 
securities within level 1 of the valuation hierarchy. Securities are defined as both long and short positions. Level 1 securities 
include exchange-traded equity securities. 

If quoted market prices are not available, the Company estimates fair values using pricing models and discounted cash flows that aa
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
if observable inputs are available, include obligations of U.S. government agencies and corporations, obligations of state and 
political subdivisions, corporate bonds, residential mortgage-backed securities, commercial mortgage-backed securities, and other 
equity securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, the Company 
classifies those securities in level 3. 

Based on market reference data, which may include reported trades; bids, offers or broker/dealer quotes; benchmark yields and 
spreads; as well as other reference data, management monitors the current placement of securities in the fair value hierarchy to
determine whether transfers between levels may be warranted. In the fourth quarter of 2019, the Company transferred approximately 
$1.3 million of corporate bonds from level 3 to level 2 based on reported trades of similar securities. At December 31, 2019, all
of our level 3 investments were obligations of state and political subdivisions. The Company estimated the fair value of these level 
3 investments using an option-adjusted discounted cash flow model which is based on readily traded comparable municipal credits
and current spreads to the yield curves, adjusted for illiquidity of the local municipal market and sinking funds, if applicable. 

Loans – The fair value of portfolio loans, net is determined using an exit price methodology. The exit price methodology continues
to be based on a discounted cash flow analysis, in which projected cash flows are based on contractual cash flows adjusted for 
prepayments for certain loan types (e.g. residential mortgage loans and multifamily loans) and the use of a discount rate based ond
expected relative risk of the cash flows. The discount rate selected considers loan type, maturity date, a liquidity premium, cost 
to service, and cost of capital, which is a level 3 fair value estimate.

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. All interest-bearing deposits are classified in level 3 of the fair value hierarchy. The carrying amounts
of variable-rate (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. 

n

119

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

Short-Term Borrowings—The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other 
short-term borrowings approximate their fair values. The Company classifies these borrowings in level 2 of the fair value hierarchy.

aa

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 in the fair value hierarchy.

Subordinated Debt Securities – The fair value of subordinated debt is estimated based on current market rates on similar debt in
the market. The Company classifies this debt in level 2 of the fair value hierarchy.

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.

Fair Value of Assets and Liabilities Measured on a Recurring Basis

g

f

Assets  and  liabilities  measured  at  fair  value  on  a  recurring  basis  are  summarized  below  as  of  the  dates  indicated  (dollars  in 
thousands).

December 31, 2019

,

Assets:

Obligations of U.S. government agencies and 
corporations

Obligations of state and political subdivisions

Corporate bonds

Residential mortgage-backed securities

Commercial mortgage-backed securities

Equity securities

Derivative financial instruments

Total assets

December 31, 2018

,

Assets:

Obligations of U.S. government agencies and 
corporations

Obligations of state and political subdivisions

Corporate bonds

Residential mortgage-backed securities

Commercial mortgage-backed securities

Equity securities

Derivative financial instruments

Total assets

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Fair Value

$

33,651

$

— $

33,651

$

33,449

19,163

101,946

71,596

2,097

687

—

—

—

—

2,097

—

14,074

19,163

101,946

71,596

—

687

—

19,375

—

—

—

—

—

$

$

262,589

$

2,097

$

241,117

$

19,375

7,870

$

— $

7,870

$

33,986

15,509

134,927

56,689

1,699

622

—

—

—

—

1,699

—

15,178

14,174

134,927

56,689

—

622

—

18,808

1,335

—

—

—

—

$

251,302

$

1,699

$

229,460

$

20,143

Equity securities balances in the table above do not reflect balances of stock held in correspondent banks.

120

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company’s ability to observe inputs uu
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).

Balance at December 31, 2017

$

19,543

$

1,325

$

Obligations of
State and Political
Subdivisions

Corporate
Bonds

Total

Realized gains (losses) included in net income

Unrealized (losses) gains included in other comprehensive
income

Purchases

Acquired

Sales

Maturities, prepayments, and calls

Transfers into Level 3

Transfers out of Level 3

Balance at December 31, 2018

Realized gains (losses) included in net income

Unrealized gains included in other comprehensive income

Purchases

Sales

Maturities, prepayments, and calls

Transfers into Level 3

Transfers out of Level 3

Balance at December 31, 2019

—

(628)

—

—

—

(107)

—

—

—

10

—

—

—

—

—

—

$

$

18,808

$

1,335

$

—

590

—

—

(23)

—

—

19,375

$

—

—

—

—

—

—

(1,335)

— $

20,868

—

(618)

—

—

—

(107)

—

—

20,143

—

590

—

—

(23)

—

(1,335)

19,375

There were no liabilities measured at fair value on a recurring basis using level 3 inputs at December 31, 2019, 2018 and 2017.
For the year ended December 31, 2019 and 2018, there were no gains or losses included in earnings 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.

Fair Value of Assets Measured on a Nonrecurring Basis

g

f

Quantitative information about assets measured at fair value on a nonrecurring basis based on significant unobservable inputs 
(level 3) are summarized below as of the dates indicated; there were no liabilities measured on a nonrecurring basis at December 31, 
2019 or 2018 (dollars in thousands).

Estimated
Fair Value

Valuation Technique

Unobservable Inputs

Range of
Discounts

Weighted Average
Discount

Discounted cash flows,
Underlying collateral value

55

Collateral discounts and 
estimated costs to sell

0% - 100%

31%

Collateral discounts and 
estimated costs to sell

Collateral discounts and 
discount rates

0% - 100%

15%

15%

15%

December 31, 2019

,

Impaired loans

December 31, 2018

,

Impaired loans

$

$

Discounted cash flows,
Underlying collateral value

383

Other real estate owned

3,270

Underlying collateral value,
Third party appraisals

121

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

The estimated fair values of the Company’s financial instruments at December 31, 2019 and December 31, 2018 are shown below 
(dollars in thousands).

Financial assets:

Cash and due from banks

Federal funds sold

Investment securities

Equity securities

Loans, net of allowance

Derivative financial instruments

Financial liabilities:

Deposits, noninterest-bearing

Deposits, interest-bearing

FHLB short-term advances and repurchase agreements

FHLB long-term advances

Junior subordinated debt

Subordinated debt

Financial assets:

Cash and due from banks

Federal funds sold

Investment securities

Equity securities

Loans, net of allowance

Derivative financial instruments

Financial liabilities:

Deposits, noninterest-bearing

Deposits, interest-bearing

FHLB short-term advances and repurchase agreements

FHLB long-term advances

Junior subordinated debt

Subordinated debt

NOTE 19. REGULATORY MATTERS

December 31, 2019

Carrying
Amount

Estimated
Fair Value

Level 1

Level 2

Level 3

$

44,308

$

44,308

$

44,308

$

387

274,214

19,315

387

274,285

19,316

1,681,275

1,680,364

687

687

387

—

2,097

—

—

— $

—

245,410

17,219

—

—

28,875

—

—

687

1,680,364

—

$

351,905

$

351,905

$

— $

351,905

$

—

1,355,801

1,368,194

56,095

78,500

5,897

43,600

56,095

76,635

7,747

56,399

—

—

—

—

—

—

1,368,194

56,095

—

—

56,399

—

76,635

7,747

—

December 31, 2018

Carrying
Amount

Estimated
Fair Value

Level 1

Level 2

Level 3

$

17,134

$

17,134

$

17,134

$

6

265,047

13,562

6

264,786

13,562

1,391,371

1,374,292

622

622

6

—

1,699

—

—

— $

—

234,053

11,863

—

—

30,733

—

—

622

1,374,292

—

$

217,457

$

217,457

$

— $

217,457

$

—

1,144,274

1,095,639

205,399

205,399

3,090

5,845

18,600

2,712

7,420

19,187

—

—

—

—

—

—

1,095,639

205,399

—

—

19,187

—

2,712

7,420

—

The Company and Bank are 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 Company and 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.

u

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum 
amounts and ratios (set forth in the table below) of total, Common Equity Tier 1, and Tier 1 capital (as defined in the regulations) 
to risk-weighted assets (as defined) and Tier 1 capital to average assets (as defined).

122

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

As of December 31, 2019 and 2018, the Bank was considered well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum risk-based and Tier 1 leverage capital ratios as 
set forth in the table below. There are no conditions or events since the regulatory framework for prompt corrective action was
issued that management believes have changed the Bank’s category.

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2019 and December 31, 2018 are presented 
in the tables below (dollars in thousands).

December 31, 2019

Actual

Capital Adequacy*

Well Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

Tier 1 leverage capital

p

g

Investar Holding Corporation

$

Investar Bank

215,550

222,316

10.45% $

10.77

82,546

82,578

4.00%

4.00

NA

103,223

Common Equity Tier 1 risk-based capital

p

q

y

Investar Holding Corporation

Investar Bank

Tier 1 risk-based capitalp

Investar Holding Corporation

Investar Bank

Total risk-based capitalp

Investar Holding Corporation

Investar Bank

December 31, 2018

209,050

222,316

215,550

222,316

269,171

233,111

11.67

12.43

12.03

12.43

15.02

13.03

Tier 1 leverage capital

p

g

125,412

125,238

152,286

152,074

7.00

7.00

8.50

8.50

NA

116,293

NA

143,130

188,118

187,857

10.50

10.50

NA

178,912

NA

10.00

Investar Holding Corporation

$

Investar Bank

172,050

187,735

9.81% $

10.72

70,121

70,056

4.00%

4.00

NA

87,570

Common Equity Tier 1 risk-based capital

q

p

y

Investar Holding Corporation

Investar Bank

Tier 1 risk-based capitalp

Investar Holding Corporation

Investar Bank

Total risk-based capitalp

Investar Holding Corporation

Investar Bank

165,550

187,735

172,050

187,735

199,786

197,256

11.15

12.67

11.59

12.67

13.46

13.31

103,911

103,760

126,178

125,994

7.00

7.00

8.50

8.50

NA

96,349

NA

118,583

155,867

155,640

10.50

10.50

NA

148,229

NA

10.00

*The minimum ratios and amounts under the column for Capital Adequacy for December 31, 2019 and December 31, 2018 reflect the minimum regulatory capital 
ratios imposed under Basel III plus the fully phased-in capital conservation buffer of 2.5%.

Applicable Federal statutes and regulations impose restrictions on the amounts of dividends that may be declared by the Company
and the Bank. In addition to the formal statutes and regulations, regulatory authorities also consider the adequacy of the Company’s 
and the Bank’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  and  the  Bank. The  Company  is  also  subject  to  dividend 
restrictions under the terms of its 2029 Notes and junior subordinated debentures. See “Common Stock - Dividend Restrictions” 
in Note 14, Stockholders’ Equity, for more information.

123

NA

5.00

NA

6.50

NA

8.00

NA

5.00

NA

6.50

NA

8.00

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

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:

• 

Increased the Prompt Corrective Action Capital Category Thresholds to be deemed well-capitalized.

•  Established a Capital Conservation Buffer - The Capital Conservation Buffer was phased in through 2019.

•  Changes in risk-weighting of assets.

•  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, and the rules were fully phased in as of January 1, 2019.

NOTE 20. 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.  Such  financial
instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments
is evaluated in a manner similar to the allowance for loan losses. The reserve for unfunded lending commitments is included in
other liabilities in the balance sheet. At December 31, 2019 and 2018, the reserve for unfunded loan commitments was $95,000
and $66,000, respectively.

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.

 The table below shows the approximate amounts of the Company’s commitments to extend credit as of the dates presented (dollars
in thousands).

Loan commitments

Standby letters of credit

December 31, 2019

December 31, 2018

$

242,180

$

11,475

263,002

11,114

Additionally, at December 31, 2019, the Company had unfunded commitments of $38,000 for its investment in Small Business 
Investment Company qualified funds.

Insurance

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.

124

Legal Proceedings 

The nature of the business of the Company’s banking and other subsidiaries ordinarily results in a certain amount of claims,
litigation, investigations, and legal and administrative cases and proceedings, which are considered incidental to the normal conduct 
of business. Some of these claims are against entities which the Company acquired in business acquisitions. The Company has 
asserted defenses to these claims and, with respect to such legal proceedings, intends to continue to defend itself, litigating or 
settling cases according to management’s judgment as to what is in the best interest of the Company and its shareholders.

The  Company  assesses  its  liabilities  and  contingencies  in  connection  with  outstanding  legal  proceedings  utilizing  the  latest 
information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably 
estimated, the Company records a liability in its consolidated financial statements. These legal reserves may be increased or 
decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of loss is not 
estimable, the Company does not accrue legal reserves. While the outcome of legal proceedings is inherently uncertain, based on
information currently available and available insurance coverage, the Company’s management believes that it has established 
appropriate legal reserves. Any incremental liabilities arising from pending legal proceedings are not expected to have a material 
adverse effect on the Company’s consolidated financial position, consolidated results of operations, or consolidated cash flows. 
However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Company’s consolidated 
financial position, consolidated results of operations, or consolidated cash flows. 

As of the date of this filing, the Company believes the amount of losses associated with legal proceedings that it is reasonably 
possible to incur is not material.

Investment in Tax Credit Entity

In December 2014, the Company acquired a limited partnership 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. At December 31, 2019
and 2018, the recorded investment was $0.1 million. 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 the Company determined there was
no impairment for the year ended December 31, 2019. At December 31, 2019 and 2018, the Company had $0.8 million invested 
in this partnership. The investment generated historic tax credits of $1.0 million, all of which were 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.

n

NOTE 21. 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  and Allowance  for  Loan  Losses.  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.

NOTE 22. 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 ordinaryaa
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 and Allowance for Loan Losses, for more information regarding lending transactions between the 
Company and these related parties.

During 2019 and 2018, 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 9, Deposits, regarding total deposits outstanding to these related 
parties.

125

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

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, 2016, 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.

The  Company  has  engaged  in  a  number  of  transactions  with  Joffrion  Commercial  Division,  LLC  (“JCD”),  a  commercial 
construction company owned and managed by Gordon H. Joffrion, one of the Company’s directors. For each transaction, the 
Company selected JCD through its public bidding process. The Company paid JCD approximately $0.3 million, $0.6 million and 
$0.4 million during the years ended December 31, 2019, 2018 and 2017, respectively.

NOTE 23. PARENT ONLY BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH 
FLOWS

BALANCE SHEETS

(dollars in thousands)

ASSETS

Cash and due from bank

Equity securities

Accounts receivable

Due from bank subsidiary

Investment in bank subsidiary

Investment in trust

Investment in tax credit entity

Trademark intangible

Deferred tax asset

Other assets

Total assets

LIABILITIES

Subordinated debt, net of unamortized issuance costs

Junior subordinated debt

Accounts payable

Accrued interest payable

Dividend payable

Due to bank subsidiary

Deferred tax liability

Total liabilities

STOCKHOLDERS’ EQUITY

Common stock

Surplus

Retained earnings

Accumulated other comprehensive income (loss)

Total stockholders’ equity

December 31,

2019

2018

$

35,535

$

1,615

3

712

255,141

202

87

100

—

37

604

1,232

26

451

204,347

202

169

100

52

81

$

$

293,432

$

207,264

42,826

$

5,897

1,579

465

679

—

10

51,456

11,229

168,658

60,198

1,891

241,976

18,215

5,845

124

292

484

42

—

25,002

9,484

130,133

45,721

(3,076)

182,262

Total liabilities and stockholders’ equity

$

293,432

$

207,264

126

INVESTAR HOLDING CORPORATION
Notes to Consolidated Financial Statements

STATEMENTS OF OPERATIONS

(dollars in thousands)

Revenue

Dividends received from bank subsidiary

Dividends on corporate stock

Change in the fair value of equity securities

Interest income from investment in trust

Total revenue

Expense

Interest on borrowings

Management fees to bank subsidiary

Acquisition expense

Other expense

Total expense

Income before income taxes and equity in undistributed income of bank subsidiary

Equity in undistributed income of bank subsidiary

Income tax benefit

Net income

For the year ended December 31,

2019

2018

$

6,600

$

30

327

9

6,966

1,686

360

31

440

2,517

4,449

11,941

449

$

16,839

$

4,000

6

(265)

8

3,749

1,486

335

39

454

2,314

1,435

11,644

527

13,606

127

 
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:

Equity in undistributed earnings of bank subsidiary

Change in the fair value of equity securities

Amortization of debt issuance costs and purchase accounting adjustments

Net change in:

Due from bank subsidiary

Other assets

Deferred tax asset

Accrued other liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Capital contributed to bank subsidiary

Repayment of investment in and advances to subsidiary

Distributions from investments

Purchases of equity securities

Proceeds from the sale of equity securities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Cash dividends paid on common stock

Proceeds from common stock offering, net of issuance costs

Payments to repurchase common stock

Proceeds from stock options and warrants exercised

Proceeds from subordinated debt, net of costs

Net cash provided by (used in) financing activities

Net increase (decrease) 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

For the year ended December 31,

2019

2018

$

16,839

$

13,606

(11,941)

(327)

105

(261)

25

62

2,776

7,278

(23,250)

8,000

82

(144)

88

(15,224)

(2,167)

28,525

(8,326)

287

24,558

42,877

34,931

604

35,535

$

(11,644)

265

100

307

(13)

(99)

890

3,412

—

—

—

(2,189)

1,047

(1,142)

(1,468)

—

(3,368)

1,036

—

(3,800)

(1,530)

2,134

604

1,513

$

1,484

$

$

128

NOTE 24. 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, 2019, 2018 and 2017 (in thousands, except share data).

Earnings per common share - basic

Net income

Less: income allocated to participating securities

Net income allocated to common shareholders

Weighted-average basic shares outstanding

Basic earnings per common share

Earnings per common share - diluted

Net income allocated to common shareholders

Weighted-average basic shares outstanding

Dilutive effect of securities

Total weighted average diluted shares outstanding

Diluted earnings per common share

December 31,

2019

2018

2017

$

$

$

$

$

16,839

(164)

16,675

9,931,497

1.68

$

$

$

13,606

(192)

13,414

9,538,891

1.41

$

$

$

16,676

$

13,417

$

9,931,497

99,521

10,031,018

9,538,891

125,952

9,664,843

1.66

$

1.39

$

8,202

(110)

8,092

8,399,584

0.96

8,092

8,399,584

57,344

8,456,928

0.96

The weighted average number of shares that have an antidilutive effect in the calculation of diluted earnings per common share 
and have been excluded from the computations above are shown below.

Stock options
Restricted stock awards
Restricted stock units

December 31,

2019

2018

2017

—
388
7,550

6,306
1,364
—

5,235
1,880
—

NOTE 25. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

(dollars in thousands, except per share data)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year ended December 31, 2019

Total interest income

Total interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Gain on sale of investment securities

Other noninterest income

Noninterest expense

Income before income taxes

Income tax expense

Net income

Earnings per common share - basic

Earnings per common share - diluted

$

$

$

$

20,686

$

22,388

$

22,854

$

5,530

15,156

265

14,891

2

1,279

11,303

4,869

952

3,917

0.40

0.40

$

$

$

6,057

16,331

369

15,962

227

1,515

11,554

6,150

1,216

4,934

0.49

0.48

$

$

$

6,488

16,366

538

15,828

—

1,618

11,682

5,764

1,107

4,657

0.46

0.46

$

$

$

129

23,515

6,550

16,965

736

16,229

33

1,542

13,629

4,175

844

3,331

0.33

0.32

(dollars in thousands, except per share data)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year ended December 31, 2018

Total interest income

Total interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Gain (loss) on sale of investment securities

Other noninterest income

Noninterest expense

Income before income taxes

Income tax expense

Net income

Earnings per common share - basic

Earnings per common share - diluted

NOTE 26. SUBSEQUENT EVENTS

$

17,178

$

18,009

$

18,777

$

3,320

13,858

625

13,233

—

1,072

10,562

3,743

1,341

2,402

0.25

0.25

$

$

$

3,689

14,320

567

13,753

22

1,171

10,160

4,786

966

3,820

0.39

0.39

$

$

$

4,392

14,385

785

13,600

15

1,202

10,254

4,563

516

4,047

0.42

0.41

$

$

$

$

$

$

19,927

5,120

14,807

593

14,214

(23)

859

10,906

4,144

807

3,337

0.35

0.34

On February 21, 2020, the Bank completed its previously announced acquisition and assumption of certain assets, deposits and 
other liabilities associated with the Alice, Texas and Victoria, Texas locations of PlainsCapital Bank, a wholly-owned subsidiary 
of  Hilltop  Holdings  Inc.  In  connection  with  the  acquisition,  the  Bank  acquired  approximately  $45.9  million  in  loans,  and 
approximately $37.3 million in customer deposits.

Management has evaluated all subsequent events and transactions that occurred after December 31, 2019 up through the date that 
the financial statements were available to be issued and determined that there were no additional events that require disclosure.
No events or changes in circumstances were identified that would have an adverse impact on the financial statements.

130

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 2019 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 Ernst & Young LLP are included 
herein under Item 8, Financial Statements and Supplementary Data.

Item 9B. Other Information

None.

131

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 2020 Annual Meeting of Shareholders (the “2020 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 2020 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 2020 Proxy Statement.

Securities Authorized for Issuance under Equity Compensation Plans

The following table presents certain information regarding our equity compensation plans as of December 31, 2019.

Plan category

Equity compensation plans approved by 
security holders(1)

Equity compensation plans not approved 
by security holders(2)
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

68,772

$

288,442

357,214

$

24.35

15.20

16.96

396,411

—

396,411

(1)

(2)

Effective May 24, 2017, the Company’s shareholders approved its 2017 Long-Term Incentive Compensation Plan (the “Plan”) and ceased using the 2014 
Long-Term Incentive Plan, discussed below. 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 employees, non-employee directors, and consultants.
The Plan has reserved 600,000 shares of common stock for grant, award or issuance to eligible participants, including shares underlying granted options. 
No awards may be granted under the Plan after May 24, 2027.

The Investar Holding Corporation 2014 Long-Term Incentive Compensation Plan (the “2014 Plan”) was adopted by the Company’s board of directors 
on January 15, 2014 and was amended on March 13, 2014. Because the Company was a private corporation at the time of the adoption of the 2014 Plan, 
shareholder approval of the plan was not required, nor was such approval obtained. A total of 600,000 shares of common stock was reserved for grant,
award or issuance in the form of stock options and restricted stock under the 2014 Plan. Effective May 24, 2017, no future awards will be granted under 
the Equity Incentive Plan, although the terms and conditions of the 2014 Plan will continue to govern any outstanding awards thereunder.

Item 13. Certain Relationships and Related Transactions, and Directors Independence

The information required by Item 13 is incorporated by reference to the 2020 Proxy Statement.

Item 14. Principal Accounting Fees and Services

The information required by Item 14 is incorporated by reference to the 2020 Proxy Statement.

132

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)  Documents Filed as Part of this Report.

(1) 

The following financial statements are incorporated by reference from Item 8 hereof:

Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017 
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017 
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 
2017 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 
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.

Exhibit
Number
2.1

2.2

2.3

3.1

3.2

Description

Location

Agreement and Plan of Reorganization dated October 10, 
2018, by and among Investar Holding Corporation, Investar 
Bank and Mainland Bank

Exhibit 2.1 to the Current Report on Form 8-K of the
Company filed October 10, 2018 and incorporated herein by
reference

Agreement and Plan of Reorganization dated July 30, 2019
by and among Investar Holding Corporation, Investar Bank, 
and Bank of York

Exhibit 2.1 to the Current Report on Form 8-K of the
Company filed July 31, 2019 and incorporated herein by
reference

Agreement and Plan of Reorganization dated December 19,
2019 by and among Investar Holding Corporation, Cheaha 
Financial Group, Inc. and High Point Acquisition, Inc.

Exhibit 2.1 to the Current Report on Form 8-K of the
Company filed December 24, 2019 and incorporated herein
by reference

Restated Articles of Incorporation of Investar Holding 
Corporation

Amended and Restated By-laws of Investar Holding 
Corporation

4.1

Specimen Common Stock Certificate

Exhibit 3.1 to the Registration Statement on Form S-1 of the
Company filed May 16, 2014 and incorporated herein by
reference

Exhibit 3.2 to the Registration Statement on Form S-4 of the
Company filed October 10, 2017 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

4.2

4.3

4.4

4.5

4.6

Description of Registrant’s Securities Registered under 
Section 12 of the Securities Exchange Act of 1934

Filed herewith

Form of 5.125% Fixed to Fluctuation Rate Subordinated Note 
due 2029

Exhibit 4.1 to the Current Report on Form 8-K filed
November 14, 2019 and incorporated herein by reference.

Form of Registration Rights Agreement, dated December 20, 
2019, by and between Investar Holding Corporation and the 
purchasers set forth therein.

Indenture, dated March 24, 2017, by and between Investar 
Holding Corporation and Wilmington Trust, National 
Association, as Trustee

Exhibit 4.1 to the Current Report on Form 8-K filed
December 24, 2019 and incorporated herein by reference.

Exhibit 4.1 to the Current Report on Form 8-K filed March
24, 2017 and incorporated herein by reference

Supplemental Indenture, dated March 24, 2017, by and 
between Investar Holding Corporation and Wilmington Trust, 
National Association, as Trustee

Exhibit 4.2 to the Current Report on Form 8-K filed with the
SEC on March 24, 2017 and incorporated herein by
reference

10.1

Form of Stock Purchase Agreement, dated December 20, 
2019, by and between Investar Holding Corporation and the 
purchasers set forth therein

Exhibit 10.1 to the Current Report on Form 8-K filed
December 24, 2019 and incorporated herein by reference

133

10.2

10.3

10.4

10.5

10.6

10.7

10.8*

10.9*

10.14*

10.15*

10.16*

Form of Subordinated Note Purchase Agreement, dated 
November 12, 2019, by and between Investar Holding 
Corporation and the purchasers set forth therein

Exhibit 10.1 to the Current Report on Form 8-K filed
November 14, 2019 and incorporated herein by reference

Form of the Director Support Agreement, dated October 10, 
2018, among Investar Holding Corporation, Mainland Bank 
and all of the directors of Mainland Bank parties thereto

Exhibit 10.3 to the Registration Statement on Form S-4 of
the Company filed November 30, 2018 and incorporated
herein by reference

Form of Non-Competition and Confidentiality Agreements, 
dated August 4, 2017, between Investar Holding Corporation 
and all of the directors of BOJ Bancshares, Inc.

Exhibit C to Annex A to the Registration Statement on Form
S-4 of the Company filed October 10, 2017 and incorporated
herein by reference

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

Investar Holding Corporation 2017 Long-Term Incentive 
Compensation Plan

Exhibit 10.1 to the Current Report on Form 8-K filed May
25, 2017 and incorporated herein by reference

Salary Continuation Agreement, dated as of February 28, 
2018, by and between Investar Bank and John D’Angelo

10.10*

Supplemental Salary Continuation Agreement, dated May 22, 
2019, by and between Investar Bank and John D’Angelo

10.11*

Salary Continuation Agreement, dated as of February 28,
2018, by and between Investar Bank and Chris Hufft

10.12*

Supplemental Salary Continuation Agreement, dated May 22,
2019, by and between Investar Bank and Christopher Hufft

10.13*

Salary Continuation Agreement, dated as of February 28,
2018, by and between Investar Bank and Dane Babin

Exhibit 10.1 to the Current Report on Form 8-K of the
Company filed March 1, 2018 and incorporated herein by
reference

Exhibit 10.1 to the Current Report on Form 8-K of the
Company filed May 23, 2019 and incorporated herein by
reference

Exhibit 10.2 to the Current Report on Form 8-K of the
Company filed March 1, 2018 and incorporated herein by
reference

Exhibit 10.2 to the Current Report on Form 8-K of the
Company filed May 23, 2019 and incorporated herein by
reference

Exhibit 10.3 to the Current Report on Form 8-K of the
Company filed March 1, 2018 and incorporated herein by
reference

Form of Split Dollar Agreement by and between Investar 
Bank and each executive entering into a Salary Continuation
Agreement

Exhibit 10.4 to the Current Report on Form 8-K of the
Company filed March 1, 2018 and incorporated herein by
reference

Form of First Amendment to Split Dollar Agreement by and 
between Investar Bank and each executive entering into a
Supplemental Salary Continuation Agreement

Investar Holding Corporation 2014 Long-Term Incentive 
Compensation Plan, as amended by Amendment No. 1 to
Investar Holding Corporation 2014 Long Term Incentive Plan

10.17*

Form of Stock Option Grant Agreement

10.18*

Form of Restricted Stock Award Agreement for Employees

10.19*

Form of Restricted Stock Award Agreement for Non-
Employee Directors

10.20*

Form of Restricted Stock Unit Agreement for Employees

134

Exhibit 10.3 to the Current Report on Form 8-K filed May
23, 2019 and incorporated herein by reference

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

Exhibit 10.2 to the Registration Statement on Form S-1 of
the Company filed May 16, 2014 and incorporated herein by
reference

Exhibit 10.3 to the Annual Report on Form 10-K of the
Company filed March 11, 2016 and incorporated herein by
reference

Exhibit 10.4 to the Annual Report on Form 10-K of the
Company filed March 11, 2016 and incorporated herein by
reference

Exhibit 10.15 to the Annual Report on Form 10-K of the
Company filed March 15, 2019 and incorporated herein by
reference

10.21*

Form of Restricted Stock Unit Agreement for Non-Employee 
Directors

21

Subsidiaries of the Registrant

Exhibit 10.16 to the Annual Report on Form 10-K of the
Company filed March 15, 2019 and incorporated herein by
reference

Exhibit 21 to the Registration Statement on Form S-1 of the
Company filed May 16, 2014 and incorporated herein by
reference

23.1

31.1

31.2

32.1

32.2

Consent of Ernst & Young LLP

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

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

Section 1350 Certification of Principal Financial Officer of 
the Company in accordance with Section 906 of the 
Sarbanes-Oxley Act of 2002

Filed herewith

Filed herewith

101.INS

XBRL Instance Document

Filed herewith

101.SCH

XBRL Taxonomy Extension Schema Document

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.

135

Item 16. Form 10-K Summary

Not applicable.

136

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 13, 2020

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 13, 2020

by:

/s/John J. D’Angelo

John J. D’Angelo
President, Chief Executive
Officer and Director
(Principal Executive Officer)

Date: March 13, 2020

by:

/s/Christopher L. Hufft

Christopher L. Hufft
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

Date: March 13, 2020

by:

/s/Rachel P. Cherco

Rachel P. Cherco
Executive Vice President and
Chief Accounting Officer
(Principal Accounting Officer)

Date: March 13, 2020

by:

/s/James M. Baker

James M Baker
Director

Date: March 13, 2020

by:

/s/Thomas C. Besselman, Sr.

Thomas C. Besselman, Sr.
Director

Date: March 13, 2020

by:

/s/James H. Boyce, III

James H. Boyce, III
Director

137

Date: March 13, 2020

by:

/s/Robert M. Boyce, Sr.

Robert M. Boyce, Sr.
Director

Date: March 13, 2020

by:

/s/William H. Hidalgo, Sr.

William H. Hidalgo, Sr.
Chairman of the Board

Date: March 13, 2020

by:

/s/Gordon H. Joffrion, III

Gordon H. Joffrion, III
Director

Date: March 13, 2020

by:

/s/Robert C. Jordan

Robert C. Jordan
Director

Date: March 13, 2020

by:

/s/David J. Lukinovich

David J. Lukinovich
Director

Date: March 13, 2020

by:

/s/Suzanne O. Middleton

Suzanne O. Middleton
Director

Date: March 13, 2020

by:

/s/Andrew C. Nelson, M.D.

Andrew C. Nelson, M.D.
Director

Date: March 13, 2020

by:

/s/Frank L. Walker

Frank L. Walker
Director

138

Investar Holding Corporation
10500 Coursey Boulevard
Baton Rouge, Louisiana 70816
(225) 227-2222
www.investarbank.com