What changed in Investar Holding Corp's 10-K — 2022 vs 2023

Legal Proceedings From time to time we are party to ordinary routine litigation matters incidental to the conduct of our business.

These factors include, but are not limited to, the following, any one or more of which could materially affect the outcome of future events: • the significant risks and uncertainties for our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios and other regulatory requirements caused by 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 risks and uncertainties caused by the ongoing COVID-19 pandemic, potential continued higher inflation and interest rates, supply and labor constraints, the war in Ukraine and uncertainty regarding whether the United States Congress will raise the statutory debt limit; • 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, including potential continued increases in interest rates in 2023; • our ability to identify and enter into agreements to combine with attractive acquisition partners, finance acquisitions, complete acquisitions after definitive agreements are entered into, and successfully integrate and grow acquired operations; • the estimated 20% to 30% increase in our allowance for loan losses in the first quarter of 2023 and corresponding decrease in retained earnings of the after-tax amount, resulting from our adoption on January 1, 2023 of ASU 2016-13, and inaccuracy of the assumptions and estimates we make in establishing reserves for credit losses and other estimates; • changes in the quality or composition of our loan portfolio, including adverse developments in borrower industries or in the repayment ability of individual borrowers; • changes in the quality and composition of, and changes in unrealized losses in, our investment portfolio, including whether we may have to sell securities before their recovery of amortized cost basis and realize losses; • 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; • cessation of the one-week and two-month U.S. dollar settings of LIBOR as of December 31, 2021 and announced cessation of the remaining U.S. dollar LIBOR settings after June 30, 2023, 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 concentration of our business within our geographic areas of operation in Louisiana, Texas and Alabama; 29 Table of Contents • 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; • ongoing disruptions in the oil and gas industry due to the significant fluctuations in the price of oil and natural gas; • data processing system failures and errors; • cyberattacks and other security breaches; • potential impairment of our goodwill and other intangible assets; • our potential growth, including our entrance or expansion into new markets, and the need for sufficient capital to support that growth; • the impact of litigation and other legal proceedings to which we become subject; • 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, including the potential for the Federal Reserve Board to raise target interest rates one or more times during 2023; • hurricanes, tropical storms, tropical depressions, floods, winter storms, tornadoes, and other adverse weather events, all of which have affected our market areas from time to time; other natural disasters; oil spills and other man-made disasters; acts of terrorism, an outbreak or intensifying of hostilities including the war in Ukraine 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. 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. 30 Table of Contents 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, professionals, and small to medium-sized businesses.

Our primary areas of operation are south Louisiana (approximately 76 % of our total deposits as of December 31, 2022), including Baton Rouge, New Orleans, Lafayette, Lake Charles, and their surrounding areas; southeast Texas, primarily Houston and its surrounding area and Alabama, including York and Oxford and their surrounding areas.

Our Bank commenced operations in 2006 and we completed our initial public offering in July 2014. On July 1, 2019, the Bank changed from a Louisiana state bank charter to a national bank charter and its name changed to Investar Bank, National Association.

Our strategy includes organic growth through high quality loans and growth through acquisitions, including whole-bank acquisitions and strategic branch acquisitions. We currently operate 29 full service branches comprised of 21 full service branches in Louisiana, two full service branches in Texas, and six full service branches in Alabama.

We have completed seven 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 two de novo branch locations.

We closed five branches during our last three fiscal years as we continued to evaluate opportunities to improve our branch network efficiency, leverage our digital initiatives and further reduce costs. Four of the branches had been acquired, and the closures involved anticipated synergies that resulted in significant cost savings.

In 2022, we sold these five former branch locations and three tracts of land that were being held for future branch locations.

On January 27, 2023, we completed our previously announced sale of certain assets, deposits and other liabilities associated with our Alice, Texas and Victoria, Texas branch locations to First Community Bank in order to focus more on our core markets. Of the Bank’s entire branch network, these two locations were geographically the most distant from our Louisiana headquarters.

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.

Our principal expenses are interest expense on interest-bearing customer deposits and borrowings, salaries and employee benefits, occupancy costs, data processing and other 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. 31 Table of Contents For certain GAAP performance measures, see “ Certain Performance Indicators ” below.

We also monitor changes in our tangible equity, tangible assets, tangible book value per share, and our efficiency ratio, shown in the section “ Certain Performance Indicators: Non-GAAP Financial Measures ” below.

Certain Performance Indicators As of and for the years ended December 31, (In thousands, except share data) 2022 2021 (1) 2020 (1) 2019 (1) 2018 Financial Information Total assets $ 2,753,807 $ 2,513,203 $ 2,321,181 $ 2,148,916 $ 1,786,469 Total stockholders' equity 215,782 242,598 243,284 241,976 182,262 Net interest income 89,785 83,814 73,534 64,818 57,370 Net income 35,709 8,000 13,889 16,839 13,606 Diluted earnings per share 3.50 0.76 1.27 1.66 1.39 Performance Ratios Return on average assets 1.37 % 0.31 % 0.61 % 0.85 % 0.81 % Return on average equity 15.63 3.22 5.77 8.21 7.68 Net interest margin 3.67 3.53 3.49 3.51 3.61 Dividend payout ratio 10.31 40.26 19.69 13.55 12.09 Capital Ratios Total equity to total assets 7.84 % 9.65 % 10.48 % 11.26 % 10.20 % Tangible equity to tangible assets (2) 6.37 8.04 9.22 9.96 9.20 (1) Certain performance indicators includes the effect of acquisitions from the date of each acquisition.

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. On February 21, 2020, the Bank acquired two branches from PlainsCapital Bank.

On April 1, 2021, the Company acquired Cheaha Financial Group, Inc. and its wholly-owned subsidiary Cheaha Bank, by merger with and into the Company and Bank, respectively. (2) Non-GAAP financial measure. See reconciliation below.

Certain Performance Indicators: 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. 32 Table of Contents 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, 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).

As of and for the years ended December 31, 2022 2021 2020 2019 2018 Total stockholders’ equity - GAAP $ 215,782 $ 242,598 $ 243,284 $ 241,976 $ 182,262 Adjustments: Goodwill 40,088 40,088 28,144 26,132 17,424 Core deposit intangible 2,959 3,848 3,988 4,803 2,263 Trademark intangible 100 100 100 100 100 Tangible equity $ 172,635 $ 198,562 $ 211,052 $ 210,941 $ 162,475 Total assets - GAAP $ 2,753,807 $ 2,513,203 $ 2,321,181 $ 2,148,916 $ 1,786,469 Adjustments: Goodwill 40,088 40,088 28,144 26,132 17,424 Core deposit intangible 2,959 3,848 3,988 4,803 2,263 Trademark intangible 100 100 100 100 100 Tangible assets $ 2,710,660 $ 2,469,167 $ 2,288,949 $ 2,117,881 $ 1,766,682 Total shares outstanding 9,901,847 10,343,494 10,608,869 11,228,775 9,484,219 Book value per share $ 21.79 $ 23.45 $ 22.93 $ 21.55 $ 19.22 Effect of adjustments (4.36 ) (4.25 ) (3.04 ) (2.76 ) (2.09 ) Tangible book value per share $ 17.43 $ 19.20 $ 19.89 $ 18.79 $ 17.13 Total equity to total assets 7.84 % 9.65 % 10.48 % 11.26 % 10.20 % Effect of adjustments (1.47 ) (1.61 ) (1.26 ) (1.30 ) (1.00 ) Tangible equity to tangible assets 6.37 % 8.04 % 9.22 % 9.96 % 9.20 % Efficiency ratio (1) Noninterest expense $ 60,865 $ 63,062 $ 57,131 $ 48,168 $ 41,882 Net interest income 89,785 83,814 73,534 64,818 57,370 Noninterest income 18,350 12,042 12,096 6,216 4,318 Efficiency ratio 56.29 % 65.79 % 66.72 % 67.81 % 67.89 % (1) Calculated as noninterest expense divided by the sum of net interest income (before provision for loan losses) and noninterest income.