Part I. Financial Information This section presents the company's unaudited financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents unaudited consolidated financial statements and notes on accounting policies, earnings, investments, loans, and equity Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------- | :------------ | :---------------- | | Total Assets | $2,748,065 | $2,722,812 | | Total Liabilities | $2,492,136 | $2,481,516 | | Total Stockholders' Equity | $255,929 | $241,296 | | Loans, net | $2,079,735 | $2,098,363 | | Total Deposits | $2,338,185 | $2,345,944 | - Total assets increased by $25.25 million (0.9%) to $2.75 billion at June 30, 2025, compared to December 31, 202411 - Total stockholders' equity increased by $14.63 million to $255.93 million at June 30, 2025, from $241.30 million at December 31, 202411 Consolidated Statements of Income This section presents the company's financial performance, including revenues, expenses, and net income Consolidated Statements of Income Highlights (in thousands, except share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net interest income | $19,644 | $17,198 | $37,989 | $34,414 | | Provision for credit losses | $141 | $(415) | $(3,455) | $(1,834) | | Total noninterest income | $2,626 | $2,750 | $4,637 | $5,498 | | Total noninterest expense | $16,700 | $15,477 | $32,938 | $30,773 | | Net income | $4,494 | $4,057 | $10,787 | $8,764 | | Basic earnings per share | $0.46 | $0.41 | $1.10 | $0.89 | | Diluted earnings per share | $0.46 | $0.41 | $1.09 | $0.89 | - Net income increased by 10.8% to $4.49 million for Q2 2025 compared to $4.06 million for Q2 2024, and by 23.1% to $10.79 million for H1 2025 compared to $8.76 million for H1 202413 - Basic earnings per share increased to $0.46 for Q2 2025 (from $0.41 in Q2 2024) and to $1.10 for H1 2025 (from $0.89 in H1 2024)13 Consolidated Statements of Comprehensive Income This section reports net income and other comprehensive income components, reflecting changes in equity Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net income | $4,494 | $4,057 | $10,787 | $8,764 | | Unrealized gain (loss), AFS, net of tax | $1,253 | $(407) | $6,731 | $(4,217) | | Total other comprehensive income (loss) | $1,253 | $(104) | $6,731 | $(3,914) | | Total comprehensive income | $5,747 | $3,953 | $17,518 | $4,850 | - Total comprehensive income significantly increased to $17.52 million for H1 2025, up from $4.85 million for H1 2024, primarily driven by a positive change in unrealized gains on available-for-sale securities15 Consolidated Statements of Changes in Stockholders' Equity This section details changes in stockholders' equity, including net income, OCI, dividends, and share repurchases Consolidated Statements of Changes in Stockholders' Equity Highlights (in thousands) | Metric | June 30, 2025 (H1) | June 30, 2024 (H1) | | :----------------------------------- | :----------------- | :----------------- | | Balance at beginning of period | $241,296 | $226,768 | | Net income | $10,787 | $8,764 | | Other comprehensive income (loss), net | $6,731 | $(3,914) | | Dividends declared | $(2,114) | $(1,965) | | Shares repurchased | $(1,283) | $(267) | | Balance at end of period | $255,929 | $230,196 | - Total stockholders' equity increased by $14.63 million to $255.93 million at June 30, 2025, from $241.30 million at December 31, 2024, primarily due to net income and other comprehensive income16 Consolidated Statements of Cash Flows This section presents cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | | Net cash provided by operating activities | $7,656 | $10,662 | | Net cash provided by investing activities | $7,915 | $65,424 | | Net cash provided by (used in) financing activities | $11,731 | $(38,423) | | Net change in cash and cash equivalents | $27,302 | $37,663 | | Cash and cash equivalents, end of period | $55,224 | $69,672 | - Net cash provided by operating activities decreased by 28.2% to $7.66 million for H1 2025 compared to $10.66 million for H1 202418 - Net cash provided by investing activities significantly decreased by 87.9% to $7.92 million for H1 2025 compared to $65.42 million for H1 202418 - Net cash provided by financing activities turned positive at $11.73 million for H1 2025, compared to net cash used of $38.42 million for H1 2024, primarily due to advanced proceeds from preferred stock offering20 Notes to the Consolidated Financial Statements This section provides detailed explanations of accounting policies, estimates, and specific financial statement line items Note 1. Summary of Significant Accounting Policies This note outlines the company's business operations, basis of presentation, and critical accounting policies and estimates - The Company is a financial holding company, headquartered in Baton Rouge, Louisiana, providing full banking services (excluding trust services) through Investar Bank, National Association, primarily to individuals, professionals, and small to medium-sized businesses in south Louisiana, southeast Texas, and Alabama23 - The Company operates as one reportable operating segment, generating income principally from interest on loans and securities investments, as well as from fees for loan and deposit services27 - Material estimates particularly susceptible to significant change relate to the Allowance for Credit Losses (ACL), fair value of stock-based compensation awards, other-than-temporary impairments of securities, and the fair value of financial instruments and goodwill2931 - FASB ASU 2023-09 (Income Tax Disclosures) became effective January 1, 2025, and ASU 2024-03 (Expense Disaggregation Disclosures) is effective for fiscal years beginning after December 15, 2026, with the Company currently evaluating its impact3335 Note 2. Earnings Per Share This note details the calculation of basic and diluted earnings per share, including dilutive securities Earnings Per Share (in thousands, except share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net income allocated to common shareholders | $4,494 | $4,057 | $10,787 | $8,764 | | Basic earnings per common share | $0.46 | $0.41 | $1.10 | $0.89 | | Dilutive effect of securities | 114,043 | 74,267 | 100,101 | 58,408 | | Diluted earnings per common share | $0.46 | $0.41 | $1.09 | $0.89 | - Weighted average basic shares outstanding increased to 9,844,351 for Q2 2025 (from 9,827,903 in Q2 2024) and to 9,838,521 for H1 2025 (from 9,798,764 in H1 2024)37 Note 3. Investment Securities This note provides information on the company's investment securities portfolio, including AFS and HTM classifications Investment Securities (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | AFS securities at fair value | $355,708 | $331,121 | | HTM securities at amortized cost | $41,528 | $42,687 | | Gross unrealized losses (AFS) | $(53,429) | $(61,670) | | Gross unrealized losses (HTM) | $(280) | $(613) | - Total AFS securities at fair value increased by $24.59 million to $355.71 million at June 30, 2025, from $331.12 million at December 31, 202442 - Gross unrealized losses on AFS securities decreased by $8.24 million to $(53.43) million at June 30, 2025, from $(61.67) million at December 31, 2024, primarily due to changes in market interest rates424952 - Securities with a carrying value of $40.8 million were pledged at June 30, 2025, down from $68.1 million at December 31, 202456 Note 4. Loans and Allowance for Credit Losses This note details the loan portfolio composition, nonaccrual loans, and ACL activity Loan Portfolio Composition (in thousands) | Loan Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Construction and development | $141,654 | $154,553 | | 1-4 Family | $387,796 | $396,815 | | Multifamily | $102,569 | $84,576 | | Commercial real estate | $928,191 | $944,548 | | Commercial and industrial | $531,460 | $526,928 | | Total loans | $2,106,355 | $2,125,084 | Nonaccrual Loans (in thousands) | Loan Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Total Nonaccrual Loans | $7,453 | $8,824 | Allowance for Credit Losses (ACL) Activity (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Balance, beginning of period | $26,435 | $29,114 | $26,721 | $30,540 | | Provision for credit losses on loans | $172 | $(298) | $(3,523) | $(1,709) | | Charge-offs | $(131) | $(274) | $(258) | $(377) | | Recoveries | $144 | $78 | $3,680 | $166 | | Balance, end of period | $26,620 | $28,620 | $26,620 | $28,620 | - The negative provision for credit losses for H1 2025 was primarily due to a $3.3 million recovery during Q1 2025 from a property insurance settlement related to a loan impaired by Hurricane Ida in 2021104 Note 5. Stockholders' Equity This note provides details on changes in stockholders' equity, including accumulated other comprehensive income (loss) Accumulated Other Comprehensive (Loss) Income Activity (in thousands) | Metric | Q2 2025 Net Change | Q2 2024 Net Change | H1 2025 Net Change | H1 2024 Net Change | | :----------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Unrealized (loss) gain, AFS, net | $1,253 | $(407) | $6,731 | $(4,217) | | Total other comprehensive income (loss) | $1,253 | $(104) | $6,731 | $(3,914) | - Accumulated other comprehensive loss decreased by $6.73 million to $(41.63) million at June 30, 2025, from $(48.36) million at December 31, 2024, primarily due to an increase in the fair value of AFS securities113 Note 6. Stock-Based Compensation This note describes the company's stock-based compensation plans, including stock options and RSU grants - The Company's Amended and Restated 2017 Long-Term Incentive Compensation Plan has 205,635 shares remaining available for grant at June 30, 2025115 - No stock options were granted during the six months ended June 30, 2025, compared to 29,997 options granted in H1 2024117120 - Restricted Stock Unit (RSU) grants increased to 134,182 shares in H1 2025 (from 110,886 in H1 2024). Unearned stock-based compensation for RSUs totaled approximately $5.3 million at June 30, 2025, expected to be recognized over a weighted-average period of 3.6 years124126 Note 7. Derivative Financial Instruments This note explains the company's use of derivative financial instruments, primarily interest rate swaps - The Company enters into interest rate swaps for commercial loan customers to convert variable-rate loans to fixed-rate, economically hedging exposure with corresponding third-party swaps129 - Notional amounts for interest rate swap contracts with customers and offsetting third-party contracts were $185.6 million at June 30, 2025, slightly down from $186.9 million at December 31, 2024131 - Derivative assets and liabilities (interest rate swaps) were $13.096 million at June 30, 2025, down from $17.195 million at December 31, 2024131 Note 8. Fair Values of Financial Instruments This note outlines the fair value measurement hierarchy and valuation methods for financial instruments - Financial instruments are grouped into a three-level hierarchy based on input observability: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)137138139 Fair Value of Assets Measured on a Recurring Basis (June 30, 2025, in thousands) | Asset Category | Total Fair Value | Level 1 | Level 2 | Level 3 | | :----------------------------------- | :--------------- | :------ | :------ | :------ | | Obligations of the U.S. Treasury and U.S. government agencies and corporations | $17,173 | $— | $17,173 | $— | | Obligations of state and political subdivisions | $15,750 | $— | $12,282 | $3,468 | | Corporate bonds | $25,006 | $— | $25,006 | $— | | Residential mortgage-backed securities | $233,304 | $— | $233,304 | $— | | Commercial mortgage-backed securities | $64,475 | $— | $64,475 | $— | | Equity securities at fair value | $2,570 | $2,570 | $— | $— | | Interest rate swaps - gross assets | $13,096 | $— | $13,096 | $— | | Total assets | $371,374 | $2,570 | $365,336 | $3,468 | - Loans individually evaluated for impairment and Other Real Estate Owned (OREO) are measured at fair value on a nonrecurring basis, classified as Level 3 due to unobservable inputs like collateral discounts and estimated costs to sell155156158 Note 9. Income Taxes This note details the company's income tax expense, effective tax rate, and factors causing deviations Income Tax Expense and Effective Tax Rate (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Income tax expense | $935 | $829 | $2,356 | $2,209 | | Effective tax rate | 17.2% | 17.0% | 17.9% | 20.1% | - The effective tax rate for Q2 2025 (17.2%) and H1 2025 (17.9%) differed from the statutory 21% rate primarily due to tax-exempt interest income from certain loans and investment securities, and income from Bank Owned Life Insurance (BOLI)174 - The Company is evaluating the impact of the recently signed One Big Beautiful Bill Act (OBBBA) but does not expect a material impact on its consolidated financial statements or 2025 income tax expense174283 Note 10. Commitments and Contingencies This note discloses the company's off-balance sheet commitments, including loan commitments and letters of credit Commitments to Extend Credit (in thousands) | Commitment Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Loan commitments | $358,415 | $377,301 | | Standby letters of credit | $7,251 | $7,658 | - The reserve for unfunded loan commitments increased to $0.1 million at June 30, 2025, from $42,000 at December 31, 2024175 - The Company had unfunded commitments of $0.9 million for investments in SBIC qualified funds and other investment funds at June 30, 2025178 Note 11. Leases This note provides information on the company's operating lease arrangements, including ROU assets and lease liabilities Operating Lease Information (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :----------------------------------- | :------------ | :------------ | | Total operating lease cost (H1) | $225 | $217 | | Weighted-average remaining lease term | 5.2 years | 6.2 years | | Weighted-average discount rate | 3.4% | 3.3% | - The Company's operating lease Right-Of-Use (ROU) assets were $2.0 million and related operating lease liabilities were $2.1 million at June 30, 2025182 - Future minimum lease payments under non-cancelable operating leases total $2.238 million, with $457,000 due in less than one year184354 Note 12. Subsequent Events This note discloses significant events after the balance sheet date, including a merger and preferred stock issuance - On July 1, 2025, the Company entered into an Agreement and Plan of Merger to acquire Wichita Falls Bancshares, Inc. (WFB), valued at approximately $83.6 million, consisting of $7.2 million in cash and 3,955,344 shares of Company common stock187188 - The WFB acquisition is subject to customary conditions, including shareholder and regulatory approvals, with a potential termination fee of $3.3 million under certain circumstances189190 - On July 1, 2025, the Company completed a private placement of 32,500 shares of Series A Preferred Stock for $32.5 million in gross proceeds ($30.4 million net), intended to support the WFB acquisition and general corporate purposes191 - The Series A Preferred Stock qualifies as additional Tier 1 capital, carries a 6.5% annual cash dividend, and is convertible into common stock at a rate of 47.619 shares per preferred share, with Company redemption rights after July 1, 2028192 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operating results, key trends, and risk management Cautionary Note Regarding Forward-Looking Statements This note highlights that forward-looking statements involve risks and uncertainties that could cause actual results to differ - Forward-looking statements are identified by specific terminology and involve risks and uncertainties that could cause actual results to differ materially from expectations199 - Key risk factors include general business and economic conditions, changes in inflation and interest rates, liquidity reductions, and inaccuracies in credit loss estimates199 - Specific risks related to the pending WFB transaction include obtaining shareholder and regulatory approvals, integration difficulties, and the potential failure to realize anticipated benefits202 Critical Accounting Estimates This note discusses management's significant estimates and judgments used in preparing financial statements - The preparation of consolidated financial statements requires management to make estimates and judgments that affect reported amounts of assets, liabilities, income, and expenses, with actual results potentially differing from these estimates206 - There were no material changes or developments during the reporting period regarding methodologies for significant accounting policies or critical accounting estimates207 Company Overview This section provides an overview of the company's banking services, strategic focus, and principal income and expense sources - Investar Bank, National Association, provides full banking services to individuals and small to medium-sized businesses in south Louisiana, southeast Texas, and Alabama, operating 29 full-service branches209 - The Company's strategy focuses on consistent, quality earnings through balance sheet optimization, originating high-quality variable-rate loans, and growth through acquisitions, having completed seven whole-bank acquisitions since 2011210 - Principal income sources are interest on loans and securities, and fees; principal expenses are interest on deposits/borrowings, salaries, and operating costs. Performance is measured by net interest margin, return on average assets, and return on average equity211 Pending Acquisition of WFB This section details the definitive agreement to acquire Wichita Falls Bancshares, Inc., subject to approvals - On July 1, 2025, the Company announced a definitive agreement to acquire Wichita Falls Bancshares, Inc. (WFB), which operates First National Bank with approximately $1.4 billion in assets in north Texas212 - The closing of the transaction is contingent upon regulatory and shareholder approvals212 Private Placement of Series A Preferred Stock This section reports on the private placement of Series A Preferred Stock, raising capital for the WFB acquisition - In connection with the WFB transaction, the Company completed a private placement of 32,500 shares of Series A Preferred Stock on July 1, 2025, raising $32.5 million in gross proceeds214 Certain Events That Affect Period-over-Period Comparability This section outlines significant events impacting financial comparability, including interest rate changes and loan recoveries - The Federal Reserve reduced the federal funds target rate three times by 100 basis points cumulatively to 4.25%-4.50% in 2024, making the H1 2025 rate lower than H1 2024215 - The Company utilized the Bank Term Funding Program (BTFP) in 2023-2024 due to favorable rates but repaid all borrowings by Q4 2024, with estimated uninsured deposits at 34% of total deposits as of June 30, 2025217 - Significant events include closing one branch in Alabama (Q1 2024), repurchasing $8.0 million of subordinated debt (H1 2024), redeeming $20.0 million of 2029 Notes (Q4 2024), and a $3.3 million loan recovery from a Hurricane Ida insurance settlement (Q1 2025)218219220 Overview of Financial Condition and Results of Operations This section provides a summary of key financial highlights, including assets, net income, EPS, and capital ratios Key Financial Highlights (H1 2025 vs. H1 2024) | Metric | H1 2025 | H1 2024 | Change | | :----------------------------------- | :------ | :------ | :----- | | Total assets | $2.75 billion | $2.72 billion | +0.9% | | Net income | $10.8 million | $8.8 million | +22.7% | | Diluted EPS | $1.09 | $0.89 | +22.5% | | Net interest income | $38.0 million | $34.4 million | +10.4% | | Net interest margin | 2.95% | 2.61% | +34 bps | | Provision for credit losses | $(3.5) million | $(1.8) million | N/A | | Noninterest income | $4.6 million | $5.5 million | -15.7% | | Noninterest expense | $32.9 million | $30.8 million | +7.0% | | Nonperforming loans to total loans | 0.36% | 0.23% | +13 bps | | Return on average assets | 0.80% | 0.63% | +17 bps | | Return on average equity | 8.66% | 7.73% | +93 bps | | Book value per common share | $26.01 | N/A | N/A | | Total deposits | $2.34 billion | $2.35 billion | -0.3% | | Noninterest-bearing deposits | $448.5 million | $432.1 million | +3.8% | | Estimated uninsured deposits | 34% of total | N/A | N/A | | Total loans | $2.11 billion | $2.13 billion | -0.9% | | Accumulated other comprehensive loss | $41.6 million | $48.4 million | -13.9% | Discussion and Analysis of Financial Condition This section analyzes the company's financial position, focusing on trends in loans, investments, deposits, and equity Loans This section discusses changes in the loan portfolio, including composition, growth strategies, and shifts in loan types - Total loans decreased by $18.7 million (0.9%) to $2.11 billion at June 30, 2025, primarily due to loan amortization, with a strategy to originate high-margin loans and exit higher-risk relationships224 - Variable-rate loans increased to 34% of total loans at June 30, 2025, up from 32% at December 31, 2024224 - The business lending portfolio increased by $17.5 million (1.8%) to $993.6 million, driven by organic growth and higher credit line utilization. Nonowner-occupied loans decreased by $29.3 million (5.9%) due to amortization and payoffs227228 - The Company exited the consumer mortgage loan origination business in Q3 2023 to transition into shorter duration, higher risk-adjusted return asset classes230 Investment Securities This section analyzes the investment securities portfolio, including changes in fair value and unrealized gains or losses - Investment securities increased by $23.4 million (6.3%) to $397.2 million at June 30, 2025, primarily due to a $24.4 million increase in residential mortgage-backed securities236 - Net unrealized losses in the AFS investment securities portfolio decreased to $52.9 million at June 30, 2025, from $61.4 million at December 31, 2024, due to lower prevailing market interest rates236 - AFS securities comprised 90% of the total investment securities portfolio at June 30, 2025238 Deposits This section examines trends in total deposits, noninterest-bearing deposits, and estimated uninsured deposits - Total deposits decreased by $7.8 million (0.3%) to $2.34 billion at June 30, 2025. Excluding brokered demand deposits, total deposits increased by $39.6 million (1.7%)243 - Noninterest-bearing demand deposits increased by $16.3 million (3.8%) to $448.5 million at June 30, 2025243 - Estimated uninsured deposits were $785.7 million (34% of total deposits) at June 30, 2025, up from $737.6 million (31%) at December 31, 2024245 - Brokered time deposits increased to $256.1 million at June 30, 2025, used to secure fixed-cost funding and reduce short-term borrowings244 Borrowings This section details the company's borrowing activities, including FHLB advances, short-term borrowings, and subordinated debt - FHLB advances increased by $2.8 million to $70.0 million at June 30, 2025, with $10.0 million short-term and $60.0 million long-term247 - The Company had no outstanding borrowings under the Bank Term Funding Program (BTFP) at June 30, 2025, having repaid all remaining borrowings in Q4 2024248 Average Balances and Cost of Short-term Borrowings (in thousands) | Metric | Q2 2025 Average Balance | Q2 2024 Average Balance | Q2 2025 Cost | Q2 2024 Cost | | :----------------------------------- | :---------------------- | :---------------------- | :----------- | :----------- | | Total short-term borrowings | $32,585 | $248,189 | 3.13% | 4.68% | - Subordinated debt (2032 Notes) remained at $16.7 million, and junior subordinated debt was $8.8 million at June 30, 2025251 Stockholders' Equity This section discusses changes in stockholders' equity, driven by net income, comprehensive income, dividends, and repurchases - Stockholders' equity increased by $14.6 million to $255.9 million at June 30, 2025, driven by net income and a $6.7 million decrease in accumulated other comprehensive loss253 - The Company paid $2.1 million in cash dividends and repurchased $1.3 million of common stock (71,057 shares) during H1 2025253 Results of Operations This section analyzes the company's financial performance, focusing on net interest income, noninterest income, and expense Net Interest Income and Net Interest Margin This section analyzes trends in net interest income and net interest margin, driven by interest rates and balance sheet mix - Net interest income increased by 14.2% to $19.6 million for Q2 2025 (vs. Q2 2024) and by 10.4% to $38.0 million for H1 2025 (vs. H1 2024), primarily due to lower interest expense from reduced short-term borrowings and decreased rates on time deposits256265 - Net interest margin increased by 41 basis points to 3.03% for Q2 2025 (vs. Q2 2024) and by 34 basis points to 2.95% for H1 2025 (vs. H1 2024), driven by a decrease in the cost of interest-bearing liabilities259268 - The overall yield on interest-earning assets was flat at 5.45% for Q2 2025 (vs. Q2 2024) and increased slightly to 5.42% for H1 2025 (vs. 5.41% in H1 2024), with investment portfolio yield increasing while loan portfolio yield slightly decreased257266 - Interest expense decreased by $2.9 million for Q2 2025 and $5.3 million for H1 2025 (YoY), mainly due to a $215.6 million decrease in average short-term borrowings for Q2 and a $200.9 million decrease for H1258267 Noninterest Income This section discusses the components and trends of noninterest income, including fees, gains on asset sales, and other revenue - Total noninterest income decreased by $0.1 million (4.5%) to $2.6 million for Q2 2025 (vs. Q2 2024) and by $0.9 million (15.7%) to $4.6 million for H1 2025 (vs. H1 2024)276277 - The decrease was primarily due to a $0.7 million decrease in gain on sale of other real estate owned (related to Hurricane Ida property sale in Q2 2024) and a $0.4 million decrease in gain on sale of fixed assets (Q1 2024 branch closure)276277 - Partially offsetting the decrease was a $0.4 million decrease in loss on call or sale of investment securities and $0.3 million in insurance proceeds for property damages in Q2 2025276277 Noninterest Expense This section analyzes the components and trends of noninterest expense, including salaries, operating costs, and acquisition expenses - Total noninterest expense increased by $1.2 million (7.9%) to $16.7 million for Q2 2025 (vs. Q2 2024) and by $2.2 million (7.0%) to $32.9 million for H1 2025 (vs. H1 2024)279280 - Key drivers for the increase include a $0.7 million (Q2) and $1.0 million (H1) increase in salaries and employee benefits (investment in Texas markets, health insurance claims), a decrease in gain on early extinguishment of subordinated debt, and increased acquisition expenses related to the WFB transaction279280 - Other operating expenses increased due to a $0.3 million write-down of OREO in Q2 2025 and increased collection/repossession expenses in H1 2025 related to the Hurricane Ida loan recovery279280 Risk Management This section details the company's approach to managing key risks, including credit risk, interest rate risk, and liquidity risk Credit Risk and the Allowance for Credit Losses This section discusses credit risk management, loan classifications, and ACL methodology and activity - The Company uses a ten-point risk-rating system for commercial loans, categorizing them into Pass, Special Mention, Substandard, Doubtful, and Loss, with no loans classified as loss or doubtful at June 30, 2025285286291 - The Allowance for Credit Losses (ACL) was $26.6 million at June 30, 2025, stable compared to December 31, 2024289 - A negative provision for credit losses of $3.5 million for H1 2025 was primarily due to a $3.3 million recovery from a property insurance settlement related to a Hurricane Ida-impaired loan290 - Nonaccrual loans increased to $7.5 million (0.35% of total loans) at June 30, 2025, from $4.9 million (0.23%) at June 30, 2024, primarily due to one owner-occupied commercial relationship and one 1-4 family loan301 - Other Real Estate Owned (OREO) increased to $5.6 million at June 30, 2025, from $5.2 million at December 31, 2024, with $1.0 million in additions from commercial real estate loan transfers313314 Impact of Inflation This section analyzes the effects of inflation and changing interest rates on earnings, loan demand, and credit losses - Inflation, though generally declining since June 2022, remains above the Federal Reserve's 2% target, leading to higher interest rates that increased earnings on interest-earning assets but also increased costs on interest-bearing liabilities314 - Higher rates have constrained loan demand and may lead to increased provisions for credit losses due to potential default rate increases314 - The Federal Reserve reduced the federal funds target rate by 100 basis points to 4.25%-4.50% from September to December 2024, which could lead to lower loan prepayments, lower rates on new loans, and lower yields on investment securities, potentially offset by lower costs of interest-bearing liabilities315 Interest Rate Risk This section describes the company's management of interest rate risk, including simulation analysis and policy guidelines - The Company's primary market risk is interest rate risk, managed by the Asset/Liability Committee (ALCO) through an asset/liability management policy to maximize interest income while controlling risk317318 - Net interest income simulation is the primary tool for benchmarking near-term earnings exposure, assuming static total assets319 Estimated Impact on Net Interest Income from Immediate Interest Rate Changes (June 30, 2025) | Changes in Interest Rates (in basis points) | Estimated Increase/Decrease in Net Interest Income | | :---------------------------------------- | :----------------------------------------------- | | +300 | (3.3)% | | +200 | (2.4)% | | +100 | (0.9)% | | -100 | 1.2% | | -200 | 2.0% | | -300 | 2.7% | - The Bank aims to maintain net interest income at risk in an up or down 100 basis point environment at less than (5)%, and was within policy guidelines at June 30, 2025323 Liquidity and Capital Resources This section discusses the company's liquidity sources, funding strategies, and capital adequacy, including regulatory ratios - Core deposits funded 69% of total assets at June 30, 2025, serving as the most stable source of liquidity329 - Available funding from FHLB advances ($705.0 million) and unsecured lines of credit ($60.0 million) totaled $765.0 million, representing 104% of uninsured deposits ($785.7 million) at June 30, 2025331333334 - Cash and cash equivalents at June 30, 2025, included $17.3 million in advanced proceeds from the Series A Preferred Stock private placement334 Funding Sources and Cost (H1 2025 vs. H1 2024) | Funding Source | H1 2025 % of Total Funds | H1 2024 % of Total Funds | H1 2025 Cost of Funds | H1 2024 Cost of Funds | | :----------------------------------- | :----------------------- | :----------------------- | :-------------------- | :-------------------- | | Noninterest-bearing demand deposits | 18% | 17% | —% | —% | | Interest-bearing demand deposits | 32% | 26% | 2.18% | 1.88% | | Brokered time deposits | 10% | 10% | 4.79% | 5.21% | | Time deposits | 29% | 29% | 3.88% | 4.45% | | Short-term borrowings | 2% | 10% | 3.39% | 4.67% | | Total deposits and borrowed funds | 100% | 100% | 2.61% | 2.95% | Capital Resources This section details the company's capital sources, share repurchase programs, and compliance with regulatory capital - The Company's primary capital sources are retained earnings, capital obtained through acquisitions, and proceeds from the sale of capital stock and subordinated debt. The Series A Preferred Stock is intended to qualify as additional Tier 1 capital339 - The Board authorized a share repurchase program, with 424,588 shares of common stock remaining available for repurchase at June 30, 2025341 Regulatory Capital Ratios (June 30, 2025, in thousands) | Capital Tier | Investar Holding Corporation Ratio | Investar Bank Ratio | Minimum for Well Capitalized Bank | | :----------------------------------- | :------------------------------- | :------------------ | :------------------------------ | | Tier 1 leverage capital | 9.64% | 10.08% | 5.00% | | Common equity tier 1 capital | 11.28% | 12.24% | 6.50% | | Tier 1 capital | 11.70% | 12.24% | 8.00% | | Total capital | 13.59% | 13.40% | 10.00% | - Both the Company and the Bank were in compliance with all regulatory capital requirements and the Bank was considered 'well-capitalized' at June 30, 2025, and December 31, 2024344 Off-Balance Sheet Transactions and Lease Obligations This section describes off-balance sheet arrangements, including derivatives, loan commitments, and operating leases - The Company uses interest rate swap contracts for commercial loan customers, which are economically hedged with third parties and marked to market through earnings348 - Unfunded loan commitments were $358.4 million and standby letters of credit were $7.3 million at June 30, 2025350 - The reserve for unfunded loan commitments increased to $0.1 million at June 30, 2025, from $42,000 at December 31, 2024349 - The Company's primary leasing activities are operating leases for branch operations, with total future minimum lease payments of $2.238 million at June 30, 2025352354 Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the MD&A for market risk disclosures, noting no material changes except for trade policy risks - Market risk disclosures are provided in the 'Risk Management' section of Item 2. MD&A355 - No material changes in market risk since December 31, 2024, except for heightened risks related to changing U.S. trade and tariff policies355 Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and reports no material changes in internal control - Disclosure controls and procedures were effective as of June 30, 2025, as concluded by the Principal Executive Officer and Principal Financial Officer356 - No material changes in internal control over financial reporting occurred during the fiscal quarter covered by this report357 Part II. Other Information This section provides additional information, including updated risk factors, equity security sales, and exhibits Item 1A. Risk Factors This section updates risk factors, highlighting new risks from Series A Preferred Stock and the proposed WFB merger - The Series A Preferred Stock could adversely affect liquidity, financial condition, and common stock holders due to dividend preferences, restrictions on common stock dividends/repurchases, potential dilution upon conversion, and liquidation preferences360361 - The proposed merger with WFB is subject to various closing conditions, including shareholder and regulatory approvals, which may prevent or delay consummation and result in additional expenditures or termination364365 - Integration of WFB's business may be difficult, costly, or time-consuming, potentially leading to lower-than-expected revenues, inability to achieve cost savings, and disruptions to ongoing business366 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on unregistered equity sales, issuer common stock purchases, and dividend payment restrictions - The Company completed a private placement of its Series A Preferred Stock on July 1, 2025367 Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Be Purchased Under the Programs | | :----------------------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :----------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | 53,164 | $17.11 | 29,037 | 431,616 | | May 1, 2025 - May 31, 2025 | 9,056 | $19.33 | 7,028 | 424,588 | | June 1, 2025 - June 30, 2025 | — | — | — | 424,588 | | Total (Q2 2025) | 62,220 | $17.44 | 36,065 | 424,588 | - The Company's ability to pay dividends is dependent on the Bank's ability to transfer funds and is subject to various legal, regulatory, and debt agreement restrictions, including those related to the Series A Preferred Stock and junior subordinated debentures371372 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including merger agreements, corporate documents, and certifications - Key exhibits include the Agreement and Plan of Merger with Wichita Falls Bancshares, Inc. (Exhibit 2.1), Composite Articles of Incorporation (Exhibit 3.1), and Specimen Series A Preferred Stock Certificate (Exhibit 4.2)374 - Certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) are included as required by the Sarbanes-Oxley Act374
Investar (ISTR) - 2025 Q2 - Quarterly Report