~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS~~’ ~~EQUITY, CONTINUED~~

The accompanying unaudited consolidated financial statements of Investar Holding Corporation (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with GAAP. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three ~~and~~ ~~six~~month ~~periods~~period ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of the results that may be expected for the entire fiscal year. These statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, ~~2020~~2021, including the notes thereto, which were included as part of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March ~~10, 2021.~~9, 2022.

The Company, headquartered in Baton Rouge, Louisiana, provides full banking services, excluding trust services, through its wholly-owned banking subsidiary, Investar Bank, National Association (the “Bank”), a national bank, primarily to meet the needs of individuals, professionals and small to medium-sized businesses. The Company’s primary markets are in Louisiana, Texas and Alabama. At ~~June 30, 2021~~March 31, 2022, the Company operated 23 full service branches located in Louisiana, ~~five~~4 full service branches located in Texas and 6six full service branches located in Alabama, and had ~~357~~ e~~mployees.~~336 employees.

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.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for 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.~~conditions, changes in conditions of our borrowers' industries or changes in the condition of individual borrowers. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowance for loan losses may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

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

The ongoing COVID-19 pandemic has made certain estimates more challenging, including those discussed above, as the pandemic is unprecedented in recent history, continues to evolve, and its future effects are impossible to predict with any certainty.

The Company’s investments in debt 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:

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

The Company follows FASB guidance related to the recognition and presentation of other-than-temporary impairment. The guidance specifies that if an entity does not have the intent to sell a debt security and it is not more likely than not that the Company will be required to sell the security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

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 and First National Bankers Bank stock. These investments are carried at cost which approximates fair value. The balance of equity securities in our correspondent banks at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was $16.3 million and $15.0 million, ~~and $14.9 million,~~ respectively.

In addition, equity securities include marketable securities in corporate stocks and mutual funds. The estimated fair value of equity securities totaled ~~$1.8~~$1.6 million and ~~$1.7~~$1.8 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, respectively.

The Company’s loan portfolio categories include real estate, commercial and consumer loans. Real estate loans are further categorized into construction and development, 1-4 family residential, multifamily, farmland and commercial real estate loans. The consumer loan category includes loans originated through indirect lending. Indirect lending, which is lending initiated through third-party business partners, is largely comprised of loans made through automotive dealerships.

Loans for which management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off are stated at unpaid principal balances, adjusted by an allowance for loan losses. Interest on loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. 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.

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 (“TDRs”) and performing and non-performing loans for which full payment of principal or interest is not expected. Large groups of smaller balance homogeneous 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.

~~Treatment of Loan Modifications Pursuant to the CARES Act and Interagency Statement~~

~~Section~~ ~~4013~~ ~~of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted on~~ ~~March 27, 2020~~ ~~provides that from the period beginning~~ ~~March 1, 2020~~ ~~until the earlier of~~ ~~December 31, 2020~~ ~~or the date that is~~ 60 ~~days after the date on which the national emergency concerning the COVID-~~19 ~~pandemic declared by the President of the United States under the National Emergencies Act terminates (the “applicable period”), we~~ ~~may~~ elect to suspend GAAP for loan modifications related to the pandemic that would otherwise be categorized as troubled debt restructurings (“TDRs”) and suspend any determination of a loan modified as a result of the effects of the pandemic as being a TDR, including impairment for accounting purposes. The suspension is applicable for the term of the loan modification that occurs during the applicable period for a loan that was ~~not~~ ~~more than~~ 30 ~~days past due as of~~ ~~December 31, 2019.~~ ~~The suspension is~~ ~~not~~ ~~applicable to any adverse impact on the credit of a borrower that is~~ ~~not~~ ~~related to the pandemic. The Consolidated Appropriations Act,~~ ~~2021~~ ~~(“CAA”) enacted on~~ ~~December 27, 2020~~ ~~extended the applicable period to the earlier of~~ ~~January 1, 2022~~ or 60 ~~days after the national emergency termination date.~~

~~In addition, our banking regulators and other financial regulators, on~~ ~~March 22, 2020~~ ~~and revised~~ ~~April 7, 2020,~~ issued a joint interagency statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or ~~may~~ ~~be unable to meet their contractual payment obligations due to the effects of the COVID-~~19 ~~pandemic. Pursuant to the interagency statement, loan modifications that do~~ ~~not~~ ~~meet the conditions of Section~~ ~~4013~~ ~~of the CARES Act~~ ~~may~~ ~~still qualify as a modification that does~~ ~~not~~ need to be accounted for as a TDR. Specifically, the agencies confirmed with the staff of the FASB that short-term modifications made in good faith in response to the pandemic to borrowers who were current prior to any relief are ~~not~~ ~~TDRs under GAAP. This includes short-term (e.g.~~ ~~six~~ ~~months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than~~ 30 ~~days past due on their contractual payments at the time a modification program is implemented. Appropriate allowances for loan and lease losses are expected to be maintained. With regard to loans~~ ~~not~~ ~~otherwise reportable as past due, financial institutions are~~ ~~not~~ expected to designate loans with deferrals granted due to the pandemic as past due because of the deferral. The interagency statement also states that during short-term pandemic-related loan modifications, these loans generally should ~~not~~ ~~be reported as nonaccrual.~~

~~Accordingly, we are offering short-term modifications made in response to COVID-~~19 ~~to borrowers who are current and otherwise~~ ~~not~~ ~~past due. These include short-term modifications of~~ 90 ~~days or less, in the form of deferrals of payment of principal and interest, principal only, or interest only, and fee waivers. As of~~ ~~June 30, 2021,~~ ~~the balance of loans participating in the~~ 90~~-day deferral program was $0.3 million, or 0.01% of the total loan portfolio, compared to $5.9 million, or 0.3% of the total loan portfolio, at~~ ~~December 31, 2020.~~ ~~In accordance with Section~~ ~~4013~~ ~~of the CARES Act and the interagency statement, we have~~ ~~not~~ ~~accounted for such loans as TDRs, nor have we designated them as past due or nonaccrual.~~

Loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value. For loans carried at the lower of cost or fair value, gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan. At ~~June 30, 2021~~ March 31, 2022, there were 0 loans held for sale, and at December 31, ~~2020,~~ 2021, there were 0$0.6 million in loans held for sale.

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 uncollectible. 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 added to the allowance. Past due status is determined based on contractual terms.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value 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.

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 accrued taxes and other liabilities in the consolidated balance sheet. ~~At both~~ ~~June 30, 2021~~ ~~and~~ ~~December 31, 2020~~ ~~the~~The reserve for unfunded loan commitments was ~~$0.2 million.~~$0.7 million at both March 31, 2022 and December 31, 2021.

Business combinations are accounted for under the acquisition 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.

Loans acquired in a business combination are recorded at their estimated fair value as of the acquisition date. The fair value of loans acquired is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest prepayments, estimated payments, estimated default rates, estimated loss severity in the event of defaults, and current market rates. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan losses is not recorded on the acquisition date. The fair value adjustment is amortized over the life of the loan using the effective interest method, except for those loans accounted for under ASC Topic 310-30, discussed below. An allowance for acquired loans not accounted for under ASC Topic 310-30 is only recorded to the extent that the reserve requirement exceeds the remaining fair value adjustment.

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~~losses in the consolidated statement of operations if the cash flows expected to be collected have decreased.

Certain reclassifications have been made to the ~~2020~~2021 financial statements to be consistent with the ~~2021~~2022 presentation, if applicable.

The Company’s loan portfolio consists of the various types of loans described in Note 5. Loans and Allowance for Loan Losses. Real estate or other assets secure most loans. The majority of loans have been made to individuals and businesses in the Company’s market of southeast Louisiana. Customers are dependent on the condition of the local economy for their livelihoods and servicing their loan obligations. The Company does not have any significant concentrations in any one industry or individual customer.

~~FASB ASC Topics~~ ~~321,~~~~323,~~ ~~and~~ ~~815~~“~~Investments~~—~~Equity Securities (Topic~~ ~~321~~~~), Investments~~—~~Equity Method and Joint Ventures (Topic~~ ~~323~~~~), and Derivatives and Hedging (Topic~~ ~~815~~)” ~~ASU~~ ~~No.~~~~2020~~-~~01.~~~~ASU~~ ~~2020~~-01 ~~became effective for the Company on~~ ~~January 1, 2021.~~ ~~The ASU clarifies the interaction among ASC~~ ~~321,~~ ~~ASC~~ ~~323,~~ ~~and ASC~~ ~~815~~ for equity securities, equity method investments, and certain financial instruments to acquire equity securities. It clarifies whether re-measurement of equity investments is appropriate when observable transactions cause the equity method to be triggered or discontinued. ASU ~~2020~~-01 ~~also provides that certain forward contracts and purchased options to acquire equity securities will be measured under ASC~~ ~~321~~ ~~without an assessment of subsequent accounting upon settlement or exercise. The adoption of ASU~~ ~~2020~~-01 ~~did~~ ~~not~~ ~~have a material impact on the consolidated financial statements.~~

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 and validation, 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 fiscal years beginning after December 15, 2019, 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. 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. Adoption prior to the revised effective date of~~ ~~January 1, 2023~~ ~~is permitted by the ASU.~~

FASB ASC Topic 848 “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” Update No. 2020-04. In March 2020, the FASB issued ASU 2020-04, which is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This guidance ishas been effective ~~beginning on~~since March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

FASB ASC Topic 326“Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures” Update No.2022-02.The FASB issued ASU No.2022-02 in March 2022. The ASU eliminates the accounting guidance for TDRs and, instead, requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendment also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases. The guidance is effective for entities that have adopted ASU 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These amendments should be applied prospectively. ASU 2016-13 will be effective for the Company on January 1, 2023. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

On ~~February 21, 2020,~~ the Company completed the acquisition of the Alice and Victoria, Texas branch locations of PlainsCapital Bank (“PlainsCapital”), a wholly-owned subsidiary of Hilltop Holdings Inc., for an aggregate cash consideration of approximately $11.2 million. The acquisition added $48.8 million in total assets, including $45.3 million in loans, and $37.0 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded $0.5 million of goodwill. Goodwill resulted from a combination of synergies and cost savings, and further expansion into south Texas with the addition of ~~two~~ ~~branch locations.~~

The table below shows the allocation of the consideration paid for certain assets, deposits and other liabilities associated with the Alice and Victoria, Texas locations of PlainsCapital and the goodwill generated from the transaction (dollars in thousands).

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 at the time of acquisition, and the Company’s initial evaluation of credit losses identified. The contractually required principal and interest payments of the loans acquired from PlainsCapital total $51.3 million. No ~~loans acquired from PlainsCapital were considered to be purchased credit impaired loans.~~

On April 1, 2021, the Company completed the ~~previously announced~~ acquisition of Cheaha Financial Group, Inc. (“Cheaha”) and its wholly-owned subsidiary, Cheaha Bank, in Oxford, Alabama for an aggregate cash consideration of approximately $41.1 million. ~~The~~After fair value adjustments, the acquisition added ~~$240.7~~$240.8 million in total assets, including $120.4 million in loans, and $207.0 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded ~~$11.4~~$11.9 million of goodwill. Goodwill resulted from a combination of synergies and cost savings, and further expansion into Alabama with the addition of 4 branch locations.

The table below shows the allocation of the consideration paid for Cheaha'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.

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 at the time of acquisition, and the Company’s initial evaluation of credit losses identified. The contractually required principal and interest payments of the loans acquired from Cheaha total $134.8 million. Loans acquired from Cheaha that are considered to be purchased credit impaired loans had a balance of $0.2 million at the time of acquisition. The contractually required principal and interest payments of these loans total $0.2 million, of which $0.1 million is not expected to be collected.

There were 0 acquisition expenses recorded in the three months ended March 31, 2022. Acquisition related costs of ~~$1.6 million and $2.0~~$0.4 million are included in acquisition expense in the accompanying consolidated statements of income for the three ~~and~~ ~~six~~months ended ~~June 30,~~March 31, 2021~~, respectively,~~ and ~~include system conversion and integrating operations charges, as well as legal and consulting expenses, for~~are related to the acquisition of ~~Cheaha which was completed on~~ ~~April 1, 2021~~ ~~and the operational conversion of Cheaha that was completed on~~ ~~June 18, 2021.~~ ~~Acquisition related costs of $0.3 million and $1.0 million are included in acquisition expense for the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~June 30, 2020~~~~, respectively, and include system conversion and integrating operations charges, as well as legal and consulting expenses, related to both the acquisition of Bank of York in~~ ~~November 2019~~ ~~and the acquisition of~~ ~~two~~ ~~branches from PlainsCapital.~~Cheaha.

The following is a summary of the information used in the computation of basic and diluted earnings per share for the three ~~and~~ ~~six~~months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021 (in thousands, except share data).

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

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

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

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

Securities are classified in the consolidated balance sheets according to management’s intent. The Company had 0 securities classified as trading as of ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020~~2021.

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~~(amounts in ~~thousands)~~thousands, except number of securities).

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 March 31, 2022 (amounts in thousands, except number of securities). There were no HTM securities in a continuous loss position as of ~~June 30, 2021~~ or December 31, ~~2020~~2021.

Unrealized losses are generally due to changes in interest rates. ~~Beginning in the~~ ~~first~~ ~~quarter of~~ ~~2020,~~ ~~the COVID-~~19 ~~pandemic has led to ongoing disruption and volatility in the capital markets, causing fluctuations of fair values across asset classes.~~ The Company has the intent to hold these securities either until maturity or a forecasted recovery, and it is more likely than not that the Company will not have to sell the securities before the recovery of their amortized cost basis. Due to the nature of the investment, current market prices, and the current interest rate environment, the Company does not consider these securities to be other-than-temporarily impaired at ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020~~2021.

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 may differ from contractual maturities ~~because~~due to mortgage-backed securities whereby borrowers may have the right to call or prepay obligations with or without call or prepayment ~~penalties.~~penalties and certain callable bonds whereby the issuer has the option to call the bonds prior to contractual maturity.

At ~~June 30, 2021~~March 31, 2022, securities with a carrying value of ~~$118.2~~$158.9 million were pledged to secure certain deposits, borrowings, and other liabilities, compared to ~~$84.6~~$118.2 million in pledged securities at December 31, ~~2020~~2021.

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

Unamortized premiums and discounts on loans, included in the total loans balances above, were ~~$2.4~~$1.1 million and ~~$1.8~~$1.9 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, respectively, and unearned income, or deferred fees, on loans was ~~$3.8~~$1.5 million and ~~$3.2~~$1.8 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, ~~respectively.~~

~~In the~~ ~~second~~ ~~quarter of~~ ~~2020,~~ ~~the Bank began participating as a lender~~respectively and is also included in the ~~Small Business Administration’s (“SBA”) and U.S. Department of Treasury’s Paycheck Protection Program (“PPP”) as established by~~total loans balance in the ~~CARES Act and enhanced by the Paycheck Protection Program and Health Care Enhancement Act and the Paycheck Protection Program Flexibility Act of~~ ~~2020~~ ~~(“Flexibility Act”). The PPP was established to provide unsecured low interest rate loans to small businesses that have been impacted by the COVID-~~19 ~~pandemic. The PPP loans are~~ ~~100%~~ ~~guaranteed by the SBA. The loans have a fixed interest rate of~~ 1% ~~with deferred payments, and if originated before~~ ~~June 5, 2020,~~ ~~mature~~ ~~two~~ ~~years from origination, or if made on or after~~ ~~June 5, 2020,~~ ~~five~~ years from origination. PPP loans are forgiven by the SBA (which makes forgiveness payments directly to the lender) to the extent the borrower uses the proceeds of the loan for certain purposes (primarily to fund payroll costs) during a certain time period following origination and maintains certain employee and compensation levels. Lenders receive processing fees from the SBA for originating the PPP loans which are based on a percentage of the loan amount. In ~~July 2020,~~ ~~the CARES Act was amended to extend the SBA’s authority to make commitments under the PPP, which had previously expired on~~ ~~June 30, 2020.~~ ~~The PPP resumed taking applications on~~ ~~July 6, 2020,~~ ~~and the new deadline to apply for a PPP loan ended on~~ ~~August 8, 2020.~~ On ~~December 27, 2020,~~ ~~the CAA, a~~ ~~$900~~ ~~billion aid package, was enacted that renewed the PPP and allocated additional funding for new~~ ~~first~~ ~~time PPP loans under the original PPP and also authorized~~ ~~second~~ ~~draw PPP loans for certain eligible borrowers that had previously received a PPP loan. The application period for the renewed PPP lasted from~~ ~~January 1, 2021~~ to ~~May 31, 2021.~~ At ~~June 30, 2021~~ ~~and~~ ~~December 31, 2020~~ ~~the Company’s loan portfolio included PPP loans with balances of $73.0 million and $94.5 million, respectively, all of which are included in commercial and industrial loans.~~table above.

The table below provides an analysis of the aging of loans, excluding loans held for sale, as of the dates presented (dollars in thousands).

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, the borrower’s debt service capacity is considered through the analysis of current financial information, if available, and/or current information with regard to the 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 payment of future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.

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. The acquired impaired loans had no0 accretable yield recorded for the three ~~and~~ ~~six~~months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021.

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.

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.

In the second quarter of 2020, the Bank began participating as a lender in the Small Business Administration’s (“SBA”) and U.S. Department of Treasury’s Paycheck Protection Program (“PPP”) as established by the CARES Act and enhanced by the Paycheck Protection Program and Health Care Enhancement Act and the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP was established to provide unsecured low interest rate loans to small businesses that have been impacted by the COVID-19 pandemic. The PPP loans are 100% guaranteed by the SBA. The loans have a fixed interest rate of 1% with deferred payments, and if originated before June 5, 2020, mature two years from origination, or if made on or after June 5, 2020, five years from origination. PPP loans are forgiven by the SBA (which makes forgiveness payments directly to the lender) to the extent the borrower uses the proceeds of the loan for certain purposes (primarily to fund payroll costs) during a certain time period following origination and maintains certain employee and compensation levels. Lenders receive processing fees from the SBA for originating the PPP loans which are based on a percentage of the loan amount. In July 2020, the CARES Act was amended to extend the SBA’s authority to make commitments under the PPP, which had previously expired on June 30, 2020. The PPP resumed taking applications on July 6, 2020, and the new deadline to apply for a PPP loan ended on August 8, 2020. On December 27, 2020, the CAA, a $900 billion aid package, was enacted that renewed the PPP and allocated additional funding for new first time PPP loans under the original PPP and also authorized second draw PPP loans for certain eligible borrowers that had previously received a PPP loan. The application period for the renewed PPP lasted from January 1, 2021 to May 31, 2021. At March 31, 2022 and December 31, 2021 the Company’s loan portfolio included PPP loans with balances of $13.2 million and $23.3 million, respectively, all of which are included in commercial and industrial loans.

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.

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:

Pass - Loans not meeting the criteria below are considered pass. These loans have high credit characteristics and financial strength. The borrowers at least generate profits and cash flow that are in line with peer and industry standards and have debt service coverage ratios above loan covenants and our policy guidelines. For some of these loans, a guaranty from a financially capable party mitigates characteristics of the borrower that might otherwise result in a lower grade.

Special Mention - Loans classified as special mention possess some credit deficiencies that need to be corrected to avoid a greater risk of default in the future. For example, financial ratios relating to the borrower may have deteriorated. Often, a special mention categorization is temporary while certain factors are analyzed or matters addressed before the loan is re-categorized as either pass or substandard.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower or the liquidation value of any collateral. If deficiencies are not addressed, it is likely that this category of loan will result in the Bank incurring a loss. Where a borrower has been unable to adjust to industry or general economic conditions, the borrower’s loan is often categorized as substandard.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as recorded assets is not warranted. This classification does not mean that the assets have absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off these assets.

The table below presents the Company’s loan portfolio, excluding loans held for sale, by category and credit quality indicator as of the dates presented (dollars in thousands).

The Company had 0 loans that were classified as loss at ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020~~2021.

Loan participations and whole loans sold to and serviced for others are not included in the accompanying consolidated balance sheets. The balance of the participations and whole loans ~~serviced for others was $44.3~~sold were $28.0 million and ~~$53.5~~$33.0 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, respectively. The unpaid principal balance of these loans was ~~approximately$128.1~~approximately$85.8 million and ~~$154.0~~$91.9 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, respectively.

In the ordinary course of business, the Company makes loans to related parties including its executive officers, principal stockholders, 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 ~~$96.1~~$101.1 million and ~~$96.4~~$97.6 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, respectively.

The table below shows the aggregate principal balance of loans to such related parties as of the dates presented (dollars in thousands).

The table below shows a summary of the activity in the allowance for loan losses for the three ~~and~~ ~~six~~months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021 (dollars in thousands).

The following tables outline the activity in the allowance for loan losses by collateral type for the three ~~and~~ ~~six~~months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021, and show both the allowance and portfolio balances for loans individually and collectively evaluated for impairment as of ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021 (dollars in thousands).

The Company considers a loan to be impaired when, based on current information and events, the Company determines that it is probable that it will not be able to collect all amounts due according to the loan agreement, including scheduled interest payments. Determination of impairment is treated the same across all classes of loans. When the Company identifies a loan as impaired, it measures the impairment based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole (remaining) source of repayment for the loans is the operation or liquidation of the collateral. In these cases when foreclosure is probable, the Company uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If the Company determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs, and unamortized premium or discount), the Company recognizes impairment through an allowance estimate or a charge-off to the allowance.

When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual, contractual interest is credited to interest income when received, under the cash basis method.

The following tables contain information on the Company’s impaired loans, which include TDRs, 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~~losses (dollars in thousands).

Presented in the tables below isare the average recorded investment of the impaired loans and the related amount of interest income recognized during the time within the period that the loans were impaired. The average balances are calculated based on the month-end balances of the loans during the periods reported (dollars in thousands).

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. See Note 1. Summary of Significant Accounting Policies for further discussion of our treatment of TDRs in response to guidance from financial regulators.

Loans classified as TDRs, ~~consisting~~consisted of 3424 credits, ~~totaled~~totaling approximately $7.4 million ~~$13.9 million~~ at ~~June 30, 2021~~March 31, 2022, compared to 3429 credits totaling ~~$14.7~~approximately $10.5 million at December 31, ~~2020~~2021. At ~~June 30, 2021~~March 31, 2022, ~~twelve~~eleven of the restructured loans were considered TDRs due to modification of terms through adjustments to maturity, ~~eight~~ ~~restructured loans were considered TDRs due to principal payment forbearance paying interest only for a specified period of time,~~ ~~eight~~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, four restructured loans were considered TDRs due to principal payment forbearance paying interest only for a specified period of time, and ~~four~~two of the restructured loans were considered TDRs due to principal and interest payment ~~forbearance, and~~ ~~two~~ ~~restructured loans were considered TDRs due to a reduction in principal payments on a modified payment schedule.~~

As of ~~June 30,~~March 31, 2022 and December 31, 2021, ~~one~~ ~~$1.3 million commercial real estate TDR was in default of its modified terms and is included in nonaccrual loans. At~~ ~~December 31, 2020~~none~~, NaN~~ of the TDRs were in default of their modified terms and 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.

NaN TDRs defaulted on their modified terms during the three months ended March 31, 2022. There was 1one loan modified under TDR during the previous twelve month period that subsequently defaulted during the ~~six~~three months ended ~~June 30,~~March 31, 2021~~. NaN TDRs defaulted on their modified terms during the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020~~.

At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, there ~~were~~were 0 ~~available~~available balances on loans classified as TDRs that the Company was committed to lend.

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

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 ~~9.1~~7.4 years. At both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, the Company had 0 current interest rate swap agreements, ~~with total notional amounts of $100.0 million and $80.0 million, respectively,~~ and forward starting interest rate swap agreements with a total notional ~~amounts~~amount of ~~$165.0~~$60.0 million ~~and $140.0~~at March 31, 2022 compared to $115.0 million ~~respectively,~~at December 31, 2021, all of which were designated as cash flow hedges. The interest rate swaps were determined to be fully effective during the periods presented, and therefore no amount of ineffectiveness has been included in net income. The derivative contracts are between the Company and two counterparties. To mitigate credit risk, securities are pledged to the Company by the counterparties in an amount greater than or equal to the gain position of the derivative contracts. Conversely, securities are pledged to the counterparties by the Company in an amount greater than or equal to the loss position of the derivative contracts, if applicable.

~~For~~In the ~~three~~first quarter of 2022, the Company voluntarily terminated interest rate swaps with a total notional amount of $55.0 million in response to market conditions and ~~six~~ ~~months ended~~ ~~June 30, 2021~~,as a ~~loss~~result of ~~$2.0~~excess liquidity. Unrealized gains of $2.6 million, net of ~~a tax benefit of $0.5 million, and a gain of $4.0 million, net of a $1.1 million~~ tax expense ~~respectively, have been recognized~~of $0.7 million, were reclassified from “Accumulated other comprehensive (loss) income” as of March 31, 2022 and recorded as “Swap termination fee income” in ~~“Other comprehensive~~noninterest income ~~(loss)”~~ in the accompanying consolidated statements of income for the three months ended March 31, 2022.

For the three months ended March 31, 2022, a gain of $3.2 million, net of a $0.8 million tax expense, has been recognized in “Other comprehensive (loss) income” in the accompanying consolidated statements of comprehensive (loss) income for the change in fair value of the interest rate swaps compared to ~~losses~~a gain of ~~$1.4 million and $3.9~~$6.1 million, net of ~~$0.4 million and $1.0~~a $1.6 million tax ~~benefits,~~expense, recognized for the three ~~and~~ ~~six~~months ended ~~June 30, 2020~~March 31, 2021~~, respectively.~~.

The fair value of the swap contracts consisted of gross assets of $3.3 million and 0 gross liabilities, netting to a fair value of $3.3 million recorded in “Other assets” in the accompanying consolidated balance sheet at March 31, 2022. The fair value of the swap contracts consisted of gross assets of ~~$4.5~~$2.6 million and gross liabilities of ~~$1.6 million,~~$29,000, netting to a fair value of ~~$2.9~~$2.6 million recorded in “Other assets” in the accompanying consolidated balance sheet at ~~June 30, 2021~~. The fair value of the swap contracts consisted of gross liabilities of $2.8 million and gross assets $0.6 million, netting to a fair value of $2.2 million recorded in “Accrued taxes and other liabilities” in the accompanying consolidated balance sheet at December 31, ~~2020~~2021. The accumulated gain of ~~$2.3~~$2.6 million included in “Accumulated other comprehensive (loss) income” in the accompanying consolidated balance sheet as of ~~June 30, 2021~~March 31, 2022 would be reclassified to current earnings if the hedge transactions become probable of not occurring. The Company expects the hedges to remain fully effective during the remaining term of the swap contracts.

The Company enters 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 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 Measurement and Disclosure (“ASC 820”). The Company did not recognize any gains or losses in other operating income resulting from fair value adjustments of these swap agreements during the three ~~and~~ ~~six~~months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

In accordance with 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, or exit 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.

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 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 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. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~ 2021~~all~~, the majority of our level 3 investments were obligations of state and political subdivisions. The Company estimated the fair value of these level 3 investments using discounted cash flow models, the key inputs of which are the coupon rate, current spreads to the yield curves, and expected repayment dates, adjusted for illiquidity of the local municipal market and sinking funds, if applicable. Option-adjusted models may be used for structured or callable notes, as appropriate.

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 on 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.

Loans held for sale are measured using quoted market prices when available. If quoted market prices are not available, comparable market values or discounted cash flow analyses may be utilized. The Company classifies these assets in level 3 of the fair value hierarchy.

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.

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.

Long-Term Borrowings, including Junior Subordinated Debt Securities – The fair values of long-term borrowings are estimated using discounted cash flow 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 Financial Instruments – The fair value for interest rate swap agreements is based upon the amounts required to settle the contracts. These derivative instruments are classified in level 2 of the fair value hierarchy.

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

The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company’s ability to observe inputs to the valuation may cause reclassification of certain assets or liabilities within the fair value hierarchy. The tables below provide a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or level 3 inputs, for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021 (dollars in thousands).

There were no liabilities measured at fair value on a recurring basis using level 3 inputs at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021. For the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021, 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.

The following table provides quantitative information about significant unobservable inputs used in fair value measurements of ~~Level~~level 3 assets measured at fair value on a recurring basis at ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020~~2021 (dollars in thousands):

⁽¹⁾ Fair values determined through valuation analysis using coupon, yield (discount margin), liquidity and expected repayment dates.

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Quantitative information about assets measured at fair value on a nonrecurring basis based on significant unobservable inputs (level 3) is summarized below as of ~~the dates indicated; there~~December 31, 2021. There were no ~~liabilities~~assets measured on a nonrecurring basis at ~~June 30, 2021~~March 31, 2022, and there wereno liabilities measured on a nonrecurring basis at March 31, 2022 or December 31, ~~2020~~2021 (dollars in thousands).

The estimated fair values of the Company’s financial instruments are summarized in the table below as of the dates indicated (dollars in thousands).

The ~~expense for~~ income ~~taxes~~tax expense and the effective tax rate included in the consolidated statements of income are shown in the table below for the periods presented (dollars in thousands).

For ~~both~~ the three ~~and~~ ~~six~~month ~~periods~~period ended ~~June 30, 2021~~March 31, 2022 ~~and~~ ~~2020,~~, the effective tax rate differs from the statutory tax rate of 21% primarily due to tax exempt interest income earned on certain investment ~~securities.~~securities and bank owned life insurance. For the three month period ended March 31, 2021, the effective tax rate differs from the statutory tax rate of 21% primarily due to an increase in state taxes and the impact of share-based compensation.

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 loan commitments was $0.7 million at both March 31, 2022 and December 31, 2021 and is included in "Accrued taxes and other ~~liabilities~~liabilities" in the consolidated balance ~~sheets and was $0.2 million at~~ ~~June 30, 2021~~ ~~and~~ ~~December 31, 2020~~.sheets.

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).

Additionally, at ~~June 30, 2021~~March 31, 2022, the Company had unfunded commitments of ~~$1.0~~$1.9 million for its investment in Small Business Investment Company qualified funds.

The Company’s primary leasing activities relate to certain real estate leases entered into in support of the Company’s branch operations. 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.

Quantitative information regarding the Company’s operating leases is presented below as of and for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021 (dollars in thousands).

At ~~June 30, 2021~~March 31, 2022, the Company’s lease ROU assets and related lease liabilities were ~~$3.6~~$3.2 million and ~~$3.7~~$3.3 million, respectively, and have remaining terms ranging from 2 to 10 years, including extension options if the Company is reasonably certain they will be exercised.

Future minimum lease payments due under non-cancelable operating leases at ~~June 30, 2021~~March 31, 2022 are presented below (dollars in thousands).

At ~~June 30, 2021~~March 31, 2022, the Company had not entered into any material leases that have not yet commenced.

On ~~May 29, 2020,~~ ~~the~~The Bank ~~purchased~~owns its corporate headquarters building, the first floor of ~~its corporate headquarters building,~~ which is ~~currently~~ occupied by multiple tenants. ~~The Bank assumed the existing~~All tenant leases ~~all of which~~ are operating leases. The Bank, as lessor, recognized ~~rental~~lease income of ~~$0.2 million~~$85,000 and ~~$30,000~~$79,000 for the ~~six~~three ~~months~~month periods ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021, respectively.

On April 6, 2022, the Company entered into a Subordinated Note Purchase Agreement (the “Purchase Agreement”) with certain institutional accredited investors and qualified institutional buyers (the “Purchasers”) under which the Company issued an aggregate of $20.0 million in aggregate principal amount of its 5.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “Notes”) to the Purchasers at a price equal to 100% of the aggregate principal amount of the Notes. The Purchase Agreement contained certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand. The Notes were offered and sold in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.

The Notes were issued under an indenture, dated April 6, 2022 (the “Indenture”), by and among the Company and UMB Bank, National Association, as trustee (the “Trustee”). The Trustee will also serve as the initial paying agent and registrar with respect to the Notes.

The Notes have a stated maturity date of April 15, 2032and will bear interest at a fixed rate of 5.125% per year from and including April 6, 2022 to but excluding April 15, 2027 or earlier redemption date. From April 15, 2027 to but excluding the stated maturity date or earlier redemption date, the Notes will bear interest a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 277 basis points. As provided in the Notes, the interest rate on the Notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR. The Notes may be redeemed by the Company, in whole or in part, on or after April 15, 2027 or, in whole but not in part, under certain other limited circumstances set forth in the Indenture. Any redemption by the Company 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 Notes are subject to acceleration only in limited circumstances in the case of certain bankruptcy and insolvency-related events with respect to the Company. The Notes are the unsecured, subordinated obligations of the Company and rank junior in right of payment to the Company’s current and future senior indebtedness and to the Company’s obligations to its general creditors. The Notes are intended to qualify as tier 2 capital for regulatory purposes.

On April 6, 2022, in connection with the issuance of the Notes, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company has agreed to take steps, within certain time periods following the closing specified in the Purchase Agreement, to provide for the exchange of the Notes for subordinated notes that are registered with the Securities and Exchange Commission (the “SEC”) and have substantially the same terms as the Notes. Among other things, the Company has agreed to use its commercially reasonable efforts to file an exchange offer registration statement with the SEC not later than 60 days following the closing of the sale of the Notes and to complete the exchange offer within 45 days after the effectiveness of the registration statement. Under certain circumstances, if the Company fails to meet its obligations under the Registration Rights Agreement, it would be required to pay additional interest to the holders of the Notes.

The Company expects to utilize the net proceeds from the sale of the Notes to refinance the Company’s subordinated debt securities issued in 2017, for possible share repurchases and general corporate purposes.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

When included in this Quarterly Report on Form 10-Q, or in other documents that Investar Holding Corporation (the “Company,” “we,” “our,” or “us”) files with the Securities and Exchange Commission (“SEC”) or in statements made by or on behalf of the Company, words like “may,” “should,” “could,” “predict,” “potential,” “believe,” “think,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “outlook” and similar expressions or the negative version of those words are intended to identify forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a variety of risks and uncertainties that could cause actual results to differ materially from those described therein. The Company’s forward-looking statements are based on assumptions and estimates that management believes to be reasonable in light of the information available at the time such statements are made. However, many of the matters addressed by these statements are inherently uncertain and could be affected by many factors beyond management’s control. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. 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 in the United States caused by the ongoing COVID-19 pandemic, including ~~due~~but not limited to ~~the recent resurgence of cases in our markets related to the spread of COVID-19 variants,~~potential continued higher inflation and supply and labor constraints, which will depend on several factors, including the scope and duration of the pandemic, its continued influence on the economy and financial markets, the impact on market participants on which we rely, and actions taken by governmental authorities and other third parties in response to the pandemic;

•

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 and our customers posed by the COVID-19 pandemic and government actions taken to address the impact of COVID-19 or contain it and the potential impact of the termination of various pandemic-related government support programs;

•

the risk of holding PPP loans at unfavorable rates and on terms that are less favorable than other types of loans, and the Company’s ability to pursue available remedies in the event of a loan default of loans under the Paycheck Protection Program;

•

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 ~~rising inflation~~potential continued increases in ~~recent months, which may not be temporary;~~interest rates in 2022;

•

our ability to identify and enter into agreements to combine with attractive acquisition candidates, finance acquisitions, complete acquisitions after definitive agreements are entered into, and successfully integrate and grow acquired operations;

~~possible~~ •

cessation ~~or market replacement~~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 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 reserves for probable 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;

•

ongoing disruptions in the oil and gas industry due to the significant fluctuations in the price of ~~oil;~~

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;

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•

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

•

our ability to complete future 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;

•

~~changes in technology or products that may be more difficult, costly, or less effective than anticipated;~~

•

~~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;~~

policies, including the potential for the Federal Reserve Board to raise target interest rates multiple times during 2022;

•

hurricanes, tropical storms and tropical depressions, floods, winter storms, other natural disasters and adverse weather; oil spills and other man-made disasters, ~~that~~which have affected and may affect in the future the Company’s market areas; 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.

These factors should not be construed as exhaustive. Additional information on these and other risk factors can be found in Item 1A. “Risk Factors” and Item 7. ~~“Special~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Special Note Regarding Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on March 9, 2022 (the “Annual Report”) and in Part II Item 1A. “Risk Factors” of this report.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on any forward-looking statement as a prediction of future events. We expressly disclaim any obligation or undertaking to update our forward-looking statements, and we do not intend to release publicly any updates or changes in our expectations concerning the forward-looking statements or any changes in events, conditions or circumstances upon which any forward-looking statement may be based, except as required by law.

Company Overview

This section presents management’s perspective on the consolidated financial condition and results of operations of the Company and its wholly-owned subsidiary, Investar Bank, National Association (the “Bank”). The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes thereto included herein, and the audited consolidated financial statements for the year ended December 31, ~~2020,~~2021, including the notes thereto, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual ~~Report on Form 10-K that the Company filed with the SEC on March 10, 2021.~~Report.

Through our wholly-owned subsidiary, the Bank, we provide full banking services, excluding trust services, tailored primarily to meet the needs of individuals, professionals and small to medium-sized businesses in our primary areas of operation in south Louisiana including Baton Rouge, New Orleans, Lafayette, Lake Charles, and their surrounding metropolitan areas, in southeast Texas, including Houston and its surrounding metropolitan areas, and Alice and Victoria, Texas, in west Alabama, including York and its surrounding area, and ~~as of April 1, 2021,~~ east Alabama, including Oxford and its surrounding area. ~~Our~~The 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 ~~new branches,~~ and growth through acquisitions, including whole-bank acquisitions and strategic branch acquisitions. We currently operate 23 full service branches in Louisiana, four 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. We ~~currently operate 23 full service~~continue to enhance our online banking platform and plan to continue to introduce new technologies, with the goal of delivering products and services more efficiently with fewer branches and people. We closed two branches in ~~Louisiana, after the closure of one branch in Prairieville, Louisiana on April 30, 2021. We also operate five full service~~2021 and will close an additional two branches in ~~Texas, and six full service~~the second quarter of 2022. In the first quarter of 2022, we sold one of the branches that closed in ~~Alabama.~~2021 as well as two tracts of land that we held for future branch locations.

Our principal business is lending to and accepting deposits from individuals, professionals 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 securities. Our principal expenses are interest expense on interest-bearing customer deposits and borrowings, salaries, employee benefits, occupancy costs, data processing and other operating expenses and, depending on our level of acquisition activity in a period, may also include acquisition expense. 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.

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Certain Events That Affect ~~Year-over-Year~~Quarter-over-Quarter Comparability

Acquisitions.On February 21, 2020, the Bank completed the 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 $45.3 million in loans and $37.0 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. The Company recorded a core deposit intangible and goodwill of $0.2 million and $0.5 million, respectively, related to the acquisition.

On April 1, 2021, the Company completed the acquisition of Cheaha Financial Group, Inc. (“Cheaha”), headquartered in Oxford, Alabama, and its wholly-owned subsidiary, Cheaha Bank. All of the issued and outstanding shares of Cheaha were converted into aggregate cash merger consideration of $41.1 million. On the date of the acquisition, Cheaha had total assets with a fair value of ~~$240.7~~$240.8 million, including $120.4 million in loans, and $207.0 million in deposits, and served the residents of Calhoun County, Alabama through four branch locations. The Company recorded a core deposit intangible and goodwill of $0.8 million and ~~$11.4~~$11.9 million, respectively, related to the acquisition of Cheaha.

~~De Novo~~ Branches. We ~~opened a new~~closed one branch location in ~~Lake Charles, Louisiana in July 2020 and a new branch in New Orleans, Louisiana in November 2020. We also closed branch locations in Zachary and~~ Prairieville, Louisiana in ~~October 2020 and~~ April 2021 ~~respectively.~~and one location in Dickinson, Texas in October 2021. Two additional branch locations, one in our Baton Rouge market and one in our Lake Charles market, will close in the second quarter of 2022. We do not expect to open de novo branches ~~in 2021.~~during the remainder of 2022.

COVID-19 Pandemic. ~~In March~~The COVID-19 pandemic and related governmental control measures severely disrupted financial markets and overall economic conditions in 2020 and 2021. While the impact of the pandemic and the associated uncertainties remain in 2022, there has been significant progress made with COVID-19 ~~was declared a pandemic by~~vaccination levels, which has resulted in the ~~World Health Organization and a national emergency by the President~~easing of restrictive measures in the United States. ~~The global COVID-19 pandemic~~At the same time, many industries have been experiencing supply chain disruptions and the public health response to minimize its impact have had severe adverse and disruptive effects on economic, financial market and oil market conditions beginning in the latter part of the first quarter of 2020, and continuing through the second quarter of 2021 and beyond. Beginning in the first quarter of 2020, government responses to the pandemic included mandated closures of businesses not deemed essential, restrictions on other businesses, and stay-at-home orders or recommendations, along with crowd restrictions, which caused steep increases in unemployment and decreases in consumer and business spending. Government authorities in our markets began allowing the re-opening of businesses and easing other restrictions in the second quarter of 2020; however, the country, including areas in which we do business, experienced multiple periods of resurgences of new cases in both the third and fourth quarters of 2020. Authorities reacted to these resurgences by extending or re-imposing some restrictions. In the first quarter of 2021, though certain regions of the U.S. faced increased rates of COVID-19 infections, overall our market areas experienced a decrease in the number of cases compared to the resurgence experienced during the winter months. In response, governmental authorities in our market areas relaxed or completely repealed certain restrictions. In recent months, economic activity in the U.S. has risen significantly, as COVID-19 vaccines have become widely available and pandemic-related restrictions lessened or were eliminated.labor shortages. Inflation has also increased significantly, including oil and ~~we cannot predict the extent to~~gas prices which these increases may be transitory. Federally funded pandemic-related additional unemployment benefits terminated in Texas at the end of June and in Louisiana at the end of July 2021. In July 2021, new cases of COVID-19 in our markets began to rise substantially, connectedhave also risen significantly due to the spread of the Delta variant. On July 27, 2021, the U.S. Centers for Disease Control and Prevention (“CDC”) changed its mask guidance to, among other things, recommend that fully vaccinated individuals wear masks indoorswar in ~~areas of “substantial” or “high transmission,” which according to the CDC include all of our markets.~~Ukraine. We cannot predict the extent to which individuals may decide to restrict their activities as a result of ~~these~~evolving pandemic developments, the extent to which governments may reinstitute certain restrictions, nor what future impact ~~these~~evolving pandemic developments may have on the economy or our business. ~~The extent~~

Federal Funds Target Rate. On March 16, 2022, the Federal Reserve raised the federal funds target rate by 25 basis points to ~~which our operations and financial performance will be impacted by~~0.25% to 0.50%. During first-quarter 2021, the pandemic during the remainder of 2021 will depend in part on future developments, including the long-term efficacy, global availability and acceptance of the vaccines, as well as the effects of governmental stimulus legislation and other actions taken in responsefederal funds target rate was 0% to ~~the pandemic.~~0.25%

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~~Legislative~~Overview of Financial Condition and ~~Regulatory Developments.~~ ~~In a measure aimed at lessening the economic impact~~Results of COVID-19, the Federal Reserve reduced the federal funds rate to 0 to 0.25% on March 16, 2020. This action by the Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% on March 3, 2020. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the largest economic stimulus package in the nation’s history, which included the Small Business Administration’s (“SBA”) and U.S. Department of Treasury’s Paycheck Protection Program (“PPP”), discussed further below, in an effort to lessen the impact of COVID-19 on consumers and businesses. As funds available under the PPP were quickly depleted, on April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act was signed into law, which, among other things, increased amounts available under the PPP. On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”) was enacted, which among other things, provided expanded relief under the PPP. On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was enacted providing an additional $900 billion in aid to individuals and businesses, which among other things, provided additional funding for the PPP and allowed businesses meeting certain requirements to obtain a second PPP loan. Congress passed the American Rescue Plan Act of 2021 (“Rescue Act”), an additional $1.9 trillion stimulus package, including additional funding for the PPP, in March 2021.Operations

~~Paycheck Protection Program~~For the three months ended March 31, 2022, net income was $10.1 million, or $0.98 and $0.97 per basic and diluted common share, respectively, compared to net income of $5.4 million, or $0.51 per basic and diluted common share for the three months ended March 31, 2021. ~~Beginning~~Net income increased primarily due to an increase in noninterest income, which was driven by $3.3 million in swap termination fee income, and a decrease in interest expense, which was driven by a 38 basis point decrease in our cost of deposits. We also recorded a negative provision for loan losses of $0.4 million in the ~~second quarter~~three months ended March 31, 2022 as a result of ~~2020,~~net recoveries of $0.7 million, compared to a $0.4 million provision for loan losses in the three months ended March 31, 2021. At March 31, 2022, the Company and Bank each were in compliance with all regulatory capital requirements, and the Bank ~~has participated as a lender in~~was considered “well-capitalized” under the ~~PPP as established by~~FDIC’s prompt corrective action regulations. Other key components of our performance for the CARES Act and as subsequently modified by other legislation. The PPP was established to provide unsecured low interest rate loans to small businesses that have been impacted by the COVID-19 pandemic. The PPP loans are 100% guaranteed by the SBA. The loans have a fixed interest rate of 1% and payments are deferred until the date on which the amount of loan forgiveness is remittedquarter ended March 31, 2022 compared to the ~~lender by the SBA, the forgiveness application is otherwise denied, or if no forgiveness application is filed 10 months after~~quarter ended March 31, 2021 are summarized below.

●

For the three months ended March 31, 2022, our net interest margin was 3.75% compared to 3.64% for the three months ended March 31, 2021.

●

Return on average assets increased to 1.60% for the three months ended March 31, 2022 compared to 0.92% for the three months ended March 31, 2021. Return on average equity was 16.64% for the three months ended March 31, 2022 compared to 8.79% for the three months ended March 31, 2021.

●

Total loans increased $5.4 million, or 0.3%, to $1.88 billion at March 31, 2022 compared to $1.87 billion at December 31, 2021. Excluding PPP loans with a total balance of $13.2 million and $23.3 million at March 31, 2022 and December 31, 2021, respectively, loans increased $15.6 million, or 0.8%, at March 31, 2022 compared to December 31, 2021.

●

Total deposits increased $65.7 million, or 3.1%, to $2.19 billion at March 31, 2022, compared to $2.12 billion at December 31, 2021. Noninterest-bearing deposits increased $29.0 million, or 4.9%, to $614.4 million at March 31, 2022, compared to $585.5 million at December 31, 2021.

●

Deposit mix improved during the first quarter of 2022. Noninterest-bearing deposits as a percentage of total deposits increased to 28.1% at March 31, 2022 compared to 27.6% at December 31, 2021. Time deposits as a percentage of total deposits decreased to 18.4% at March 31, 2022, compared to 21.1% at December 31, 2021.

●

During the three months ended March 31, 2022, the Company paid $1.5 million to repurchase 77,248 shares of its common stock, compared to paying $6.7 million to repurchase 225,950 shares of its common stock during the three months ended March 31, 2021. On April 21, 2022, the board of directors approved an additional 400,000 shares of the Company’s common stock for repurchase.

Subsequent to the end of the ~~borrower’s covered period. PPP loans made prior~~first quarter of 2022, we announced the completion of a private placement of $20.0 million in aggregate principal amount of our 5.125% Fixed-to-Floating Subordinated Notes due 2032 (the “2032 Notes”). We expect to ~~June 5, 2020 mature two years~~utilize the net proceeds from ~~origination, or if made on or after June 5, 2020, five years from origination. PPP loans are forgiven by~~ the ~~SBA (which makes forgiveness payments directly to the lender) to the extent the borrower uses the proceeds~~sale of the ~~loan~~2032 Notes to refinance our 2017 issuance of subordinated debt securities, for ~~certain purposes (primarily to fund payroll costs) during a certain time period following origination~~possible share repurchases and ~~maintains certain employee and compensation levels. Lenders receive processing fees from the SBA~~ for originating the PPP loans which are based on a percentage of the loan amount. The original PPP program ceased taking applications on August 8, 2020. On December 27, 2020, the CAA was enacted that renewed the PPP and allocated additional funding for both new first time PPP loans under the original PPP and also authorized second draw PPP loans for certain eligible borrowers that had previously received a PPP loan. The application period for the renewed PPP lasted from January 1, 2021 through May 31, 2021. At June 30, 2021 and December 31, 2020, our loan portfolio included PPP loans with balances of $73.0 million and $94.5 million, respectively, all of which are included in commercial and industrial loans.

~~Guidance on Treatment of Pandemic-related Loan Modifications Pursuant to the CARES Act and Interagency Statement~~. Section 4013 of the CARES Act provides that, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic declared by the President of the United States under the National Emergencies Act terminates (the “applicable period”), we may elect to suspend GAAP for loan modifications related to the pandemic that would otherwise be categorized as troubled debt restructurings (“TDRs”) and suspend any determination of a loan modified as a result of the effects of the pandemic as being a TDR, including impairment for accountinggeneral corporate purposes. The suspension is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. The suspension is not applicable to any adverse impact on the credit of a borrower that is not related to the pandemic. The CAA extended the applicable period to the earlier of January 1, 2022 or 60 days after the national emergency termination date.

In addition, our banking regulators and other financial regulators, on March 22, 2020 and revised April 7, 2020, issued a joint interagency statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the COVID-19 pandemic. Pursuant to the interagency statement, loan modifications that do not meet the conditions of Section 4013 of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. Specifically, the agencies confirmed with the staff of the Financial Accounting Standards Board that short-term modifications made in good faith in response to the pandemic to borrowers who were current prior to any relief are not TDRs under GAAP. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Appropriate allowances for loan and lease losses are expected to be maintained. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to the pandemic as past due because of the deferral. The interagency statement also states that during short-term pandemic-related loan modifications, these loans generally should not be reported as nonaccrual.

Accordingly, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term modifications of 90 days or less, in the form of deferrals of payment of principal and interest, principal only, or interest only, and fee waivers. See further discussion in the ~~Loans~~ ~~section of the Discussion and Analysis of Financial Condition below.~~

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~~Impact on our Operations.~~ As discussed above, within the states in which we operate, beginning in the first quarter of 2020, many jurisdictions declared health emergencies and executed stay-at-home orders and closed non-essential businesses which impacted our operations as well as the operations of our customers. Though authorities began phasing out certain restrictions in the summer of 2020, resurgences in the number of COVID-19 cases in the second and third quarters of 2020 resulted in the extension and, in some instances, the re-imposition of certain restrictions. For example, Louisiana, where most of our operations are currently located, had entered Phase 3, which eased previous restrictions, in the third quarter of 2020. However, the state subsequently experienced several resurgences in the number of cases in the fall and winter of 2020, which prompted the issuance of an order reverting back to a modified Phase 2 as of November 25, 2020, which was extended through March 2, 2021, when Louisiana re-entered Phase 3. Under Phase 3, generally speaking, places of public amusement are closed, only bars in qualifying parishes may open with stringent restrictions (except for takeout), most other nonessential businesses are restricted to 75% capacity, crowd sizes are limited to 250 people or 50% capacity for indoor gatherings, face coverings are mandatory and all individuals with a higher risk of severe illness from COVID-19 are urged to stay at home. On April 27, 2021, the Louisiana governor announced the termination of the statewide mask mandate (with some exceptions for schools, healthcare facilities, and governmental buildings) and the lifting of certain COVID-19 restrictions on bars, restaurants and other venues. Additionally, effective March 10, 2021, the Texas governor issued an order lifting the state’s mask mandate and rescinding most of its restrictions related to COVID-19. In July 2021, new cases of COVID-19 in our markets began to rise substantially, connected to the spread of the Delta variant. In response, on August 2, 2021 the Governor of Louisiana reinstituted the statewide mask mandate. We cannot predict the extent to which individuals may decide to restrict their activities as a result of these developments, the extent to which governments may reinstitute certain restrictions, nor what impact these developments may have on the economy or our business.

Financial services have been identified as a Critical Infrastructure Sector by the Department of Homeland Security, and therefore, our business remains open. We continue to service our consumer and business customers from our 34 branch locations and through drive-thrus, ATMs, internet banking, mobile application and telephone.

~~Impact on our financial results.~~ As discussed in further detail below and in our Annual Report on Form 10-K for the year ended December 31, 2020, net income for 2020 decreased compared to 2019, largely due to our increased provision for loan losses during 2020 as a result of the impacts of the pandemic; however, we had record quarterly net income for the first and second quarters of 2021 as market conditions improved and our cost of funds decreased.

Discussion and Analysis of Financial Condition

For the six months ended June 30, 2021, net income was $11.0 million, or $1.05 and $1.04 per basic and diluted common share, respectively, compared to net income of $4.9 million, or $0.44 per basic and diluted common share for the six months ended June 30, 2020. Net income increased primarily due to the lower provision for loan losses, as we recorded a $6.3 million provision in the six months ended June 30, 2020 in response to the changing economic environment amidst the COVID-19 pandemic, compared to a $0.5 million provision in the six months ended June 30, 2021. Net income also increased due to an increase in our net interest income resulting from a significant decrease in our costs of deposits, driven by a reduction in the federal funds target rate. Improvement in our earnings per share resulted from the increase in net income and also from a decrease in our weighted-average shares outstanding due to our stock repurchase activity under our stock repurchase program. For the six months ended June 30, 2021, our net interest margin was 3.56%, return on average assets was 0.89%, and return on average equity was 8.93%. At June 30, 2021, the Company and Bank each were in compliance with all regulatory capital requirements, and the Bank was considered “well-capitalized” under the FDIC’s prompt corrective action regulations.

~~Table of Contents~~

Loans

General. Loans, excluding loans held for sale, constitute our most significant asset, comprising 73% and ~~80%~~74% of our total assets at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Total loans increased ~~$87.5~~$5.4 million, or ~~4.7%~~0.3%, to ~~$1.95~~$1.88 billion at ~~June 30, 2021~~March 31, 2022 compared to ~~$1.86~~$1.87 billion at December 31, ~~2020.~~2021. The increase in loans was primarily the result of ~~the acquisition of Cheaha.~~organic growth.

Beginning in the second quarter of 2020, the Bank has participated as a lender in the ~~PPP~~Paycheck Protection Program (“PPP”) as established by the CARES Act. At ~~June 30, 2021,~~March 31, 2022, the balance, net of repayments, of the Bank’s PPP loans originated was ~~$73.0~~$13.2 million, compared to ~~$94.5~~$23.3 million at December 31, ~~2020,~~2021, and is included in the commercial and industrial loan portfolio. ~~Eighty-five~~Eighty-seven percent of the total number of PPP loans we have originated have principal balances of $150,000 or less. At ~~June 30, 2021,~~March 31, 2022, approximately ~~57%~~ 92% of the total balance of PPP loans originated have been forgiven by the SBA or paid off by the customer.

~~Excluding loans acquired from Cheaha on April 1, 2021 with a total balance of $120.0 million at June 30, 2021 and~~ Excluding PPP loans with a total balance of ~~$73.0~~$13.2 million ~~($1.7 million acquired from Cheaha)~~ and ~~$94.5~~$23.3 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, loans ~~decreased $9.3~~increased $15.6 million, or ~~0.5%~~0.8%, at ~~June 30, 2021~~March 31, 2022 compared to December 31, ~~2020.~~2021.

The table below sets forth the ~~composition~~balance of ~~the Company’s~~loans outstanding by loan ~~portfolio~~type as of the dates ~~indicated~~presented, and the percentage of each loan type to total loans (dollars in thousands).

	June 30, 2021					December 31, 2020					March 31, 2022					December 31, 2021
			Percentage of					Percentage of					Percentage of					Percentage of
	Amount		Total Loans			Amount		Total Loans			Amount		Total Loans			Amount		Total Loans
Construction and development	$	213,070		10.9	%	$	206,011		11.1	%	$	201,222		10.7	%	$	203,204		10.9	%
1-4 Family		375,690		19.3			339,525		18.2			367,520		19.6			364,307		19.4
Multifamily		60,309		3.1			60,724		3.3			52,500		2.8			59,570		3.2
Farmland		22,263		1.1			26,547		1.4			18,296		1.0			20,128		1.1
Commercial real estate
Owner-occupied		438,590		22.5			375,421		20.2			436,763		23.3			460,205		24.6
Nonowner-occupied		445,125		22.9			436,974		23.5			471,447		25.1			436,172		23.3
Total mortgage loans on real estate		1,555,047		79.8			1,445,202		77.7			1,547,748		82.5			1,543,586		82.5
Commercial and industrial		370,203		19.0			394,497		21.2			314,093		16.7			310,831		16.6
Consumer		22,570		1.2			20,619		1.1			15,603		0.8			17,595		0.9
Total loans	$	1,947,820		100.0	%	$	1,860,318		100.0	%		1,877,444		100	%		1,872,012		100	%
Loans held for sale												—					620
Total gross loans											$	1,877,444				$	1,872,632

At ~~June 30, 2021,~~March 31, 2022, the Company’s business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was ~~$808.8~~$750.9 million, ~~an increase~~a decrease of ~~$38.9~~$20.2 million, or ~~5.0%~~2.6%, compared to ~~$769.9~~$771.0 million at December 31, ~~2020.~~2021. The ~~increase~~decrease in the business lending portfolio was driven by the ~~growth in the~~forgiveness of PPP loans and a large prepayment from one of our owner-occupied commercial real estate ~~portfolio. The business lending portfolio acquired from Cheaha totaled $22.3 million at June 30, 2021~~loan relationships.

Our focus on a relationship-driven banking strategy and ~~included approximately $7.7 million~~hiring of experienced commercial lenders are the primary reasons we experienced our largest organic loan growth in ~~owner-occupied~~the commercial real estate ~~loans. The remaining growth was driven by a $55.5 million increase in the owner-occupied~~portfolio. We have increased our emphasis on commercial real estate ~~portfolio, partially offset by the decrease in the~~loans and commercial and industrial ~~loan portfolio during the period driven by payoffs of PPP~~ loans.

Consumer loans totaled $22.6 million at June 30, 2021, an increase of $2.0 million, or 9.5%, compared to $20.6 million at December 31, 2020. The increase in consumer loans is mainly attributable to the acquisition of Cheaha, which added consumer loans totaling $6.1 million at June 30, 2021. Excluding the consumer loans acquired from Cheaha, consumer loans decreased $4.1 million, or 19.9%, due to the scheduled paydowns of consumer loans, most of which relate to our former indirect auto loan business.

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The following table sets forth loans outstanding at ~~June 30, 2021,~~March 31, 2022, excluding loans held for sale, which, based on remaining scheduled repayments of principal, are due in the periods indicated. Loans with balloon payments and longer amortizations are often repriced and extended beyond the initial maturity when credit conditions remain satisfactory. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported below as due in one year or less (dollars in thousands).

	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		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 development	$	165,253	$	25,364	$	17,180	$	5,222	$	51	$	213,070	$	137,917	$	30,573	$	20,881	$	8,673	$	3,178	$	201,222
1-4 Family		73,372		101,499		41,720		18,792		140,307		375,690		53,340		77,916		48,630		28,464		159,170		367,520
Multifamily		13,362		43,986		2,453		370		138		60,309		16,182		31,471		3,337		393		1,117		52,500
Farmland		6,157		7,768		8,241		97		—		22,263		5,654		7,433		5,004		205		—		18,296
Commercial real estate
Owner-occupied		50,079		132,835		173,772		65,120		16,784		438,590		38,099		108,835		177,537		103,552		8,740		436,763
Nonowner-occupied		81,477		180,570		145,102		37,976		—		445,125		64,509		220,695		148,220		37,799		224		471,447
Total mortgage loans on real estate		389,700		492,022		388,468		127,577		157,280		1,555,047		315,701		476,923		403,609		179,086		172,429		1,547,748
Commercial and industrial		182,722		142,082		24,922		12,691		7,786		370,203		140,824		83,774		54,720		28,010		6,765		314,093
Consumer		7,209		13,623		1,304		430		4		22,570		3,737		9,934		1,550		378		4		15,603
Total loans	$	579,631	$	647,727	$	414,694	$	140,698	$	165,070	$	1,947,820	$	460,262	$	570,631	$	459,879	$	207,474	$	179,198	$	1,877,444

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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had no concentrations of loans exceeding 10% of total loans other than loans in the categories listed in the table above.

Our loan portfolio, excluding loans held for sale, includes loans to businesses in certain industries that may be more significantly affected by the pandemic than others. These loans, including loans related to oil and gas, food services, hospitality, and entertainment, represented approximately ~~6.4%~~5.5% of our total loan portfolio, or ~~5.9%~~5.4% excluding PPP loans, at ~~June 30, 2021,~~March 31, 2022, compared to ~~6.6%~~5.6% of our total portfolio, or ~~5.7%~~5.4% excluding PPP loans, at December 31, ~~2020,~~2021, as shown in the table below.

Industry

Percentage of Loan Portfolio June 30, 2021

Percentage of Loan Portfolio June 30, 2021 (excluding PPP loans)

Percentage of Loan Portfolio December 31, 2020

Percentage of Loan Portfolio December 31, 2020 (excluding PPP loans)

Oil and gas
2.7 % 2.5 % 3.3 % 2.6 %
Food services
2.9 2.6 2.5 2.3
Hospitality
0.4 0.4 0.4 0.4
Entertainment
0.4 0.4 0.4 0.4
Total
6.4 % 5.9 % 6.6 % 5.7 %

~~Loan Deferral Program.~~ In response to the COVID-19 pandemic, beginning in the first quarter of 2020, the Bank offered short-term modifications to borrowers impacted by the pandemic who are current and otherwise not past due. These currently include short-term modifications of 90 days or less, in the form of deferrals of payment of principal and interest, principal only, or interest only, and fee waivers. As of June 30, 2021, the balance of loans participating in the 90-day deferral program was approximately $0.3 million, or 0.01% of the total loan portfolio, compared to $5.9 million, or 0.3% of the total loan portfolio, at December 31, 2020. As 90-day loan deferrals have expired, most customers have returned to their regular payment schedules. In accordance with Section 4013 of the CARES Act and the interagency statement, we have not accounted for such loans as TDRs, nor have we designated them as past due or nonaccrual.

Industry	Percentage of Loan Portfolio March 31, 2022			Percentage of Loan Portfolio March 31, 2022 (excluding PPP loans)			Percentage of Loan Portfolio December 31, 2021			Percentage of Loan Portfolio December 31, 2021 (excluding PPP loans)
Oil and gas		2.0	%		2.0	%		2.2	%		2.1	%
Food services		2.4			2.3			2.3			2.2
Hospitality		0.5			0.5			0.5			0.5
Entertainment		0.6			0.6			0.6			0.6
Total		5.5	%		5.4	%		5.6	%		5.4	%

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Investment Securities

We purchase investment securities primarily to provide a source for meeting liquidity needs, with return on investment a secondary consideration. We also use investment securities as collateral for certain deposits and other types of borrowing. Investment securities represented ~~11%~~16% of our total assets and totaled ~~$281.2~~$423.7 million at ~~June 30, 2021,~~March 31, 2022, an increase of ~~$0.3~~$57.9 million, or ~~0.1%~~15.8%, from ~~$280.8~~$365.8 million at December 31, ~~2020.~~2021. The increase in investment securities at ~~June 30, 2021~~March 31, 2022 compared to December 31, ~~2020 resulted~~2021 resulted from increases in investments in residential mortgage-backed securities, slightly offset by a ~~decreased investment~~decrease in investments in obligations of ~~U.S. government agencies~~political and ~~corporations being slightly offset by increases in investments across other types of securities including obligations of~~ state ~~and political subdivisions and commercial mortgage-backed securities.~~subdivisions.

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).

	June 30, 2021					December 31, 2020					March 31, 2022					December 31, 2021
	Balance		Percentage of Portfolio			Balance		Percentage of Portfolio			Balance		Percentage of Portfolio			Balance		Percentage of Portfolio
Obligations of U.S. government agencies and corporations	$	25,448		9.1	%	$	36,821		13.1	%	$	20,660		4.9	%	$	21,268		5.8	%
Obligations of state and political subdivisions		34,981		12.4			30,362		10.8			33,686		8.0			39,495		10.8
Corporate bonds		29,079		10.3			27,708		9.8			25,157		5.9			27,667		7.6
Residential mortgage-backed securities		128,783		45.8			126,807		45.2			268,435		63.3			203,249		55.6
Commercial mortgage-backed securities		62,881		22.4			59,146		21.1			75,765		17.9			74,085		20.2
Total	$	281,172		100.0	%	$	280,844		100.0	%	$	423,703		100	%	$	365,764		100	%

The investment portfolio consists of ~~AFS~~available for sale (“AFS”) and ~~HTM~~held to maturity (“HTM”) securities. We classify debt securities as HTM if management has the positive intent and ability to hold the securities to maturity. HTM debt securities are stated at amortized cost. Securities not classified as HTM are classified as AFS. The carrying values of the Company’s AFS 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.

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 at ~~June 30, 2021~~March 31, 2022 (dollars in thousands).

	One Year or Less					After One Year Through Five Years					After Five Years Through Ten Years					After Ten Years					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			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Held to maturity:
Obligations of state and political subdivisions	$	830		5.88	%	$	2,745		5.88	%	$	4,409		3.59	%	$	—		—	%	$	870		5.88	%	$	1,875		5.88	%	$	4,041		3.59	%	$	—		—	%
Residential mortgage-backed securities		—		—			—		—			—		—			3,828		2.85			—		—			—		—			—		—			3,140		3.00
Available for sale:
Obligations of U.S. government agencies and corporations		61		2.50			2,389		2.52			21,054		2.32			1,832		1.24			—		—			2,756		2.71			17,931		2.30			—		—
Obligations of state and political subdivisions		25		2.66			972		3.13			9,475		2.57			15,828		3.60			280		3.00			1,006		2.80			9,764		2.43			16,821		3.49
Corporate bonds		350		2.00			8,046		1.66			16,483		4.09			4,000		2.69			—		—			7,449		1.99			15,026		3.73			4,000		2.69
Residential mortgage-backed securities		—		—			—		—			289		1.99			123,908		1.76			—		—			—		—			2,047		2.11			280,679		2.04
Commercial mortgage-backed securities		—		—			1,130		2.94			4,578		1.72			57,286		1.80			—		—			2,251		2.59			3,241		1.73			73,508		1.86
	$	1,266				$	15,282				$	56,288				$	206,682				$	1,150				$	15,337				$	52,050				$	378,148

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%.

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Deposits

The following table sets forth the composition of our deposits and the percentage of each deposit type to total deposits at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 (dollars in thousands).

	June 30, 2021					December 31, 2020					March 31, 2022					December 31, 2021
	Amount		Percentage of Total Deposits			Amount		Percentage of Total Deposits			Amount		Percentage of Total Deposits			Amount		Percentage of Total Deposits
Noninterest-bearing demand deposits	$	582,109		25.8	%	$	448,230		23.7	%	$	614,416		28.1	%	$	585,465		27.6	%
Interest-bearing demand deposits		630,829		27.9			496,745		26.3			710,914		32.5			650,868		30.7
Brokered deposits		100,117		4.4			80,017		4.2
Money market deposit accounts		243,058		10.8			186,307		9.9			276,112		12.6			255,501		12.1
Savings accounts		174,385		7.7			141,134		7.5			182,532		8.4			180,837		8.5
Time deposits		529,668		23.4			535,391		28.4			402,030		18.4			447,595		21.1
Total deposits	$	2,260,166		100.0	%	$	1,887,824		100.0	%	$	2,186,004		100	%	$	2,120,266		100	%

Total deposits were ~~$2.26~~$2.19 billion at ~~June 30, 2021,~~March 31, 2022, an increase of ~~$372.3~~$65.7 million, or ~~19.7%~~3.1%, compared to ~~$1.89~~$2.12 billion at December 31, ~~2020.~~2021. The ~~Company acquired approximately $207.0 million~~increase is due to organic growth, partially offset by a decrease in ~~deposits from Cheaha at the~~ time ~~of acquisition on April 1, 2021.~~ deposits.

The COVID-19 pandemic has created a significant amount of excess liquidity in the market, and, as a result, we experienced large increases in both noninterest and interest-bearing demand deposits, and in money market deposit accounts ~~and savings accounts~~ compared to December 31, ~~2020.~~2021. These increases were primarily driven by reduced spending by consumer and business customers related to the COVID-19 pandemic, and increases in PPP borrowers’ deposit accounts. We believe these factors may be temporary depending on the future economic effects of the COVID-19 pandemic. The Bank utilized $100.1 million in brokered deposits in the second quarter of 2021, an increase of $20.1 from the fourth quarter of 2020, which are used to satisfy the required borrowings under its interest rate swap agreements, due to more favorable pricing. Management made the strategic decision to either reprice or run-off higher yielding time deposits and other interest-bearing deposit products during the year ended December 31, 2020 and the six months ended June 30, 2021, which contributed to our decreased cost of deposits compared to the six months ended June 30, 2020, discussed in ~~Results of Operations~~ ~~below.~~ as well as organic growth.

Our deposit mix has improved and reflects our consistent focus on relationship banking and growing our commercial relationships, as well as the effects of the pandemic on consumer and business spending. From December 31, 2021 to March 31, 2022, noninterest-bearing deposits as a percentage of total deposits has increased while time deposits as a percentage of total deposits has decreased.

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~~The following table shows the contractual maturities of certificates of deposit and other time deposits greater than $100,000 at June 30, 2021 and December 31, 2020 (dollars in thousands).~~

June 30, 2021

December 31, 2020

Certificates of Deposit

Other Time Deposits

Certificates of Deposit

Other Time Deposits

Time remaining until maturity:

Three months or less
$ 86,853 $ 2,521 $ 78,482 $ 1,733
Over three months through six months
65,012 1,774 73,456 2,619
Over six months through twelve months
104,041 6,166 108,901 3,128
Over one year through three years
71,505 4,995 90,101 4,202
Over three years
12,472 329 10,529 283
$ 339,883 $ 15,785 $ 361,469 $ 11,965

Borrowings

~~Total~~At March 31, 2022, total borrowings include securities sold under agreements to repurchase, federal funds purchased, advances from the Federal Home Loan Bank (“FHLB”), unsecured lines of credit with First National Bankers Bank and The Independent Bankers Bank totaling $60.0 million, subordinated debt issued in 2017 and 2019, and junior subordinated debentures assumed through acquisitions.

Securities sold under agreements to repurchase ~~increased $1.1~~decreased $4.5 million to ~~$6.7~~$1.3 million at ~~June 30, 2021~~March 31, 2022 from ~~$5.7~~$5.8 million at December 31, ~~2020.~~2021. Our advances from the FHLB were ~~$82.5~~$78.5 million at ~~June 30, 2021, a decrease of $38.0 million, or 31.5%, from FHLB advances of $120.5 million at~~March 31, 2022 and December 31, ~~2020.~~2021.

We had no outstanding balances drawn on unsecured lines of credit at ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021. The carrying value of the subordinated debt was ~~$42.9~~$43.0 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. The ~~$8.3 million and $5.9~~$8.4 million in junior subordinated debt at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020, respectively, represents~~2021 represent the junior subordinated debentures that we assumed through ~~acquisition. The $2.4 million increase in junior subordinated debt at June 30, 2021 compared to December 31, 2020 was a result of the acquisition of Cheaha.~~acquisitions.

The average balances and cost of funds of short-term borrowings for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized in the table below (dollars in thousands).

	Average Balances				Cost of Funds						Average Balances				Cost of Funds
	June 30, 2021		June 30, 2020		June 30, 2021			June 30, 2020			March 31, 2022		March 31, 2021		March 31, 2022			March 31, 2021
Federal funds purchased and other short-term borrowings	$	5,300	$	67,045		0.19	%		1.24	%	$	52	$	6,599		0.66	%		0.17	%
Securities sold under agreements to repurchase		5,415		3,960		0.20			0.47			5,564		4,808		0.15			0.20
Total short-term borrowings	$	10,715	$	71,005		0.20	%		1.20	%	$	5,616	$	11,407		0.15	%		0.18	%

The main source of our short-term borrowings are advances from the FHLB. The rate charged for these advances is directly tied to the Federal Reserve Bank’s federal funds target rate. 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. As the coronavirus spread and was declared a pandemic, the Federal Reserve further reduced the federal funds target rate to 0 to 0.25% on March 15, ~~2020, where it currently remains.~~2020. On March 16, 2022, the Federal Reserve raised the federal funds target rate by 25 basis points to 0.25% to 0.50%.

For a description of our subordinated notes outstanding at March 31, 2022, see our Annual Report, ~~on Form 10-K for the year ended December 31, 2020,~~ Part II Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Discussion and Analysis of Financial Condition - Borrowings - 2029 Notes and 2027 Notes” and Note 11 to the financial statements included in such report.

On April 6, 2022, we entered into a Subordinated Note Purchase Agreement with certain institutional accredited investors and qualified institutional buyers (the “Purchasers”) under which we issued an aggregate of $20.0 million in aggregate principal amount of our 2032 Notes to the Purchasers at a price equal to 100% of the aggregate principal amount of the 2032 Notes. We intend to use the net proceeds to refinance our 2017 issuance of subordinated debt securities, for possible share repurchases, and for general corporate purposes. For additional information, see Note 12 to the financial statements included in this report.

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Results of Operations

~~Performance Summary~~

~~Three months ended~~ ~~June 30, 2021 vs. three months ended June 30, 2020~~. For the three months ended June 30, 2021, net income was $5.7 million, or $0.54 and $0.53 per basic and diluted common share, respectively, compared to net income of $4.3 million, or $0.39 per basic and diluted common share, for the three months ended June 30, 2020. The primary drivers of the increase in net income are related to the state of the economy and financial markets at June 30, 2020, which led to increased provision for loan losses recorded for the three months ended June 30, 2020, along with a decrease in interest expense for the three months ended June 30, 2021 driven by the reduction in the federal funds target rate, discussed above. As shown on the consolidated statement of income for the three months ended June 30, 2020, a provision for loan losses of $2.5 million was recorded, primarily attributable to the COVID-19 pandemic, compared to a provision for loan losses of $0.1 million for the three months ended June 30, 2021. Improvement in our earnings per share resulted from the increase in net income and also from a decrease in our weighted-average shares outstanding due to our repurchase activity under our stock repurchase program. Return on average assets increased to 0.86% for the three months ended June 30, 2021 compared to 0.75% for the three months ended June 30, 2020. Return on average equity was 9.06% for the three months ended June 30, 2021 compared to 7.26% for the three months ended June 30, 2020.

~~Six months ended June 30, 2021~~ ~~vs. six months ended June 30, 2020~~. For the six months ended June 30, 2021, net income was $11.0 million, or $1.05 and $1.04 per basic and diluted common share, respectively, compared to net income of $4.9 million, or $0.44 per basic and diluted common share, for the six months ended June 30, 2020. The primary drivers of the increase in net income are related to the state of the economy and financial markets at June 30, 2020, which led to increased provision for loan losses recorded for the six months ended June 30, 2020, along with a decrease in interest expense for the six months ended June 30, 2021 driven by the reduction in the federal funds target rate, discussed above. As shown on the consolidated statement of income for the six months ended June 30, 2020, a provision for loan losses of $6.3 million was recorded, primarily attributable to the COVID-19 pandemic, compared to a provision for loan losses of $0.5 million for the six months ended June 30, 2021. Improvement in our earnings per share resulted from the increase in net income and also from a decrease in our weighted-average shares outstanding due to our repurchase activity under our stock repurchase program. Return on average assets increased to 0.89% for the six months ended June 30, 2021 compared to 0.44% for the six months ended June 30, 2020. Return on average equity was 8.93% for the six months ended June 30, 2021 compared to 4.09% for the six months ended June 30, 2020.

Net Interest Income and Net Interest Margin

Net interest income, which is the largest component of our earnings, is the difference between interest earned on assets, such as loans and investments, and the cost of interest-bearing liabilities, such as deposits and borrowings. The primary factors affecting net interest income are the volume, yield and mix of our rate-sensitive assets and liabilities, as well as the amount of our nonperforming loans and the interest rate environment.

Three months ended ~~June 30, 2021~~March 31, 2022 vs. three months ended ~~June 30, 2020~~March 31, 2021. Net interest income increased ~~15.4%~~11.1% to ~~$21.2~~$21.8 million for the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$18.3~~$19.6 million for the same period in ~~2020.~~2021. This increase is primarily due ~~primarily~~ to the decrease in the cost of deposits compared to the same period in ~~2020.~~2021, and prepayment penalty fees of $0.6 million as one of our large commercial loan relationships prepaid. Average interest-bearing deposits increased approximately ~~$274.3 million and average short- and long-term borrowings decreased $72.0~~$92.1 million for the three months ended ~~June 30, 2021~~March 31, 2022 compared to the same period in ~~2020,~~2021, but we experienced a ~~$2.3~~$1.3 million decrease in interest expense, discussed in more detail below. The increase in average interest-bearing deposits resulted from ~~both~~organic growth and growth through the acquisition of ~~Cheaha and organic growth of the Company.~~Cheaha. The organic growth experienced was partially driven by reduced consumer and business spending related to the pandemic as well as increases in PPP ~~borrowers'~~borrowers’ deposit accounts. There was also a ~~$150.7~~$5.5 million increase in average loans, ~~driven by~~primarily due to the acquisition of Cheaha, compared to the same period in ~~2020, and we experienced~~2021, which drove a ~~$0.5~~$0.9 million increase in interest income, also discussed in more detail below.

Interest income was ~~$24.3~~$23.9 million, including ~~$1.2~~$0.4 million of interest and fees for PPP loans and $0.6 million of prepayment penalty fees, for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$23.8~~$23.0 million, including ~~$0.8~~$1.4 million of interest and fees for PPP loans, for the same period in ~~2020.~~2021. Loan interest income made up substantially all of our interest income for the three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021. An increase in interest income of ~~$2.5~~$0.7 million can be attributed to the change in the volume of interest-earning assets, and ~~a decrease~~an increase of ~~$1.9~~$0.2 million can be attributed to ~~a decrease~~an increase in the yield earned on those assets. Prepayment penalty fees of $0.6 million recognized as loan fees during the quarter ended March 31, 2022 added 12 basis points to the yield on the loan portfolio. The overall yield on interest-earning assets was ~~4.00%~~4.10% and ~~4.49%~~4.26% for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. The loan portfolio yielded ~~4.78%~~4.73% and 4.72% for the three months ended ~~June 30,~~March 31, 2022 and March 31, 2021, ~~compared to 4.97% for the three months ended June 30, 2020,~~respectively, while the yield on the investment portfolio was ~~1.33%~~1.90% for the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~2.14%~~1.65% for the three months ended ~~June 30, 2020.~~March 31, 2021. The decrease in the overall yield on interest-earning assets compared to the quarter ended March 31, 2021 was driven by excess liquidity and a reduction in the yield earned on the excess funds.

Interest expense was ~~$3.2~~$2.0 million for the three months ended ~~June 30, 2021,~~March 31, 2022, a decrease of ~~$2.3~~$1.3 million compared to interest expense of ~~$5.5~~$3.3 million for the three months ended ~~June 30, 2020.~~March 31, 2021. A decrease in interest expense of ~~$0.6~~$0.2 million resulted from the change in volume of interest-bearing liabilities and a decrease of ~~$1.7~~$1.1 million resulted from the decrease in the cost of interest-bearing ~~liabilities.~~liabilities, primarily time deposits. Average interest-bearing liabilities increased approximately ~~$202.3~~$88.9 million for the three months ended ~~June 30, 2021~~March 31, 2022 compared to the same period in ~~2020~~2021 mainly as a result of a ~~$274.3~~$92.1 million increase in interest-bearing deposits, while average short- and long-term debt decreased by ~~$72.0~~$3.3 million. The cost of deposits decreased 6938 basis points to ~~0.51%~~0.25% for the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~1.20%~~0.63% for the three months ended ~~June 30, 2020~~March 31, 2021 as a result of the decrease in the rates offered for our all of our interest-bearing deposit products, which are driven by the federal funds target rate. Management also made a strategic decision to either reprice or run-off higher yielding time deposits and other interest-bearing deposit products during 2020 and the first and second quarters of 2021, which substantially contributed to our decreased cost of deposits compared to the quarter ended June 30, 2020. The cost of interest-bearing liabilities decreased 6635 basis points to ~~0.70%~~0.48% for the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~1.36%~~0.83% for the same period in ~~2020,~~2021, due to the decrease in the cost of both deposits and short-term borrowings.

Net interest margin was ~~3.48%~~3.75% for the three months ended ~~June 30, 2021,~~March 31, 2022, an increase of ~~two~~11 basis points from ~~3.46%~~3.64% for the three months ended ~~June 30, 2020.~~March 31, 2021. The increase in net interest margin was primarily driven by a 38 basis point decrease in the cost of ~~interest-bearing liabilities.~~deposits partially offset by a 16 basis point decrease in the yield on interest-earning assets.

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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 for the three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021. Averages presented in the table below are daily averages (dollars in thousands).

	Three months ended June 30,																Three months ended March 31,
	2021								2020								2022								2021
				Interest								Interest								Interest								Interest
	Average			Income/					Average			Income/					Average			Income/					Average			Income/
	Balance			Expense⁽¹⁾		Yield/ Rate⁽¹⁾			Balance			Expense⁽¹⁾		Yield/ Rate⁽¹⁾			Balance			Expense⁽¹⁾		Yield/ Rate⁽¹⁾			Balance			Expense⁽¹⁾		Yield/ Rate⁽¹⁾
Assets
Interest-earning assets:
Loans	$	1,940,513		$	23,135		4.78	%	$	1,789,863		$	22,118		4.97	%	$	1,862,775		$	21,726		4.73	%	$	1,857,272		$	21,627		4.72	%
Securities:
Taxable		283,318			860		1.22			244,703			1,253		2.06			395,828			1,814		1.86			270,040			1,039		1.56
Tax-exempt		22,061			149		2.71			29,150			202		2.79			22,248			141		2.58			20,228			140		2.81
Interest-earning balances with banks		195,476			203		0.42			66,520			229		1.38			77,461			186		0.97			38,313			163		1.72
Total interest-earning assets		2,441,368			24,347		4.00			2,130,236			23,802		4.49			2,358,312			23,867		4.10			2,185,853			22,969		4.26
Cash and due from banks		40,639								25,900								44,900								30,335
Intangible assets		44,727								32,561								43,928								32,112
Other assets		143,774								121,706								134,491								126,750
Allowance for loan losses		(20,458	)							(14,321	)							(20,800	)							(20,546	)
Total assets	$	2,650,050							$	2,296,082							$	2,560,831							$	2,354,504
Liabilities and stockholders’ equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand deposits	$	854,504		$	701		0.33	%	$	597,022		$	827		0.56	%	$	965,574		$	339		0.14	%	$	736,502		$	685		0.38	%
Brokered deposits		97,245			240		0.99			—			—		—			3,188			2		0.27			83,832			209		1.01
Savings deposits		173,553			71		0.16			125,680			94		0.30			180,568			21		0.05			146,078			66		0.19
Time deposits		552,169			1,102		0.80			680,466			3,269		1.93			427,313			614		0.58			518,103			1,342		1.05
Total interest-bearing deposits		1,677,471			2,114		0.51			1,403,168			4,190		1.20			1,576,643			976		0.25			1,484,515			2,302		0.63
Short-term borrowings		10,030			5		0.21			84,447			233		1.11			5,616			2		0.15			11,407			6		0.18
Long-term debt		130,245			1,063		3.27			127,807			1,040		3.27			129,904			1,068		3.33			127,364			1,027		3.27
Total interest-bearing liabilities		1,817,746			3,182		0.70			1,615,422			5,463		1.36			1,712,163			2,046		0.48			1,623,286			3,335		0.83
Noninterest-bearing deposits		559,431								424,344								586,556								466,531
Other liabilities		21,080								19,665								15,803								17,451
Stockholders’ equity		251,793								236,651								246,309								247,236
Total liabilities and stockholders’ equity	$	2,650,050							$	2,296,082							$	2,560,831							$	2,354,504
Net interest income/net interest margin				$	21,165		3.48	%				$	18,339		3.46	%				$	21,821		3.75	%				$	19,634		3.64	%

⁽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.

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	Three months ended June 30, 2021 vs.									Three months ended March 31, 2022 vs.
	Three months ended June 30, 2020									Three months ended March 31, 2021
	Volume			Rate			Net⁽¹⁾			Volume			Rate			Net⁽¹⁾
Interest income:
Loans	$	1,861		$	(844	)	$	1,017		$	65		$	34		$	99
Securities:
Taxable		198			(591	)		(393	)		483			291			774
Tax-exempt		(49	)		(4	)		(53	)		14			(12	)		2
Interest-earning balances with banks		443			(469	)		(26	)		166			(143	)		23
Total interest-earning assets		2,453			(1,908	)		545			728			170			898
Interest expense:
Interest-bearing demand deposits		357			(482	)		(125	)		213			(559	)		(346	)
Brokered deposits		(201	)		442			241			(201	)		(6	)		(207	)
Savings deposits		36			(59	)		(23	)		16			(62	)		(46	)
Time deposits		(615	)		(1,554	)		(2,169	)		(235	)		(492	)		(727	)
Short-term borrowings		(206	)		(22	)		(228	)		(3	)		—			(3	)
Long-term debt		20			3			23			20			20			40
Total interest-bearing liabilities		(609	)		(1,672	)		(2,281	)		(190	)		(1,099	)		(1,289	)
Change in net interest income	$	3,062		$	(236	)	$	2,826		$	918		$	1,269		$	2,187

⁽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.

~~Six months ended June 30, 2021 vs. six months ended June 30, 2020~~. Net interest income increased 14.4% to $40.8 million for the six months ended June 30, 2021 compared to $35.7 million for the same period in 2020. This increase is due primarily to the decrease in the cost of deposits compared to the same period in 2020. Average interest-bearing deposits increased approximately $194.1 million and average short- and long-term borrowings decreased $60.5 million for the six months ended June 30, 2021 compared to the same period in 2020, but we experienced a $5.2 million decrease in interest expense, discussed in more detail below. The increase in interest-bearing deposits resulted from both the acquisition of Cheaha and organic growth of the Company. The organic growth experienced was partially driven by reduced consumer and business spending related to the pandemic as well as increases in PPP borrowers' deposit accounts. There was also a $154.2 million increase in average loans, driven by the acquisition of Cheaha, compared to the same period in 2020, but we experienced a $0.1 million decrease in interest income, also discussed in more detail below.

Interest income was $47.3 million, including $2.6 million of interest and fees for PPP loans, for the six months ended June 30, 2021, compared to $47.4 million, including $0.7 million of interest and fees for PPP loans, for the same period in 2020. Loan interest income made up substantially all of our interest income for the six months ended June 30, 2021 and 2020. An increase in interest income of $4.8 million, can be attributed to the change in the volume of interest-earning assets, and a decrease of $4.9 million can be attributed to a decrease in the yield earned on those assets. The overall yield on interest-earning assets was 4.12% and 4.61% for the six months ended June 30, 2021 and 2020, respectively. The loan portfolio yielded 4.75% for the six months ended June 30, 2021 compared to 5.05% for the six months ended June 30, 2020, while the yield on the investment portfolio was 1.48% for the six months ended June 30, 2021 compared to 2.30% for the six months ended June 30, 2020.

Interest expense was $6.5 million for the six months ended June 30, 2021, a decrease of $5.2 million compared to interest expense of $11.7 million for the six months ended June 30, 2020. A decrease in interest expense of $1.9 million resulted from the change in volume of interest-bearing liabilities and a decrease of $3.4 million resulted from the decrease in the cost of interest-bearing liabilities. Average interest-bearing liabilities increased approximately $133.6 million for the six months ended June 30, 2021 compared to the same period in 2020 mainly as a result of a $194.1 million increase in interest-bearing deposits, while average debt decreased by $60.5 million. The cost of deposits decreased 78 basis points to 0.56% for the six months ended June 30, 2021 compared to 1.34% for the six months ended June 30, 2020 as a result of the decrease in the rates offered for our all of our interest-bearing deposit products, which are driven by the federal funds target rate. Management also made a strategic decision to either reprice or run-off higher yielding time deposits and other interest-bearing deposit products during 2020 and the first and second quarters of 2021, which substantially contributed to our decreased cost of deposits compared to the quarter ended June 30, 2020. The cost of interest-bearing liabilities decreased 73 basis points to 0.76% for the six months ended June 30, 2021 compared to 1.49% for the same period in 2020, due to the decrease in the cost of both deposits and short-term borrowings.

Net interest margin was 3.56% for the six months ended June 30, 2021, an increase of nine basis points from 3.47% for the six months ended June 30, 2020. The increase in net interest margin was primarily driven by a decrease in the cost of interest-bearing liabilities.

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~~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 for the six months ended June 30, 2021 and 2020. Averages presented in the table below are daily averages (dollars in thousands).

Six months ended June 30,

2021

2020

Interest

Interest

Average

Income/

Average

Income/

Balance

Expense⁽¹⁾

Yield/ Rate⁽¹⁾

Balance

Expense⁽¹⁾

Yield/ Rate⁽¹⁾

Assets

Interest-earning assets:

Loans
$ 1,899,122 $ 44,762 4.75 % $ 1,744,935 $ 43,787 5.05 %
Securities:

Taxable
276,716 1,899 1.38 247,142 2,763 2.25
Tax-exempt
21,150 289 2.76 28,704 387 2.71
Interest-earning balances with banks
117,328 366 0.63 49,443 486 1.98
Total interest-earning assets
2,314,316 47,316 4.12 2,070,224 47,423 4.61
Cash and due from banks
35,516 26,230
Intangible assets
38,454 31,930
Other assets
135,309 114,448
Allowance for loan losses
(20,502 ) (12,533 )
Total assets
$ 2,503,093 $ 2,230,299
Liabilities and stockholders’ equity

Interest-bearing liabilities:

Deposits:

Interest-bearing demand deposits
$ 795,829 $ 1,386 0.35 % $ 576,782 $ 2,030 0.71 %
Brokered deposits
90,576 449 1.00 — — —
Savings deposits
159,891 137 0.17 121,416 223 0.37
Time deposits
535,230 2,444 0.92 689,203 6,969 2.03
Total interest-bearing deposits
1,581,526 4,416 0.56 1,387,401 9,222 1.34
Short-term borrowings
10,715 11 0.20 71,005 423 1.20
Long-term debt
128,812 2,090 3.27 129,027 2,104 3.28
Total interest-bearing liabilities
1,721,053 6,517 0.76 1,587,433 11,749 1.49
Noninterest-bearing deposits
513,238 384,114
Other liabilities
19,275 18,620
Stockholders’ equity
249,527 240,132
Total liabilities and stockholders’ equity
$ 2,503,093 $ 2,230,299
Net interest income/net interest margin
$ 40,799 3.56 % $ 35,674 3.47 %

⁽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.

~~Table of Contents~~

Six months ended June 30, 2021 vs.

Six months ended June 30, 2020

Volume

Rate

Net⁽¹⁾

Interest income:

Loans
$ 3,869 $ (2,894 ) $ 975
Securities:

Taxable
331 (1,195 ) (864 )
Tax-exempt
(102 ) 4 (98 )
Interest-earning balances with banks
666 (786 ) (120 )
Total interest-earning assets
4,764 (4,871 ) (107 )
Interest expense:

Interest-bearing demand deposits
771 (1,415 ) (644 )
Brokered deposits
(774 ) 1,225 451
Savings deposits
70 (155 ) (85 )
Time deposits
(1,556 ) (2,972 ) (4,528 )
Short-term borrowings
(360 ) (53 ) (413 )
Long-term debt
(3 ) (10 ) (13 )
Total interest-bearing liabilities
(1,852 ) (3,380 ) (5,232 )
Change in net interest income
$ 6,616 $ (1,491 ) $ 5,125

⁽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, gain on call or sale of investment securities, fixed assets and other real estate owned, swap termination fee income, servicing fees and fee income on serviced loans, interchange fees, income from bank owned life insurance, and changes in the fair value of equity securities. We expect to continue to develop new products that generate noninterest income, and enhance our existing products, in order to diversify our revenue sources.

Three months ended ~~June 30, 2021~~March 31, 2022 vs. three months ended ~~June 30, 2020~~March 31, 2021. Total noninterest income increased ~~$0.2~~$3.5 million, or ~~3.8%~~148.0%, to ~~$4.1~~$5.9 million for the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$3.9~~$2.4 million for the three months ended ~~June 30, 2020.~~March 31, 2021. The increase in noninterest income is mainly attributable to increases of $3.3 million in swap termination fee income and $0.4 million in gain on sale or disposition of fixed assets, partially offset by a ~~$0.5~~$0.6 million ~~increase~~decrease in the gain on call or sale of investment securities ~~and $0.2 million increases in service charges on deposit accounts and interchange fees, partially offset by a $0.7 million decrease in other operating income,~~ compared to the three months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease in other operating income compared to the three months ended June 30, 2020 was driven by a $0.6 million decrease in derivative fee income.~~

~~Six months ended June 30, 2021 vs. six months ended June 30, 2020~~. Total noninterest income increased $1.4 million, or 28.4%, to $6.4 million for the six months ended June 30, 2021 compared to $5.0 million for the six months ended June 30, 2020. The increase in noninterest income is mainly attributable to a $1.0 million increase in the gain on sale or disposition of ~~investment securities~~fixed assets resulted from our sale of two tracts of land that we held for future branch locations.

Swap termination fees were recorded when we voluntarily terminated a number of interest rate swap agreements during the first quarter of 2022 in response to market conditions and as a result of excess liquidity. In the ~~$0.2 million increase~~past few years, we have entered into multiple forward starting pay-fixed interest rate swap agreements to manage exposure against the variability in expected future cash flows, in anticipation of rising rates. However, the borrowings required by the swap agreements provide excess liquidity and put downward pressure on the yield on our interest-earning assets and net interest margin. We elected to terminate a number of swap contracts that became effective in the ~~fair value~~first quarter of ~~equity securities compared to a loss in fair value of equity securities of $0.6 million during the six months ended June 30, 2020. The change~~2022 or would be effective in the ~~fair value~~second quarter of ~~equity securities during the six months ended June 30, 2021 compared~~2022 to ~~the six months ended June 30, 2020 is attributable to closing prices~~avoid additional excess liquidity and ~~mix~~net interest margin compression. We had forward starting interest rate swap contracts with a total notional amount of ~~equity securities held by the Company at June 30, 2021 and fluctuates with market activity. These increases were partially offset by a $0.7~~$60 million ~~decrease in the other operating income, primarily due to the decrease in derivative income discussed above, compared to the six months ended June 30, 2020.~~

~~Table~~as of ~~Contents~~

March 31, 2022.

Noninterest Expense

Three months ended ~~June 30, 2021~~March 31, 2022 vs. three months ended ~~June 30, 2020~~March 31, 2021. Total noninterest expense was ~~$18.0~~$15.4 million for the three months ended ~~June 30, 2021,~~March 31, 2022, an increase of ~~$3.5~~$0.6 million, or ~~24.0%~~4.2%, compared to the same period in ~~2020.~~2021. The increase is primarily attributable to ~~the $1.4~~a $0.4 million increase in other operating expenses and ~~$1.3 million increases in acquisition expense and salaries and employee benefits, respectively. The $1.3~~$0.3 million increase in salaries and employee ~~benefits~~benefits. The increase in other operating expenses was driven by an increase in ~~employees following~~collection and repossession expenses, the ~~acquisition~~majority of ~~Cheaha, as well as an increase in health insurance claims and deferred compensation costs.~~

~~Six months ended June 30, 2021 vs. six months ended June 30, 2020~~~~. Total noninterest expense was $32.8 million for the six months ended June 30, 2021, an increase of $4.4 million, or 15.4%, compared~~which is related to ~~the same period in 2020.~~one impaired loan relationship. The ~~increase is primarily attributable to the $2.1 million and $1.0 million increases in salaries and employee benefits and acquisition expense, respectively. The $2.0 million~~ increase in salaries and employee benefits was driven by an increase in employees following the Cheaha acquisition and the addition of two de novo branches in the second and third quarters of 2020, as well as unfavorable health insurance claims, and deferred compensation costs. For additional information on acquisition expenses, see Note 2is primarily attributable to the ~~financial statements herein.~~acquisition of Cheaha on April 1, 2021, which added four branch locations and related staff.

Income Tax Expense

Income tax expense for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ was ~~$1.5~~$2.6 million and ~~$1.0~~$1.4 million, respectively. The effective tax rate for the three months ended ~~June 30,~~March 31, 2022 and 2021 was 20.5% and 2020 was 20.7% and 19.2%, respectively. Income tax expense for the six months ended June 30, 2021 and 2020 was $2.9 million and $1.2 million, respectively. The effective tax rate for the six months ended June 30, 2021 and 2020 was 20.9% and 19.3%21.1%, respectively.

For the three ~~and six~~ months ended ~~June 30, 2021 and 2020,~~March 31, 2022, the effective tax rate differs from the statutory tax rate of 21% primarily due to tax exempt interest income earned on certain investment ~~securities.~~ securities and bank owned life insurance. For the three months ended March 31, 2021, the effective tax rate differs from the statutory tax rate of 21% primarily due an increase in state taxes and the impact of share-based compensation.

Risk Management

The primary risks associated with our operations are credit, interest rate and liquidity risk. Higher inflation also presents risk. Credit, inflation 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 ten point risk-rating system, which assigns a risk grade to each borrower based on a number of quantitative and qualitative factors associated with a loan transaction. The risk grade categorizes the loan into one of five risk categories, based on information about the ability of borrowers to service the debt. The information includes, among other factors, current financial information about the borrower, historical payment experience, credit documentation, public information and current economic trends. These categories assist management in monitoring our credit quality. The following describes each of the risk categories, which are consistent with the definitions used in guidance promulgated by federal banking regulators.

•

Pass (grades 1-6) – Loans not falling into one of the categories 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.

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•

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 rated 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were no loans classified as loss. There was ~~$0.6~~$0.5 million of loans classified as doubtful at ~~June 30, 2021,~~March 31, 2022, compared to ~~$0.9~~$0.7 million at December 31, ~~2020.~~2021. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were ~~$42.2~~$36.6 million and ~~$20.1~~$46.8 million, respectively, of loans classified as substandard, and ~~$7.0~~$5.7 million and ~~$16.9~~$7.3 million, respectively, of loans classified as special mention. The increase in substandard loans compared to December 31, 2020 was driven by several commercial and industrial loan relationships primarily within the energy sector, as well as several owner-occupied commercial real estate relationships.

An independent loan review is conducted annually, whether internally or externally, on at least 40% of commercial loans utilizing a risk-based approach designed to maximize the effectiveness of the review. Internal loan review is independent of the loan underwriting and approval process. In addition, credit analysts periodically review certain commercial loans to identify negative financial trends related to any one borrower, any related groups of borrowers, or an industry. All loans not categorized as pass are put on an internal watch list, with quarterly reports to the board of directors. In addition, a written status report is maintained by our special assets division for all commercial loans categorized as substandard or worse. We use this information in connection with our collection efforts.

If our collection efforts are unsuccessful, collateral securing loans may be repossessed and sold or, for loans secured by real estate, foreclosure proceedings initiated. The collateral is generally sold at public auction for fair market value, 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 450, Contingencies. Collective impairment is calculated based on loans grouped by type. Another component of the allowance is losses on loans assessed as impaired under ASC 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 our borrowers’ 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 ~~$20.4~~$21.1 million and $20.9 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021, respectively.

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A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Determination of impairment is treated the same across all classes of loans. Impairment is measured on a loan-by-loan basis for, among others, all loans of $500,000 or greater, nonaccrual loans and ~~nonaccrual loans.~~a sample of loans between $250,000 and $500,000. When we identify a loan as impaired, we measure the extent of the impairment based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole (remaining) source of repayment for the loans is the operation or liquidation of the collateral. In these cases when foreclosure is probable, we use the current fair value of the collateral, less selling costs, instead of discounted cash flows. For real estate collateral, the fair value of the collateral is based upon a recent appraisal by a qualified and licensed appraiser. If we determine that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), we recognize impairment through an allowance estimate or a charge-off recorded against the allowance. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual, contractual interest is credited to interest income when received, under the cash basis method.

Impaired loans at ~~June 30, 2021,~~March 31, 2022, which include TDRs and nonaccrual loans individually evaluated for impairment for purposes of determining the allowance for loan losses, were ~~$23.8~~$27.2 million compared to ~~$19.2~~$32.8 million at December 31, ~~2020.~~2021. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020, $0.3~~2021, $0.5 million and ~~$0.2~~$0.6 million, respectively, of the allowance for loan losses was specifically allocated to impaired loans.

The provision for loan losses is a charge to expense 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 ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the provision for loan losses was ~~$0.5~~negative $0.4 million and ~~$6.3~~$0.4 million, respectively. ~~Additional~~The negative provision for loan losses for the three months ended March 31, 2022 was ~~recorded~~driven by net recoveries of $0.7 million in the six months ended June 30, 2020 primarily as a result of the deterioration of market conditions which were adversely affected by the COVID-19 pandemic. The Company continues to assess the impact the pandemic may have on its loan portfolio ~~to determine~~during the ~~need for additional reserves.~~quarter.

Acquired loans that are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”), were marked to market on the date we acquired the loans to values which, in management’s opinion, reflected the estimated future cash flows, based on the facts and circumstances surrounding each respective loan at the date of acquisition. We continually monitor these loans as part of our normal credit review and monitoring procedures for changes in the estimated future cash flows. Because ASC 310-30 does not permit carry over or recognition of an allowance for loan losses, we may be required to reserve for these loans in the allowance for loan losses through future provision for loan losses if future cash flows deteriorate below initial projections. ~~In 2020, one acquired~~There was no provision for loan losses charged to operating expense attributable to loans accounted for under ASC 310-30 ~~required a specific reserve of $0.2 million, which was charged to provision~~ for ~~loan losses. There was no additional provision for loan losses recorded for ASC 310-30 loans during~~ the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022 and 2021.

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The following table presents the allocation of the allowance for loan losses by loan category and the percentage of loans in each loan category to total loans as of the dates indicated (dollars in thousands).

	June 30, 2021		December 31, 2020		March 31, 2022					December 31, 2021
					Allowance for Loan Losses		% of Loans in each Category to Total Loans			Allowance for Loan Losses		% of Loans in each Category to Total Loans
Mortgage loans on real estate:
Construction and development	$	2,260	$	2,375	$	2,408		10.7	%	$	2,347		10.9	%
1-4 Family		3,231		3,370		3,404		19.6			3,337		19.4
Multifamily		673		589		590		2.8			673		3.2
Farmland		398		435		342		1.0			383		1.1
Commercial real estate		9,148		8,496		9,669		48.4			9,354		47.9
Total mortgage loans on real estate		15,710		15,265
Commercial and industrial		4,306		4,558		4,356		16.7			4,411		16.6
Consumer		429		540		319		0.8			354		0.9
Total	$	20,445	$	20,363	$	21,088		100	%	$	20,859		100	%

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).

	March 31, 2022			December 31, 2021
Mortgage loans on real estate:
Construction and development		0.13	%		0.12	%
1-4 Family		0.18			0.18
Multifamily		0.03			0.04
Farmland		0.02			0.02
Commercial real estate		0.51			0.50
Commercial and industrial		0.23			0.23
Consumer		0.02			0.02
Total		1.12	%		1.11	%

As discussed above, the balance in the allowance for loan losses is principally influenced by the provision for loan losses and net loan loss experience. Additions to the allowance are charged to the provision for loan losses. Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected.

The table below reflects the activity in the allowance for loan losses and key ratios for the periods indicated (dollars in thousands).

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

Allowance at beginning of period
$ 20,423 $ 14,233 $ 20,363 $ 10,700
Provision for loan losses
114 2,500 514 6,260
Charge-offs:

Mortgage loans on real estate:

Construction and development
(11 ) — (11 ) —
1-4 Family
— — (134 ) (160 )
Farmland
(13 ) — (13 ) —
Commercial real estate
— (76 ) — (76 )
Commercial and industrial
(88 ) — (303 ) (7 )
Consumer
(43 ) (75 ) (99 ) (170 )
Total charge-offs
(155 ) (151 ) (560 ) (413 )
Recoveries

Mortgage loans on real estate:

Construction and development
3 9 13 22
1-4 Family
14 5 20 9
Commercial real estate
1 31 3 31
Commercial and industrial
14 3 19 5
Consumer
31 27 73 43
Total recoveries
63 75 128 110
Net charge-offs
(92 ) (76 ) (432 ) (303 )
Balance at end of period
$ 20,445 $ 16,657 $ 20,445 $ 16,657
Net charge-offs to:

Loans - average
— % — % 0.02 % 0.02 %
Allowance for loan losses
0.45 % 0.46 % 2.11 % 1.82 %
Allowance for loan losses to:

Total loans
1.05 % 0.92 % 1.05 % 0.92 %
Nonperforming loans
97.83 % 127.62 % 97.83 % 127.62 %

	Three months ended March 31,
	2022			2021
Allowance at beginning of period	$	20,859		$	20,363
Provision for loan losses		(449	)		400
Net recoveries (charge-offs)		678			(340	)
Allowance at end of period	$	21,088		$	20,423
Total loans - period end		1,877,444			1,845,970
Nonaccrual loans - period end		25,641			13,166

Key ratios:
Allowance for loan losses to total loans - period end		1.12	%		1.11	%
Allowance for loan losses to nonaccrual loans - period end		82.24	%		155.12	%
Nonaccrual loans to total loans - period end		1.37	%		0.71	%

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The allowance for loan losses to total loans ~~was 1.05% and 0.92%~~increased to 1.12% at ~~June 30,~~March 31, 2022 compared to 1.11% at March 31, 2021, ~~and 2020, respectively. The~~while the allowance for loan losses to ~~nonperforming~~nonaccrual loans ratio decreased to ~~97.83%~~82% at ~~June 30, 2021~~March 31, 2022 compared to ~~127.62%~~155% at ~~June 30, 2020.~~March 31, 2021. The increase in the allowance for loan losses to total loans at ~~June 30, 2021~~March 31, 2022 is primarily due to the increase in the allowance for loan losses ~~throughout 2020 in response~~compared to ~~the deterioration of economic conditions related to the COVID-19 pandemic compared to June 30, 2020.~~March 31, 2021. The decrease in the allowance for loan losses to ~~nonperforming~~nonaccrual loans is due to the increase in ~~nonperforming~~nonaccrual loans ~~which increased~~primarily due to ~~$20.9~~one loan relationship impacted by Hurricane Ida.Nonaccrual loans were $25.6 million, or 1.37% of total loans, at ~~June 30, 2021~~March 31, 2022, an increase of $12.5 million compared to ~~$13.1~~$13.2 million, or 0.71% of total loans at ~~June 30, 2020.~~March 31, 2021.

The following table presents the allocation of net (charge-offs) recoveries by loan category for the periods indicated (dollars in thousands).

	Three months ended March 31,
	2022							2021
		Net Recoveries (Charge-offs)		Average Balance		Ratio of Net Charge-offs to Average Loans			Net Recoveries (Charge-offs)		Average Balance		Ratio of Net Charge-offs to Average Loans
Mortgage loans on real estate:
Construction and development	$	16		$	208,768	(0.01	)%	$	10		$	194,531	(0.01	)%
1-4 Family		70			364,740	(0.02	)		(128	)		340,319	0.04
Multifamily		—			57,470	—			—			62,167	—
Farmland		(54	)		19,043	0.28			—			25,873	—
Commercial real estate		59			884,271	(0.01	)		2			832,435	(0.00	)
Commercial and industrial		622			311,812	(0.20	)		(210	)		382,400	0.05
Consumer		(35	)		16,671	0.21			(14	)		19,547	0.07
Total	$	678		$	1,862,775	(0.04	)	$	(340	)	$	1,857,272	0.02

Charge-offs reflect the realization of losses in the portfolio that were recognized previously through the provision for loan losses. Net charge-offs ~~which~~ include recoveries of amounts previously charged ~~off,~~off. Net recoveries of $0.7 million and net charge-offs of $0.3 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~were $0.1 million and $0.4 million,~~ respectively, equal ~~to 0%~~0.04% and 0.02%, respectively, of the average loan balance for each period. ~~Net charge-offs for the three and six months ended June 30, 2020 were $0.1 million and $0.3 million, respectively, equal to 0% and 0.02%, respectively, of the average loan balance for each period.~~

Management believes the allowance for loan losses at ~~June 30, 2021~~March 31, 2022 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 the scope and duration of the COVID-19 pandemic and its continued influence on the economy, other 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, under the CARES Act and guidance from regulatory agencies, certain loans modified due to pandemic-related hardships are not accounted for as past due or nonaccrual. Additionally, 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. 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.

Another category of assets which contributes to our credit risk is troubled debt restructurings (“TDRs”), or restructured loans. A restructured loan is a loan for which a concession that is not insignificant has been granted to the borrower due to a deterioration of the borrower’s financial condition and which is performing in accordance with the new terms. Such concessions may include reduction in interest rates, deferral of interest or principal payments, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. We strive to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before such loan reaches nonaccrual status. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest. Restructured loans that are not performing in accordance with their restructured terms that are either contractually 90 days past due or placed on nonaccrual status are reported as nonperforming loans.

There were ~~34 loans~~24 credits classified as TDRs at ~~June 30, 2021 that totaled $13.9~~March 31, 2022 with a total aggregate balance of $7.4 million, compared to ~~34 loans totaling $14.7~~29 credits with a total aggregate balance of $10.5 million at December 31, ~~2020.~~2021. At ~~June 30, 2021, twelve~~March 31, 2022, eleven of the restructured loans were considered TDRs due to modification of terms through adjustments to maturity, ~~eight restructured loans were considered TDRs due to principal payment forbearance, paying interest only for a specified period of time, eight~~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, four restructured loans were considered TDRs due to principal payment forbearance, paying interest only for a specified period of time, and two of the restructured loans were considered TDRs due to principal and interest ~~forbearance, and two restructured loans were considered TDRs due to a reduction in principal payments on a modified payment schedule.~~forbearance.

~~Table of Contents~~

As of ~~June 30, 2021, one $1.3 million commercial real estate TDR was in default of its modified terms~~March 31, 2022 and ~~is included in nonaccrual loans. At~~ December 31, ~~2020,~~2021, none of the TDRs were in default of their modified terms and 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.

~~The following table shows the principal amounts~~

Table 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).

As of and for the six months ended

As of and for the year ended

June 30, 2021

December 31, 2020

Nonaccrual loans
$ 19,290 $ 13,506
Accruing loans past due 90 days or more
1,609 321
Total nonperforming loans
$ 20,899 $ 13,827
TDRs
6,835 8,017
Total nonperforming loans and restructured loans
$ 27,734 $ 21,844
Interest income recognized on nonperforming loans and restructured loans
$ 536 $ 757
Interest income foregone on nonperforming loans and restructured loans
$ 327 $ 455

Nonperforming loans are comprised of accruing loans past due 90 days or more and nonaccrual loans. Nonperforming loans outstanding represented 1.07% and 0.74% of total loans at June 30, 2021 and December 31, 2020, respectively.

Contents

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 to the allowance for loan losses. Other real estate owned with a cost basis of ~~$28,000~~$0.8 million was sold during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022, resulting in a ~~loss~~gain of ~~$5,000. Other~~$41,000 for the period. No other real estate owned ~~with a cost basis of $0.1 million and~~ was sold during the ~~six~~three months ended ~~June 30, 2020, resulting in a gain of $26,000 for the period.~~March 31, 2021. At ~~June 30, 2021,~~March 31, 2022, approximately ~~$2.7~~$0.1 million of loans secured by real estate were in the process of foreclosure.

The table below provides details of our other real estate owned as of the dates indicated (dollars in thousands).

	June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
1-4 Family	$	855	$	28	$	629	$	168
Farmland						990		—
Commercial real estate		635		635		1,835		2,485
Total other real estate owned	$	1,490	$	663	$	3,454	$	2,653

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

	Six months ended June 30,						Three months ended March 31,
	2021			2020			2022			2021
Balance, beginning of period	$	663		$	133		$	2,653		$	663
Additions		501			—			1,620			501
Transfers from acquired loans		354			48			—			354
Sales of other real estate owned		(28	)		(105	)		(819	)		—
Balance, end of period	$	1,490		$	76		$	3,454		$	1,518

Impact of Inflation. Inflation reached a near 40-year high in late 2021 primarily due to effects of the ongoing pandemic, and continues to be high in 2022. When the rate of inflation accelerates, there is an erosion of consumer and customer purchasing power. Accordingly, this could impact our business by reducing our tolerance for extending credit, and our customer’s desire to obtain credit, or causing us to incur additional provisions for loan losses resulting from a possible increased default rate. Inflation may lead to lower loan re-financings. Inflation may also increase the costs of goods and services we purchase, including the costs of salaries and benefits. In response to higher inflation, the Federal Reserve may increase interest rates multiple times in 2022. For additional information, see Interest Rate Risk below, and Item 1A. Risk Factors – Risks Related to our Business – Changes in interest rates could have an adverse effect on our profitability, in our Annual Report.

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Interest Rate Risk

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~~ 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 ALCO where risk exposures exist out into the 1 to 2 year horizon. Tactics are formulated and presented to the ALCO 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~~board of ~~Directors.~~directors.

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, 4-6 months, 7-12 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 ~~June 30, 2021,~~March 31, 2022, the Bank was within the policy guidelines for asset/liability management.

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The table below depicts the estimated impact on net interest income of immediate changes in interest rates at the specified levels.

As of June 30, 2021
As of March 31, 2022		As of March 31, 2022
Changes in Interest Rates (in basis points)	Estimated Increase/Decrease in Net Interest Income⁽¹⁾		Estimated Increase/Decrease in Net Interest Income⁽¹⁾
+300	13.2%		(0.8)%
+200	8.9%		(0.9)%
+100	5.0%		(0.8)%
-100	(4.2)%		(4.6)%

⁽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 ~~yield on loans and other interest-bearing assets~~margins and stifle the rate of repayment on our mortgage-related loans which would increase our returns. As a result, because these assumptions are inherently uncertain, actual results will differ from simulated results.

Liquidity and Capital Resources

Liquidity. Liquidity is a measure of the ability to fund loan commitments and meet deposit maturities and withdrawals in a timely and cost-effective way. Cash flow requirements can be met by generating net income, attracting new deposits, converting assets to cash or borrowing funds. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, loan prepayments, loan sales and borrowings are greatly influenced by general interest rates, economic conditions and the competitive environment in which we operate. To minimize funding risks, we closely monitor our liquidity position through periodic reviews of maturity profiles, yield and rate behaviors, and loan and deposit forecasts. Excess short-term liquidity is usually invested in overnight federal funds sold.

Our core deposits, which are deposits excluding time deposits greater than $250,000 and deposits of municipalities and other political entities, are our most stable source of liquidity to meet our cash flow needs due to the nature of the long-term relationships generally established with our customers. Maintaining the ability to acquire these funds as needed in a variety of markets, and within ALCO compliance targets, is essential to ensuring our liquidity. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020, 74%~~2021, 83% and ~~69%~~81% of our total assets, respectively, were funded by core deposits.

Our investment portfolio is another alternative for meeting our cash flow requirements. Investment securities generate cash flow through principal payments and maturities, and they generally have readily available markets that allow for their conversion to cash. Some securities are pledged to secure certain deposit types or short-term borrowings, such as FHLB advances, which impacts their liquidity. At ~~June 30, 2021,~~March 31, 2022, securities with a carrying value of ~~$118.2~~$158.9 million were pledged to secure certain deposits, borrowings, and other liabilities, compared to ~~$84.6~~$118.2 million in pledged securities at December 31, ~~2020.~~2021.

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 ~~June 30,~~March 31, 2022 and December 31, 2021, the balance of our outstanding advances with the FHLB was ~~$82.5 million, a decrease from $120.5 million at December 31, 2020.~~$78.5 million. The total amount of the remaining credit available to us from the FHLB at ~~June 30, 2021~~March 31, 2022 was ~~$726.0 million.~~$791.3 million. At March 31, 2022, our FHLB borrowings were collateralized by approximately $878.5 million of our loan portfolio and $1.2 million of our 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 investment securities. We had ~~$6.7~~$1.3 million of repurchase agreements outstanding at ~~June 30, 2021~~March 31, 2022 compared to ~~$5.7~~$5.8 million of repurchase agreements outstanding at December 31, ~~2020.~~2021.

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We maintain unsecured lines of credit with other commercial banks totaling $60.0 million. These lines of credit are federal funds lines of credit and are used for overnight borrowing only. The lines of credit mature at various times within the next year. We had no outstanding balances on our unsecured lines of credit at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

In addition, at both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had $43.6 million in aggregate principal amount of subordinated debt outstanding. For additional information, see our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, Part II Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Discussion and Analysis of Financial Condition - Borrowings - 2029 Notes and 2027 Notes” and Note 11 to the financial statements included in such report. Subsequent to the end of the first quarter of 2022, we announced the completion of a private placement of $20.0 million in aggregate principal amount of our 2032 Notes. We expect to utilize the net proceeds from the sale of the 2032 Notes to refinance our 2017 issuance of subordinated debt securities, for possible share repurchases and for general corporate purposes. For additional information, see Note 12 to the financial statements included in this report.

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. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we held ~~$100.1 million and $80.0 million, respectively, in~~no brokered deposits, as defined for federal regulatory ~~purposes, which~~purposes; however the Bank ~~uses~~may periodically use brokered deposits to satisfy the required borrowings under its interest rate swap agreements, due to more favorable pricing. We ~~also~~ hold QwickRate® deposits, included in our time deposit balances, which we obtain through a qualified network to address liquidity needs when rates on such deposits compare favorably with deposit rates in our markets. At ~~June 30, 2021,~~March 31, 2022, we held ~~$72.7~~$53.7 million of QwickRate® deposits, a decrease compared to ~~$123.1~~$63.8 million at December 31, ~~2020.~~2021.

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 three ~~month periods~~months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

	Percentage of Total						Percentage of Total						Cost of Funds						Cost of Funds						Percentage of Total Average Deposits and Borrowed Funds						Cost of Funds
	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,						Three months ended March 31,						Three months ended March 31,
	2021			2020			2021			2020			2021			2020			2021			2020			2022			2021			2022			2021
Noninterest-bearing demand deposits		24	%		21	%		23	%		19	%		—	%		—	%		—	%		—	%		25	%		22	%		—	%		—	%
Interest-bearing demand deposits		36			29			36			29			0.33			0.56			0.35			0.71			42			35			0.14			0.38
Brokered deposits		4			—			4			—			0.99			—			1.00			—			—			4			0.27			1.01
Savings accounts		7			6			7			6			0.16			0.30			0.17			0.37			8			7			0.05			0.19
Time deposits		23			34			24			35			0.80			1.93			0.92			2.03			19			25			0.58			1.05
Short-term borrowings		—			4			—			4			0.21			1.11			20.00			1.20			—			1			0.15			0.18
Long-term borrowed funds		6			6			6			7			3.27			3.27			3.27			3.28			6			6			3.33			3.27
Total deposits and borrowed funds		100	%		100	%		100	%		100	%		0.54	%		1.07	%		0.59	%		1.20	%		100	%		100	%		0.36	%		0.65	%

Capital ~~management~~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 additional common stock and debt securities from time to time to fund acquisitions and support our organic growth.

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the Company paid ~~$1.4~~$0.8 million in dividends, compared to ~~$1.3~~$0.7 million during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The Company declared dividends on its common stock of ~~$0.15~~$0.085 per share during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to dividends of ~~$0.12~~$0.07 per share during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Our board of directors has authorized a share repurchase program and, at ~~June 30, 2021,~~March 31, 2022, the Company had ~~515,240~~128,444 shares of its common stock remaining authorized for repurchase under the program. On April 21, 2022, the board of directors approved an additional 400,000 shares of the Company’s common stock for repurchase. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the Company paid ~~$4.5~~$1.5 million to repurchase ~~249,590~~77,248 shares of its ~~common~~common stock, compared to paying ~~$7.8~~$6.7 million to repurchase ~~429,473~~225,950 shares of its common stock during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

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We are subject to various regulatory capital requirements administered by the Federal Reserve and the OCC which specify capital tiers, including the following classifications for the Bank under the OCC’s prompt corrective action regulations.


Capital Tiers⁽¹⁾	Tier 1 Leverage Ratio	Common Equity Tier 1 Capital Ratio	Tier 1 Capital Ratio	Total Capital Ratio	Ratio of Tangible to Total Assets
Well capitalized	5% or above	6.5% or above	8% or above	10% or above
Adequately capitalized	4% or above	4.5% or above	6% or above	8% or above
Undercapitalized	Less than 4%	Less than 4.5%	Less than 6%	Less than 8%
Significantly undercapitalized	Less than 3%	Less than 3%	Less than 4%	Less than 6%
Critically undercapitalized					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. In order to be well capitalized, the Bank cannot be subject to any written agreement or order requiring it to maintain a specific level of capital for any capital measure.

The Company and the Bank each were in compliance with all regulatory capital requirements at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. The Bank also was considered “well-capitalized” under the OCC’s prompt corrective action regulations as of these dates.

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

	Actual					Minimum Capital Requirement for Bank to be Well Capitalized Under Prompt Corrective Action Rules					Actual					Minimum Capital Requirement for Bank to be Well Capitalized Under Prompt Corrective Action Rules
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2021
March 31, 2022
Investar Holding Corporation:
Tier 1 leverage capital	$	212,653		8.19	%	$	—		—	%	$	214,925		8.53	%	$	—		—	%
Common equity tier 1 capital		203,153		9.97			—		—			205,425		9.76			—		—
Tier 1 capital		212,653		10.43			—		—			214,925		10.21			—		—
Total capital		276,276		13.55			—		—			279,683		13.29			—		—
Investar Bank:
Tier 1 leverage capital		246,396		9.49			129,762		5.00			252,570		10.03			125,875		5.00
Common equity tier 1 capital		246,396		12.10			132,374		6.50			252,570		12.01			135,666		6.50
Tier 1 capital		246,396		12.10			162,921		8.00			252,570		12.01			166,973		8.00
Total capital		267,077		13.11			203,652		10.00			274,316		13.04			208,716		10.00

December 31, 2020
December 31, 2021
Investar Holding Corporation:
Tier 1 leverage capital	$	215,750		9.49	%	$	—		—	%	$	206,899		8.12	%	$	—		—	%
Common equity tier 1 capital		209,250		11.02			—		—			197,399		9.45			—		—
Tier 1 capital		215,750		11.36			—		—			206,899		9.90			—		—
Total capital		279,253		14.71			—		—			271,416		12.99			—		—
Investar Bank:
Tier 1 leverage capital		237,684		10.47			113,546		5.00			244,541		9.60			127,313		5.00
Common equity tier 1 capital		237,684		12.53			123,268		6.50			244,541		11.72			135,651		6.50
Tier 1 capital		237,684		12.53			151,714		8.00			244,541		11.72			166,956		8.00
Total capital		258,291		13.62			189,642		10.00			266,069		12.75			208,694		10.00

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Off-Balance Sheet Transactions

Swap ~~contracts~~Contracts.. The Bank enters into interest rate swap contracts, some of which are forward starting, 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 ~~9.1~~7.4 years. At ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020,~~2021 the Company had no current interest rate swap ~~contracts with total notional amounts of $100.0 million and $80.0 million, respectively,~~agreements, and forward starting interest rate swap agreements with a total notional ~~amounts~~amount of ~~$165.0~~$60.0 million ~~and $140.0~~at March 31, 2022 compared to $115.0 million ~~respectively.~~at December 31, 2021, all of which were designated as cash flow hedges. For additional information, see Note 7 to the financial statements included herein.

During the first quarter of 2022, the Company voluntarily terminated interest rate swaps with a total notional amount of $55.0 million in response to market conditions and as a result of excess liquidity. Unrealized gains of $2.6 million, net of tax expense of $0.7 million, were reclassified from “Accumulated other comprehensive (loss) income” as of March 31, 2022 and recorded as “Swap termination fee income” in noninterest income in the accompanying consolidated statements of income for the three months ended March 31, 2022.

For the three months ended March 31, 2022, a gain of $3.2 million, net of a $0.8 million tax expense, has been recognized in “Other comprehensive (loss) income” in the accompanying consolidated statements of comprehensive (loss) income for the change in fair value of the interest rate swaps compared to a gain of $6.1 million, net of a $1.6 million tax expense, recognized for the three months ended March 31, 2021.

The Company also enters into interest rate swap contracts 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 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 ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Unfunded ~~commitments~~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. Loan commitments are also evaluated in a manner similar to the allowance for loan losses. The reserve for unfunded loan commitments is included in other liabilities in the consolidated balance sheets and was ~~$0.2~~$0.7 million at ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020.~~2021, 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):

	June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Commitments to extend credit:
Loan commitments	$	308,957	$	266,039	$	368,056	$	349,701
Standby letters of credit		15,373		14,420		15,965		18,259

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 intends to continue this process as new commitments are entered into or existing commitments are renewed.

Additionally, at ~~June 30, 2021,~~March 31, 2022, the Company had unfunded commitments of ~~$1.0~~$1.9 million for its investment in Small Business Investment Company qualified funds.

For the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and for the year ended December 31, ~~2020,~~2021, except as disclosed herein and in the Company’s Annual Report, ~~on Form 10-K for the year ended December 31, 2020,~~ we engaged in no off-balance sheet transactions that we believe are reasonably likely to have a material effect on our financial condition, results of operations, or cash flows.

~~Table~~

Lease Obligations. The Company’s primary leasing activities relate to certain real estate leases entered into in support of ~~Contents~~

~~Contractual Obligations~~the Company’s branch operations. 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 following table presents, ~~at June 30, 2021, contractual obligations to third parties~~as of March 31, 2022, contractually obligated lease payments due under non-cancelable operating leases by payment date (dollars in thousands).

Payments Due In:

Less than One Year

One to Three Years

Three to Five Years

Over Five Years

Total

Deposits without a stated maturity⁽¹⁾
$ 1,730,498 — — — $ 1,730,498
Time deposits⁽¹⁾⁽²⁾
403,241 107,845 18,582 — 529,668
Securities sold under agreements to repurchase⁽¹⁾
6,713 — — — 6,713
Federal Home Loan Bank advances⁽¹⁾
4,000 — 23,500 55,000 82,500
Subordinated debt⁽¹⁾
— — — 43,600 43,600
Junior subordinated debt⁽¹⁾⁽²⁾
— — — 9,795 9,795
Operating lease commitment
595 1,152 904 1,522 4,173
Total contractual obligations
$ 2,145,047 $ 108,997 $ 42,986 $ 109,917 $ 2,406,947

⁽¹⁾	~~Excludes interest.~~

⁽²⁾	~~Excludes unamortized premiums and discounts.~~

Less than one year	$	448
One to three years		1,110
Three to five years		815
Over five years		1,354
Total	$	3,727

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risk as of December 31, ~~2020~~2021 are set forth in the Company’s Annual Report ~~on Form 10-K filed with the SEC on March 10, 2021~~ in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management.” Please refer to the information in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Risk Management” in this report for additional information about the Company’s market risk for the ~~six~~three months ended ~~June 30, 2021;~~March 31, 2022; except as discussed therein, there have been no material changes in the Company’s market risk since December 31, ~~2020.~~2021.

Item 4. Controls and Procedures

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective for ensuring that information the Company is required to disclose in the 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 SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

For information regarding risk factors that could affect Investar Holding Corporation's (the “Company”) results of operations, financial condition and liquidity, see the risk factors disclosed in the Annual ~~Report on Form 10-K for the year ended December 31, 2020 filed by the Company with the Securities and Exchange Commission (“SEC”) on March 10, 2021.~~Report. There have been no significant changes in our risk factors as described in such Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

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Issuer Purchases of Equity Securities

The table below provides information with respect to purchases made by the Company of shares of its common stock during each of the months during the three month period ended ~~June 30, 2021.~~March 31, 2022.

Period

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

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

(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs⁽²⁾

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

April 1, 2021 - April 30, 2021
23,640 $ 20.50 23,640 315,240
May 1, 2021 - May 31, 2021
268 22.11 — 515,240
June 1, 2021 - June 30, 2021
33 22.88 — 515,240
23,941 $ 20.52 23,640 515,240

Period	(a) Total Number of Shares (or Units) Purchased⁽¹⁾		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs⁽²⁾		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Be Purchased Under the Plans or Programs⁽²⁾
January 1, 2022 - January 31, 2022		62	$	18.41		—		205,692
February 1, 2022 - February 28, 2022		77,545		19.95		77,248		128,444
March 1, 2022 - March 31, 2022		13,173		20.07		—		128,444
		90,780	$	19.96		77,248		128,444

⁽¹⁾	Includes ~~301~~13,532 shares surrendered to cover the payroll taxes due upon the vesting of restricted stock.

⁽²⁾

On ~~March 17, 2021,~~April 21, 2022, the Company announced that its board of directors authorized the repurchase of an additional ~~300,000~~400,000 shares of the Company’s common stock under its stock repurchase ~~plan, in addition to~~plan. As of May 2, 2022, the ~~264,830~~Company had 502,954 shares ~~that were~~ remaining as authorized for repurchase at December 31, 2020. On May 19, 2021, the Company announced that its board of directors authorized the repurchase of an additional 200,000 shares of the Company's common stock through July 31, 2021.

repurchase.

Since we are a holding company with no material business activities, our ability to pay dividends is substantially dependent upon the ability of the 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 under federal banking laws that are described in Part I Item 1 “Business”, of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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 corporation’s 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 we 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. Under the terms of our 5.125% Fixed-to-Floating Rate Subordinated Notes due 2032, we are 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.

7062

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Item 6. Exhibits

Exhibit No.						Description of Exhibit

2.1						Agreement and Plan of Reorganization, dated January 21, 2021 by and among Investar Holding Corporation, Cheaha Financial Group, Inc. and High Point Acquisition, Inc.⁽¹⁾

3.1						Restated Articles of Incorporation of Investar Holding Corporation⁽²⁾

3.2						Amended and Restated By-laws of Investar Holding Corporation⁽³⁾

4.1						Specimen Common Stock Certificate⁽⁴⁾

4.2						Indenture, dated March 24, 2017, by and between Investar Holding Corporation and Wilmington Trust, National Association, as Trustee⁽⁵⁾

4.3						Supplemental Indenture, dated March 24, 2017, by and between Investar Holding Corporation and Wilmington Trust, National Association, as Trustee⁽⁶⁾

4.4						Form of 5.125% Fixed to Fluctuation Rate Subordinated Note due 2029⁽⁷⁾

4.5						Form of Registration Rights Agreement, dated December 20, 2019, by and between Investar Holding Corporation and the purchasers set forth therein⁽⁸⁾

~~10.1~~4.6						~~Amended~~Indenture, dated April 6, 2022, by and ~~Restated~~among Investar Holding Corporation ~~2017 Long-Term Incentive Compensation Plan~~and UMB Bank, National Association, as trustee⁽⁹⁾

4.7						Form of 5.125% Fixed-to-Floating Rate Subordinated Note due 2032⁽¹⁰⁾

4.8						Form of Subordinated Note Purchase Agreement, dated April 6, 2022, by and among Investar Holding Corporation and the several purchasers identified on the signature pages thereto⁽¹¹⁾

4.9						Form of Registration Rights Agreement, dated April 6, 2022, by and among Investar Holding Corporation and the several purchasers identified on the signature pages thereto⁽¹²⁾

10.1*						Resignation agreement with Travis Lavergne, dated July 9, 2021

31.1						Certification of the Principal Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of the Principal Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1						Certification of the Principal Executive Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of the Principal Financial Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						Inline XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

104						Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

⁽¹⁾

Filed as exhibit 2.1 to the Current Report on Form 8-K of the Company filed with the SEC on January 25, 2021 and incorporated herein by reference.

⁽²⁾

Filed as exhibit 3.1 to the Registration Statement on Form S-1 of the Company filed with the SEC on May 16, 2014 and incorporated herein by reference.

⁽³⁾

Filed as exhibit 3.2 to the Registration Statement on Form S-4 of the Company filed with the SEC on October 10, 2017 and incorporated herein by reference.

⁽⁴⁾

Filed as exhibit 4.1 to the Registration Statement on Form S-1 of the Company filed with the SEC on May 16, 2014 and incorporated herein by reference.

⁽⁵⁾

Filed as exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on March 24, 2017 and incorporated herein by reference.

⁽⁶⁾

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

⁽⁷⁾

Filed as exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on November 14, 2019 and incorporated herein by reference.

	⁽⁸⁾	Filed as exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on December 24, 2019 and incorporated herein by reference.
	⁽⁹⁾	Filed as exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on April 7, 2022 and incorporated herein by reference.
	⁽¹⁰⁾	Filed as exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on April 7, 2022 and incorporated herein by reference.
	⁽¹¹⁾	Filed as exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on ~~May 20, 2021~~April 7, 2022 and incorporated herein by reference.
	⁽¹²⁾	Filed as exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on April 7, 2022 and incorporated herein by reference.

* Management contract or compensatory plan or arrangement.

The Company does not have any long-term debt instruments under which securities are authorized exceeding 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company will furnish to the SEC, upon its request, a copy of all long-term debt instruments.

7163

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SIGNATURES

Pursuant to the requirements 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.

						INVESTAR HOLDING CORPORATION

Date: ~~August 6, 2021~~May 4, 2022						/s/ John J. D’Angelo
						John J. D’Angelo
						President and Chief Executive Officer
						(Principal Executive Officer)

Date: ~~August 6, 2021~~May 4, 2022						/s/ Christopher L. Hufft
						Christopher L. Hufft
						Chief Financial Officer
						(Principal Financial Officer)

Louisiana			27-1560715
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	43
	Consolidated Balance Sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	43
	Consolidated Statements of Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	54
	Consolidated Statements of Comprehensive (Loss) Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	65
	Consolidated Statements of Changes in Stockholders’ Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	76
	Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	97
	Notes to the Consolidated Financial Statements	119
	Note 1. Summary of Significant Accounting Policies	119
	Note 2. Business Combinations	1614
	Note 3. Earnings Per Share	1715
	Note 4. Investment Securities	1715
	Note 5. Loans and Allowance for Loan Losses	2018
	Note 6. Stockholders’ Equity	3228
	Note 7. Derivative Financial Instruments	3329
	Note 8. Fair Values of Financial Instruments	3430
	Note 9. Income Taxes	3935
	Note 10. Commitments and Contingencies	3935
	Note 11. Leases	4036
	Note 12. Subsequent Events	36
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4137
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6860
Item 4.	Controls and Procedures	6860

Part II. Other Information		6961

Item 1A.	Risk Factors	6961
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6961
Item 6.	Exhibits	7163
Signatures		72

	*June 30, 2021*		*December 31, 2020*		*March 31, 2022*			*December 31, 2021*
	(Unaudited)				(Unaudited)
ASSETS
Cash and due from banks	$	36,775	$	25,672	$	45,700		$	38,601
Interest-bearing balances due from other banks		229,498		9,696		45,775			57,940
Federal funds sold		500		0		130			500
Cash and cash equivalents		266,773		35,368		91,605			97,041

Available for sale securities at fair value (amortized cost of $267,706 and $263,913, respectively)		269,360		268,410
Held to maturity securities at amortized cost (estimated fair value of $12,007 and $12,649, respectively)		11,812		12,434
Loans, net of allowance for loan losses of $20,445 and $20,363, respectively		1,927,375		1,839,955
Available for sale securities at fair value (amortized cost of $436,759 and $356,639, respectively)						413,777			355,509
Held to maturity securities at amortized cost (estimated fair value of $9,900 and $10,727, respectively)						9,926			10,255
Loans held for sale						0			620
Loans, net of allowance for loan losses of $21,088 and $20,859, respectively						1,856,356			1,851,153
Equity securities		16,725		16,599		17,904			16,803
Bank premises and equipment, net of accumulated depreciation of $17,566 and $15,830, respectively		62,588		56,303
Bank premises and equipment, net of accumulated depreciation of $20,016 and $19,149, respectively						55,204			58,080
Other real estate owned, net		1,490		663		3,454			2,653
Accrued interest receivable		12,205		12,969		11,168			11,355
Deferred tax asset		508		1,360		6,600			2,239
Goodwill and other intangible assets, net		43,973		32,232		43,804			44,036
Bank owned life insurance		50,462		38,908		51,366			51,074
Other assets		9,636		5,980		11,544			12,385
Total assets	$	2,672,907	$	2,321,181	$	2,572,708		$	2,513,203

LIABILITIES
Deposits:
Noninterest-bearing	$	582,109	$	448,230	$	614,416		$	585,465
Interest-bearing		1,678,057		1,439,594		1,571,588			1,534,801
Total deposits		2,260,166		1,887,824		2,186,004			2,120,266
Advances from Federal Home Loan Bank		82,500		120,500		78,500			78,500
Repurchase agreements		6,713		5,653		1,305			5,783
Subordinated debt, net of unamortized issuance costs		42,943		42,897		43,012			42,989
Junior subordinated debt		8,320		5,949		8,420			8,384
Accrued taxes and other liabilities		21,550		15,074		21,810			14,683
Total liabilities		2,422,192		2,077,897		2,339,051			2,270,605

STOCKHOLDERS’ EQUITY
Preferred stock, no par value per share; 5,000,000 shares authorized		0		0		0			0
Common stock, $1.00 par value per share; 40,000,000 shares authorized; 10,413,390 and 10,608,869 shares issued and outstanding, respectively		10,413		10,609
Common stock, $1.00 par value per share; 40,000,000 shares authorized; 10,310,212 and 10,343,494 shares issued and outstanding, respectively						10,310			10,343
Surplus		155,847		159,485		153,531			154,932
Retained earnings		80,867		71,385		85,387			76,160
Accumulated other comprehensive income		3,588		1,805
Accumulated other comprehensive (loss) income						(15,571	)		1,163
Total stockholders’ equity		250,715		243,284		233,657			242,598
Total liabilities and stockholders’ equity	$	2,672,907	$	2,321,181	$	2,572,708		$	2,513,203

	*Three months ended June 30,*					*Six months ended June 30,*						*Three months ended March 31,*
	*2021*			*2020*		*2021*			*2020*			*2022*			*2021*
INTEREST INCOME
Interest and fees on loans	$	23,135		$	22,118	$	44,762		$	43,787		$	21,726		$	21,627
Interest on investment securities		1,009			1,455		2,188			3,150			1,955			1,179
Other interest income		203			229		366			486			186			163
Total interest income		24,347			23,802		47,316			47,423			23,867			22,969

INTEREST EXPENSE
Interest on deposits		2,114			4,190		4,416			9,222			976			2,302
Interest on borrowings		1,068			1,273		2,101			2,527			1,070			1,033
Total interest expense		3,182			5,463		6,517			11,749			2,046			3,335
Net interest income		21,165			18,339		40,799			35,674			21,821			19,634

Provision for loan losses		114			2,500		514			6,260			(449	)		400
Net interest income after provision for loan losses		21,051			15,839		40,285			29,414			22,270			19,234

NONINTEREST INCOME
Service charges on deposit accounts		607			405		1,098			976			667			491
Gain on sale of investment securities, net		1,721			1,178		2,321			1,350
Loss on sale of fixed assets, net		0			0		(2	)		0
(Loss) gain on sale of other real estate owned, net		(5	)		0		(5	)		26
Gain on call or sale of investment securities, net													6			600
Gain (loss) on sale or disposition of fixed assets, net													373			(2	)
Gain on sale of other real estate owned, net													41			0
Swap termination fee income													3,344			0
Gain on sale of loans		46			0		46			0			33			0
Servicing fees and fee income on serviced loans		65			96		129			216			21			64
Interchange fees		501			347		889			642			498			388
Income from bank owned life insurance		311			233		534			423			292			223
Change in the fair value of equity securities		91			248		156			(578	)		11			65
Other operating income		745			1,424		1,281			1,965			580			536
Total noninterest income		4,082			3,931		6,447			5,020			5,866			2,365
Income before noninterest expense		25,133			19,770		46,732			34,434			28,136			21,599

NONINTEREST EXPENSE
Depreciation and amortization		1,278			1,149		2,484			2,182			1,155			1,206
Salaries and employee benefits		9,916			8,572		18,611			16,525			9,021			8,695
Occupancy		676			536		1,313			1,067			641			637
Data processing		973			786		1,719			1,479			1,006			746
Marketing		71			78		112			110			21			41
Professional fees		378			429		736			823			379			358
Acquisition expense		1,641			255		2,002			1,006			0			361
Other operating expenses		3,027			2,675		5,792			5,195			3,210			2,765
Total noninterest expense		17,960			14,480		32,769			28,387			15,433			14,809
Income before income tax expense		7,173			5,290		13,963			6,047			12,703			6,790
Income tax expense		1,485			1,016		2,915			1,165			2,600			1,430
Net income	$	5,688		$	4,274	$	11,048		$	4,882		$	10,103		$	5,360

EARNINGS PER SHARE
Basic earnings per share	$	0.54		$	0.39	$	1.05		$	0.44		$	0.98		$	0.51
Diluted earnings per share		0.53			0.39		1.04			0.44			0.97			0.51
Cash dividends declared per common share		0.08			0.06		0.15			0.12			0.085			0.07

										*Accumulated*															*Accumulated*
										*Other*			*Total*												*Other*			*Total*
	*Common*						*Retained*			*Comprehensive*			*Stockholders’*			*Common*						*Retained*			*Comprehensive*			*Stockholders’*
	*Stock*			*Surplus*			*Earnings*			*Income (Loss)*			*Equity*			*Stock*			*Surplus*			*Earnings*			*Income (Loss)*			*Equity*
Three months ended:
June 30, 2020
March 31, 2021
Balance at beginning of period	$	10,940		$	162,380		$	60,146		$	(194	)	$	233,272		$	10,609		$	159,485		$	71,385		$	1,805		$	243,284
Surrendered shares		(2	)		(14	)		0			0			(16	)		(19	)		(337	)		0			0			(356	)
Dividends declared, $0.06 per share		0			0			(653	)		0			(653	)
Options exercised																	8			107			0			0			115
Dividends declared, $0.07 per share																	0			0			(747	)		0			(747	)
Stock-based compensation		4			445			0			0			449			64			336			0			0			400
Shares repurchased		(102	)		(1,082	)		0			0			(1,184	)		(226	)		(3,769	)		0			0			(3,995	)
Net income		0			0			4,274			0			4,274			0			0			5,360			0			5,360
Other comprehensive income, net		0			0			0			564			564			0			0			0			4,190			4,190
Balance at end of period	$	10,840		$	161,729		$	63,767		$	370		$	236,706		$	10,436		$	155,822		$	75,998		$	5,995		$	248,251

June 30, 2021
March 31, 2022
Balance at beginning of period	$	10,436		$	155,822		$	75,998		$	5,995		$	248,251		$	10,343		$	154,932		$	76,160		$	1,163		$	242,598
Surrendered shares		0			(6	)		0			0			(6	)		(14	)		(258	)		0			0			(272	)
Dividends declared, $0.08 per share		0			0			(819	)		0			(819	)
Dividends declared, $0.085 per share																	0			0			(876	)		0			(876	)
Stock-based compensation		1			493			0			0			494			58			324			0			0			382
Shares repurchased		(24	)		(462	)		0			0			(486	)		(77	)		(1,467	)		0			0			(1,544	)
Net income		0			0			5,688			0			5,688			0			0			10,103			0			10,103
Other comprehensive loss, net		0			0			0			(2,407	)		(2,407	)		0			0			0			(16,734	)		(16,734	)
Balance at end of period	$	10,413		$	155,847		$	80,867		$	3,588		$	250,715		$	10,310		$	153,531		$	85,387		$	(15,571	)	$	233,657

Cash flows from financing activities:
Net increase in customer deposits	$	165,559		$	145,013			65,630			122,074
Net increase in repurchase agreements		1,060			1,913
Net (decrease) increase in short-term FHLB advances		(38,000	)		30,000
Repayments of long-term FHLB advances		0			(3,100	)
Net decrease in repurchase agreements								(4,478	)		(1,379	)
Net decrease in short-term FHLB advances								0			(38,000	)
Cash dividends paid on common stock		(1,426	)		(1,339	)		(829	)		(693	)
Proceeds from stock options and warrants exercised		115			46
Proceeds from stock options exercised								0			115
Payments to repurchase common stock		(4,481	)		(7,843	)		(1,544	)		(3,995	)
Payments of stock issuance costs		0			(45	)
Net cash provided by financing activities	$	122,827		$	164,645			58,779			78,122

Net change in cash and cash equivalents	$	231,405		$	86,269			(5,436	)		64,099
Cash and cash equivalents, beginning of period		35,368			44,695			97,041			35,368
Cash and cash equivalents, end of period	$	266,773		$	130,964		$	91,605		$	99,467

Purchase price:
Cash paid	$	11,162

Fair value of assets acquired:
Cash and cash equivalents		353
Loans		45,299
Bank premises and equipment		2,770
Core deposit intangible asset		170
Other assets		163
Total assets acquired		48,755

Fair value of liabilities acquired:
Deposits		36,973
Other liabilities		1,084
Total liabilities assumed		38,057

Fair value of net assets acquired		10,698
Goodwill	$	464

Purchase price:
Cash paid	$	41,067

Fair value of assets acquired:
Cash and cash equivalents		49,179
Investment securities		60,938
Loans		120,395
Bank premises and equipment		5,407
Core deposit intangible asset		848
Bank owned life insurance		3,023
Other assets		863
Total assets acquired		240,653

Fair value of liabilities acquired:
Deposits		206,986
Notes payable		2,327
Other liabilities		1,655
Total liabilities assumed		210,968

Fair value of net assets acquired		29,685
Goodwill	$	11,382

			*Gross*		*Gross*							*Gross*		*Gross*
			*Unrealized*		*Unrealized*			*Fair*				*Unrealized*		*Unrealized*			*Fair*
	*Amortized Cost*		*Gains*		*Losses*			*Value*		*Amortized Cost*		*Gains*		*Losses*			*Value*
June 30, 2021
March 31, 2022
Obligations of U.S. government agencies and corporations	$	25,336	$	151	$	(39	)	$	25,448	$	20,687	$	102	$	(129	)	$	20,660
Obligations of state and political subdivisions		26,300		728		(31	)		26,997		27,871		30		(1,001	)		26,900
Corporate bonds		28,879		294		(94	)		29,079		26,475		61		(1,379	)		25,157
Residential mortgage-backed securities		124,197		1,270		(512	)		124,955		282,726		132		(17,563	)		265,295
Commercial mortgage-backed securities		62,994		505		(618	)		62,881		79,000		179		(3,414	)		75,765
Total	$	267,706	$	2,948	$	(1,294	)	$	269,360	$	436,759	$	504	$	(23,486	)	$	413,777

			*Less than 12 Months*					*12 Months or More*					*Total*
					*Unrealized*					*Unrealized*					*Unrealized*
	*Count*		*Fair Value*		*Losses*			*Fair Value*		*Losses*			*Fair Value*		*Losses*
March 31, 2022
Obligations of U.S. government agencies and corporations		15	$	3,948	$	(112	)	$	1,445	$	(17	)	$	5,393	$	(129	)
Obligations of state and political subdivisions		26		10,140		(949	)		683		(52	)		10,823		(1,001	)
Corporate bonds		45		18,377		(1,112	)		2,233		(267	)		20,610		(1,379	)
Residential mortgage-backed securities		409		237,279		(16,491	)		10,984		(1,072	)		248,263		(17,563	)
Commercial mortgage-backed securities		89		46,836		(3,012	)		11,797		(402	)		58,633		(3,414	)
Total		584	$	316,580	$	(21,676	)	$	27,142	$	(1,810	)	$	343,722	$	(23,486	)

			Less than 12 Months					12 Months or More				Total
					Unrealized					Unrealized				Unrealized
	Count		Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
March 31, 2022
Residential mortgage-backed securities		8	$	3,043	$	(41	)	$	0	$	0	$	3,043	$	(41	)
Total		8	$	3,043	$	(41	)	$	0	$	0	$	3,043	$	(41	)

	*Securities Available For Sale*				*Securities Held To Maturity*				*Securities Available For Sale*				*Securities Held To Maturity*
	*Amortized*		*Fair*		*Amortized*		*Fair*		*Amortized*		*Fair*		*Amortized*		*Fair*
	*Cost*		*Value*		*Cost*		*Value*		*Cost*		*Value*		*Cost*		*Value*
June 30, 2021
March 31, 2022
Due within one year	$	436	$	438	$	830	$	833	$	280	$	282	$	870	$	872
Due after one year through five years		12,537		12,695		2,745		2,767		13,462		13,293		1,875		1,881
Due after five years through ten years		51,879		52,732		4,409		4,429		48,009		46,880		4,041		4,048
Due after ten years		202,854		203,495		3,828		3,978		375,008		353,322		3,140		3,099
Total debt securities	$	267,706	$	269,360	$	11,812	$	12,007	$	436,759	$	413,777	$	9,926	$	9,900

	*June 30, 2021*																*March 31, 2022*
	*Accruing*																*Accruing*
	*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*		*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	$	212,493	$	0	$	0	$	0	$	577	$	577	$	0	$	213,070	$	200,950	$	0	$	0	$	0	$	272	$	272	$	0	$	201,222
1-4 Family		372,640		304		370		0		1,991		2,665		385		375,690		361,695		4,867		83		0		548		5,498		327		367,520
Multifamily		59,671		638		0		0		0		638		0		60,309		52,500		0		0		0		0		0		0		52,500
Farmland		20,059		0		206		0		297		503		1,701		22,263		17,545		20		0		0		74		94		657		18,296
Commercial real estate		877,514		39		40		0		5,485		5,564		637		883,715		894,782		82		170		0		12,540		12,792		636		908,210
Total mortgage loans on real estate		1,542,377		981		616		0		8,350		9,947		2,723		1,555,047		1,527,472		4,969		253		0		13,434		18,656		1,620		1,547,748
Commercial and industrial		359,599		581		7		1,610		8,406		10,604		0		370,203		302,895		239		114		47		10,798		11,198		0		314,093
Consumer		22,040		181		36		0		245		462		68		22,570		15,170		132		54		0		186		372		61		15,603
Total loans	$	1,924,016	$	1,743	$	659	$	1,610	$	17,001	$	21,013	$	2,791	$	1,947,820	$	1,845,537	$	5,340	$	421	$	47	$	24,418	$	30,226	$	1,681	$	1,877,444

	*December 31, 2020*										*December 31, 2021*
			*Special*										*Special*
	*Pass*		*Mention*		*Substandard*		*Doubtful*		*Total*		*Pass*		*Mention*		*Substandard*		*Doubtful*		*Total*
Construction and development	$	198,139	$	7,352	$	520	$	0	$	206,011	$	200,788	$	818	$	1,598	$	0	$	203,204
1-4 Family		337,829		0		1,696		0		339,525		358,062		38		6,207		0		364,307
Multifamily		60,724		0		0		0		60,724		59,113		0		457		0		59,570
Farmland		24,846		0		1,701		0		26,547		18,348		0		1,780		0		20,128
Commercial real estate		801,244		4,729		6,422		0		812,395		872,951		3,891		19,535		0		896,377
Total mortgage loans on real estate		1,422,782		12,081		10,339		0		1,445,202		1,509,262		4,747		29,577		0		1,543,586
Commercial and industrial		379,451		4,794		9,343		909		394,497		290,677		2,523		16,941		690		310,831
Consumer		20,235		0		384		0		20,619		17,269		19		307		0		17,595
Total loans	$	1,822,468	$	16,875	$	20,066	$	909	$	1,860,318	$	1,817,208	$	7,289	$	46,825	$	690	$	1,872,012

	*Three months ended June 30, 2021*																							*Three months ended March 31, 2022*
	*Construction &*												*Commercial*		*Commercial &*									*Construction &*											*Commercial*		*Commercial &*
	*Development*			*Farmland*			*1-4 Family*			*Multifamily*			*Real Estate*		*Industrial*			*Consumer*			*Total*			*Development*		*1-4 Family*			*Multifamily*			*Farmland*			*Real Estate*		*Industrial*			*Consumer*			*Total*
Allowance for loan losses:
Beginning balance	$	2,245		$	395		$	3,369		$	696		$	9,045	$	4,226		$	447		$	20,423		$	2,347	$	3,337		$	673		$	383		$	9,354	$	4,411		$	354		$	20,859
Provision		23			16			(152	)		(23	)		102		154			(6	)		114			45		(3	)		(83	)		13			256		(677	)		0			(449	)
Charge-offs		(11	)		(13	)		0			0			0		(88	)		(43	)		(155	)		0		0			0			(54	)		58		(286	)		(47	)		(329	)
Recoveries		3			0			14			0			1		14			31			63			16		70			0			0			1		908			12			1,007
Ending balance	$	2,260		$	398		$	3,231		$	673		$	9,148	$	4,306		$	429		$	20,445		$	2,408	$	3,404		$	590		$	342		$	9,669	$	4,356		$	319		$	21,088
Ending allowance balance for loans individually evaluated for impairment																									0		0			0			0			0		468			74			542
Ending allowance balance for loans acquired with deteriorated credit quality																									0		0			0			156			0		0			0			156
Ending allowance balance for loans collectively evaluated for impairment																									2,408		3,404			590			186			9,669		3,888			245			20,390
Loans receivable:
Balance of loans individually evaluated for impairment																									508		996			0			74			12,940		12,518			186			27,222
Balance of loans acquired with deteriorated credit quality																									0		327			0			657			636		0			61			1,681
Balance of loans collectively evaluated for impairment																									200,714		366,197			52,500			17,565			894,634		301,575			15,356			1,848,541
Total period-end balance																								$	201,222	$	367,520		$	52,500		$	18,296		$	908,210	$	314,093		$	15,603		$	1,877,444

	*Three months ended June 30, 2020*
	*Construction &*								*Commercial*			*Commercial &*
	*Development*		*Farmland*		*1-4 Family*		*Multifamily*		*Real Estate*			*Industrial*		*Consumer*			*Total*
Allowance for loan losses:
Beginning balance	$	1,554	$	163	$	2,337	$	351	$	5,863		$	3,287	$	678		$	14,233
Provision		495		44		496		135		1,311			46		(27	)		2,500
Charge-offs		0		0		0		0		(76	)		0		(75	)		(151	)
Recoveries		9		0		5		0		31			3		27			75
Ending balance	$	2,058	$	207	$	2,838	$	486	$	7,129		$	3,336	$	603		$	16,657

	*Six months ended June 30, 2021*
	*Construction &*											*Commercial*		*Commercial &*
	*Development*			*Farmland*			*1-4 Family*			*Multifamily*		*Real Estate*		*Industrial*			*Consumer*			*Total*
Allowance for loan losses:
Beginning balance	$	2,375		$	435		$	3,370		$	589	$	8,496	$	4,558		$	540		$	20,363
Provision		(117	)		(24	)		(25	)		84		649		32			(85	)		514
Charge-offs		(11	)		(13	)		(134	)		0		0		(303	)		(99	)		(560	)
Recoveries		13			0			20			0		3		19			73			128
Ending balance	$	2,260		$	398		$	3,231		$	673	$	9,148	$	4,306		$	429		$	20,445
Ending allowance balance for loans individually evaluated for impairment		0			0			0			0		175		0			106			281
Ending allowance balance for loans acquired with deteriorated credit quality		0			210			0			0		0		0			0			210
Ending allowance balance for loans collectively evaluated for impairment		2,260			188			3,231			673		8,973		4,306			323			19,954
Loans receivable:
Balance of loans individually evaluated for impairment		828			297			2,637			0		8,971		10,861			246			23,840
Balance of loans acquired with deteriorated credit quality		0			1,701			385			0		637		0			68			2,791
Balance of loans collectively evaluated for impairment		212,242			20,265			372,668			60,309		874,107		359,342			22,256			1,921,189
Total period-end balance	$	213,070		$	22,263		$	375,690		$	60,309	$	883,715	$	370,203		$	22,570		$	1,947,820

	*Six months ended June 30, 2020*
	*Construction &*									*Commercial*			*Commercial &*
	*Development*		*Farmland*		*1-4 Family*			*Multifamily*		*Real Estate*			*Industrial*			*Consumer*			*Total*
Allowance for loan losses:
Beginning balance	$	1,201	$	101	$	1,490		$	387	$	4,424		$	2,609		$	488		$	10,700
Provision		835		106		1,499			99		2,750			729			242			6,260
Charge-offs		0		0		(160	)		0		(76	)		(7	)		(170	)		(413	)
Recoveries		22		0		9			0		31			5			43			110
Ending balance	$	2,058	$	207	$	2,838		$	486	$	7,129		$	3,336		$	603		$	16,657
Ending allowance balance for loans individually evaluated for impairment		0		0		0			0		0			13			159			172
Ending allowance balance for loans acquired with deteriorated credit quality		0		0		0			0		0			0			0			0
Ending allowance balance for loans collectively evaluated for impairment		2,058		207		2,838			486		7,129			3,323			444			16,485
Loans receivable:
Balance of loans individually evaluated for impairment		1,082		0		1,237			0		4,220			7,051			487			14,077
Balance of loans acquired with deteriorated credit quality		0		2,264		398			0		1,803			306			41			4,812
Balance of loans collectively evaluated for impairment		198,337		26,581		324,467			60,617		777,536			382,728			24,816			1,795,082
Total period-end balance	$	199,419	$	28,845	$	326,102		$	60,617	$	783,559		$	390,085		$	25,344		$	1,813,971

	*Three months ended March 31, 2021*
	*Construction &*											*Commercial*		*Commercial &*
	*Development*			*1-4 Family*			*Multifamily*		*Farmland*			*Real Estate*		*Industrial*			*Consumer*			*Total*
Allowance for loan losses:
Beginning balance	$	2,375		$	3,370		$	589	$	435		$	8,496	$	4,558		$	540		$	20,363
Provision		(140	)		127			107		(40	)		547		(122	)		(79	)		400
Charge-offs		0			(134	)		0		0			0		(215	)		(56	)		(405	)
Recoveries		10			6			0		0			2		5			42			65
Ending balance	$	2,245		$	3,369		$	696	$	395		$	9,045	$	4,226		$	447		$	20,423
Ending allowance balance for loans individually evaluated for impairment		0			0			0		0			175		81			103			359
Ending allowance balance for loans acquired with deteriorated credit quality		0			0			0		210			0		0			0			210
Ending allowance balance for loans collectively evaluated for impairment		2,245			3,369			696		185			8,870		4,145			344			19,854
Loans receivable:
Balance of loans individually evaluated for impairment		774			1,532			0		302			6,654		8,159			298			17,719
Balance of loans acquired with deteriorated credit quality		0			375			0		1,701			534		0			37			2,647
Balance of loans collectively evaluated for impairment		190,042			339,359			60,844		22,142			822,692		372,375			18,150			1,825,604
Total period-end balance	$	190,816		$	341,266		$	60,844	$	24,145		$	829,880	$	380,534		$	18,485		$	1,845,970

	*June 30, 2021*						*March 31, 2022*
	*Recorded Investment*		*Unpaid Principal Balance*		*Related Allowance*		*Recorded Investment*		*Unpaid Principal Balance*		*Related Allowance*
With no related allowance recorded:
Construction and development	$	828	$	836	$	—	$	508	$	791	$	—
1-4 Family		2,637		2,710		—		996		1,087		—
Farmland		297		298		—		74		79		—
Commercial real estate		7,699		7,787		—		12,940		23,355		—
Total mortgage loans on real estate		11,461		11,631		—		14,518		25,312		—
Commercial and industrial		10,861		12,100		—		8,593		9,274		—
Consumer		96		112		—		81		94		—
Total		22,418		23,843		—		23,192		34,680		—

With related allowance recorded:
Commercial real estate		1,272		1,322		175
Total mortgage loans on real estate		1,272		1,322		175
Commercial and industrial		0		0		0		3,925		9,618		468
Consumer		150		193		106		105		137		74
Total		1,422		1,515		281		4,030		9,755		542

Total loans:
Construction and development		828		836		0		508		791		0
1-4 Family		2,637		2,710		0		996		1,087		0
Farmland		297		298		0		74		79		0
Commercial real estate		8,971		9,109		175		12,940		23,355		0
Total mortgage loans on real estate		12,733		12,953		175		14,518		25,312		0
Commercial and industrial		10,861		12,100		0		12,518		18,892		468
Consumer		246		305		106		186		231		74
Total	$	23,840	$	25,358	$	281	$	27,222	$	44,435	$	542

			*Quoted Prices in*		*Significant Other*		*Significant*				*Quoted Prices in*		*Significant Other*		*Significant*
			*Active Markets for*		*Observable*		*Unobservable*				*Active Markets for*		*Observable*		*Unobservable*
	*Estimated*		*Identical Assets*		*Inputs*		*Inputs*		*Estimated*		*Identical Assets*		*Inputs*		*Inputs*
	*Fair Value*		*(Level 1)*		*(Level 2)*		*(Level 3)*		*Fair Value*		*(Level 1)*		*(Level 2)*		*(Level 3)*
June 30, 2021
March 31, 2022
Assets:
Obligations of U.S. government agencies and corporations	$	25,448	$	0	$	25,448	$	0	$	20,660	$	0	$	20,660	$	0
Obligations of state and political subdivisions		26,997		0		9,113		17,884		26,900		0		10,888		16,012
Corporate bonds		29,079		0		29,079		0		25,157		0		24,652		505
Residential mortgage-backed securities		124,955		0		124,955		0		265,295		0		265,295		0
Commercial mortgage-backed securities		62,881		0		62,881		0		75,765		0		75,765		0
Equity securities		1,752		1,752		0		0		1,609		1,609		0		0
Derivative financial instruments		2,884		0		2,884		0		3,270		0		3,270		0
Total assets	$	273,996	$	1,752	$	254,360	$	17,884	$	418,656	$	1,609	$	400,530	$	16,517

December 31, 2020
December 31, 2021
Assets:
Obligations of U.S. government agencies and corporations	$	36,821	$	0	$	36,821	$	0	$	21,268	$	0	$	21,268	$	0
Obligations of state and political subdivisions		22,137		0		3,621		18,516		32,585		0		10,471		22,114
Corporate bonds		27,708		0		27,708		0		27,667		0		27,179		488
Residential mortgage-backed securities		122,598		0		122,598		0		199,904		0		199,904		0
Commercial mortgage-backed securities		59,146		0		59,146		0		74,085		0		74,085		0
Equity securities		1,670		1,670		0		0		1,810		1,810		0		0
Derivative financial instruments										2,599		0		2,599		0
Total assets	$	270,080	$	1,670	$	249,894	$	18,516	$	359,918	$	1,810	$	335,506	$	22,602
Liabilities:
Derivative financial instruments	$	2,216	$	0	$	2,216	$	0

	*Obligations of State and*			*Obligations of State and*
	*Political Subdivisions*			*Political Subdivisions*			*Corporate Bonds*
Balance at December 31, 2020	$	18,516
Balance at December 31, 2021				$	22,114		$	488
Realized gains (losses) included in earnings		0			0			0
Unrealized losses included in other comprehensive income (loss)		(632	)
Unrealized (losses) gains included in other comprehensive (loss) income					(1,077	)		17
Purchases		0			0			0
Sales		0			0			0
Maturities, prepayments, and calls		0			(25	)		0
Transfers into level 3		0			0			0
Transfers out of level 3		0			(5,000	)		0
Balance at June 30, 2021	$	17,884
Balance at March 31, 2022				$	16,012		$	505

	*Estimated*
	*Fair Value*		*Valuation Technique*	*Unobservable Inputs*	*Range of Discounts*
June 30, 2021
Obligations of State and Political Subdivisions	$	17,884	Option-adjusted discounted cash flow model; present value of expected future cash flow model	Bond Appraisal Adjustment⁽¹⁾	0%

December 31, 2020
Obligations of State and Political Subdivisions	$	18,516	Option-adjusted discounted cash flow model; present value of expected future cash flow model	Bond Appraisal Adjustment⁽¹⁾	0% - 0.4%

	*June 30, 2021*										*March 31, 2022*
	*Carrying*		*Estimated*								*Carrying*		*Estimated*
	*Amount*		*Fair Value*		*Level 1*		*Level 2*		*Level 3*		*Amount*		*Fair Value*		*Level 1*		*Level 2*		*Level 3*
Financial assets:
Cash and due from banks	$	266,273	$	266,273		266,273		0		0	$	91,475	$	91,475	$	91,475	$	0	$	0
Federal funds sold		500		500		500		0		0		130		130		130		0		0
Investment securities		281,172		281,367		0		255,454		25,913		423,703		423,677		0		400,359		23,318
Equity securities		16,725		16,725		1,752		14,973		0		17,904		17,904		1,609		16,295		0
Loans, net of allowance		1,927,375		1,949,638		0		1,949,638		0		1,856,356		1,860,269		0		0		1,860,269
Derivative financial instruments		2,884		2,884		0		2,884		0		3,270		3,270		0		3,270		0

Financial liabilities:
Deposits, noninterest-bearing	$	582,109	$	582,109	$	0	$	582,109	$	0	$	614,416	$	614,416	$	0	$	614,416	$	0
Deposits, interest-bearing		1,678,057		1,718,162		0		0		1,718,162		1,571,588		1,467,995		0		0		1,467,995
FHLB short-term advances and repurchase agreements		10,713		10,713		0		10,713		0
Repurchase agreements												1,305		1,305		0		1,305		0
FHLB long-term advances		78,500		79,149		0		0		79,149		78,500		71,524		0		0		71,524
Junior subordinated debt		8,320		7,220		0		0		7,220		8,420		8,420		0		0		8,420
Subordinated debt		43,600		39,973		0		39,973		0		43,600		39,195		0		39,195		0

	*June 30,*						*March 31,*
	*2021*			*2020*			*2022*			*2021*
Total operating lease cost	$	305		$	293		$	152		$	152
Weighted-average remaining lease term (in years)		8.2			9.0			7.6			8.4
Weighted-average discount rate		2.8	%		2.8	%		2.9	%		2.8	%

2021	$	298
2022		598	$	448
2023		595		595
2024		515		515
2025		476		476
2026				339
Thereafter		1,691		1,354
Total	$	4,173	$	3,727

Industry	Percentage of Loan Portfolio June 30, 2021			Percentage of Loan Portfolio June 30, 2021 (excluding PPP loans)			Percentage of Loan Portfolio December 31, 2020			Percentage of Loan Portfolio December 31, 2020 (excluding PPP loans)
Oil and gas		2.7	%		2.5	%		3.3	%		2.6	%
Food services		2.9			2.6			2.5			2.3
Hospitality		0.4			0.4			0.4			0.4
Entertainment		0.4			0.4			0.4			0.4
Total		6.4	%		5.9	%		6.6	%		5.7	%

	June 30, 2021				December 31, 2020
	Certificates of Deposit		Other Time Deposits		Certificates of Deposit		Other Time Deposits
Time remaining until maturity:
Three months or less	$	86,853	$	2,521	$	78,482	$	1,733
Over three months through six months		65,012		1,774		73,456		2,619
Over six months through twelve months		104,041		6,166		108,901		3,128
Over one year through three years		71,505		4,995		90,101		4,202
Over three years		12,472		329		10,529		283
	$	339,883	$	15,785	$	361,469	$	11,965

	Six months ended June 30, 2021 vs.
	Six months ended June 30, 2020
	Volume			Rate			Net⁽¹⁾
Interest income:
Loans	$	3,869		$	(2,894	)	$	975
Securities:
Taxable		331			(1,195	)		(864	)
Tax-exempt		(102	)		4			(98	)
Interest-earning balances with banks		666			(786	)		(120	)
Total interest-earning assets		4,764			(4,871	)		(107	)
Interest expense:
Interest-bearing demand deposits		771			(1,415	)		(644	)
Brokered deposits		(774	)		1,225			451
Savings deposits		70			(155	)		(85	)
Time deposits		(1,556	)		(2,972	)		(4,528	)
Short-term borrowings		(360	)		(53	)		(413	)
Long-term debt		(3	)		(10	)		(13	)
Total interest-bearing liabilities		(1,852	)		(3,380	)		(5,232	)
Change in net interest income	$	6,616		$	(1,491	)	$	5,125

	As of and for the six months ended		As of and for the year ended
	June 30, 2021		December 31, 2020
Nonaccrual loans	$	19,290	$	13,506
Accruing loans past due 90 days or more		1,609		321
Total nonperforming loans	$	20,899	$	13,827
TDRs		6,835		8,017
Total nonperforming loans and restructured loans	$	27,734	$	21,844
Interest income recognized on nonperforming loans and restructured loans	$	536	$	757
Interest income foregone on nonperforming loans and restructured loans	$	327	$	455

	Payments Due In:
	Less than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
Deposits without a stated maturity⁽¹⁾	$	1,730,498		—		—		—	$	1,730,498
Time deposits⁽¹⁾⁽²⁾		403,241		107,845		18,582		—		529,668
Securities sold under agreements to repurchase⁽¹⁾		6,713		—		—		—		6,713
Federal Home Loan Bank advances⁽¹⁾		4,000		—		23,500		55,000		82,500
Subordinated debt⁽¹⁾		—		—		—		43,600		43,600
Junior subordinated debt⁽¹⁾⁽²⁾		—		—		—		9,795		9,795
Operating lease commitment		595		1,152		904		1,522		4,173
Total contractual obligations	$	2,145,047	$	108,997	$	42,986	$	109,917	$	2,406,947