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Loans

Total loans were $1.87 billion at December 31, 2021, a decrease of $8.6 million, or 0.5%, compared to September 30, 2021, and an increase of $11.7 million, or 0.6%, compared to December 31, 2020.

The following table sets forth the composition of the total loan portfolio as of the dates indicated (dollars in thousands).

In the second quarter of 2020, the Bank began participating as a lender in the Paycheck Protection Program ("PPP") as established by the CARES Act. The PPP loans are generally 100% guaranteed by the Small Business Administration ("SBA"), have an interest rate of 1%, and are eligible to be forgiven based on certain criteria, with the SBA remitting any applicable forgiveness amount to the lender. At December 31, 2021, the balance of the Bank's PPP loans, which is included in the commercial and industrial portfolio, was $23.3 million, compared to $41.9 million at September 30, 2021 and $94.5 million at December 31, 2020. Eighty-seven percent of the total number of PPP loans we have originated have principal balances of $150,000 or less. At December 31, 2021, approximately 86% of the total balance of PPP loans originated has been forgiven by the SBA or paid off by the customer.

On April 1, 2021, we completed the acquisition of Cheaha Financial Group, Inc. ("Cheaha") and its wholly-owned subsidiary, Cheaha Bank, in Oxford, Alabama. Excluding loans acquired from Cheaha on April 1, 2021 with an aggregate balance of $96.3 million and $110.1 million at December 31, 2021 and September 30, 2021, respectively, and PPP loans with a total balance of $23.3 million ($0.3 million acquired from Cheaha), $41.9 million ($1.4 million acquired from Cheaha), and $94.5 million at December 31, 2021, September 30, 2021, and December 31, 2020, respectively, total loans increased $22.5 million, or 1.3% (5.2% annualized), compared to September 30, 2021 and decreased $13.2 million, or 0.7%, compared to December 31, 2020.

At December 31, 2021, Investar's total business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $771.0 million, an increase of $3.1 million, or 0.4%, compared to the business lending portfolio of $767.9 million at September 30, 2021, and an increase of $1.1 million, or 0.1%, compared to the business lending portfolio of $769.9 million at December 31, 2020. The increase in the business lending portfolio compared to September 30, 2021 and December 31, 2020 is primarily driven by loan growth in owner-occupied commercial real estate as we remain focused on relationship banking and growing our commercial loan portfolios. The increases due to loan growth in owner-occupied commercial real estate were partially offset by forgiveness of PPP loans, reflected in the commercial and industrial portfolio. Excluding all PPP loans and other business lending portfolio loans acquired from Cheaha of $16.9 million and $17.9 million at December 31, 2021 and September 30, 2021, respectively, Investar's total adjusted business lending portfolio was $730.8 million, an increase of $22.7 million, or 3.2%, compared to the adjusted business lending portfolio of $708.1 million at September 30, 2021, and an increase of $55.4 million, or 8.2%, compared to the adjusted business lending portfolio of $675.4 million at December 31, 2020.

Our loan portfolio 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, represent approximately 5.6% of our total portfolio, or 5.4% excluding PPP loans, at December 31, 2021, compared to 5.5% of our total portfolio, or 5.2% excluding PPP loans, at September 30, 2021 and 6.6% of our total portfolio, or 5.7% excluding PPP loans, at December 31, 2020 as shown in the table below.

Credit Quality

Nonperforming loans were $29.5 million, or 1.58% of total loans, at December 31, 2021, a decrease of $3.4 million compared to $32.9 million, or 1.75% of total loans, at September 30, 2021, and an increase of $15.7 million compared to $13.8 million, or 0.74% of total loans, at December 31, 2020. The increase in nonperforming loans compared to December 31, 2020 is mainly attributable to one loan relationship, discussed further below, which added $15.5 million to the balance of nonperforming loans at December 31, 2021. Included in nonperforming loans are acquired loans with a balance of $4.0 million at December 31, 2021, or 14% of nonperforming loans.

The allowance for loan losses was $20.9 million, or 70.6% and 1.11% of nonperforming and total loans, respectively, at December 31, 2021, compared to $20.6 million, or 62.4% and 1.09%, respectively, at September 30, 2021, and $20.4 million, or 147.3% and 1.09%, respectively, at December 31, 2020.

The provision for loan losses was $0.7 million for the quarter ended December 31, 2021 compared to $21.7 million and $2.4 million for the quarters ended September 30, 2021 and December 31, 2020, respectively. The provision for loan losses for the quarter ended September 30, 2021 includes an impairment charge of $21.6 million related to a loan relationship with related borrowers (collectively, the "Borrower") consisting of multiple loans that are secured by various types of collateral. As a result of Hurricane Ida, which made landfall in Louisiana as a category 4 hurricane on August 29, 2021, the Borrower's business operations were disrupted causing a significant reduction in value of some of the collateral supporting the loan relationship, including real estate, inventory, and equipment.

In the third quarter of 2021, Investar instituted a 90-day deferral program for customers who were impacted by Hurricane Ida. Since then, the Bank has provided payment deferrals on approximately $50 million of loans. Virtually all of those loans deferred have now resumed normal payments. At December 31, 2021, Investar had approximately $2.4 million, or 0.1% of the total loan portfolio, on a 90-day deferral plan.

Deposits

Total deposits at December 31, 2021 were $2.12 billion, a decrease of $183.4 million, or 8.0%, compared to $2.30 billion at September 30, 2021, and an increase of $232.4 million, or 12.3%, compared to $1.89 billion at December 31, 2020. During the year ended December 31, 2021, the Bank utilized brokered deposits to satisfy the required borrowings under its interest rate swap agreements, due to more favorable pricing. In the third quarter of 2021, the Company terminated multiple swap agreements, the borrowings for which matured in October 2021. Therefore, the Company had no brokered deposits at December 31, 2021, which drove the decrease in deposits compared to September 30, 2021. Investar acquired approximately $207.0 million in deposits from Cheaha at the time of acquisition on April 1, 2021. The remaining increase, compared to December 31, 2020, is due to organic growth.

The COVID-19 pandemic has created a significant amount of excess liquidity in the market, and, as a result, we have 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. 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.

Our deposit mix continues to improve 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. Compared to the quarter ended December 31, 2020, noninterest-bearing deposits as a percentage of total deposits has increased while time deposits as a percentage of total deposits has decreased. Management made a strategic decision to either reprice or run-off higher yielding time deposits and other interest-bearing deposit products during 2020 and 2021, which has contributed to our decreasing cost of deposits compared to the quarters ended September 30, 2021 and December 31, 2020.

The following table sets forth the composition of deposits as of the dates indicated (dollars in thousands).

Net Interest Income

Net interest income for the fourth quarter of 2021 totaled $21.5 million, a decrease of $0.1 million, or 0.4%, compared to the third quarter of 2021, and an increase of $2.3 million, or 12.1%, compared to the fourth quarter of 2020. Included in net interest income for the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020 is $0.2 million, $0.3 million, and $0.2 million, respectively, of interest income accretion from the acquisition of loans. Also included in net interest income for the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020 are interest recoveries of $0.1 million, $0.2 million, and $10,000, respectively.

Investar's net interest margin was 3.57% for the quarter ended December 31, 2021, compared to 3.44% for the quarter ended September 30, 2021 and 3.55% for the quarter ended December 31, 2020. The increase in net interest margin for the quarter ended December 31, 2021 compared to the quarter ended September 30, 2021 was driven by a decrease in the cost of deposits. The increase in net interest margin for the quarter ended December 31, 2021 compared to December 31, 2020 was also driven by a decrease in the cost of the deposits, which decreased 46 basis points. However, the benefit of our reduced cost of deposits was largely offset by excess liquidity. The average balance of interest-bearing balances with banks for the quarter ended December 31, 2021, as shown on our net interest margin table, increased $168.6 million compared to the quarter ended December 31, 2020, and resulted in downward pressure of 26 basis points on the net interest margin.

The yield on interest-earning assets was 3.95% for the quarter ended December 31, 2021, compared to 3.91% for the quarter ended September 30, 2021 and 4.26% for the quarter ended December 31, 2020. The increase in the yield on interest-earning assets compared to the quarter ended September 30, 2021 was driven by a 25 basis point increase in the yield on taxable securities, partially offset by an 11 basis point decrease in the yield on our loan portfolio. The decrease in the yield on interest-earning assets compared to the quarter ended December 31, 2020 was driven by excess liquidity, discussed above. In response to the pandemic, during March 2020, the Federal Reserve reduced the federal funds rate 150 basis points to 0 to 0.25 percent, which has affected the yields that we earn on our interest-earning assets. In addition, the PPP loans originated have a contractual interest rate of 1% and origination fees based on the loan amount, which impacts the yield on our loan portfolio.

Exclusive of PPP loans, which had an average balance of $33.2 million and related interest and fee income of $1.0 million for the quarter ended December 31, 2021, compared to an average balance of $58.5 million and related interest and fee income of $1.3 million for the quarter ended September 30, 2021 and an average balance of $106.6 million and related interest and fee income of $1.1 million for the quarter ended December 31, 2020, adjusted net interest margin was 3.46% for the quarter ended December 31, 2021, compared to an adjusted net interest margin of 3.31% for the quarter ended September 30, 2021 and 3.53% for the quarter ended December 31, 2020. Included in PPP interest and fee income for the quarters ended December 31, 2021, September 30, 2021, and December 31, 2020 is $0.8 million, $1.0 million, and $0.4 million, respectively, of accelerated fee income recognized due to the forgiveness or pay-off of PPP loans prior to maturity. Refer to the Reconciliation of Non-GAAP Financial Measures table for a reconciliation of GAAP to non-GAAP metrics.

Exclusive of the interest income accretion from the acquisition of loans, interest recoveries, and accelerated fee income recognized due to the forgiveness or pay-off of PPP loans, all discussed above, adjusted net interest margin increased to 3.38% for the quarter ended December 31, 2021, compared to 3.21% for the quarter ended September 30, 2021, and decreased compared to 3.45% for the quarter ended December 31, 2020. The adjusted yield on interest-earning assets was 3.76% for the quarter ended December 31, 2021 compared to 3.67% and 4.16% for the quarters ended September 30, 2021 and December 31, 2020, respectively. Refer to the Reconciliation of Non-GAAP Financial Measures table for a reconciliation of GAAP to non-GAAP metrics.

The cost of deposits decreased 13 basis points to 0.30% for the quarter ended December 31, 2021 compared to 0.43% for the quarter ended September 30, 2021 and decreased 46 basis points compared to 0.76% for the quarter ended December 31, 2020. The decrease in the cost of deposits compared to the quarters ended September 30, 2021 and December 31, 2020 reflects the decrease in rates paid for all categories of interest-bearing deposits.

The overall costs of funds for the quarter ended December 31, 2021 decreased 11 basis points to 0.52% compared to 0.63% for the quarter ended September 30, 2021 and decreased 43 basis points compared to 0.95% for the quarter ended December 31, 2020. The decrease in the cost of funds for the quarter ended December 31, 2021 compared to the quarters ended September 30, 2021 and December 31, 2020 resulted from both lower cost of deposits and lower average balances of short-term borrowings, the costs of which are driven by the Federal Reserve's federal funds rates.

Noninterest Income

Noninterest income for the fourth quarter of 2021 totaled $1.7 million, a decrease of $2.2 million, or 57.1%, compared to the third quarter of 2021 and a decrease of $2.0 million, or 54.3%, compared to the fourth quarter of 2020. The decrease in noninterest income compared to the quarter ended September 30, 2021 was driven by a $1.8 million decrease in swap termination fees and the $0.4 million loss on sale or disposition of fixed assets. Swap termination fees were recorded when we voluntarily terminated a number of our interest rate swap agreements at the end of September 2021. The loss on sale or disposition of fixed assets was recorded when Investar reclassified two branch locations that were closed in 2021, totaling $1.9 million, as other real estate owned. The decrease in noninterest income compared to the quarter ended December 31, 2020 is mainly attributable to a $1.2 million decrease in other operating income and a $0.9 million difference in the fair value of our equity securities. The decrease in other operating income compared to the quarter ended December 31, 2020 was attributable to a $1.1 million decrease in derivative fee income.

Noninterest Expense

Noninterest expense for the fourth quarter of 2021 totaled $13.9 million, a decrease of $2.5 million, or 15.1%, compared to the third quarter of 2021, and a decrease of $0.8 million, or 5.3%, compared to the fourth quarter of 2020. The decrease in noninterest expense for the quarter ended December 31, 2021 compared to the quarter ended September 30, 2021 was driven by a $2.6 million decrease in salaries and employee benefits expense and a $0.4 million decrease in acquisition expense, partially offset by a $0.4 million increase in other operating expenses primarily attributable to the increase in the provision for unfunded loan commitments. The decrease in salaries and employee benefits expense was primarily due to the $1.9 million Employee Retention Credit ("ERC"), which was recognized as a credit to payroll taxes in the quarter ended December 31, 2021. Also included in noninterest expense for the quarter ended December 31, 2021 is $0.1 million of professional fees incurred in connection with the ERC.

The decrease in noninterest expense for the quarter ended December 31, 2021 compared to the quarter ended December 31, 2020 is primarily a result of a $1.5 million decrease in salaries and employee benefits, driven by the $1.9 million ERC discussed above, partially offset by a $0.4 million increase in other operating expenses, also discussed above.

Taxes

Investar recorded income tax expense of $1.6 million for the quarter ended December 31, 2021, which equates to an effective tax rate of 19.1%, a decrease from the effective tax rates of 21.0% for the quarter ended September 30, 2021 and 20.9% for the quarter ended December 31, 2020.

Basic and Diluted Earnings Per Common Share

Investar reported basic and diluted earnings per common share of $0.67 for the quarter ended December 31, 2021, compared to basic and diluted loss per common share of $0.95 for the quarter ended September 30, 2021, and basic and diluted earnings per common share of $0.42 for the quarter ended December 31, 2020.

About Investar Holding Corporation

Investar, headquartered in Baton Rouge, Louisiana, provides full banking services, excluding trust services, through its wholly-owned banking subsidiary, Investar Bank, National Association. The Bank currently operates 33 branch locations serving Louisiana, Texas, and Alabama. At December 31, 2021, the Bank had 343 full-time equivalent employees and total assets of $2.5 billion.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with generally accepted accounting principles in the United States of America, or GAAP. These measures and ratios include "tangible common equity," "tangible assets," "tangible equity to tangible assets," "tangible book value per common share," "core noninterest income," "core earnings before noninterest expense," "core noninterest expense," "core (loss) earnings before income tax expense," "core income tax (benefit) expense," "core (loss) earnings," "core efficiency ratio," "core return on average assets," "core return on average equity," "core basic (loss) earnings per share," and "core (loss) diluted earnings per share." We also present certain average loan, yield, net interest income and net interest margin data adjusted to show the effects of excluding PPP loans, interest income accretion from the acquisition of loans, and interest recoveries. Management believes these non-GAAP financial measures provide information useful to investors in understanding Investar's financial results, and Investar believes that its presentation, together with the accompanying reconciliations, provide a more complete understanding of factors and trends affecting Investar's business and allow investors to view performance in a manner similar to management, the entire financial services sector, bank stock analysts and bank regulators. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results, and Investar strongly encourages investors to review its consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. A reconciliation of the non-GAAP financial measures disclosed in this press release to the comparable GAAP financial measures is included at the end of the financial statement tables.

Forward-Looking and Cautionary Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect Investar's current views with respect to, among other things, future events and financial performance. Investar generally identifies forward-looking statements by terminology such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "could," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," or the negative version of those words or other comparable words. In addition, any of the following matters related to the pandemic may impact our financial results in future periods, and such impacts may be material depending on the length and severity of the pandemic and government and societal responses to it:

• borrowers may default on loans and economic conditions could deteriorate requiring further increases to the allowance for loan losses;

• demand for our loans and other banking services, and related income and fees, may be reduced; and

• the value of collateral securing our loans may deteriorate.

Any forward-looking statements contained in this press release are based on the historical performance of Investar and its subsidiaries or on Investar's current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by Investar that the future plans, estimates or expectations by Investar will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to Investar's operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if Investar's underlying assumptions prove to be incorrect, Investar's actual results may vary materially from those indicated in these statements. Investar does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. 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 ongoing impacts of the COVID-19 pandemic on economic conditions in general and on the Bank's markets in particular, and on the Bank's operations and financial results, including but not limited to potential continued higher inflation, and supply and labor constraints;

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

• business and economic conditions generally and in the financial services industry in particular, whether nationally, regionally or in the markets in which we operate;

• increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online and remote activity;

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

• 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 acquired operations;

• changes (or the lack of changes) in interest rates, yield curves and interest rate spread relationships that affect our loan and deposit pricing, including potential continued increases in interest rates during 2022;

• cessation of the one-week and two-month U.S. dollar settings of LIBOR as of December 31, 2021 and announced cessation of the remaining U.S. dollar LIBOR settings after June 30, 2023, and the related effect on our LIBOR-based financial products and contracts, including, but not limited to, hedging products, debt obligations, investments and loans;

• the 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; and

• concentration of credit exposure.

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 in the "Special Note Regarding Forward-Looking Statements" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Investar's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the "SEC").

For further information contact:

Investar Holding Corporation
Chris Hufft
Chief Financial Officer
(225) 227-2215
Chris.Hufft@investarbank.com

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