Note 10 - Fair Values of Financial Instruments

6 Months Ended

Jun. 30, 2026

NOTE 10. FAIR VALUES OF FINANCIAL INSTRUMENTS

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.

The Company holds SBIC qualified funds and other investment funds that do not have a readily determinable fair value. In accordance with ASC 820, these investments are measured at fair value using the net asset value practical expedient and are not required to be classified in the fair value hierarchy. At each of June 30, 2026 and December 31, 2025, the fair values of these investments were $3.5 million and are included in “Other assets” in the accompanying consolidated balance sheets.

Fair Value Hierarchy

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. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs, as well as an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

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.

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following methods and assumptions were used by the Company in estimating the fair value of assets and liabilities valued on a recurring basis:

AFS Investment Securities and Marketable 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 marketable equity securities in corporate stocks and mutual funds.

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 the U.S. Treasury and U.S. government agencies and corporations, obligations of state and political subdivisions, corporate bonds, residential mortgage-backed securities, and commercial mortgage-backed 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.

Management monitors the current placement of securities in the fair value hierarchy to determine whether transfers between levels may be warranted 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. At June 30, 2026 and December 31, 2025, all of the Company’s 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.

Derivative Financial Instruments – The fair value for interest rate swap agreements is based upon the expected future cash flows of the agreements discounted at market rates. These derivative instruments are classified in level 2 of the fair value hierarchy.

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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).

	*Estimated*		*Quoted Prices in Active Markets for Identical Assets*		*Significant Other Observable Inputs*		*Significant Unobservable Inputs*
	*Fair Value*		*(Level 1)*		*(Level 2)*		*(Level 3)*
June 30, 2026
Assets:
Obligations of the U.S. Treasury and U.S. government agencies and corporations	$	35,418	$	—	$	35,418	$	—
Obligations of state and political subdivisions		17,306		—		14,697		2,609
Corporate bonds		24,188		—		24,188		—
Residential mortgage-backed securities		261,848		—		261,848		—
Commercial mortgage-backed securities		72,566		—		72,566		—
Equity securities at fair value		4,111		4,111		—		—
Interest rate swaps - gross assets		11,528		—		11,528		—
Total assets	$	426,965	$	4,111	$	420,245	$	2,609
Liabilities:
Interest rate swaps - gross liabilities	$	11,528	$	—	$	11,528	$	—

December 31, 2025
Assets:
Obligations of the U.S. Treasury and U.S. government agencies and corporations	$	18,751	$	—	$	18,751	$	—
Obligations of state and political subdivisions		16,282		—		12,678		3,604
Corporate bonds		24,682		—		24,682		—
Residential mortgage-backed securities		247,379		—		247,379		—
Commercial mortgage-backed securities		63,520		—		63,520		—
Equity securities at fair value		3,354		3,354		—		—
Interest rate swaps - gross assets		11,660		—		11,660		—
Total assets	$	385,628	$	3,354	$	378,670	$	3,604
Liabilities:
Interest rate swaps - gross liabilities	$	11,660	$	—	$	11,660	$	—

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 months ended June 30, 2026 and 2025 (dollars in thousands).

	*Obligations of State and Political Subdivisions*
Balance at December 31, 2025	$	3,604
Unrealized gain included in other comprehensive loss		34
Maturities, prepayments, and calls		(1,029	)
Balance at June 30, 2026	$	2,609

	*Obligations of State and Political Subdivisions*			*Corporate Bonds*
Balance at December 31, 2024	$	4,317		$	494
Unrealized gain included in other comprehensive income		68			6
Maturities, prepayments, and calls		(917	)		(500	)
Balance at June 30, 2025	$	3,468		$	—

There were no liabilities measured at fair value on a recurring basis using level 3 inputs at June 30, 2026 and December 31, 2025. For the six months ended June 30, 2026 and 2025, 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 3 assets measured at fair value on a recurring basis at June 30, 2026 and December 31, 2025 (dollars in thousands).

Estimated Fair Value

Valuation Technique

Unobservable Inputs

Range of Discounts

Weighted Average Discount⁽¹⁾

June 30, 2026

Obligations of state and political subdivisions

2,609

Option-adjusted discounted cash flow model; present value of expected future cash flow model

Bond appraisal adjustment⁽²⁾

0% - 7%

December 31, 2025

Obligations of state and political subdivisions

3,604

Option-adjusted discounted cash flow model; present value of expected future cash flow model

Bond appraisal adjustment⁽²⁾

0% - 6%

⁽¹⁾	Weighted by relative fair value.
⁽²⁾	Fair values determined through valuation analysis using coupon, yield (discount margin), liquidity and expected repayment dates.

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis

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).

The following methods and assumptions were used by the Company in estimating the fair value of assets and liabilities valued on a nonrecurring basis:

Loans Individually Evaluated – For collateral dependent loans where the borrower is experiencing financial difficulty, the expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, which is based on third-party appraisals. Individually evaluated loans that are not collateral dependent are evaluated based on a discounted cash flow methodology. Credits deemed uncollectible are charged to the ACL. Since not all valuation inputs are observable, these nonrecurring fair value determinations are classified as level 3.

Other Real Estate Owned – Other real estate owned consists of properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure and real property no longer used in the Bank’s business operations. Other real estate owned is recorded at the lower of its net book value or fair value, and it may be necessary to record nonrecurring fair value adjustments for declines in fair value. Fair value, when recorded, is determined based on appraisals by qualified licensed appraisers and adjusted for management’s estimates of costs to sell. Accordingly, values for other real estate owned are classified as level 3.

Quantitative information about assets measured at fair value on a nonrecurring basis based on significant unobservable inputs (level 3) is summarized below as of June 30, 2026 and December 31, 2025. There were no liabilities measured on a nonrecurring basis at June 30, 2026 or December 31, 2025 (dollars in thousands).

	*Estimated Fair Value*		*Valuation Technique*	*Unobservable Inputs*	*Range of Discounts*	Weighted Average Discount⁽¹⁾
June 30, 2026
Loans individually evaluated for impairment⁽²⁾	$	3,011	Discounted cash flows; underlying collateral value	Collateral discounts and estimated costs to sell	2% - 100%	5%
Other real estate owned⁽³⁾		700	Underlying collateral value, third party appraisals	Collateral discounts and discount rates	10%	10%

December 31, 2025
Loans individually evaluated for impairment⁽²⁾	$	3,312	Discounted cash flows; underlying collateral value	Collateral discounts and estimated costs to sell	1% - 100%	9%
Other real estate owned⁽³⁾		1,959	Underlying collateral value, third party appraisals	Collateral discounts and discount rates	13% - 14%	13%

⁽¹⁾	Weighted by relative fair value.
⁽²⁾	Loans individually evaluated for impairment that were re-measured during the period had a carrying value of $3.4 million and $3.6 million at June 30, 2026 and December 31, 2025, respectively, with related ACL of $0.4 million and $0.3 million, respectively, as of such dates.
⁽³⁾	Other real estate owned that was re-measured during the period had a carrying value of $0.7 million at June 30, 2026. During the six months ended June 30, 2026, the Company recorded a $0.1 million write-down of other real estate owned which is included as part of “Other operating expenses” in noninterest expense on the accompanying consolidated statement of income. Other real estate owned that was re-measured during the period had a carrying value of $2.0 million at December 31, 2025. During the six months ended June 30, 2025, the Company recorded a $0.3 million write-down of other real estate owned which is included as part of “Other operating expenses” in noninterest expense on the accompanying consolidated statement of income.

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Financial Instruments

Accounting guidance requires the disclosure of estimated fair value information about certain on- and off-balance sheet financial instruments, including those financial instruments that are not measured and reported at fair value on a recurring or nonrecurring basis. The significant methods and assumptions used by the Company to estimate the fair value of financial instruments are discussed below.

Cash and Cash Equivalents – For these short-term instruments, the fair value is the carrying value.

Investment Securities and Equity Securities – The fair value measurement techniques and assumptions for AFS securities and marketable equity securities is discussed earlier in the note. The same measurement techniques and assumptions were applied to the valuation of HTM securities and nonmarketable equity securities including equity in correspondent banks.

Loans – The fair value of portfolio loans, net is determined using an exit price methodology. The exit price methodology is 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.

Deposits – The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis 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, repurchase agreements, and other short-term borrowings approximate their fair values because of their short-term nature.

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.

Subordinated Debt Securities – The fair value of subordinated debt is estimated based on current market rates on similar debt in the market.

Derivative Financial Instruments – The fair value measurement techniques and assumptions for derivative financial instruments is discussed earlier in the note.

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

	*June 30, 2026*
	*Carrying Amount*		*Estimated Fair Value*		*Level 1*		*Level 2*		*Level 3*
Financial assets:
Cash and cash equivalents	$	72,303	$	72,303	$	72,303	$	—	$	—
Investment securities - AFS		411,326		411,326		—		408,717		2,609
Investment securities - HTM		47,217		49,450		—		1,634		47,816
Equity securities at fair value		4,111		4,111		4,111		—		—
Nonmarketable equity securities		23,759		23,759		—		23,759		—
Loans, net of allowance		3,023,636		3,002,686		—		—		3,002,686
Interest rate swaps - gross assets		11,528		11,528		—		11,528		—

Financial liabilities:
Deposits		3,213,886		3,211,288		—		3,211,288		—
FHLB short-term advances and repurchase agreements		54,575		54,573		—		54,573		—
FHLB long-term advances		100,000		99,669		—		99,669		—
Junior subordinated debt		22,994		22,991		—		—		22,991
Subordinated debt		16,759		15,648		—		15,648		—
Interest rate swaps - gross liabilities		11,528		11,528		—		11,528		—

	*December 31, 2025*
	*Carrying Amount*		*Estimated Fair Value*		*Level 1*		*Level 2*		*Level 3*
Financial assets:
Cash and cash equivalents	$	41,505	$	41,505	$	41,505	$	—	$	—
Investment securities - AFS		370,614		370,614		—		367,010		3,604
Investment securities - HTM		48,199		50,540		—		1,694		48,846
Equity securities at fair value		3,354		3,354		3,354		—		—
Nonmarketable equity securities		17,021		17,021		—		17,021		—
Loans, net of allowance		2,149,624		2,080,142		—		—		2,080,142
Interest rate swaps - gross assets		11,660		11,660		—		11,660		—

Financial liabilities:
Deposits		2,350,249		2,349,856		—		2,349,856		—
FHLB short-term advances and repurchase agreements		47,183		47,193		—		47,193		—
FHLB long-term advances		80,000		80,079		—		80,079		—
Junior subordinated debt		8,830		8,830		—		—		8,830
Subordinated debt		16,738		15,252		—		15,252		—
Interest rate swaps - gross liabilities		11,660		11,660		—		11,660		—

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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+ Details