Investar Holding Corp

Previous wording

These factors should not be construed as exhaustive. Additional information on these and other risk factors can be found in Part I. Item 1A. “Risk Factors” and Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Special Note Regarding Forward-Looking Statements” in the Company’s Annual Report and in Part II. Item 1A. “Risk Factors” of this report.

Current wording

These factors should not be construed as exhaustive. Additional information on these and other risk factors can be found in Part I. Item 1A. “Risk Factors” and Part II. Item 7. “MD&A – Cautionary Note Regarding Forward-Looking Statements” in the Company’s Annual Report and in Part II. Item 1A. “Risk Factors” of this report.

Previous wording

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 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, 2023, including the notes thereto, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report.

Current wording

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 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, 2024, including the notes thereto, and the related MD&A in the Annual Report. All cross-references to the “Notes” in this Form 10-Q refer to the Notes to Consolidated Financial Statements contained in Part I. Item 1. Financial Statements unless otherwise noted.

Previous wording

Through 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. Our primary areas of operation are south Louisiana, including Baton Rouge, New Orleans, Lafayette, Lake Charles, and their surrounding areas; southeast Texas, primarily Houston and its surrounding area; and Alabama, including York and Oxford and their surrounding areas. At September 30, 2024, we operated 28 full service branches comprised of 20 full service branches in Louisiana, two full service branches in Texas, and six full service branches in Alabama. Our Bank commenced operations in 2006, and we completed our initial public offering in July 2014. On July 1, 2019, the Bank changed from a Louisiana state bank charter to a national bank charter and its name changed to Investar Bank, National Association.

Current wording

Through 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. Our primary areas of operation are south Louisiana, including Baton Rouge, New Orleans, Lafayette, Lake Charles, and their surrounding areas; southeast Texas, primarily Houston and its surrounding area; and Alabama, including York and Oxford and their surrounding areas. At March 31, 2025, we operated 29 full service branches comprised of 20 full service branches in Louisiana, three full service branches in Texas, and six full service branches in Alabama. 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.

Previous wording

During 2023, we pivoted our near-term strategy from primarily a growth strategy to primarily a focus on consistent, quality earnings through the optimization of our balance sheet. Our strategy includes a focus on originating and renewing high quality, primarily variable-rate, loans and allowing higher risk credit relationships to run off. Our long-term strategy includes organic growth through high quality loans and growth through acquisitions, including whole-bank acquisitions, strategic branch acquisitions and asset acquisitions. We have completed seven whole-bank acquisitions since 2011 and regularly review acquisition opportunities. Our most recent whole bank acquisition was completed in April 2021. During our last three fiscal years, we have not opened any de novo branch locations; however, in the third quarter of 2023, we converted an existing loan and deposit production office in Tuscaloosa, Alabama to a cashless branch designed to provide a digital banking experience. During the second half of 2023, we purchased commercial and industrial revolving lines of credit with an unpaid principal balance of $162.7 million.

Current wording

During 2023, we pivoted our near-term strategy from primarily a growth strategy to primarily a focus on consistent, quality earnings through the optimization of our balance sheet. Our strategy includes a focus on originating and renewing high quality, primarily variable-rate, loans and allowing higher risk credit relationships to run off. We have kept duration short on our liabilities to provide flexibility to secure lower cost funding that was accretive to our net interest margin. Our near-term strategy includes continuing to consider acquisitions on an opportunistic basis. Our long-term strategy includes organic growth through high quality loans and growth through acquisitions, including whole-bank acquisitions, strategic branch acquisitions and asset acquisitions. We have completed seven whole-bank acquisitions since 2011 and regularly review acquisition opportunities. Our most recent whole bank acquisition was completed in April 2021. We opened a loan and deposit production office in our Texas market in the first quarter of 2024 and converted it to a full-service branch location in the fourth quarter of 2024. We have continued to evaluate opportunities to improve our branch network efficiency, leverage our digital initiatives, and further reduce costs. We closed one branch in our Alabama market during the first quarter of 2024.

Previous wording

Changing Inflation andInterest*** Rates***. During the entirety of 2021, the federal funds target rate was 0% to 0.25%, and it remained at that rate until March 2022. Inflation increased rapidly during 2021 through June 2022. Since June 2022, the rate of inflation generally has declined; however, it has remained above the Federal Reserve’s target inflation rate of 2% through November 5, 2024. In response, the Federal Reserve raised the federal funds target rate multiple times from March 2022 through July 2023. Through these incremental increases to the target rate, the Federal Reserve raised, on a cumulative basis, the target rate from 0% to 0.25% by 525 basis points to 5.25% to 5.50%. During the first nine months of 2023, the Federal Reserve raised the federal funds target rate four times, from 4.25% to 4.50%, to 5.25% to 5.50% where it remained until September 2024 when the Federal Reserve reduced the federal funds target rate by 50 basis points to 4.75% to 5.00%.

Current wording

Changing Inflation andInterest*** Rates***. Inflation increased rapidly during 2021 through June 2022. After June 2022, the rate of inflation generally declined although it has remained above the Federal Reserve’s target inflation rate of 2%. In response, the Federal Reserve raised the federal funds target rate multiple times from March 2022 through July 2023. During 2023, the Federal Reserve raised the federal funds target rate four times, from 4.25% to 4.50%, to 5.25% to 5.50%. During 2024, beginning in September 2024, the Federal Reserve reduced the federal funds target rate three times by 100 basis points on a cumulative basis to 4.25% to 4.50%. Accordingly, the prevailing federal funds target rate in first quarter 2025 was 100 basis points lower than in first quarter 2024.

Previous wording

In response to the disruptions and related publicity, we formed an internal task force that included members of our ALCO. The task force met frequently to review our liquidity position and liquidity sources, and oversaw the Bank’s process to qualify for the BTFP. In addition, we took steps to inform our customers about our financial position, liquidity and insured deposit products. During the second quarter of 2023, we utilized the BTFP and reduced FHLB advances. The Bank utilized this source of funding due to its lower rate, the ability to prepay the obligations without penalty, and as a means to lock in funding. During the fourth quarter of 2023 and again in the first quarter of 2024, the Bank refinanced its BTFP borrowings with new borrowings under the program due to more favorable rates. The Federal Reserve ceased making new loans under the BTFP on March 11, 2024. During the third quarter of 2024, we began paying down borrowings under the BTFP. As of September 30, 2024, estimated uninsured deposits represented approximately 33% of our total deposits. For additional information, see “Discussion and Analysis of Financial Condition – Deposits, Borrowings, Liquidity and Capital Resources” and our Annual Report, Part II. Item 1A. Risk Factors.

Current wording

In response to the disruptions and related publicity, we formed an internal task force that included members of our ALCO. The task force met frequently to review our liquidity position and liquidity sources, and oversaw the Bank’s process to qualify for the BTFP. In addition, we took steps to inform our customers about our financial position, liquidity and insured deposit products. During the second quarter of 2023, we utilized the BTFP and reduced FHLB advances. The Bank utilized this source of funding due to its lower rate, the ability to prepay the obligations without penalty, and as a means to lock in funding. During the fourth quarter of 2023 and again in the first quarter of 2024, the Bank refinanced its BTFP borrowings with new borrowings under the program due to more favorable rates. The Federal Reserve ceased making new loans under the BTFP on March 11, 2024. During the third quarter of 2024, we began paying down borrowings under the BTFPand repaid all of the remaining borrowings under the BTFP in the fourth quarter of 2024. As of March 31, 2025, estimated uninsured deposits represented approximately 34% of our total deposits. For additional information, see “Discussion and Analysis of Financial Condition – “Deposits,” “Borrowings,” “Liquidity and Capital Resources” and our Annual Report, Part II. Item 1A. Risk Factors.

Previous wording

Branch Closures. We closed one branch in Central, Louisiana in March 2023 and one branch in Anniston, Alabama in January 2024.

Current wording

Branch Closures. We closed one branch in Anniston, Alabama in January 2024.

Previous wording

Subordinated Debt Repurchases. During the first quarter of 2024, werepurchased $1.0 million in principal amount of our 5.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the“2032 Notes”). During the second quarter of 2024, we repurchased $5.0 million in principal amount of our 5.125% Fixed-to-Floating Rate Subordinated Notes due 2029 (the“2029 Notes”) and $2.0 million in principal amount of our 2032 Notes.

Current wording

Subordinated Debt Repurchases. During the first quarter of 2024, we repurchased $1.0 million in principal amount of our 2032 Notes. During the second quarter of 2024, we repurchased $5.0 million in principal amount of our 2029 Notes and $2.0 million in principal amount of our 2032 Notes.

Previous wording

For thenine months ended September 30, 2024, net income was$14.1 million, or$1.43 per diluted common share, compared to net income of$13.1 million, or$1.33, per diluted common share for thenine months ended September 30, 2023. Net income increased primarily due to a$4.3 million increase in noninterest income and a $0.2 million decrease in noninterest expense, partially offset by a$3.8 million decrease in net interest income. In addition, we recorded a negative provision for credit losses of $2.8 million in the nine months ended September 30, 2024 compared to $2.5 million for the comparable prior period. The decrease in net interest income was a result of a$15.6 million increase in interest expense partially offset by an$11.8 million increase in interest income, as we experienced margin compression due to higher market interest rates. The increase in noninterest income is mainly attributable to a gain on sale or disposition of fixed assets of $0.4 million during the nine months ended September 30, 2024, primarily resulting from the closure of one branch in the Alabama market, compared to a loss on sale or disposition of fixed assets of $1.3 million recorded during the nine months ended September 30, 2023, primarily resulting from the sale of the Alice and Victoria, Texas branches, thedisposition of ATMs and a reclassification of bank premises and equipment to other real estate owned. In addition, we recorded noninterest income from a legal settlement of $1.1 million during the nine months ended September 30, 2024 related to one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida. We also recorded a gain on sale of other real estate owned of $0.7 million during the nine months ended September 30, 2024, primarily relatedto one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida, compared to a loss on sale of other real estate owned of $0.1 million recorded during the nine months ended September 30, 2023. Noninterest expense for thenine months ended September 30, 2024 included a $0.5 million gain on early extinguishment of subordinated debt and for the comparable prior period included$0.7 million in expenses as a result of the sale of the Alice and Victoria, Texas branches. At September 30, 2024, 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. Other key components of our performance for thenine months ended September 30, 2024 compared to thenine months ended September 30, 2023 are summarized below.

Current wording

For thethree months ended March 31, 2025, net income was$6.3 million, or$0.63 per diluted common share, compared to net income of$4.7 million, or$0.48, per diluted common share for thethree months ended March 31, 2024. Net income increased primarily due to a negative provision for credit losses of $3.6 million in the three months ended March 31, 2025 as a result of a $3.3 million recovery of loans previously charged off following a property insurance settlement related to a loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida, compared to a negative provision for credit losses of$1.4 million for the comparable prior period. Also contributing to the increase in net income wasa$1.1 million increase in net interest income, whichwas a result of a$2.4 million decrease in interest expense partially offset by a$1.3 million decrease in interest income. We experienced margin expansion as our cost of funds decreased and our yield on interest-earning assets increased. There was also a$0.9 million increase in noninterest expense and a$0.7 million decrease in noninterest income. Theincrease in noninterest expense was primarily due to increases in salaries and employee benefits and other operating expenses. In addition, first quarter 2024 noninterest expense was reduced by a $0.2 million gain on early extinguishment of subordinated debt. Thedecrease in noninterest income is mainly attributable to a gain on sale or disposition of fixed assets of $0.4 million recorded during thethree months ended March 31, 2024 primarily resulting from the closure of one branch in the Alabama market, and a decrease in other operating income.

Previous wording

General. Loans constitute our most significant asset, comprising 77% and 79% of our total assets at September 30, 2024 and December 31, 2023, respectively. Total loans decreased $54.8 million, or 2.5%, to$2.16 billion at September 30, 2024, compared to$2.21 billion at December 31, 2023. Thedecrease in loans was primarily the result of lower demand and loan amortization. Given the high interest rate environment, we are emphasizing origination of high margin loans that promote long-term profitability and proactively exiting credit relationships that do not fit this strategy.

Current wording

General. Loans constitute our most significant asset, comprising 77% and 78% of our total assets at March 31, 2025 and December 31, 2024, respectively. Total loans decreased $18.5 million, or 0.9%, to$2.11 billion at March 31, 2025, compared to$2.13 billion at December 31, 2024. Thedecrease in loans was primarily the result of lower utilization of credit lines and loan amortization. Given the high interest rate environment, we are emphasizing origination of high margin loans that promote long-term profitability and proactively exiting credit relationships that do not fit this strategy. Our variable-rate loans as a percentage of total loans was 32% at March 31, 2025 and December 31, 2024.

Previous wording

At September 30, 2024, the Company’s business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was$982.7 million, a decrease of$10.3 million, or 1.0%, compared to$993.0 million at December 31, 2023. Thedecrease in the business lending portfolio is primarily driven by loan amortization partially offset by conversions of construction and development loans to owner-occupied loans upon completion of construction. We experienced an$11.2 million increase in nonowner-occupied loans primarily due to a reclassification of a $15.9 million multifamily loan to a nonowner-occupied loan and conversions of construction and development loans to nonowner-occupied loans upon completion of construction, partially offset by loan amortization. We experienced a $23.4 million decrease in construction and development loans primarily due to conversions to permanent loans upon completion of construction. Our variable-rate loans as a percentage of total loans increased to 30% at September 30, 2024 compared to 27% at December 31, 2023.

Current wording

At March 31, 2025, the Company’s business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was$960.7 million, a decrease of$15.5 million, or 1.6%, compared to$976.2 million at December 31, 2024. Thedecrease in the business lending portfoliois primarily driven by reduced utilization of credit lines, particularly on commercial and industrial relationships.

Previous wording

As discussed above, during the third quarter of 2023 we exited the consumer mortgage loan origination business. The consumer mortgage portfolio was approximately$247.2 million and $261.6 million at September 30, 2024 and December 31, 2023, respectively, substantially all of which is included in the 1-4 family category. The remaining loans in the 1-4 family category consisted primarily of second mortgages, home equity loans, home equity lines of credit, and business purpose loans secured by 1-4 family residential real estate.

Current wording

During the third quarter of 2023 we exited the consumer mortgage loan origination business to transition into shorter duration, higher risk-adjusted return asset classes, in an effort to focus more on our core business and optimize profitability. The consumer mortgage portfolio was approximately$237.6 million and $242.5 million at March 31, 2025 and December 31, 2024, respectively, substantially all of which is included in the 1-4 family category. The remaining loans in the 1-4 family category consisted primarily of second mortgages, home equity loans, home equity lines of credit, and business purpose loans secured by 1-4 family residential real estate.

Previous wording

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 borrowings. Investment securities represented 13% of our total assets and totaled$368.9 million at September 30, 2024, a decrease of$13.4 million, or 3.5%, from$382.4 million at December 31, 2023. Thedecrease in investment securities at September 30, 2024 compared to December 31, 2023 was driven primarily by a $7.8 million decrease in residential mortgage-backed securities, a $2.8 million decrease in obligations of state and political subdivisions, and a $2.3 million decrease in commercial mortgage-backed securities. Due in large part to higher interest rates and market volatility, net unrealized losses in our AFS investment securities portfolio decreased to $49.0 million at September 30, 2024 compared to $57.4 million at December 31, 2023 primarily due to lower prevailing market interest rates. For additional information, see Note 3. Investment Securities.

Current wording

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 borrowings. Investment securities represented 14% of our total assets and totaled$388.0 million at March 31, 2025, an increase of$14.2 million, or 3.8%, from$373.8 million at December 31, 2024. Theincrease in investment securities at March 31, 2025 compared to December 31, 2024 was driven primarily by a $13.3 million increase in residential mortgage-backed securities, a $1.2 million increase in corporate bonds and a $1.1 million increase in commercial mortgage-backed securities, partially offset by a $1.1 million decrease in obligations of state and political subdivisions. Net unrealized losses in our AFS investment securities portfolio decreased to $54.5 million at March 31, 2025 compared to $61.4 million at December 31, 2024 primarily due to lower prevailing market interest rates. For additional information, see Note 3. Investment Securities.

Previous wording

The investment portfolio consists of AFS and HTM securities. We do not hold any investments classified as trading. 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 AFSand are stated at fair value. As of September 30, 2024, AFS securities comprised 95% of our total investment securities.

Current wording

The investment portfolio consists of AFS and HTM securities. We do not hold any investments classified as trading. 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 AFSand are stated at fair value. As of March 31, 2025, AFS securities comprised 89% of our total investment securities.

Previous wording

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%.

Current wording

The maturity of mortgage-backed securities reflects scheduled repayments based upon the contractual maturities of the securities. Weighted average yields on tax-exempt securities are calculated based on amortized cost on a fully tax equivalent basis assuming a federal tax rate of 21%, when applicable.

Previous wording

Total deposits were$2.29 billion at September 30, 2024, an increase of$31.7 million, or 1.4%, compared to$2.26 billion at December 31, 2023. The increase in interest-bearing demand deposits, money market deposits, and time deposits at September 30, 2024 compared to December 31, 2023 is primarily the result of organic growth. The decrease in noninterest-bearing demand deposits and savings deposits at September 30, 2024 compared to December 31, 2023 is primarily the result of customers drawing down on their existing deposit accounts and shifts into interest-bearing deposit products with higher rates. Brokered time deposits increased to $271.7 million at September 30, 2024 from $269.1 million at December 31, 2023. We utilize brokered time deposits with laddered maturities, entirely in denominations of less than $250,000, to secure fixed cost funding and reduce short-term borrowings. At September 30, 2024, the balance of brokered time deposits remained below 10% of total assets, and the remaining weighted average duration was approximately nine months with a weighted average rate of 5.07%.

Current wording

The increase in noninterest-bearing demand deposits, interest-bearing demand deposits, money market deposits, and savings deposits at March 31, 2025 compared to December 31, 2024 is primarily the result of organic growth. The decrease in time deposits at March 31, 2025 compared to December 31, 2024 is primarily due to maturities of higher cost time deposits as a result of our strategy to keep duration short. Brokered time deposits decreased to $244.9 million at March 31, 2025 from $245.5 million at December 31, 2024. We utilize brokered time deposits with laddered maturities, entirely in denominations of less than $250,000, to secure fixed cost funding and reduce short-term borrowings. At March 31, 2025, the balance of brokered time deposits remained below 10% of total assets, and the remaining weighted average duration was approximately sixmonths with a weighted average rate of 4.78%.

Previous wording

At September 30, 2024, total borrowings include securities sold under agreements to repurchase, FHLB advances, borrowings under the BTFP, subordinated debt issued in 2019 and 2022, and junior subordinated debentures assumed through acquisitions.

Current wording

At March 31, 2025, total borrowings include securities sold under agreements to repurchase, FHLB advances, subordinated debt issued in 2022, and junior subordinated debentures assumed through acquisitions.

Previous wording

We had$13.0 million of securities sold under agreements to repurchase at September 30, 2024 and $8.6 million at December 31, 2023. Our advances from the FHLB were$63.5 million at September 30, 2024, an increase of $40.0 million, compared to FHLB advances of $23.5 million at December 31, 2023. Based on original maturities, at September 30, 2024 and December 31, 2023, all of our FHLB advances were long-term. FHLB advances are used to fund new loan and investment activity that is not funded by deposits or other borrowings.

Current wording

We had$11.3 million of securities sold under agreements to repurchase at March 31, 2025 and $8.4 million at December 31, 2024. Our advances from the FHLB were$60.0 million at March 31, 2025, a decrease of $7.2 million, compared to FHLB advances of $67.2 million at December 31, 2024. Based on original maturities, at March 31, 2025, all of our FHLB advances were long-term, compared to $7.2 million short-term and $60.0 million long-term FHLB advances at December 31, 2024. FHLB advances are used to fund new loan and investment activity that is not funded by deposits or other borrowings.

Previous wording

On March 12, 2023, the Federal Reserve established the BTFP. The BTFP is a one-year program which provides additional liquidity through borrowings for a term of up to one year secured by the pledging of certain qualifying securities and other assets valued at par. Beginning in the second quarter of 2023, we utilized the BTFP to secure fixed rate funding for a one-year term and reduce short-term FHLB advances, which are priced daily. We utilized this source of funding due to its lower rate and the ability to prepay the obligations without penalty. The rates on the borrowings under the BTFP are fixed for one year from the day each borrowing is made. During the fourth quarter of 2023 and again in the first quarter of 2024, we refinanced all of our borrowings under the BTFP with new loans under the BTFP with a one-year term due to more favorable rates. At September 30, 2024, outstanding borrowings under the BTFP were $109.0 million with a weighted average rate of 4.76% compared to $212.5 million at December 31, 2023 with a weighted average rate of 4.83%. The BTFP ceased making new loans as scheduled on March 11, 2024.

Current wording

On March 12, 2023, the Federal Reserve established the BTFP. The BTFP was a one-year program which provided additional liquidity through borrowings for a term of up to one year secured by the pledging of certain qualifying securities and other assets valued at par. Beginning in the second quarter of 2023, we utilized the BTFP to secure fixed rate funding for a one-year term and reduce short-term FHLB advances, which are priced daily. We utilized this source of funding due to its lower rate and the ability to prepay the obligations without penalty. The rates on the borrowings under the BTFP were fixed for one year from the day each borrowing was made. During the fourth quarter of 2023 and again in the first quarter of 2024, we refinanced all of our borrowings under the BTFP with new loans under the BTFP with a one-year term due to more favorable rates. The BTFP ceased making new loans as scheduled on March 11, 2024. During the third quarter of 2024, we began paying down borrowings under the BTFP and repaid all of the remaining borrowings under the BTFP in the fourth quarter of 2024. At March 31, 2025 and December 31, 2024, we had no outstanding borrowings under the BTFP.

Previous wording

Typically, 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’s federal funds target rate. As previously discussed, the Federal Reserve raised the federal funds target rate multiple times in 2022 and 2023 and reduced the federal funds target rate in September 2024. At September 30, 2024, the federal funds target ratewas 4.75% to 5.00%.

Current wording

Typically, the main source of our short-term borrowings are advances from the FHLB; however, during the three months ended March 31, 2024, our primary source of short-term borrowings were borrowings under the BTFP due to more favorable rates. The rate charged for advances from the FHLB is directly tied to the Federal Reserve’s federal funds target rate. As previously discussed, the Federal Reserve target rate was 5.25% to 5.50% during first quarter 2024 compared to 4.25% to 4.50% during first quarter 2025.

Previous wording

The average balances and cost of short-term borrowings for thenine months ended September 30, 2024 and 2023 are summarized in the table below (dollars in thousands).

Current wording

The average balances and cost of short-term borrowings for thethree months ended March 31, 2025 and 2024 are summarized in the table below (dollars in thousands).

Previous wording

The carrying value of the subordinated debt was$36.5 million and$44.3 million at September 30, 2024 and December 31, 2023, respectively. We repurchased$5.0 million in principal amount of the 2029 Notes and $3.0 million in principal amount of the 2032 Notesdu ring thenine months ended September 30, 2024. The$8.7 million and$8.6 million in junior subordinated debt at September 30, 2024 and December 31, 2023, respectively, represent the junior subordinated debentures that we assumed through acquisitions.

Current wording

The carrying value of the subordinated debt, which consists entirely of our 2032 Notes, was$16.7 millionat March 31, 2025 and December 31, 2024. The$8.8 million and$8.7 million in junior subordinated debt at March 31, 2025 and December 31, 2024, respectively, represent the junior subordinated debentures that we assumed through acquisitions.

Previous wording

For a description of the 2032 Notes and 2029 Notes, see our Annual Report, Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Discussion and Analysis of Financial Condition– Borrowings– 2032 Notes and 2029 Notes” and Note 10 tothe financial statements included in such report.

Current wording

For a description of the 2032 Notes, see our Annual Report, Part II. Item 7. “MD&A– Discussion and Analysis of Financial Condition– Borrowings– 2032 Notes” and Note 10 tothe financial statements included in such report.

Previous wording

Stockholders’ equity was$245.5 million at September 30, 2024, an increase of$18.8 million compared to December 31, 2023. The increase is primarily attributable to $14.1 million of net income for thenine months ended September 30, 2024 and a$6.6 million decrease in accumulated other comprehensive loss due to an increase in the fair value of the Bank’s AFS securities portfolio, partially offset by $3.0 million in dividends declared and $0.3 million for share repurchases.

Current wording

Stockholders’ equity was$251.7 million at March 31, 2025, an increase of$10.4 million compared to December 31, 2024. The increase is primarily attributable to $6.3 million of net income for thethree months ended March 31, 2025 and a$5.5 million decrease in accumulated other comprehensive loss due to an increase in the fair value of the Bank’s AFS securities portfolio, partially offset by $1.0 million in dividends declared and $0.6 million for share repurchases.

Previous wording

Net interest income, our principal source of earnings, is the difference between the interest income generated by interest-earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of interest-earning assets and interest-bearing liabilities, yields earned on loans and investments and rates paid on deposits and other borrowings, the level of nonperforming loans, the amount of noninterest-bearing liabilities supporting interest-earning assets, and the interest rate environment. Net interest margin is the ratio of net interest income to average interest-earning assets.

Current wording

Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments and rates paid on deposits and other borrowings, the level of nonperforming loans, the amount of noninterest-bearing liabilities supporting earning assets, and the interest rate environment. Net interest margin is the ratio of net interest income to average interest-earning assets.

Previous wording

The primary factors affecting net interest margin are changes in interest rates, competition, and the shape of the interest rate yield curve. The Federal Reserve Board sets various benchmark rates, including the federal funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Reserve increased the federal funds target rate four times during the first nine months of 2023, from 4.25% to 4.50%, to 5.25% to 5.50% where it remained until September 2024 when the Federal Reserve reduced the federal funds target rate by 50 basis points to 4.75% to 5.00%. For additional discussion, see Certain Events That Affect Period-over-Period Comparability –Changing Inflation and Interest Rates.

Current wording

The primary factors affecting net interest margin are changes in interest rates, competition, and the shape of the interest rate yield curve. The Federal Reserve Board sets various benchmark rates, including the federal funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Reserve increased the federal funds target rate four times during 2023, from 4.25% to 4.50%, to 5.25% to 5.50%. During 2024, beginning in September, the Federal Reserve reduced the federal funds target rate three times by 100 basis points on a cumulative basis to 4.25% to 4.50%. Accordingly, the prevailing federal funds target rate in first quarter 2025 was 100 basis points lower than in first quarter 2024. For additional discussion, see Certain Events That Affect Period-over-Period Comparability –Changing Inflation and Interest Rates.

Previous wording

Three months ended**September 30, 2024 vs. three months ended September 30, 2023. Net interest income increased 2.2% to$17.9 million for the three months ended September 30, 2024 compared to$17.5 million for the same period in 2023. Theincrease is primarily due to an increase in the yield earned on, and the average balance of loans, and a lower average balance of, and a decrease in rates paid on, short-term borrowings, partially offset primarily by an increase in the rates paid on deposits and an increase in average balance of brokered time deposits. Average loans increased$86.8 million primarily due to the purchase of commercial and industrial revolving lines of credit with an unpaid principal balance of $127.0 million in the fourth quarter of 2023, partially offset by loan amortization, which, in addition to higher loan yields, resulted in a$3.9 million increase in interest income on loans compared to the same period in 2023. Average short-term borrowings decreased $34.8 million, as we paid down borrowings under the BTFP. The lower average balance of, and a decrease in rates paid on, short-term borrowings resulted in a $0.6 million decrease in interest expense compared to the same period in 2023. Our yield on interest-earning assets increased as did our rate paid on interest-bearing liabilities primarily as a result of the overall increase in prevailing interest rates. An increase in rates paid on time deposits resulted in a$1.4 million increase in interest expense compared to the same period in 2023. Average brokered time deposits were$255.1 million during the three months ended September 30, 2024 compared to $159.2 million during the three months ended September 30, 2023, which, combined with an increase in rates, resulted in a $1.3 million increase in interest expense compared to the same period in 2023. Average interest-bearing demand deposits increased $8.2 million, which, combined with an increase in rates, resulted in a $1.0 million increase in interest expense compared to the same period in 2023. Average noninterest-bearing deposits decreased $29.4 million.

Current wording

Three months ended**March 31, 2025 vs. three months ended March 31, 2024. Net interest income increased 6.6% to$18.3 million for the three months ended March 31, 2025 compared to$17.2 million for the same period in 2024. Theincrease is primarily due to a lower average balance of short-term borrowings and a decrease in the rates paid on brokered time deposits and time deposits, partially offset by a lower average balance of, and a decrease in the yield on, loans and an increase in the average rates paid on and balance of interest-bearing demand deposits. Average short-term borrowings decreased by$186.2 million for the three months ended March 31, 2025, as we paid all remaining borrowings under the BTFP in the fourth quarter of 2024. The lower average balance of, and a decrease in rates paid on, short-term borrowings resulted in a $2.3 million decrease in interest expense compared to the same period in 2024. A lower average balance of, and a decrease in rates paid on, time deposits resulted in a $0.9 million decrease in interest expense compared to the same period in 2024. Average brokered time deposits were$252.3 million during the three months ended March 31, 2025 compared to $255.7 million during the three months ended March 31, 2024, which, combined with a decrease in rates, resulted in a $0.3 million decrease in interest expense compared to the same period in 2024. Average loans decreased by$86.6 million for the three months ended March 31, 2025 in accordance with our strategy to optimize the balance sheet, which, in addition to lower loan yields, resulted in a$1.6 million decrease in interest income on loans compared to the same period in 2024. Average interest-bearing demand deposits increased by $91.1 million, which, combined with an increase in rates, resulted in a $0.9 million increase in interest expense in the first quarter of 2025 compared to the same period in 2024. Average noninterest-bearing deposits increased by $1.9 million. Rates paid on interest-bearing liabilities decreased primarily as a result of the overall decrease in prevailing interest rates. Our yield on interest-earning assets increased primarily due to an increase in yield on the investment securities portfolio.

Previous wording

Interest income was$36.8 million for the three months ended September 30, 2024, compared to$33.2 million for the same period in 2023. Loan interest income made up substantially all of our interest income for the three months ended September 30, 2024 and 2023, although interest on investment securities contributed 8.1% of interest income during thethird quarter of 2024 compared to 9.9% during thethird quarter of 2023. Of the $3.7 million increase in interest income, an increase of$2.5 million can be attributed toan increase in the yield earned on interest-earning assets, and an increase in interest income of $1.1 million can be attributed to the change in the volume of interest-earnings assets. The overall yield on interest-earning assets was 5.51% and 5.05% for the three months ended September 30, 2024 and 2023, respectively. The loan portfolio yielded 6.04% and 5.53% for the three months ended September 30, 2024 and September 30, 2023, respectively, while the yield on the investment portfolio was 2.82% for the three months ended September 30, 2024 compared to 2.77% for the three months ended September 30, 2023. Theincrease in the overall yield on interest-earning assets compared to the quarter ended September 30, 2023 was primarily driven by a 51 basis point increase in the yield on the loan portfolio and a five basis point increase in the yield on the investment securities portfolio.

Current wording

Interest income was$34.4 million for the three months ended March 31, 2025, compared to$35.7 million for the same period in 2024. Loan interest income made up substantially all of our interest income for the three months ended March 31, 2025 and 2024, although interest on investment securities contributed 9.7% of interest income during thefirst quarter of 2025 compared to 8.6% during thefirst quarter of 2024. Of the $1.3 million decrease in interest income, a decrease in interest income of $1.1 million can be attributed to the change in the volume of interest-earnings assets anda decrease of$0.2 million can be attributed toa decrease in the yield earned on interest-earning assets. The overall yield on interest-earning assets was 5.39% and 5.38% for the three months ended March 31, 2025 and 2024, respectively. The loan portfolio yielded 5.88% and 5.89% for the three months ended March 31, 2025 and March 31, 2024, respectively, while the yield on the investment portfolio was 3.10% for the three months ended March 31, 2025 compared to 2.81% for the three months ended March 31, 2024. Theincrease in the overall yield on interest-earning assets compared to the quarter ended March 31, 2024 was primarily driven by a 29 basis point increase in the yield on the investment securities portfolio, partially offset by aone basis point decrease in the yield on the loan portfolio.

Previous wording

Net interest margin was 2.63% for the nine months ended September 30, 2024, a decrease of 24 basis points from 2.87% for the nine months ended September 30, 2023. The decrease in net interest margin was primarily driven by an 86 basis point increase in the cost of interest-bearing liabilities partially offset by a 51 basis point increase in the yield on interest-earning assets.

Current wording

Net interest margin was 2.87% for the three months ended March 31, 2025, an increase of 28 basis points from 2.59% for the three months ended March 31, 2024. Theincrease in net interest margin was primarily driven by a 29 basis point decrease in the cost of interest-bearing liabilities, partially offset by aone basis point increase in the yield on interest-earning assets.

Previous wording

Noninterest income includes, among other things, service charges on deposit accounts, gains and losses on call or sale of investment securities, gains and losses on sale or disposition of fixed assets, gains and losses on sale of other real estate owned, gains on sale of loans, interchange fees, income from BOLI, changes in the fair value of equity securities, and income from a legal settlement. We expect to continue to develop new products that generate noninterest income, and enhance our existing products, in order to diversify our revenue sources.

Current wording

Noninterest income includes, among other things, service charges on deposit accounts, gains and losses on sale or disposition of fixed assets, interchange fees, income from BOLI, 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.

Previous wording

Three months ended September 30, 2024 vs. three months ended September 30, 2023. Total noninterest income increased $1.9 million, or 116.5%, to$3.5 million for the three months ended September 30, 2024 compared to$1.6 million for the three months ended September 30, 2023. Theincrease in noninterest incomewas primarily attributable to $1.1 million in income from a legal settlement recorded in the third quarter of 2024 related to one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida, a $0.4 million decrease in the loss on sale or disposition of fixed assets, a $0.2 million increase in the change in fair value of equity securities, a $0.1 million increase in income from BOLI, and a $0.2 million increase in other operating income. The decrease in the loss on sale or disposition of fixed assets resulted primarily from the disposition of ATMs and a reclassification of bank premises and equipment to other real estate owned during the third quarter of 2023. The increase in other operating income is primarily attributable to a $0.2 million increase in the change in the net asset value of other investments.

Current wording

Three months ended March 31, 2025 vs. three months ended March 31, 2024. Total noninterest income decreased $0.7 million, or 26.8%, to$2.0 million for the three months ended March 31, 2025 compared to$2.7 million for the three months ended March 31, 2024. Thedecrease in noninterest incomewas primarily attributable to a $0.4 million decrease in gain on sale or disposition of fixed assets, a $0.2 million decrease in the change in fair value of equity securities, and a $0.2 million decrease in other operating income. During the first quarter of 2024, Investar recorded a $0.4 million gain on sale or disposition of fixed assets as a result of the closure of one branch in the Alabama market. The decrease in other operating income is primarily attributable to a $0.1 million decrease in distributions from other investments and a $0.1 million decrease in the change in net asset value of other investments.

Previous wording

Three months ended September 30, 2024 vs. three months ended September 30, 2023. Total noninterest expense was$16.2 million for the three months ended September 30, 2024, an increase of$0.4 million, or 2.6%, compared to the same period in 2023. Theincrease was primarily driven by a $0.5 million increase in salaries and employee benefits, partially offset by a $0.1 million decrease in depreciation and amortization. The increase in salaries and employee benefits is primarily due to investment in people with an emphasis on our Texas markets to remix and strengthen our balance sheet and deferred compensation expense, partially offset by a decrease in health insurance claims and severance expense. The decrease in depreciation and amortization is primarily due to the closure of one branch location in the first quarter of 2024. The increase in other operating expense resulted primarily from $0.3 million in collection and repossession expenses related to the income from the legal settlement, discussed above, and a $0.1 million increase in FDIC assessments, partially offset by a $0.2 million decrease in other real estate owned expense, a $0.1 million decrease in branch services expense, and a $0.1 million decrease in bank shares tax.

Current wording

Three months ended March 31, 2025 vs. three months ended March 31, 2024. Total noninterest expense was$16.2 million for the three months ended March 31, 2025, an increase of$0.9 million, or 6.2%, compared to the same period in 2024. Theincrease was primarily driven by a $0.4 million increase in salaries and employee benefits, a $0.2 million decrease in gain on early extinguishment of subordinated debt, a $0.2 million increase in professional fees, and a $0.2 million increase in other operating expense, partially offset by a $0.1 million decrease in depreciation and amortization. The increase in salaries and employee benefits is primarily due to investment in people with an emphasis on our Texas markets to remix and strengthen our balance sheet and an increase in health insurance claims. During the first quarter of 2024, Investar repurchased $1.0 million in principal amount of our 2032 Notes and recognized a gain on early extinguishment of subordinated debt of $0.2 million. The increase in other operating expense resulted from a $0.3 million increase in branch services expense, and a $0.2 million increase in collection and repossession expenses, partially offset by a $0.2 million decrease in write down of other real estate owned and a $0.1 million decrease in FDIC assessments. The increase in collection and repossession expenses was primarily due to the property insurance settlement related to a loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida. The decrease in depreciation and amortization is primarily due to the closure of one branch location in the first quarter of 2024.

Previous wording

Income tax expense for the three months ended September 30, 2024 and 2023 was$0.8 million and$0.6 million, respectively. The effective tax rate for the three months ended September 30, 2024 and 2023 was 12.7% and 17.4%, respectively. Income tax expense for each of thenine months ended September 30, 2024 and 2023 was$3.0 million. The effective tax rate for thenine months ended September 30, 2024 and 2023 was 17.5% and 18.4%, respectively. During the third quarter of 2024, we revised our estimated 2024 annual effective tax rate to account for our projected increase in nontaxable income from BOLI in the fourth quarter of approximately $3.1 million upon receipt of death benefit proceeds. During the first quarter of 2024, we surrendered approximately $8.4 million of BOLI contracts and reinvested the proceeds in higher yielding policies, which resulted in $0.3 million of income tax expense. The restructuring had an expected earn-back period of just over one year.

Current wording

Income tax expense for each of thethree months ended March 31, 2025 and 2024 was$1.4 million. The effective tax rate for thethree months ended March 31, 2025 and 2024 was 18.4% and 22.7%, respectively. During the first quarter of 2024, we surrendered approximately $8.4 million of BOLI contracts and reinvested the proceeds in higher yielding policies, which resulted in $0.3 million of income tax expense. The restructuring had an expected earn-back period of just over one year.

Previous wording

For the three months ended September 30, 2024, the effective tax rate differed from the statutory tax rate of 21% primarily due to the revision of our estimated 2024 annual effective tax rate, discussed above, tax-exempt interest income earned on certain loans and investment securities and income from BOLI. For thenine months ended September 30, 2024, the effective tax rate differed from the statutory tax rate of 21% primarily due to the revision of our estimated 2024 annual effective tax rate, discussed above, tax-exempt interest income earned on certain loans and investment securities and income from BOLI, partially offset by the surrender of BOLI contracts. For thethree and nine months ended September 30, 2023, the effective tax rate differed from the statutory tax rate of 21% primarily due totax-exempt interest income earned on certain loans and investment securities and income from BOLI.

Current wording

For thethree months ended March 31, 2025, the effective tax rate differed from the statutory tax rate of 21% primarily due totax-exempt interest income earned on certain loans and investment securities and income from BOLI. For thethree months ended March 31, 2024, the effective tax rate differed from the statutory tax rate of 21% primarily dueto the surrender of BOLI contracts, partially offset by tax-exempt interest income earned on certain loans and investment securities and income from BOLI.

Previous wording

*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.

Current wording

*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’s loan committee and the full Board. 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 risk categories, which are consistent with the definitions used in guidance promulgated by federal banking regulators, are as follows.

Previous wording

At September 30, 2024 and December 31, 2023, there were no loans classified as loss, while there were $0.1 million and no loans, respectively, classified as doubtful, $28.8 million and$12.0 million, respectively, of loans classified as substandard, and$9.8 million and$10.8 million, respectively, of loans classified as special mention. The increase in loans classified as substandard is primarily due to one loan relationship in which $13.8 million of construction and development and commercial real estate loans were downgraded and are still accruing.

Current wording

At March 31, 2025 and December 31, 2024, there were no loans classified as loss or doubtful, $29.1 million and$32.7 million, respectively, of loans classified as substandard, and$11.5 million and$7.8 million, respectively, of loans classified as special mention.

Previous wording

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.

Current wording

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. 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.

Previous wording

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 sales price is applied to the outstanding loan balance. If the loan balance is greater than the sales proceeds, the deficient balance is charged-off.

Current wording

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 sold at public auction for fair market value (based upon recent appraisals), 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.

Previous wording

Allowance for Credit Losses. Effective January 1, 2023, we adopted ASU 2016-13, which uses the CECL accounting methodology for the allowance for credit losses. Upon adoption, we recorded a one-time, cumulative effect adjustment to increase the allowance for credit losses by $5.9 million. The allowance for credit losses was$28.1 million and$30.5 million at September 30, 2024 and December 31, 2023, respectively. The CECL methodology requires that lifetime expected credit losses be recorded at the time the financial asset is originated or acquiredand be adjusted each period through a provision for credit losses for changes in the expected lifetime credit losses. Refer to Note 1. Summary of Significant Accounting Policies – Accounting Standards Adopted in 2023 in the Annual Report for information regarding our adoption of ASU 2016-13.

Current wording

Allowance for Credit Losses. We account for the ACL in accordance with ASC 326, which uses the CECL accounting methodology. The CECL methodology requires that lifetime expected credit losses be recorded at the time the financial asset is originated or acquiredand be adjusted each period through a provision for credit losses for changes in the expected lifetime credit losses. The ACL was$26.4 million and$26.7 million at March 31, 2025 and December 31, 2024, respectively.

Previous wording

We maintain a separate allowance for credit losses on unfunded loan commitments, which is included in “Accrued taxes and other liabilities” in the accompanying consolidated balance sheets. The allowance for credit losses is generally increased by the provision for credit losses and decreased by charge-offs, net of recoveries. The negative provision for credit losses for the three months ended September 30, 2024 was primarily due to net recoveries of $0.4 million, a decrease in total loans, aging of existing loans and an improvement in the economic forecast. The negative provision for credit losses for the nine months ended September 30, 2024 was primarilydue to net recoveries, a decrease in total loans, aging of existing loans, an improvement in the economic forecast and, to a lesser extent, the completion of our annual CECL allowance model recalibration, which resulted in lower historical loss rates. The negative provision for credit losses for thethree months ended September 30, 2023 was primarily attributable to net recoveries of $0.2 million. The negative provision for credit losses for thenine months ended September 30, 2023 was primarily attributable to recoveries on one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida.

Current wording

We maintain a separate ACLon unfunded loan commitments, which is included in “Accrued taxes and other liabilities” in the accompanying consolidated balance sheets. The ACLis generally increased by the provision for credit losses and decreased by charge-offs, net of recoveries. The negative provision for credit losses for the three months ended March 31, 2025 was primarilydue to net recoverieson one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida. The negative provision for credit losses for thethree months ended March 31, 2024 was primarily due to a decrease in total loans, aging of existing loans, and, to a lesser extent, the completion of our annual CECL allowance model recalibration, which resulted in lower historical loss rates.