Exhibit 99.4
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial statements are based on the separate historical financial statements of Investar Holding Corporation (“Investar”) and Cheaha Financial Group, Inc. (“Cheaha”) and are adjusted to give effect to the April 1, 2021 acquisition of Cheaha.
The unaudited pro forma condensed combined balance sheet as of March 31, 2021 is presented as if the merger with Cheaha and the transactions that occurred therewith had occurred on March 31, 2021. The unaudited pro forma condensed combined income statements for the year ended December 31, 2020 and the three months ended March 31, 2021 are presented as if the merger and transactions that occurred therewith had occurred on January 1, 2020. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the merger and, with respect to the income statements only, expected to have a continuing impact on consolidated results of operations.
The acquisition has been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805 - Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill. The purchase price allocation is preliminary because valuation of the net tangible and identifiable intangible assets is still being finalized. Accordingly, the pro forma adjustments related to the purchase price allocation and certain other adjustments are preliminary and have been made solely for the purpose of preparing the unaudited pro forma condensed combined financial statements. The estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date).
The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not intended to represent or be indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been achieved if Investar and Cheaha had been a combined company during the period presented. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma condensed combined statement of operations does not reflect any operating efficiencies and/or cost savings that the Company may achieve with respect to the combined companies.
These unaudited pro forma condensed combined financial statements should be read in conjunction with Investar’s historical consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as well as Cheaha’s historical consolidated financial statements and related notes for the year ended December 31, 2020 which are included as Exhibit 99.2 to this Current Report filed on Form 8-K/A.
INVESTAR HOLDING CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of March 31, 2021
(Amounts in thousands)
(Unaudited)
| | | Historical | | | | | | |
| | | Investar Holding Corporation | | Cheaha Financial Group Inc. | | Pro Forma Adjustments | | | | Pro Forma Combined |
| | | | | | | | | | | |
ASSETS | | | | | | | | | | |
Cash and cash equivalents | | 99,467 | | | 49,179 | | | (41,067 | ) | (1) | | | 107,579 | |
Available for sale securities | | 301,433 | | | 60,378 | | | 334 | | (2) | | | 362,145 | |
Held to maturity securities | | 11,966 | | | 15 | | | — | | | | | 11,981 | |
Loans | | 1,845,970 | | | 121,372 | | | (1,308 | ) | (3) | | | 1,966,034 | |
Less: allowance for loan losses | | (20,423 | ) | | (1,344 | ) | | 1,344 | | (4) | | | (20,423 | ) |
Net loans | | 1,825,547 | | | 120,028 | | | 36 | | | | | 1,945,611 | |
| Mortgage loans held for sale | | — | | | 331 | | | — | | | | | 331 | |
Other equity securities | | 16,763 | | | 211 | | | — | | | | | 16,974 | |
Bank premises and equipment, net | | 56,631 | | | 3,875 | | | 1,636 | | (5) | | | 62,142 | |
Other real estate owned, net | | 1,518 | | | — | | | — | | | | | 1,518 | |
Accrued interest receivable | | 12,868 | | | 837 | | | — | | | | | 13,705 | |
Goodwill | | 28,144 | | | — | | | 11,270 | | (6) | | | 39,414 | |
| Other intangible assets | | 3,857 | | | — | | | 848 | | (7) | | | 4,705 | |
Bank owned life insurance | | 39,131 | | | 3,023 | | | — | | | | | 42,154 | |
Other assets | | 10,631 | | | 204 | | | (107 | ) | (8) | | | 10,728 | |
Total assets | | $ | 2,407,956 | | | $ | 238,081 | | | $ | (27,050 | ) | | | | $ | 2,618,987 | |
| | | | | | | | | | | |
LIABILITIES | | | | | | | | | | |
Deposits: | | | | | | | | | | |
Noninterest-bearing | | $ | 515,487 | | | $ | 103,988 | | | $ | — | | | | | $ | 619,475 | |
Interest-bearing | | 1,494,393 | | | 101,921 | | | 1,077 | | (9) | | | 1,597,391 | |
Total deposits | | 2,009,880 | | | 205,909 | | | 1,077 | | | | | 2,216,866 | |
Advances from Federal Home Loan Bank | | 82,500 | | | — | | | — | | | | | 82,500 | |
Repurchase agreements | | 4,274 | | | — | | | — | | | | | 4,274 | |
Subordinated debt, net of unamortized issuance costs | | 42,920 | | | — | | | — | | | | | 42,920 | |
Junior subordinated debt | | 5,962 | | | 3,093 | | | (764 | ) | (10) | | | 8,291 | |
Accrued taxes and other liabilities | | 14,169 | | | 1,542 | | | 174 | | (11) | | | 15,885 | |
Total liabilities | | 2,159,705 | | | 210,544 | | | 487 | | | | | 2,370,736 | |
| | | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | | | |
Total stockholders’ equity | | 248,251 | | | 27,537 | | | (27,537 | ) | | | | 248,251 | |
Total liabilities and stockholders’ equity | | $ | 2,407,956 | | | $ | 238,081 | | | $ | (27,050 | ) | | | | $ | 2,618,987 | |
See accompanying notes to the unaudited pro forma condensed combined financial statements.
INVESTAR HOLDING CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the three months ended March 31, 2021
(in thousands, except share data)
(Unaudited)
| | | Historical | | | | | |
| | | Investar Holding Corporation | | Cheaha Financial Group Inc. | | Pro Forma Adjustments | | | Pro Forma Combined |
| | | | | | | | | | |
Interest and fee income | | $ | 22,969 | | $ | 2,586 | | $ | 95 | | (12) | $ | 25,650 | |
Interest expense | | 3,335 | | 298 | | (66 | ) | (13)(14) | 3,567 | |
Net interest income | | 19,634 | | 2,288 | | 161 | | | 22,083 | |
Provision for loan losses | | 400 | | — | | — | | | 400 | |
Net interest income after provision for loan losses | | 19,234 | | 2,288 | | 161 | | | 21,683 | |
Noninterest income | | 2,365 | | 525 | | — | | | 2,890 | |
Noninterest expense | | 14,809 | | 2,476 | | (908 | ) | (15)(16)(17) | 16,377 | |
Income before income tax expense | | 6,790 | | 337 | | 1,069 | | | 8,196 | |
Income tax expense | | 1,430 | | 143 | | 224 | | (18) | 1,797 | |
Net Income | | $ | 5,360 | | $ | 194 | | $ | 845 | | | $ | 6,399 | |
| | | | | | | | | | |
Earnings per share: | | | | | | | | | |
Basic earnings per share | | $ | 0.51 | | $ | 0.38 | | | | | $ | 0.61 |
Diluted earnings per share | | | 0.51 | | | 0.38 | | | | | | 0.61 |
| | | | | | | | | | |
Average common shares outstanding | | | | | | | | | |
Basic | | 10,509,468 | | 513,332 | | (513,332 | ) | | 10,509,468 | |
Diluted | | 10,567,173 | | 513,332 | | (513,332 | ) | | 10,567,173 | |
See accompanying notes to the unaudited pro forma condensed combined financial statements.
INVESTAR HOLDING CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the year ended December 31, 2020
(in thousands, except share data)
(Unaudited)
| | | Historical | | | | | |
| | | Investar Holding Corporation | | Cheaha Financial Group Inc. | | Pro Forma Adjustments | | | Pro Forma Combined |
| | | | | | | | | | |
Interest and fee income | | $ | 93,794 | | $ | 10,129 | | 733 | | (12) | $ | 104,656 | |
Interest expense | | 20,260 | | 1,781 | | (467 | ) | (13)(14) | 21,574 | |
Net interest income | | 73,534 | | 8,348 | | 1,200 | | | 83,082 | |
Provision for loan losses | | 11,160 | | — | | — | | | 11,160 | |
Net interest income after provision for loan losses | | 62,374 | | 8,348 | | 1,200 | | | 71,922 | |
Noninterest income | | 12,096 | | 1,161 | | — | | | 13,257 | |
Noninterest expense | | 57,131 | | 6,188 | | 302 | | (15)(16) | 63,621 | |
Income before income tax expense | | 17,339 | | 3,321 | | 898 | | | 21,558 | |
Income tax expense | | 3,450 | | 599 | | 189 | | (18) | 4,238 | |
Net Income | | $ | 13,889 | | $ | 2,722 | | $ | 709 | | | $ | 17,320 | |
| | | | | | | | | | |
Earnings per share: | | | | | | | | | |
Basic earnings per share | | $ | 1.27 | | $ | 5.30 | | | | | $ | 1.60 |
Diluted earnings per share | | | 1.27 | | | 5.30 | | | | | | 1.59 |
| | | | | | | | | | |
Average common shares outstanding | | | | | | | | | |
Basic | | 10,850,936 | | 542,500 | | (542,500 | ) | | 10,850,936 | |
Diluted | | 10,865,847 | | 542,500 | | (542,500 | ) | | 10,865,847 | |
See accompanying notes to the unaudited pro forma condensed combined financial statements.
INVESTAR HOLDING CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Effective April 1, 2021, Investar Holding Corporation (NASDAQ: ISTR) (“Investar”), the holding company for Investar Bank, completed its acquisition of Cheaha Financial Group, Inc. (“Cheaha”), the holding company for Cheaha Bank, in Oxford, Alabama. The acquisition was completed pursuant to the terms of the Agreement and Plan of Reorganization (the “Reorganization Agreement”), dated January 21, 2021, by and among Investar, Cheaha, Investar Bank and High Point Acquisition, Inc., a Louisiana corporation and wholly-owned subsidiary of Investar (“Merger Subsidiary”). Pursuant to the Reorganization Agreement, the Merger Subsidiary was merged with and into Cheaha, with Cheaha as the surviving corporation. Immediately following the initial merger, Cheaha was merged with and into Investar, with Investar as the surviving corporation, and then Cheaha Bank was merged with and into Investar Bank, with Investar Bank as the surviving bank. The mergers took place in immediate succession.
Under the terms of the Reorganization Agreement, each of the issued and outstanding shares of Cheaha common stock was converted into and represents the right to receive $80.00 in cash from Investar. In the aggregate, Cheaha’s shareholders received approximately $41.1 million in cash consideration as a result of the merger.
The unaudited pro forma condensed combined balance sheet and statements of income, including per share data, are presented after giving effect to the merger. The pro forma financial information assumes that the merger with Cheaha occurred on January 1, 2020 for purposes of the unaudited pro forma condensed combined statement of income and on March 31, 2021 for the purposes of the unaudited pro forma condensed combined balance sheet and gives effect to the merger, for purposes of the unaudited pro forma condensed combined statement of income, as if it had been effective during the entire period.
The merger will be accounted for using the acquisition method of accounting; accordingly, the difference between the purchase price over the estimated fair value of the assets acquired (including identifiable intangible assets) and liabilities assumed will be recorded as goodwill.
The pro forma financial information includes estimated adjustments to record the assets and liabilities of Cheaha at their respective fair values and represents management’s estimates based on available information. The pro forma adjustments included herein will likely be revised as additional information becomes available and as additional analysis is performed. The final allocation of the purchase price will be determined after completion of a final analysis to determine the fair values of Cheaha’s tangible and identifiable intangible assets and liabilities as of the closing date and any differences could be material.
NOTE 2. PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All adjustments are based on current valuations, estimates and assumptions that are subject to change and such change could be material.
1. Cash consideration paid to the shareholders of Cheaha.
2. Fair value adjustment on investment securities available for sale based on quoted market prices or prices quoted for similar financial instruments.
3. Adjustment represents the fair value adjustments of loans. The purchase accounting adjustment for the acquired loan portfolio is based on (1) current market interest rates and (2) Investar’s initial evaluation of credit deterioration identified in Cheaha’s loan portfolio.
4. Adjustment reflects elimination of Cheaha’s historical allowance for loan losses. Purchased loans acquired in a business combination are required to be recorded at fair value and the recorded allowance of the acquired company may not be carried over.
5. Adjustment reflects the fair value of fixed assets acquired.
6. Goodwill of $11.3 million was recorded as a result of the total purchase price paid by Investar and the fair value of assets purchased exceeding the fair value of liabilities assumed.
7. Adjustment represents the recognition of the fair value of acquired core deposit intangible. The core deposit intangible is calculated as the present value of the difference between a market participant’s cost of obtaining alternative funds and the cost to maintain the acquired deposit base.
8. Adjustment represents adjustments to other assets, including deferred taxes associated with the adjustments to record the assets and liabilities of Cheaha at fair value.
9. Adjustment reflects the fair value premium on time deposits which was calculated by discounting future contractual payments at a current market interest rate.
10. Adjustment represents the fair value discount adjustment to trust preferred long-term debt obligations.
11. Adjustment to other liabilities, including accounts payable and deferred taxes associated with the adjustments to record the assets and liabilities of Cheaha at fair value.
12. Interest income on loans was adjusted to reflect the amortization of the loan premium and the accretion of the credit discount on a level-yield method over the estimated remaining terms to maturity of the loans acquired.
13. Interest expense on deposits was adjusted to reflect the amortization of the time deposit fair value premium over the remaining life of the deposits. The estimated amount of the amortization is $85,000 for the three months ended March 31, 2021 and $541,000 for the year ended December 31, 2020.
14. Interest expense on borrowings was adjusted to reflect the amortization of the fair value adjustment to the trust preferred long-term debt obligations. The estimated amount of the amortization is $19,000 for the three months ended March 31, 2021 and $74,000 for the year ended December 31, 2020.
15. Represents the amortization of the core deposit intangible over an estimated useful life of ten years using the sum of the years digits method assuming the merger closed on January 1, 2020. The estimated amount of the amortization is $36,000 for the three months ended March 31, 2021 and $135,000 for the year ended December 31, 2020.
16. Adjustment represents the additional depreciation expense related to the fair value of fixed assets acquired. The estimated amount of additional depreciation is $42,000 for the three months ended March 31, 2021 and $167,000 for the year ended December 31, 2020.
17. Adjustment represents the elimination of historical nonrecurring transaction costs of $986,000 incurred during the three months ended March 31, 2021 that directly related to the Cheaha acquisition.
18. Adjustment represents the net federal tax effect of the pro forma adjustments using Investar’s statutory tax rate of 21%.
NOTE 3. PRO FORMA ALLOCATION OF PURCHASE PRICE
The following table shows the pro forma allocation of the consideration paid for Cheaha’s common equity to the acquired identifiable assets and liabilities assumed and the pro forma goodwill generated from the transaction.
Purchase price: | | | |
Cash paid | | | $ | 41,067 | |
| | | | |
Identifiable assets: | | | |
Cash and cash equivalents | | | 49,208 |
Investment securities | | | 60,938 |
Net loans | | | 120,395 |
Bank premises and equipment | | | 5,511 |
| Core deposit intangible | | | 848 |
Bank owned life insurance | | | 3,023 |
Other assets | | | 905 |
Total identifiable assets | | | 240,828 | |
| | | | |
Identifiable liabilities: | | | |
Deposits | | | 206,986 |
| Notes payable | | | 2,329 |
Other liabilities | | | 1,716 |
Total identifiable liabilities | | | 211,031 | |
| | | | |
Net assets acquired | | | 29,797 | |
Resulting goodwill | | | $ | 11,270 | |
