UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _______________

Commission File No.: 0-28312

Bear State Financial, Inc.

(Exact name of registrant as specified in its charter)

	Arkansas		71-0785261
	(State or other jurisdiction		(I.R.S. Employer
	of incorporation or organization)		Identification Number)

	900 South Shackleford Rd, Suite 401
	Little Rock, Arkansas		72211
	(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (501) 975-6033

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☐

Accelerated Filer ☒

Non-accelerated Filer ☐

(Do not check if a smaller

reporting company)

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of October 27, 2017, there were issued and outstanding 37,729,837 shares of the Registrant's Common Stock, par value $.01 per share.

Table of Contents

BEAR STATE FINANCIAL, INC.

TABLE OF CONTENTS

Part I.	Financial Information	Page

Item 1.	Financial Statements

	Condensed Consolidated Statements of Financial Condition	1

	Condensed Consolidated Statements of Income	2

	Condensed Consolidated Statements of Comprehensive Income	3

	Condensed Consolidated Statement of Stockholders’ Equity	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	47

Part II.	Other Information

Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6.	Exhibits	49

Signatures		50

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Part I. Financial Information

Item 1. Financial Statements

BEAR STATE FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share and per share data)

(Unaudited)

	September 30, 2017		December 31, 2016
ASSETS

Cash and cash equivalents	$	80,571	$	78,789
Interest-bearing time deposits in banks		4,075		4,571
Available for sale securities, at fair value		205,392		188,476
Held to maturity securities, at amortized cost (fair value of $42,446 and $25,090, respectively)		42,879		26,977
Other investment securities, at cost		24,802		13,759
Loans receivable, net of allowance of $18,682 and $15,584, respectively		1,692,463		1,540,805
Loans held for sale		7,258		8,954
Accrued interest receivable		8,027		7,006
Real estate owned, net		1,461		1,945
Office properties and equipment, net		51,353		54,049
Office properties and equipment held for sale		4,669		5,337
Cash surrender value of life insurance		57,794		57,267
Goodwill		40,196		40,196
Core deposit intangibles, net		9,587		10,353
Deferred tax asset, net		7,277		11,619
Prepaid expenses and other assets		3,655		3,072

TOTAL	$	2,241,459	$	2,053,175

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Noninterest bearing deposits	$	232,004	$	223,038
Interest bearing deposits		1,357,132		1,421,042
Total deposits		1,589,136		1,644,080
Securities sold under agreement to repurchase		21,629		19,114
Other borrowings		372,316		152,004
Other liabilities		9,169		4,550

Total liabilities		1,992,250		1,819,748

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value—5,000,000 shares authorized; none issued at September 30, 2017 or December 31, 2016		--		--
Common stock, $0.01 par value—100,000,000 shares authorized; 37,729,837 and 37,618,597 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		377		376
Additional paid-in capital		210,049		209,274
Accumulated other comprehensive income (loss)		256		(1,436	)
Retained earnings		38,527		25,213

Total stockholders’ equity		249,209		233,427

TOTAL	$	2,241,459	$	2,053,175

See notes to unaudited condensed consolidated financial statements.

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BEAR STATE FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except earnings per share)
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
INTEREST INCOME:
Loans receivable	$	20,184		$	17,808		$	59,055		$	53,012
Investment securities:
Taxable		726			467			2,015			1,477
Nontaxable		950			508			2,773			1,456
Other		234			66			452			230
Total interest income		22,094			18,849			64,295			56,175

INTEREST EXPENSE:
Deposits		1,855			1,662			5,272			4,785
Other borrowings		1,103			352			2,396			1,027
Total interest expense		2,958			2,014			7,668			5,812

NET INTEREST INCOME		19,136			16,835			56,627			50,363

PROVISION FOR LOAN LOSSES		1,863			643			4,034			1,665

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		17,273			16,192			52,593			48,698

NONINTEREST INCOME:
Net gain on sales of investment securities		--			21			48			19
Deposit fee income		2,519			2,253			7,509			6,639
Earnings on life insurance policies		406			414			1,625			1,247
Gain on sales of loans		1,003			1,368			3,071			3,454
Other		263			277			808			960

Total noninterest income		4,191			4,333			13,061			12,319

NONINTEREST EXPENSES:
Salaries and employee benefits		6,913			7,618			21,767			23,725
Net occupancy expense		1,681			1,826			5,255			5,652
Real estate owned, net		(38	)		(381	)		(31	)		(379	)
FDIC insurance		248			224			774			870
Amortization of intangible assets		255			255			766			766
Data processing		1,415			1,341			4,307			4,180
Professional fees		408			545			1,431			1,700
Advertising and public relations		342			419			893			1,284
Postage and supplies		207			273			631			889
Other		2,829			1,280			5,705			5,036

Total noninterest expenses		14,260			13,400			41,498			43,723

INCOME BEFORE INCOME TAXES		7,204			7,125			24,156			17,294

INCOME TAX PROVISION		2,072			2,384			7,450			4,668

NET INCOME	$	5,132		$	4,741		$	16,706		$	12,626

Basic earnings per common share	$	0.14		$	0.13		$	0.44		$	0.34

Diluted earnings per common share	$	0.14		$	0.13		$	0.44		$	0.33

See notes to unaudited condensed consolidated financial statements.

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BEAR STATE FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Net income	$	5,132		$	4,741		$	16,706		$	12,626
Other comprehensive income:
Unrealized holding gains (losses) on investment securities arising during the period		585			(359	)		2,789			1,946
Less: reclassification adjustments for realized loss (gain) included in net income		--			(21	)		(48	)		(19	)
Other comprehensive income, before tax effect		585			(380	)		2,741			1,927
Tax effect		(224	)		146			(1,049	)		(738	)
Other comprehensive income (loss)		361			(234	)		1,692			1,189
COMPREHENSIVE INCOME	$	5,493		$	4,507		$	18,398		$	13,815

See notes to unaudited condensed consolidated financial statements.

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BEAR STATE FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

(In thousands, except share data)

(Unaudited)

	Issued							Accumulated Other						Total
	Common Stock				Additional Paid-			Comprehensive			Retained			Stockholders’
	Shares		Amount		In Capital			Income (Loss)			Earnings			Equity
BALANCE – January 1, 2017		37,618,597	$	376	$	209,274		$	(1,436	)	$	25,213		$	233,427

Net income		--		--		--			--			16,706			16,706
Other comprehensive income		--		--		--			1,692			--			1,692
Shares issued – restricted stock unit vesting, net of shares withheld for employee taxes		55,798		--		(276	)		--			--			(276	)
Shares issued – stock options exercised		55,442		1		306			--			--			307
Stock compensation		--		--		745			--			--			745
Dividends distributed - $0.09 per common share		--		--		--			--			(3,392	)		(3,392	)

BALANCE – September 30, 2017		37,729,837	$	377	$	210,049		$	256		$	38,527		$	249,209

See notes to unaudited condensed consolidated financial statements.

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BEAR STATE FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Nine Months Ended September 30,
	2017			2016

OPERATING ACTIVITIES:
Net income	$	16,706		$	12,626
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		4,034			1,665
Provision for real estate losses		117			302
Deferred tax provision		3,291			5,115
Deferred tax valuation allowance		--			(897	)
Net amortization of premiums on investment securities		1,410			950
Federal Home Loan Bank stock dividends		(112	)		(26	)
Loss (gain) on sales of fixed assets, net		4			(970	)
Impairment on office properties held for sale		634			987
Gain on sales of real estate owned and repossessed assets, net		(267	)		(862	)
Gain on sales of investment securities, net		(48	)		(19	)
Originations of loans held for sale		(98,657	)		(124,450	)
Proceeds from sales of loans originated for sale		103,424			121,235
Gain on sales of loans originated to sell		(3,071	)		(3,454	)
Depreciation		2,566			2,842
Amortization of deferred loan costs, net		407			824
Accretion of purchased loans, net		(3,561	)		(3,837	)
Amortization of other intangible assets		766			766
Stock compensation		745			1,032
Earnings on life insurance policies		(1,625	)		(1,247	)
Changes in operating assets and liabilities:
Accrued interest receivable		(1,021	)		(537	)
Prepaid expenses and other assets		(562	)		(1,062	)
Other liabilities		4,619			(48	)

Net cash provided by operating activities		29,799			10,935

INVESTING ACTIVITIES:
Net decrease in federal funds sold		--			18
Purchases of interest bearing time deposits in banks		(1,485	)		(2,341	)
Redemptions of interest bearing time deposits in banks		1,981			8,451
Purchases of held to maturity (“HTM”) securities		(16,093	)		(10,383	)
Purchases of available for sale (“AFS”) securities		(40,447	)		(64,964	)
Proceeds from sales of AFS securities		2,069			30,386
Proceeds from maturities/calls/paydowns of AFS securities		23,032			47,844
Purchases of other investments		(10,931	)		(4,244	)
Redemptions of other investments		--			1,995
Net loan disbursements		(144,134	)		(41,260	)
Loan participations purchased		(12,036	)		(23,631	)
Loan participations sold		2,245			9,044
Proceeds from sales of real estate owned and repossessed assets		2,209			3,779
Proceeds from sales of office properties and equipment		1,251			1,899
Purchases of office properties and equipment		(1,298	)		(1,723	)
Purchases of bank owned life insurance		--			(3,000	)
Proceeds from settlement of bank owned life insurance		1,098			--

Net cash used in investing activities		(192,539	)		(48,130	)

(Continued)

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BEAR STATE FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Nine Months Ended September 30,
	2017			2016
FINANCING ACTIVITIES:
Net (decrease) increase in deposits	$	(54,944	)	$	45,840
Proceeds from long term Federal Home Loan Bank (“FHLB”) advances		85,223			40,245
Repayment of long term FHLB advances		(85,424	)		(20,425	)
Net change in short term FHLB advances		230,000			6,800
Proceeds from other borrowings		2,400			4,800
Repayment of other borrowings		(11,887	)		(1,144	)
Net increase in securities sold under agreement to repurchase		2,515			1,436
Proceeds from exercise of stock options		307			130
Shares withheld for payment of employee payroll taxes		(276	)		(180	)
Repurchase of common stock		--			(3,672	)
Dividends distributed		(3,392	)		(1,879	)

Net cash provided by financing activities		164,522			71,951

NET INCREASE IN CASH AND CASH EQUIVALENTS		1,782			34,756

CASH AND CASH EQUIVALENTS:
Beginning of period		78,789			52,131

End of period	$	80,571		$	86,887

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	7,342		$	5,834

Cash paid for income taxes	$	1,206		$	892

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate and other assets acquired in settlement of loans	$	1,411		$	1,389

Sales of real estate owned financed by the Bank	$	24		$	146

Investment securities traded—not settled	$	--		$	972

Office properties transferred to office properties held for sale	$	1,428		$	7,364

See notes to unaudited condensed consolidated financial statements.

(Concluded)

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BEAR STATE FINANCIAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations — Bear State Financial, Inc. (the “Company”) is a bank holding company headquartered in Little Rock, Arkansas. Its subsidiary bank, Bear State Bank (the “Bank”), is a community oriented bank providing a broad line of financial products to individuals and business customers. As of September 30, 2017, the Bank operates 42 branches, three personalized technology centers equipped with interactive teller machines (“ITMs”) and three loan production offices throughout Arkansas, Missouri and Southeast Oklahoma. On June 28, 2016, the Bank converted from a national bank to an Arkansas state-chartered bank.

On August 22, 2017, the Company and the Bank entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with Arvest Bank, an Arkansas banking corporation (“Arvest”), and Arvest Acquisition Sub, Inc., an Arkansas corporation and a wholly-owned subsidiary of Arvest (“Acquisition Sub”), pursuant to which Arvest will acquire the Company by merging Acquisition Sub with and into the Company with the Company surviving as a wholly-owned subsidiary of Arvest (the “Merger”).

Pursuant to the Merger Agreement, each share of the Company’s common stock issued and outstanding as of the effective time of the Merger will be converted into a right to receive $10.28 per share, payable in cash. The Merger is expected to close in the fourth quarter of 2017 or first quarter of 2018 and is subject to customary closing conditions, including both regulatory approval and approval by the Company’s shareholders.

Principles of Consolidation—The accompanying consolidated financial statements include the accounts of the Company and its subsidiary described above. Intercompany transactions and balances have been eliminated in consolidation.

Operating Segments— The Company’s operations are organized on a regional basis. While the chief decision-makers monitor revenue streams of various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Each region provides a group of similar community banking products and services, including loans, time deposits, and checking and savings accounts. The individual regions have similar operating and economic characteristics and are reported as one aggregated operating segment.

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. However, such information reflects all adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods. Those adjusting entries consist only of normal recurring adjustments.

Certain reclassifications of prior period amounts have been made to conform with the current period presentation. These reclassifications had no impact on previously reported net income.

The results of operations for the nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017. The unaudited condensed consolidated financial statements of the Company and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2016, contained in the Company’s 2016 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”). The condensed consolidated balance sheet of the Company as of December 31, 2016, included herein has been derived from the audited consolidated balance sheet of the Company as of that date.

2.	RECENT ACCOUNTING PRONOUNCEMENTS

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718). This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU requires all excess income tax benefits and tax deficiencies on share based payment awards to be recognized in the income statement when the awards vest or are settled and likewise changes the calculation of assumed proceeds in applying the treasury stock method for calculating diluted earnings per share. It also allows an employer to make a policy election to account for forfeitures as they occur. The ASU also eliminates the guidance in Topic 718 that was indefinitely deferred. The Company adopted the amendments beginning January 1, 2017. The Company’s adoption of the ASU primarily resulted in a change in presentation in the statement of cash flows of employee taxes withheld in shares of Company stock from operating activities to financing activities. The other provisions either were not applicable or did not have a material impact on the Company’s financial statements. The Company’s stock based compensation plan has not historically generated material amounts of excess tax benefits or deficiencies. However, the magnitude of any income tax benefits or deficiencies in the future will depend on the Company’s stock price at the dates awards vest or are settled.

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In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU adds or clarifies guidance on the classification of certain cash receipts and cash payments in the statement of cash flows in an attempt to reduce the diversity of financial reporting. For public entities, ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted. The Company adopted the guidance as of January 1, 2017 and there was no impact on the Company’s financial statements at the date of adoption.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The objective of the ASU is to expand the simplification of the subsequent measurement of goodwill to include public business entities and not-for-profit entities. The simplification eliminates Step 2 from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. For public companies that are SEC filers, the ASU is effective for fiscal years beginning after December 15, 2019, including interim periods, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company elected to adopt this ASU effective with its September 30, 2017 annual impairment testing. The Company concluded that its goodwill is not impaired as of September 30, 2017. The adoption of this ASU did not have an impact on the Company’s financial position or results of operations.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs. This amendment updates the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount and can continue to be amortized to maturity. ASU 2017-08 will be effective for the Company in the fiscal year beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including interim periods within those years. The Company has elected to early adopt ASU 2017-08 and the effect was not material.

Accounting Standards Not Yet Effective—

In May 2014, the FASB issued ASU 2014-09, creating FASB Topic 606, Revenue from Contracts with Customers. The guidance in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The FASB also issued the following amendments to ASU No. 2014-09 to provide clarification on the guidance: ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date, ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross Versus Net), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this ASU become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017.

In February 2017, the FASB issued ASU 2017-05 to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. Sales and partial sales of real estate assets will now be accounted for similar to all other sales of nonfinancial and in substance nonfinancial assets. The amendments in this ASU are effective at the same time as the amendments in ASU 2014-09. This ASU is to be adopted concurrently with ASU 2014-09.

The Company is currently evaluating the impact, if any, of the new revenue recognition ASUs on its financial position, results of operations and financial statement disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). This ASU requires certain equity investments to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of such investments; eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost; requires public entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. For public entities, ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements since it does not have any marketable equity securities and there are no indications that its nonmarketable equity securities are impaired.

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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU applies to all leases and is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. The previous standards did not require lessees to recognize operating leases on the balance sheet. This ASU provides for accounting requirements so that lessees will be required to recognize the rights and obligations associated with operating leases. The guidance on lessor accounting was not fundamentally changed with this ASU. For public entities, ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, however, early adoption is permitted. The Company has formed a committee and is in the process of collecting data and evaluating the impact this ASU will have on its financial statements and will subsequently implement new processes and update current accounting policies to comply with the amendments of this ASU.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Current U.S. GAAP requires an incurred loss methodology for recognizing credit losses that delays loss recognition until it is probable that a loss has been incurred. The amendments in this ASU replace the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. Existing purchased credit impaired assets will be grandfathered and classified as purchased credit deteriorated (“PCD”) assets at the date of adoption. The asset will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance. ASU 2016-13 will be effective for the Company in the fiscal year beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those years. An entity will apply the amendments in this ASU through a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company has formed a committee to evaluate the impact this ASU will have on its financial statements and to begin developing and implementing processes and procedures during the next two years to ensure the Company is compliant with the amendments by the adoption date.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The ASU gives clarity and reduces diversity in practice by providing guidance about which changes to terms or conditions of a shared-based payment award require an entity to apply modification accounting in Topic 718. For public entities, ASU 2017-09 is effective for interim and annual periods beginning after December 15, 2017; however, early adoption is permitted. The adoption of this ASU is not expected to have an impact on the Company’s financial statements as the Company has not historically changed the terms or conditions of share-based payment awards.

In July 2017, the FASB issued ASU 2017-11—Earnings Per Share (Topic 260): Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The amendments in the ASU change the classification of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part II of this ASU recharacterize the indefinite deferral of certain provisions of Topic 480, Distinguishing Liabilities from Equity, that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public entities, ASU 2017-11 Part I is effective for interim and annual periods beginning after December 15, 2018; however, early adoption is permitted. The amendments in Part II of this ASU do not require any transition guidance because those amendments do not have an accounting effect. The adoption of this ASU is not expected to have an impact on the Company’s financial statements as the Company has not historically issued financial instruments that include down round features.

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In August 2017, the FASB issued ASU 2017-12—Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this ASU also make certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. For public entities, ASU 2017-12 is effective for interim and annual periods beginning after December 15, 2018; however, early adoption is permitted. The adoption of this ASU is not expected to have an impact on the Company’s financial statements as the Company does not currently have any hedging relationships.

3.	INVESTMENT SECURITIES

Investment securities consisted of the following as of the dates indicated (in thousands):

	September 30, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale
U.S. Treasuries and government agencies	$	4,999	$	--	$	(26	)	$	4,973
Municipal securities		94,028		900		(456	)		94,472
Residential mortgage-backed securities		100,952		485		(710	)		100,727
Corporate debt securities		5,000		220		--			5,220

Total available for sale	$	204,979	$	1,605	$	(1,192	)	$	205,392

Held to maturity
Municipal securities	$	42,879	$	234	$	(667	)	$	42,446

Total held to maturity	$	42,879	$	234	$	(667	)	$	42,446

	December 31, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale
U.S. Treasuries and government agencies	$	5,657	$	5	$	(31	)	$	5,631
Municipal securities		88,276		343		(1,569	)		87,050
Residential mortgage-backed securities		96,870		348		(1,423	)		95,795

Total available for sale	$	190,803	$	696	$	(3,023	)	$	188,476

Held to maturity
Municipal securities	$	26,977	$	16	$	(1,903	)	$	25,090

Total held to maturity	$	26,977	$	16	$	(1,903	)	$	25,090

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The mortgage-backed portfolios at September 30, 2017 and December 31, 2016 were composed entirely of residential mortgage-backed securities issued or guaranteed by GNMA, FNMA or FHLMC.

The following tables summarize the gross unrealized losses and fair value of the Company's investments classified as available for sale and held to maturity with unrealized losses that are not deemed to be other-than-temporarily impaired (“OTTI”), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	September 30, 2017
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

U.S. Treasuries and government agencies	$	2,498	$	3	$	1,977	$	23	$	4,475	$	26
Municipal securities		33,349		491		14,814		632		48,163		1,123
Residential mortgage-backed securities		33,989		202		25,884		508		59,873		710

Total	$	69,836	$	696	$	42,675	$	1,163	$	112,511	$	1,859

	December 31, 2016
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

U.S. Treasuries and government agencies	$	1,969	$	31	$	--	$	--	$	1,969	$	31
Municipal securities		73,194		3,472		--		--		73,194		3,472
Residential mortgage-backed securities		78,725		1,423		--		--		78,725		1,423

Total	$	153,888	$	4,926	$	--	$	--	$	153,888	$	4,926

On a quarterly basis, management conducts a formal review of securities for the presence of OTTI. Management assesses whether an OTTI is present when the fair value of a security is less than its amortized cost basis at the balance sheet date. For such securities, OTTI is considered to have occurred if the Company intends to sell the security, if it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis or if the present values of expected cash flows is not sufficient to recover the entire amortized cost.

The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Additionally, the unrealized losses are also considered temporary because scheduled coupon payments have been made, it is anticipated that the entire principal balance will be collected as scheduled, and management neither intends to sell the securities nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount.

The Company has pledged investment securities with fair values of approximately $120.7 million at September 30, 2017 and $140.6 million at December 31, 2016, as collateral for certain deposits in excess of $250,000 and for other purposes, including investment securities with carrying values of approximately $21.6 million at September 30, 2017 and $19.1 million at December 31, 2016, for securities sold under agreements to repurchase.

The following table sets forth the amount (dollars in thousands) of investment securities that contractually mature during each of the periods indicated and the weighted average yields for each range of maturities at September 30, 2017. Weighted average yields for municipal obligations have not been adjusted to a tax-equivalent basis. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligation without prepayment penalties.

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	September 30, 2017
	Available for Sale							Held to Maturity
					Weighted							Weighted
	Amortized Cost		Fair Value		Average Rate			Amortized Cost		Fair Value		Average Rate

Within one year	$	5,857	$	5,860		1.65	%	$	--	$	--		--
Due from one year to five years		15,912		15,938		2.21	%		--		--		--
Due from five years to ten years		20,368		20,810		3.50	%		6,532		6,602		2.20	%
Due after ten years		61,890		62,057		2.90	%		36,347		35,844		2.80	%
		104,027		104,665		2.85	%		42,879		42,446		2.71	%
Residential mortgage-backed securities		100,952		100,727		2.35	%		--		--		--
Total	$	204,979	$	205,392		2.60	%	$	42,879	$	42,446		2.71	%

As of September 30, 2017 and December 31, 2016, investment securities with an amortized cost totaling approximately $136.6 million and $93.8 million, respectively, have call options held by the issuer, of which approximately $24.9 million and $27.4 million, respectively, are or were callable within one year.

Sales of investment securities available for sale are summarized as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016

Sales proceeds	$	--	$	22,297		$	2,069	$	30,386

Gross realized gains	$	--	$	97		$	48	$	195
Gross realized losses		--		(76	)		--		(176	)
Net gains on sales of investment securities	$	--	$	21		$	48	$	19

4.	LOANS RECEIVABLE

Loans receivable consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017			December 31, 2016
Real estate:
One- to four-family residential	$	393,082		$	389,107
Multifamily residential		92,837			92,460
Nonfarm nonresidential		568,318			495,173
Farmland		99,189			94,018
Construction and land development		147,071			125,785
Commercial		373,464			323,096
Consumer		36,859			36,265
Total loans receivable		1,710,820			1,555,904
Unearned discounts and net deferred loan costs		325			485
Allowance for loan and lease losses		(18,682	)		(15,584	)

Loans receivable—net	$	1,692,463		$	1,540,805

Loan Origination and Underwriting – The Bank employs several tools to manage risk in its loan portfolio. Prior to origination, a borrower’s ability to repay is analyzed by reviewing financial information with a comparison of the sustainability of these cash flows to the proposed loan terms, with consideration given to possible changes in underlying business and economic conditions. The financial strength and support offered by any guarantors to the loan is evaluated and any collateral offered is assessed using internal and external valuation resources. Finally, the credit request is compared against the Bank’s board-approved written lending policies and standards. The ongoing risk in the loan portfolio is managed through regularly reviewing loans to assess key credit elements, providing for an adequate allowance for loan losses and diversifying the portfolio based on certain metrics including industry and collateral types, loan purpose and underlying source of repayment.

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Real Estate Loans – The real estate loan portfolio consists primarily of single family residential, commercial real estate and construction loans. Loans in this category are differentiated by whether the property owner or parties unrelated to the borrower occupy the property. This difference can directly affect the sensitivity of the source of loan repayment to changes in interest rates and market conditions, which can impact the underlying collateral value. Therefore, the analysis of these credits focuses on current and forecasted economic trends in certain sub-markets, including residential, industrial, retail, office and multi-family segments. Changes in these segments are influenced by both local and national cycles, which may fluctuate in both similar and opposing directions and sustain for varying durations. These differences provide the Bank with opportunities for diversification of loans by property type, geography and other factors.

Commercial Loans – This portfolio includes loans with funds used for commercial purposes including loans to finance enterprise, including agricultural, working capital needs; equipment purchases; accounts receivable and inventory and other similar business needs. The risk of loans in this category is driven by the cash flow and creditworthiness of the borrowers, the monitoring of which occurs through the ongoing analysis of interim financial information. Also, the terms of these loans are generally shorter than credits secured by real estate, helping to reduce the impact of changes in interest rates on the Bank’s interest rate sensitivity position.

Consumer Loans – Our portfolio of consumer loans generally includes loans to individuals for household, family and other personal expenditures. Proceeds from such loans are used to, among other things, fund the purchase of automobiles, recreational vehicles, boats, mobile homes and for other similar purposes. Consumer loans generally have higher interest rates. However, such loans pose additional risks of collectability and loss when compared to certain other types of loans. The borrower’s ability to repay is of primary importance in the underwriting of consumer loans.

Loans sold with servicing retained are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of such loans at September 30, 2017 and December 31, 2016 were $4.2 million and $14.7 million, respectively. Servicing loans for others generally consists of collecting payments and disbursing payments to investors. Servicing income for the periods ended September 30, 2017 and 2016 was not significant.

As of September 30, 2017 and December 31, 2016, qualifying loans collateralized by first lien one- to four-family mortgages with balances totaling approximately $22.6 million and $26.4 million, respectively, were held in custody by the Federal Home Loan Bank of Dallas and were pledged for outstanding advances or available for future advances. The Bank also pledged a significant portion of its remaining loans at September 30, 2017 under a blanket lien with the FHLB.

Purchased Loans – The Company evaluated $583.6 million of net loans ($595.1 million gross loans less $11.5 million discount) purchased in conjunction with the acquisition of First National Security Company (“FNSC”) in 2014 in accordance with the provisions of FASB ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method.

The Company evaluated $364.5 million of net loans ($375.0 million gross loans less $10.5 million discount) purchased in conjunction with the acquisition of Metropolitan National Bank (“Metropolitan”) in 2015 in accordance with the provisions of FASB ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method.

The Company evaluated $21.1 million of net loans ($26.9 million gross loans less $5.8 million discount) purchased in conjunction with the acquisition of FNSC in 2014 in accordance with the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The following table reflects the carrying amount of purchased credit impaired (“PCI”) loans, which are included in the loan categories above (in thousands):

	September 30, 2017		December 31, 2016		September 30, 2016
One- to four-family residential	$	2,265	$	2,714	$	2,833
Nonfarm nonresidential		1,858		7,576		8,353
Farmland		29		53		58
Construction and land development		1,445		1,432		1,419
Commercial		524		556		570
Consumer		43		53		55
Total carrying value of PCI loans	$	6,164	$	12,384	$	13,288
Outstanding principal balance of PCI loans	$	8,652	$	15,468	$	17,676

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The following table documents changes for the nine months ended September 30, 2017 and 2016 to the amount of accretable yield on loans evaluated in accordance with the provisions of FASB ASC Topic 310-30 (in thousands).

	2017			2016
Balance at January 1	$	890		$	1,370
Accretion		(972	)		(622	)
Adjustments to accretable differences due to:
Reclassification from nonaccretable difference		2,082			1,328
Changes in expected cash flows that do not affect nonaccretable differences		(695	)		(868	)
Transfers to real estate owned		10			5
Balance at September 30	$	1,315		$	1,213

Age analyses of loans as of the dates indicated, including both accruing and nonaccrual loans are presented below (in thousands):

September 30, 2017	30-89 Days Past Due		90 Days or More Past Due		Current		Total

One- to four-family residential	$	2,801	$	2,638	$	387,643	$	393,082
Multifamily residential		--		--		92,837		92,837
Nonfarm nonresidential		1,835		5,566		560,917		568,318
Farmland		416		550		98,223		99,189
Construction and land development		146		197		146,728		147,071
Commercial		1,276		1,137		371,051		373,464
Consumer		352		116		36,391		36,859
Total	$	6,826	$	10,204	$	1,693,790	$	1,710,820

December 31, 2016	30-89 Days Past Due		90 Days or More Past Due		Current		Total

One- to four-family residential	$	4,472	$	2,750	$	381,885	$	389,107
Multifamily residential		119		--		92,341		92,460
Nonfarm nonresidential		1,651		1,317		492,205		495,173
Farmland		131		649		93,238		94,018
Construction and land development		20		522		125,243		125,785
Commercial		413		503		322,180		323,096
Consumer		422		81		35,762		36,265
Total	$	7,228	$	5,822	$	1,542,854	$	1,555,904

As of September 30, 2017 and December 31, 2016, there were $0.5 million and $0.8 million, respectively, of PCI loans acquired in the merger with FNSC that were 90 days or more past due and accruing. Restructured loans totaled $5.6 million as of September 30, 2017 and $6.0 million as of December 31, 2016, with $4.4 million and $1.2 million of such restructured loans on nonaccrual status at September 30, 2017 and December 31, 2016, respectively.

The following table presents age analyses of nonaccrual loans as of the dates indicated (in thousands):

September 30, 2017	30-89 Days Past Due		90 Days or More Past Due		Current		Total

One- to four-family residential	$	683	$	2,460	$	3,748	$	6,891
Nonfarm nonresidential		1,186		5,421		1,521		8,128
Farmland		240		550		384		1,174
Construction and land development		--		128		79		207
Commercial		42		1,008		250		1,300
Consumer		12		116		39		167
Total	$	2,163	$	9,683	$	6,021	$	17,867

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December 31, 2016	30-89 Days Past Due		90 Days or More Past Due		Current		Total

One- to four-family residential	$	1,194	$	2,332	$	3,183	$	6,709
Nonfarm nonresidential		94		1,156		3,927		5,177
Farmland		41		650		92		783
Construction and land development		13		450		--		463
Commercial		229		386		3,456		4,071
Consumer		39		78		56		173
Total	$	1,610	$	5,052	$	10,714	$	17,376

As of September 30, 2017 and December 31, 2016, there were $3.0 million and $1.0 million, respectively, of loans in the process of foreclosure, of which $0.9 million and $0.5 million were one- to four-family residential mortgage loans at September 30, 2017 and December 31, 2016, respectively.

The following tables summarize information pertaining to impaired loans as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016 (in thousands). The tables below do not include ASC 310-30 PCI loans which are disclosed separately above.

	September 30, 2017						December 31, 2016
	Unpaid Principal Balance		Recorded Investment		Valuation Allowance		Unpaid Principal Balance		Recorded Investment		Valuation Allowance
Impaired loans with a valuation allowance:
One- to four-family residential	$	242	$	220	$	68	$	244	$	229	$	74
Multifamily		--		--		--		--		--		--
Nonfarm nonresidential		--		--		--		--		--		--
Farmland		--		--		--		--		--		--
Construction and land development		--		--		--		--		--		--
Commercial		434		434		333		1,865		1,788		488
Consumer		5		5		5		5		5		5
		681		659		406		2,114		2,022		567

Impaired loans without a valuation allowance:
One- to four-family residential		9,060		6,862		--		8,704		6,677		--
Multifamily		--		--		--		--		--		--
Nonfarm nonresidential		10,179		8,760		--		11,022		9,421		--
Farmland		1,214		1,174		--		1,226		783		--
Construction and land development		370		278		--		728		539		--
Commercial		1,409		1,152		--		2,893		2,570		--
Consumer		174		162		--		184		168		--
		22,406		18,388		--		24,757		20,158		--
Total impaired loans	$	23,087	$	19,047	$	406	$	26,871	$	22,180	$	567

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	Three Months Ended September 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with a valuation allowance:
One- to four-family residential	$	222	$	2	$	233	$	2
Nonfarm nonresidential		--		--		698		--
Farmland		--		--		--		--
Construction and land development		--		--		--		--
Commercial		217		--		3,209		--
Consumer		5		--		5		--
		444		2		4,145		2

Impaired loans without a valuation allowance:
One- to four-family residential		6,849		--		7,177		--
Multifamily		60		--		75		--
Nonfarm nonresidential		8,287		9		4,842		--
Farmland		1,099		--		802		--
Construction and land development		282		1		576		1
Commercial		1,141		4		860		--
Consumer		174		--		198		--
		17,892		14		14,530		1
Total impaired loans	$	18,336	$	16	$	18,675	$	3

Interest based on original terms			$	255			$	277

Interest income recognized on a cash basis on impaired loans			$	--			$	--

	Nine Months Ended September 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with a valuation allowance:
One- to four-family residential	$	225	$	5	$	357	$	5
Nonfarm nonresidential		--		--		1,129		--
Farmland		95		--		118		--
Construction and land development		--		--		94		--
Commercial		997		--		2,707		--
Consumer		5		--		5		--
		1,322		5		4,410		5

Impaired loans without a valuation allowance:
One- to four-family residential		6,777		--		7,173		1
Multifamily		60		--		134		--
Nonfarm nonresidential		8,861		9		4,715		--
Farmland		971		--		730		--
Construction and land development		404		4		606		4
Commercial		1,803		13		1,438		--
Consumer		180		--		209		--
		19,056		26		15,005		5
Total impaired loans	$	20,378	$	31	$	19,415	$	10

Interest based on original terms			$	862			$	832

Interest income recognized on a cash basis on impaired loans			$	--			$	--

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, the Bank categorizes loans into risk categories based on available and relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by assigning a credit risk rating to loans on at least an annual basis for non-homogeneous loans over $1.0 million. The Bank uses the following definitions for risk ratings:

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Pass. Loans rated as pass generally meet or exceed normal credit standards. Factors influencing the level of pass grade include repayment source and strength, collateral, borrower cash flows, existence of and strength of guarantors, industry/business sector, financial trends, performance history, etc.

Special Mention. Loans rated as special mention, while still adequately protected by the borrower’s repayment capability, exhibit distinct weakening trends. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management’s close attention so as to avoid becoming adversely classified credits.

Substandard. Loans rated as substandard are inadequately protected by the current sound net worth and paying capacity of the borrower or the collateral pledged, if any. These assets must have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans rated as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss. Loans rated as a loss are considered uncollectible and of such little value that continuance as an asset is not warranted. A loss classification does not mean that an asset has no recovery or salvage value, but that it is not practical or desirable to defer writing off or reserving all or a portion of the asset, even though partial recovery may be effected in the future.

Based on analyses performed at September 30, 2017 and December 31, 2016, the risk categories of loans are as follows (in thousands):

	September 30, 2017
	Pass/ Not Rated		Special Mention		Substandard		Total
One- to four-family residential	$	381,310	$	153	$	11,619	$	393,082
Multifamily residential		92,837		--		--		92,837
Nonfarm nonresidential		553,832		295		14,191		568,318
Farmland		96,981		--		2,208		99,189
Construction and land development		138,483		--		8,588		147,071
Commercial		369,750		--		3,714		373,464
Consumer		36,549		--		310		36,859
Total	$	1,669,742	$	448	$	40,630	$	1,710,820

	December 31, 2016
	Pass/ Not Rated		Special Mention		Substandard		Total
One- to four-family residential	$	375,287	$	206	$	13,614	$	389,107
Multifamily residential		92,460		--		--		92,460
Nonfarm nonresidential		473,343		314		21,516		495,173
Farmland		92,131		--		1,887		94,018
Construction and land development		116,269		--		9,516		125,785
Commercial		317,069		--		6,027		323,096
Consumer		35,953		1		311		36,265
Total	$	1,502,512	$	521	$	52,871	$	1,555,904

As of September 30, 2017 and December 31, 2016, the Bank did not have any loans classified as doubtful or loss.

Troubled Debt Restructurings. Troubled debt restructurings (“TDRs”) are loans where the contractual terms on the loan have been modified and both of the following conditions exist: (i) the borrower is experiencing financial difficulty and (ii) the restructuring constitutes a concession that the Bank would not otherwise make. The Bank assesses all loan modifications to determine if the modifications constitute a TDR. Restructurings resulting in an insignificant delay in payment are not considered to be TDRs. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. All TDRs are considered impaired loans. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

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The following table summarizes TDRs as of September 30, 2017 and December 31, 2016 (dollars in thousands):

September 30, 2017	Number of Accruing TDR Loans		Balance		Number of Nonaccrual TDR Loans		Balance		Total Number of TDR Loans		Total Balance
One- to four-family residential		2	$	191		3	$	93		5	$	284
Nonfarm nonresidential		1		632		2		4,323		3		4,955
Construction and land development		1		71		1		--		2		71
Commercial		1		286		--		--		1		286
Consumer		--		--		1		5		1		5

Total		5	$	1,180		7	$	4,421		12	$	5,601

December 31, 2016	Number of Accruing TDR Loans		Balance		Number of Nonaccrual TDR Loans		Balance		Total Number of TDR Loans		Total Balance
One- to four-family residential		2	$	197		6	$	315		8	$	512
Nonfarm nonresidential		1		4,244		3		410		4		4,654
Farmland		--		--		1		250		1		250
Construction and land development		1		76		2		215		3		291
Commercial		1		287		--		--		1		287
Consumer		--		--		1		5		1		5

Total		5	$	4,804		13	$	1,195		18	$	5,999

No loans were restructured as TDRs during the three months ended September 30, 2017 or 2016. Loans receivable that were restructured as TDRs during the nine months ended September 30, 2017 and 2016 were as follows (dollars in thousands):

	Nine Months Ended September 30, 2017

			Balance		Balance at		Nature of Modification
	Number of Loans		Prior to TDR		September 30, 2017		Payment Term (1)		Other
Nonfarm nonresidential		1	$	642	$	632	$	642	$	--

Total		1	$	642	$	632	$	642	$	--

_________________________

(1)

The borrower’s payment was lowered for the remainder of the term resulting in an extended amortization term.

	Nine Months Ended September 30, 2016

			Balance		Balance at		Nature of Modification
	Number of Loans		Prior to TDR		September 30, 2016		Payment Term (2)		Other
Commercial		1	$	35	$	--	$	35	$	--

Total		1	$	35	$	--	$	35	$	--

_________________________

(2)

Concessions represent skipped payments, maturity date extensions or amortization term extensions.

The Bank had one loan totaling $4.2 million for which a payment default occurred during the nine months ended September 30, 2017 that had been modified as a TDR within 12 months or less of the payment default. There were no loans receivable for which a payment default occurred during the three months ended September 30, 2017 or 2016 or during the nine months ended September 30, 2016 that had been modified as a TDR within 12 months or less of the payment default.

As of September 30, 2017 and December 31, 2016, the Bank was not committed to lend additional funds to any customer whose loan was classified as a TDR.

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5.	ALLOWANCES FOR LOAN AND LEASE LOSSES AND REAL ESTATE LOSSES

The tables below provide a rollforward of the allowance for loan and lease losses (“ALLL”) by portfolio segment for the three months ended September 30, 2017 and 2016 (in thousands):

	June 30, 2017		Provision (Reversals)			Charge-offs			Recoveries		September 30, 2017

One- to four-family residential	$	4,111	$	234		$	(52	)	$	10	$	4,303
Multifamily residential		1,062		(26	)		--			--		1,036
Nonfarm nonresidential		3,991		268			--			--		4,259
Farmland		1,006		42			--			48		1,096
Construction and land development		2,011		135			--			16		2,162
Commercial		4,089		877			(59	)		23		4,930
Consumer		348		354			(265	)		14		451
Purchased credit impaired		465		(21	)		(20	)		21		445
Total	$	17,083	$	1,863		$	(396	)	$	132	$	18,682

	June 30, 2016		Provision (Reversals)			Charge-offs			Recoveries		September 30, 2016

One- to four-family residential	$	3,892	$	132		$	(171	)	$	10	$	3,863
Multifamily residential		779		168			--			--		947
Nonfarm nonresidential		3,146		(143	)		--			10		3,013
Farmland		716		76			--			--		792
Construction and land development		1,569		(65	)		--			2		1,506
Commercial		3,603		295			(5	)		3		3,896
Consumer		174		167			(108	)		17		250
Purchased credit impaired		872		13			(62	)		22		845
Total	$	14,751	$	643		$	(346	)	$	64	$	15,112

The tables below provide a rollforward of the ALLL by portfolio segment for the nine months ended September 30, 2017 and 2016 (in thousands):

	January 1, 2017		Provision (Reversals)			Charge-offs			Recoveries		September 30, 2017

One- to four-family residential	$	3,896	$	512		$	(125	)	$	20	$	4,303
Multifamily residential		962		74			--			--		1,036
Nonfarm nonresidential		3,210		1,049			--			--		4,259
Farmland		863		388			(203	)		48		1,096
Construction and land development		1,791		351			--			20		2,162
Commercial		3,909		1,279			(283	)		25		4,930
Consumer		360		530			(526	)		87		451
Purchased credit impaired		593		(149	)		(65	)		66		445
Total	$	15,584	$	4,034		$	(1,202	)	$	266	$	18,682

	January 1, 2016		Provision (Reversals)			Charge-offs			Recoveries		September 30, 2016

One- to four-family residential	$	3,870	$	301		$	(340	)	$	32	$	3,863
Multifamily residential		665		283			(1	)		--		947
Nonfarm nonresidential		3,599		(587	)		(9	)		10		3,013
Farmland		714		78			--			--		792
Construction and land development		1,456		(11	)		--			61		1,506
Commercial		2,565		1,406			(83	)		8		3,896
Consumer		166		301			(277	)		60		250
Purchased credit impaired		1,515		(106	)		(638	)		74		845
Total	$	14,550	$	1,665		$	(1,348	)	$	245	$	15,112

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The tables below present the allocation of the ALLL and the related loans receivable balances disaggregated on the basis of impairment method by portfolio segment as of September 30, 2017 and December 31, 2016 (in thousands):

	Allowance for Loan and Lease Losses						Loan Balances
September 30, 2017	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit Impaired		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit Impaired

One- to four-family residential	$	68	$	4,235	$	223	$	7,082	$	383,735	$	2,265
Multifamily residential		--		1,036		--		--		92,837		--
Nonfarm nonresidential		--		4,259		11		8,760		557,700		1,858
Farmland		--		1,096		--		1,174		97,986		29
Construction and land development		--		2,162		--		278		145,348		1,445
Commercial		333		4,597		211		1,586		371,354		524
Consumer		5		446		--

BEAR STATE FINANCIAL, INC. 10-Q