Note 5 - Loans Receivable

12 Months Ended

Dec. 31, 2014

Note 5 - Loans Receivable [Line Items]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

5. LOANS RECEIVABLE

Loans receivable consisted of the following at December 31 (in thousands):

	2014			2013
Real estate:
One- to four-family residential	$	320,489		$	129,308
Multifamily residential		45,181			25,773
Nonfarm nonresidential		369,974			168,902
Farmland		47,199			2,663
Construction and land development		98,594			23,891
Commercial		139,871			29,033
Consumer		33,809			4,368
Total loans receivable		1,055,117			383,938
Unearned discounts and net deferred loan costs		(235	)		(78	)
Allowance for loan and lease losses		(13,660	)		(12,711	)
Loans receivable—net	$	1,041,222		$	371,149

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 written and Board approved 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 type, loan purpose and underlying source of repayment.

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; purchase equipment; support 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 updated and 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.

Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of such loans at December 31, 2014 and December 31, 2013 were $23.5 million and $12.9 million, respectively. Servicing loans for others generally consists of collecting payments and disbursing payments to investors. Servicing income for the years ended December 31, 2014 and 2013 was not significant.

As of December 31, 2014 and 2013, qualifying loans collateralized by first lien one- to four-family mortgages with balances totaling approximately $41.4 million and $50.6 million, respectively, were held in custody by the Federal Home Loan Bank of Dallas (“FHLB”) and were pledged for outstanding advances or available for future advances. The Bank also pledged substantially all of its remaining loans at December 31, 2014 under a blanket lien with the FHLB.

As of December 31, 2014 and 2013, qualifying loans collateralized by commercial real estate with balances of $6.8 million and $8.2 million, respectively, were pledged at the FRB. No FRB borrowings were outstanding at December 31, 2014.

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 FNSC 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 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):

	December 31, 2014		June 13, 2014
One- to four-family residential	$	4,347	$	4,728
Multifamily residential		--		--
Nonfarm nonresidential		9,675		10,790
Farmland		86		95
Construction and land development		3,368		3,432
Commercial		1,250		1,882
Consumer		137		178
Total carrying value of PCI loans	$	18,863	$	21,105
Outstanding principal balance of PCI loans	$	23,942	$	26,942

The following table documents changes to the amount of accretable yield on loans evaluated in accordance with the provisions of FASB ASC Topic 310-30 since the acquisition date of June 13, 2014 (in thousands).

Balance at June 13, 2014	$	2,306
Accretion		(648	)
Adjustments to accretable differences due to:
Reclassification from nonaccretable difference		2,301
Changes in expected cash flows that do not affect nonaccretable differences		(1,560	)
Transfers to real estate owned		(234	)
Balance at December 31, 2014	$	2,165

The following table reflects the carrying amount of the fair value adjustments for purchased loans with evidence of credit deterioration as of June 13, 2014 (in thousands).

Contractually required principal and interest	$	29,704
Nonaccretable differences		(6,293	)
Cash flows expected to be collected		23,411
Accretable differences		(2,306	)
Day 1 Fair Value	$	21,105

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

December 31, 2014	30-89 Days Past Due		90 Days or More Past Due		Current		Total
One- to four-family residential	$	4,966	$	3,545	$	311,978	$	320,489
Multifamily residential		--		--		45,181		45,181
Nonfarm nonresidential		3,350		2,449		364,175		369,974
Farmland		15		628		46,556		47,199
Construction and land development		127		649		97,818		98,594
Commercial		517		497		138,857		139,871
Consumer		379		47		33,383		33,809
Total	$	9,354	$	7,815	$	1,037,948	$	1,055,117

December 31, 2013	30-89 Days Past Due		90 Days or More Past Due		Current		Total
One- to four-family residential	$	3,511	$	1,664	$	124,133	$	129,308
Multifamily residential		--		--		25,773		25,773
Nonfarm nonresidential		176		2,340		166,386		168,902
Farmland		--		666		1,997		2,663
Construction and land development		30		2,133		21,728		23,891
Commercial		--		348		28,685		29,033
Consumer		--		19		4,349		4,368
Total	$	3,717	$	7,170	$	373,051	$	383,938

As of December 31, 2014, there were $2.2 million of purchased credit impaired loans acquired in the merger with FNSC that were 90 days or more past due and accruing and one loan of $353,000 past due 90 days and still accruing at December 31, 2014. There were no loans over 90 days past due and still accruing at December 31, 2013. Restructured loans totaled $2.5 million and $2.6 million as of December 31, 2014 and 2013, respectively, with $1.9 million and $2.1 million of such restructured loans on nonaccrual status at December 31, 2014 and 2013, respectively.

The following table presents age analyses of nonaccrual loans as of December 31, 2014 and 2013 (in thousands):

December 31, 2014	30-89 Days Past Due		90 Days or More Past Due		Current		Total
One- to four-family residential	$	1,121	$	2,572	$	1,266	$	4,959
Nonfarm nonresidential		131		1,379		1,603		3,113
Farmland		--		628		106		734
Construction and land development		--		605		19		624
Commercial		--		--		306		306
Consumer		5		14		15		34
Total	$	1,257	$	5,198	$	3,315	$	9,770

December 31, 2013	30-89 Days Past Due		90 Days or More Past Due		Current		Total
One- to four-family residential	$	637	$	1,664	$	1,957	$	4,258
Nonfarm nonresidential		--		2,340		1,717		4,057
Farmland		--		666		116		782
Construction and land development		--		2,133		334		2,467
Commercial		--		348		2		350
Consumer		--		19		5		24
Total	$	637	$	7,170	$	4,131	$	11,938

The following tables summarize information pertaining to impaired loans as of December 31, 2014 and 2013 and for the years then ended (in thousands):

	As of or For the Year Ended December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Valuation Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with a valuation allowance:
One- to four-family residential	$	1,030	$	1,204	$	251	$	1,141	$	21
Nonfarm nonresidential		2,531		2,225		580		2,517		--
Farmland		620		484		123		489		--
Construction and land development		276		168		45		632		--
Commercial		--		--		--		50		--
Consumer		16		15		12		12		--
		4,473		4,096		1,011		4,841		21
Impaired loans without a valuation allowance:
One- to four-family residential		4,732		4,237		--		3,747		2
Nonfarm nonresidential		1,619		888		--		996		--
Farmland		537		250		--		265		--
Construction and land development		507		540		--		611		6
Commercial		362		306		--		327		--
Consumer		15		19		--		15		--
		7,772		6,240		--		5,961		8
Total impaired loans (1)	$	12,245	$	10,336	$	1,011	$	10,802	$	29
Interest based on original terms									$	745
Interest income recognized on a cash basis on impaired loans									$	--

(1) The table above does not include ASC 310-30 purchased credit impaired loans which are disclosed separately in the loans receivable footnote.

	As of or For the Year Ended December 31, 2013
	Unpaid Principal Balance		Recorded Investment		Valuation Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with a valuation allowance:
One- to four-family residential	$	1,213	$	1,085	$	279	$	1,946	$	19
Multifamily residential		--		--		--		686		--
Nonfarm nonresidential		3,287		3,105		1,119		3,220		--
Farmland		623		495		133		524		--
Construction and land development		1,865		1,505		631		1,176		--
Commercial		--		--		--		153		--
Consumer		--		--		--		4		--
		6,988		6,190		2,162		7,709		19
Impaired loans without a valuation allowance:
One- to four-family residential		4,430		3,668		--		4,488		2
Multifamily residential		--		--		--		692		--
Nonfarm nonresidential		1,077		952		--		2,362		--
Farmland		554		287		--		393		--
Construction and land development		1,189		962		--		1,517		--
Commercial		388		350		--		89		--
Consumer		27		24		--		17		--
		7,665		6,243		--		9,558		2
Total impaired loans	$	14,653	$	12,433	$	2,162	$	17,267	$	21
Interest based on original terms									$	873
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 portfolios, 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. First Federal analyzes loans individually by assigning a credit risk rating to loans on at least an annual basis for non-homogeneous loans over $250,000. First National and Heritage Bank assign a credit rating to loans at origination and review these ratings periodically thereafter. The Bank uses the following definitions for risk ratings:

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 December 31, 2014 and December 31, 2013, the risk categories of loans are as follows (in thousands):

	December 31, 2014
	Pass		Special Mention		Substandard		Not Rated		Total
One- to four-family residential	$	231,002	$	1,833	$	11,792	$	75,862	$	320,489
Multifamily residential		45,181		--		--		--		45,181
Nonfarm nonresidential		349,672		4,378		15,585		339		369,974
Farmland		46,002		--		1,197		--		47,199
Construction and land development		93,841		105		2,375		2,273		98,594
Commercial		135,547		--		4,059		265		139,871
Consumer		27,702		6		191		5,910		33,809
Total	$	928,947	$	6,322	$	35,199	$	84,649	$	1,055,117

	December 31, 2013
	Pass		Special Mention		Substandard		Not Rated		Total
One- to four-family residential	$	34,333	$	329	$	6,371	$	88,275	$	129,308
Multifamily residential		25,773		--		--		--		25,773
Nonfarm nonresidential		159,629		4,490		4,057		726		168,902
Farmland		1,491		--		1,172		--		2,663
Construction and land development		18,241		295		2,770		2,585		23,891
Commercial		28,555		--		350		128		29,033
Consumer		151		--		45		4,172		4,368
Total	$	268,173	$	5,114	$	14,765	$	95,886	$	383,938

As of December 31, 2014 and December 31, 2013, 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.

The following table summarizes TDRs as of December 31, 2014 and December 31, 2013: (dollars in thousands)

December 31, 2014	Number of Accruing TDR Loans		Balance		Number of Nonaccrual TDR Loans		Balance		Total Number of TDR Loans		Total Balance
One- to four-family residential		4	$	482		9	$	726		13	$	1,208
Nonfarm nonresidential		--		--		3		511		3		511
Farmland		--		--		1		250		1		250
Construction and land development		1		84		2		396		3		480
Consumer		--		--		2		15		2		15
Total		5	$	566		17	$	1,898		22	$	2,464

December 31, 2013	Number of Accruing TDR Loans		Balance		Number of Nonaccrual TDR Loans		Balance		Total Number of TDR Loans		Total Balance
One- to four-family residential		4	$	495		8	$	658		12	$	1,153
Nonfarm nonresidential		--		--		3		556		3		556
Farmland		--		--		1		287		1		287
Construction and land development		--		--		4		569		4		569
Consumer		--		--		1		5		1		5
Total		4	$	495		17	$	2,075		21	$	2,570

Loans receivable that were restructured as TDRs during the years ended December 31, 2014 and 2013 were as follows: (dollars in thousands)

	Year Ended December 31, 2014
			Balance		Balance at		Nature of Modification
	Number of  Loans		Prior to TDR		December 31, 2014		Payment Term (1)		Other (2)
One- to four-family residential		1	$	103	$	95	$	103	$	--
Construction and land development		1		85		84		--		85
Consumer		1		11		10		11		--
Total		3	$	199	$	189	$	114	$	85

	Year Ended December 31, 2013
			Balance		Balance at		Nature of Modification
	Number of  Loans		Prior to  TDR		December 31, 2013		Payment Term (1)		Other
One- to four-family residential		4	$	348	$	333	$	348	$	--
Total		4	$	348	$	333	$	348	$	--

(1) Concessions represent skipped payments/maturity date extensions or amortization term extensions.

(2) The borrower did not have the financial ability to refinance at another bank at renewal.

There were no loans receivable for which a payment default occurred during the years ended December 31, 2014 or 2013 that had been modified as a TDR within 12 months or less of the payment default.

Accured Interrest Receivable [Member]

Note 5 - Loans Receivable [Line Items]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

7. ACCRUED INTEREST RECEIVABLE

Accrued interest receivable consisted of the following at December 31 (in thousands):

	2014		2013
Loans	$	3,909	$	1,079
Investment securities		549		359
Deposits in banks		27		35
Total	$	4,485	$	1,473