5.	LOANS RECEIVABLE

Loans receivable consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):

	March 31, 2016			December 31, 2015
Real estate:
One- to four-family residential	$	394,855		$	401,036
Multifamily residential		79,258			74,226
Nonfarm nonresidential		476,006			487,684
Farmland		93,380			94,235
Construction and land development		117,283			116,015
Commercial		258,479			246,304
Consumer		37,673			38,594
Total loans receivable		1,456,934			1,458,094
Unearned discounts and net deferred loan costs		654			558
Allowance for loan and lease losses		(14,866	)		(14,550	)

Loans receivable—net	$	1,442,722		$	1,444,102

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; 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 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.

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.

Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of such loans at March 31, 2016 and December 31, 2015 were $18.8 million and $20.4 million, respectively. Servicing loans for others generally consists of collecting payments and disbursing payments to investors. Servicing income for the periods ended March 31, 2016 and 2015 was not significant.

As of March 31, 2016 and December 31, 2015, qualifying loans collateralized by first lien one- to four-family mortgages with balances totaling approximately $31.5 million and $33.1 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 substantially all of its remaining loans at March 31, 2016 and December 31, 2015 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 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 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):

	March 31, 2016		December 31 , 2015		March 31, 2015
One- to four-family residential	$	3,128	$	3,189	$	4,208
Nonfarm nonresidential		9,634		9,886		9,106
Farmland		66		70		86
Construction and land development		2,088		2,127		3,300
Commercial		1,005		1,012		1,502
Consumer		60		63		111
Total carrying value of PCI loans	$	15,981	$	16,347	$	18,313
Outstanding principal balance of PCI loans	$	19,917	$	20,289	$	21,492

The following table documents changes for the three months ended March 31, 2016 and 2015 to the amount of accretable yield on loans evaluated in accordance with the provisions of FASB ASC Topic 310-30 (in thousands).

	2016			2015
Balance at January 1	$	1,370		$	2,165
Accretion		(222	)		(295	)
Adjustments to accretable differences due to:
Reclassification from nonaccretable difference		343			47
Changes in expected cash flows that do not affect nonaccretable differences		(48	)		(31	)
Transfers to real estate owned		--			12
Balance at March 31	$	1,443		$	1,898

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

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

One- to four-family residential	$	5,725	$	3,174	$	385,956	$	394,855
Multifamily residential		123		--		79,135		79,258
Nonfarm nonresidential		1,095		1,690		473,221		476,006
Farmland		954		671		91,755		93,380
Construction and land development		737		533		116,013		117,283
Commercial		1,227		3,939		253,313		258,479
Consumer		418		135		37,120		37,673
Total	$	10,279	$	10,142	$	1,436,513	$	1,456,934

December 31, 2015	30-89 Days Past Due		90 Days or More Past Due		Current		Total

One- to four-family residential	$	6,051	$	3,363	$	391,622	$	401,036
Multifamily residential		125		67		74,034		74,226
Nonfarm nonresidential		1,060		2,646		483,978		487,684
Farmland		42		668		93,525		94,235
Construction and land development		148		510		115,357		116,015
Commercial		1,722		336		244,246		246,304
Consumer		489		140		37,965		38,594
Total	$	9,637	$	7,730	$	1,440,727	$	1,458,094

As of March 31, 2016 and December 31, 2015, there were $1.8 million and $1.0 million, respectively, of PCI loans acquired in the merger with FNSC that were 90 days or more past due and accruing and there were two non-PCI loans totaling $451,000 past due 90 days and still accruing at December 31, 2015. Restructured loans totaled $1.6 million and $1.7 million as of March 31, 2016 and December 31, 2015, respectively, with $1.3 million and $1.4 million of such restructured loans on nonaccrual status at March 31, 2016 and December 31, 2015, respectively.

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

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

One- to four-family residential	$	1,518	$	2,427	$	4,493	$	8,438
Multifamily		--		--		157		157
Nonfarm nonresidential		260		1,089		4,308		5,657
Farmland		--		671		146		817
Construction and land development		5		454		412		871
Commercial		559		3,068		581		4,208
Consumer		62		128		70		260
Total	$	2,404	$	7,837	$	10,167	$	20,408

December 31, 2015	30-89 Days Past Due		90 Days or More Past Due		Current		Total

One- to four-family residential	$	1,419	$	2,868	$	2,168	$	6,455
Multifamily		--		67		163		230
Nonfarm nonresidential		136		1,742		4,760		6,638
Farmland		--		668		305		973
Construction and land development		6		432		184		622
Commercial		23		325		3,887		4,235
Consumer		14		132		41		187
Total	$	1,598	$	6,234	$	11,508	$	19,340

As of March 31, 2016 and December 31, 2015, there were $2.0 million and $1.8 million, respectively, of loans in the process of foreclosure.

The following tables summarize information pertaining to impaired loans as of March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and 2015 (in thousands). The tables below do not include ASC 310-30 PCI loans which are disclosed separately above.

	March 31, 2016						December 31, 2015
	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	$	1,025	$	651	$	109	$	430	$	312	$	83
Nonfarm nonresidential		900		723		148		2,728		2,395		522
Farmland		--		--		--		616		473		112
Construction and land development		172		166		84		215		211		89
Commercial		3,269		3,261		457		1,153		1,150		250
Consumer		5		5		5		5		5		5
		5,371		4,806		803		5,147		4,546		1,061

Impaired loans without a valuation allowance:
One- to four-family residential		9,614		7,990		--		7,605		6,348		--
Multifamily		161		157		--		282		230		--
Nonfarm nonresidential		5,813		4,934		--		5,352		4,243		--
Farmland		1,255		817		--		796		499		--
Construction and land development		890		783		--		686		490		--
Commercial		1,126		947		--		3,293		3,085		--
Consumer		266		255		--		188		183		--
		19,125		15,883		--		18,202		15,078		--
Total impaired loans	$	24,496	$	20,689	$	803	$	23,349	$	19,624	$	1,061

	Three Months Ended March 31,
	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with a valuation allowance:
One- to four-family residential	$	482	$	2	$	1,112	$	2
Nonfarm nonresidential		1,558		--		2,211		--
Farmland		237		--		483		--
Construction and land development		189		--		168		--
Commercial		2,205		--		--		--
Consumer		5		--		15		--
		4,676		2		3,989		2

Impaired loans without a valuation allowance:
One- to four-family residential		6,806		--		4,207		--
Multifamily		160		--		--		--
Nonfarm nonresidential		4,461		--		872		--
Farmland		649		--		250		--
Construction and land development		637		1		527		2
Commercial		1,834		--		421		--
Consumer		219		--		35		--
		14,766		1		6,312		2
Total impaired loans	$	19,442	$	3	$	10,301	$	4

Interest based on original terms			$	304			$	182

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 $500,000. 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 March 31, 2016 and December 31, 2015, the risk categories of loans are as follows (in thousands):

	March 31, 2016
	Pass / Not Rated		Special Mention		Substandard		Total
One- to four-family residential	$	376,890	$	767	$	17,198	$	394,855
Multifamily residential		79,101		--		157		79,258
Nonfarm nonresidential		452,291		9		23,706		476,006
Farmland		90,997		--		2,383		93,380
Construction and land development		115,671		88		1,524		117,283
Commercial		251,917		--		6,562		258,479
Consumer		37,288		--		385		37,673
Total	$	1,404,155	$	864	$	51,915	$	1,456,934

	December 31, 2015
	Pass / Not Rated		Special Mention		Substandard		Total
One- to four-family residential	$	384,193	$	1,098	$	15,745	$	401,036
Multifamily residential		74,063		--		163		74,226
Nonfarm nonresidential		462,552		10		25,122		487,684
Farmland		91,665		1,095		1,475		94,235
Construction and land development		114,534		91		1,390		116,015
Commercial		240,209		501		5,594		246,304
Consumer		38,283		12		299		38,594
Total	$	1,405,499	$	2,807	$	49,788	$	1,458,094

As of March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015 (dollars in thousands):

March 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	$	203		6	$	338		8	$	541
Nonfarm nonresidential		--		--		3		447		3		447
Farmland		--		--		1		250		1		250
Construction and land development		1		78		2		235		3		313
Consumer		--		--		1		5		1		5

Total		3	$	281		13	$	1,275		16	$	1,556

December 31, 2015	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	$	205		6	$	450		8	$	655
Nonfarm nonresidential		--		--		3		461		3		461
Farmland		--		--		1		250		1		250
Construction and land development		1		79		2		242		3		321
Commercial		--		--		1		21		1		21
Consumer		--		--		1		5		1		5

Total		3	$	284		14	$	1,429		17	$	1,713

No loans receivable were restructured as TDRs during the three months ended March 31, 2016 or 2015.

There were no loans receivable for which a payment default occurred during the three months ended March 31, 2016 or 2015 that had been modified as a TDR within 12 months or less of the payment default.