12.	INCOME TAXES

The provisions for income taxes are summarized as follows (in thousands):

	Three Months Ended March 31,
	201 6		2015

Income tax provision:
Current:
Federal	$	76	$	--
State		62		--
Total current		138		--

Deferred:
Federal		1,111		735
State		187		150
Total deferred		1,298		885

Total	$	1,436	$	885

The reasons for the differences between the statutory federal income tax rates and the effective tax rates are summarized as follows (dollars in thousands):

	Three Months Ended March 31,
	2016					2015

Taxes at statutory federal income tax rate	$	1,673		35.0	%	$	1,072		34.0	%
Increase (decrease) resulting from:
Graduated tax rates		(48	)	(1.0	)		--		--
State income tax—net of federal benefits		163		3.4			99		3.1
Earnings on life insurance policies		(130	)	(2.7	)		(125	)	(4.0	)
Nontaxable investments		(146	)	(3.1	)		(148	)	(4.6	)
Other—net		(76	)	(1.6	)		(13	)	(0.4	)

Total	$	1,436		30.0	%	$	885		28.1	%

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities are adjusted through the provision for income taxes.

The Company’s temporary differences and carryforwards that give rise to deferred tax assets and liabilities are comprised of the following (in thousands):

	March 31, 2016			December 31, 2015

Deferred tax assets:
Allowance for loan and lease losses	$	7,705		$	7,580
Discount on purchased loans		2,419			2,584
Real estate owned		1,731			1,743
Section 382 net operating loss carryforward		2,080			2,114
Net operating loss carryforward		6,289			7,710
Nonaccrual loan interest		1,341			1,266
Other		1,457			1,365

Total deferred tax assets		23,022			24,362
Valuation allowance		(897	)		(897	)
Deferred tax asset, net of allowance		22,125			23,465

Deferred tax liabilities:
Office properties		(2,946	)		(2,990	)
Core deposit intangible		(2,495	)		(2,562	)
Unrealized gain on securities available for sale		(638	)		(239	)
Other		(1,037	)		(961	)

Total deferred tax liabilities		(7,116	)		(6,752	)

Net deferred tax asset	$	15,009		$	16,713

For the quarter ended March 31, 2016, the net deferred tax asset decreased by $1.7 million or 10.2% primarily as a result of a decrease in the net operating loss ("NOL") carryforward which was utilized to offset taxable income for the quarter ended March 31, 2016.

A financial institution may, for federal income tax purposes, carryback net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. At March 31, 2016, the Company had a $21.6 million NOL for federal income tax purposes that will be carried forward. The federal NOL carryforwards, if unused, expire in calendar years 2029 through 2034. The $21.6 million federal NOL includes $6.1 million of Internal Revenue Code (“IRC”) Section 382 NOL carryforwards that have an annual limit of $405,000 that can be utilized to offset taxable income. At March 31, 2016, the Company had a $23.7 million NOL for Arkansas state income tax purposes. The state NOL carryforwards, if unused, expire in calendar years 2016 through 2019.

Specifically exempted from deferred tax recognition requirements are bad debt reserves for tax purposes of U.S. savings and loans in the institution’s base year, as defined under Code Section 593(g)(2)(A)(ii). Base year reserves totaled approximately $4.2 million. Consequently, a deferred tax liability of approximately $1.6 million related to such reserves was not provided for in the consolidated statements of financial condition at March 31, 2016 and December 31, 2015. Payment of dividends to stockholders out of retained earnings deemed to have been made out of earnings previously set aside as bad debt reserves may create taxable income to the Bank. No provision has been made for income tax on such a distribution as the Bank does not anticipate making such distributions.

At March 31, 2016 the Company had certain deferred tax assets related to net unrealized built-in losses (“NUBILs”) established under IRC Section 382 on May 3, 2011, the date of the Company’s ownership change related to the initial investment by Bear State Financial Holdings, LLC.

If these losses are realized before May 3, 2016 (five years after the ownership change date), then they are not allowed to be taken as a deduction and are therefore permanently lost. The NUBILs at March 31, 2016

amounted to $2.6 million or $0.9 million on a tax effected basis. The valuation allowance of $0.9 million at March 31, 2016 is comprised of the NUBILs. The NUBILS remaining on the books at May 3, 2016 amounted to $2.6 million and the Company expects to reverse the related valuation allowance of $0.9 million during the second quarter of 2016.

The Company recognizes interest and penalties related to income tax matters as additional income taxes in the consolidated statements of income. The Company had no interest or penalties related to income tax matters during the three months ended March 31, 2016 or 2015. The Company files consolidated income tax returns in the U.S. federal jurisdiction and the states of Arkansas and Missouri while the Bank files in the state of Oklahoma. The Company is subject to U.S. federal and state income tax examinations by tax authorities for tax years ended December 31, 2012 and forward.