5.	LOANS RECEIVABLE

Loans receivable consisted of the following at

December

(in thousands):

	201 7			201 6

Real estate:
One- to four-family residential	$	391,225		$	389,107
Multifamily residential		89,087			92,460
Nonfarm nonresidential		557,185			495,173
Farmland		96,786			94,018
Construction and land development		157,453			125,785
Commercial		345,087			323,096
Consumer		36,036			36,265
Total loans receivable		1,672,859			1,555,904

Unearned discounts and net deferred loan costs		378			485
Allowance for loan and lease losses		(18,992	)		(15,584	)

Loans receivable —net	$	1,654,245		$	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.

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.

oans sold with servicing retained are

not

included in the accompanying consolidated statements of financial condition. The unpaid principal balances of such loans at

December 31, 2017

and

December 31, 2016

were

$3.8

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

December 31, 2017

and

2016

was

not

significant.

As of

December 31

2017

and

December 31, 2016,

qualifying loans collateralized by

first

lien

one

- to

four

-family mortgages with balances totaling approximately

$21.7

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

December 31, 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 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):

	December 31, 201 7		December 31, 201 6		June 13, 2014
One- to four-family residential	$	2,210	$	2,714	$	4,728
Nonfarm nonresidential		1,987		7,576		10,790
Farmland		26		53		95
Construction and land development		1,442		1,432		3,432
Commercial		514		556		1,882
Consumer		41		53		178
Total carrying value of PCI loans	$	6,220	$	12,384	$	21,105
Outstanding principal balance of PCI loans	$	8,529	$	15,468	$	26,942

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

The following table documents changes as of

December 31,

201

2016

and

2015

to the amount of accretable yield on loans evaluated in accordance with the provisions of FASB ASC Topic

310

(in thousands).

	201 7			2016			2015
Balance at January 1	$	890		$	1,370		$	2,165
Accretable yield acquired		--			--			--
Accretion		(1,259	)		(848	)		(1,062	)
Adjustments to accretable differences due to:
Reclassification from nonaccretable difference		2,207			1,462			317
Changes in expected cash flows that do not affect nonaccretable differences		(695	)		(1,140	)		(60	)
Transfers to real estate owned		11			46			10
Balance at December 31	$	1,154		$	890		$	1,370

Age Analysis

–

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

December 31, 201 7	30-89 Days Past Due		90 Days or More Past Due		Current		Total

One- to four-family residential	$	4,742	$	3,560	$	382,923	$	391,225
Multifamily residential		--		--		89,087		89,087
Nonfarm nonresidential		174		6,098		550,913		557,185
Farmland		404		88		96,294		96,786
Construction and land development		60		173		157,220		157,453
Commercial		766		1,353		342,968		345,087
Consumer		561		209		35,266		36,036
Total	$	6,707	$	11,481	$	1,654,671	$	1,672,859

December 31, 201 6	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

December 31, 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

days or more past due and accruing. Restructured loans totaled

$5.6

million as of

December 31, 2017

and

$6.0

million as of

December 31, 2016,

with

$4.7

million and

$1.2

million of such restructured loans on nonaccrual status at

December 31, 2017

and

December 31, 2016,

respectively.

The following tables present age analyses of nonaccrual loans as of

December 31,

201

and

2016

(in thousands):

December 31, 201 7	30-89 Days Past Due		90 Days or More Past Due		Current		Total

One- to four-family residential	$	778	$	3,326	$	2,957	$	7,061
Nonfarm nonresidential		76		5,954		1,344		7,374
Farmland		223		88		346		657
Construction and land development		11		103		74		188
Commercial		76		1,238		355		1,669
Consumer		7		172		33		212
Total	$	1,171	$	10,881	$	5,109	$	17,161

December 31, 201 6	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

December 31, 2017

and

2016,

there were

$2.6

million and

$1.0

million, respectively, of loans in the process of foreclosure, of which

$1.0

million and

$0.5

million, respectively, were

one

- to

four

-family residential mortgage loans.

Impaired Loans

–

The following tables summarize information pertaining to impaired loans as of

December 31, 2017,

2016

and

2015

and for the years then ended (in thousands). The tables below do

not

include ASC

310

purchased credit impaired loans which are disclosed separately in the loans receivable footnote.

	As of or For the Year Ended December 31, 201 7
	Unpaid Principal Balance		Recorded Investment		Valuation Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with a valuation allowance:
One- to four-family residential	$	240	$	215	$	64	$	223	$	7
Nonfarm nonresidential		305		305		9		61		--
Farmland		--		--		--		76		--
Commercial		678		676		431		933		--
Consumer		5		5		5		5		--
		1,228		1,201		509		1,298		7

Impaired loans without a valuation allowance:
One- to four-family residential		9,277		7,035		--		6,828		--
Multifamily		--		--		--		48		--
Nonfarm nonresidential		9,110		7,692		--		8,627		36
Farmland		704		657		--		908		--
Construction and land development		353		258		--		375		5
Commercial		1,254		993		--		1,641		--
Consumer		220		207		--		186		--
		20,918		16,842		--		18,613		41
Total impaired loans	$	22,146	$	18,043	$	509	$	19,911	$	48

Interest based on original terms									$	1,145

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

	As of or For the Year Ended December 31, 2016
	Unpaid Principal Balance		Recorded Investment		Valuation Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with a valuation allowance:
One- to four-family residential	$	244	$	229	$	74	$	332	$	7
Nonfarm nonresidential		--		--		--		903		--
Farmland		--		--		--		95		--
Construction and land development		--		--		--		75		--
Commercial		1,865		1,788		488		2,523		--
Consumer		5		5		5		5		--
		2,114		2,022		567		3,933		7

Impaired loans without a valuation allowance:
One- to four-family residential		8,704		6,677		--		7,074		--
Multifamily		--		--		--		107		--
Nonfarm nonresidential		11,022		9,421		--		5,656		--
Farmland		1,226		783		--		740		--
Construction and land development		728		539		--		593		6
Commercial		2,893		2,570		--		1,664		--
Consumer		184		168		--		200		--
		24,757		20,158		--		16,034		6
Total impaired loans	$	26,871	$	22,180	$	567	$	19,967	$	13

Interest based on original terms									$	1,360

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

	As of or For the Year Ended December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Valuation Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with a valuation allowance:
One- to four-family residential	$	430	$	312	$	83	$	833	$	7
Nonfarm nonresidential		2,728		2,395		522		2,651		--
Farmland		616		473		112		479		--
Construction and land development		215		211		89		152		--
Commercial		1,153		1,150		250		461		--
Consumer		5		5		5		13		--
		5,147		4,546		1,061		4,589		7

Impaired loans without a valuation allowance:
One- to four-family residential		7,605		6,348		--		4,902		1
Multifamily		282		230		--		50		--
Nonfarm nonresidential		5,352		4,243		--		1,759		--
Farmland		796		499		--		303		--
Construction and land development		686		490		--		535		6
Commercial		3,293		3,085		--		1,399		--
Consumer		188		183		--		108		--
		18,202		15,078		--		9,056		7
Total impaired loans	$	23,349	$	19,624	$	1,061	$	13,645	$	14

Interest based on original terms									$	1,179

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:

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

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,

201

and

2016,

the risk categories of loans were as follows (in thousands):

	December 31, 201 7
	Pass		Special Mention		Substandard		Total
One- to four-family residential	$	379,407	$	150	$	11,668	$	391,225
Multifamily residential		89,087		--		--		89,087
Nonfarm nonresidential		543,427		287		13,471		557,185
Farmland		95,114		--		1,672		96,786
Construction and land development		148,927		--		8,526		157,453
Commercial		314,028		18,040		13,019		345,087
Consumer		35,644		--		392		36,036
Total	$	1,605,634	$	18,477	$	48,748	$	1,672,859

	December 31, 201 6
	Pass		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

December 31,

201

and

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.

The following tables summarize TDRs as of

December 31,

201

and

2016:

(dollars in thousands)

December 31, 201 7	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	$	189	3	$	90	5	$	279
Nonfarm nonresidential	1		623	2		4,321	3		4,944
Construction and land development	1		70	1		--	2		70
Commercial	--		--	1		282	1		282
Consumer	--		--	1		5	1		5

Total	4	$	882	8	$	4,698	12	$	5,580

December 31, 201 6	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

Loans receivable that were restructured as TDRs during the years ended

December 31,

201

and

2016

were as follows.

loans receivable were restructured as TDRs during the year ended

December 31, 2015. (

dollars in thousands)

	Year Ended December 31, 2017
	Number of Loans		Balance Prior to TDR		Balance at December 31, 201 7		Nature of Modification Payment Term (1)
Nonfarm nonresidential		1		642		623		642

Total		1	$	642	$	623	$	642

______________________

(

)

The borrower

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

	Year Ended December 31, 2016
	Number of Loans		Balance Prior to TDR		Balance at December 31, 2016		Nature of Modification Payment Term ( 2 )
One- to four-family residential		1	$	5	$	2	$	5
Nonfarm nonresidential		1		4,244		4,244		4,244
Commercial		2		323		288		323

Total		4	$	4,572	$	4,534	$	4,572

______________________

(

)

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

The Bank had

one

loan relationship consisting of

two

loans totaling

$4.5

million for which a payment default occurred during the year ended

December 31, 2017

that had been modified as a TDR within

months or less of the payment default. There were

loans receivable for which a payment default occurred during the years ended

December 31, 2016

2015

that had been modified as a TDR within

months or less of the payment default.

As of

December 31,

201

and

2016,

the Bank was

not

committed to lend additional funds to any customer whose loan was classified as a TDR.