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.
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.
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 issue
d 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.
In August 2017, the FASB issued AS
U 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 m
ortgage-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 m
ortgage-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
|
|
The mortgage-backed portfolio
s 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 m
ortgage-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, 201
6
|
|
|
|
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 m
ortgage-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.
|
|
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 m
ortgage-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.
S
ales of investment securities available for sale are summarized as follows (in thousands):
|
|
Three Months
Ended
September
30,
|
|
|
Nine
Months
Ended
September
30,
|
|
|
|
201
7
|
|
|
2016
|
|
|
201
7
|
|
|
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
|
|
Loans receivable consisted of the following at
September 30, 2017 and December 31, 2016 (in thousands):
|
|
September
30
,
2017
|
|
|
December 31,
201
6
|
|
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.
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.
L
oans 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
,
201
7
|
|
|
December 31
,
201
6
|
|
|
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
|
|
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).
|
|
201
7
|
|
|
201
6
|
|
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
|
|
A
ge 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
|
|
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
,
201
6
|
|
|
|
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
|
|
|
|
Three Months Ended
September
30
,
|
|
|
|
201
7
|
|
|
201
6
|
|
|
|
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:
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,
201
6
|
|
|
|
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 l
and 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.
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, 201
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 201
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Balance at
|
|
|
Nature of Modification
|
|
|
|
Number of
Loans
|
|
|
Prior to
TDR
|
|
|
September
30,
201
6
|
|
|
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.
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
|
|
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
|
|
|
|
--
|
|
|
|
167
|
|
|
|
36,649
|
|
|
|
43
|
|
Total
|
|
$
|
406
|
|
|
$
|
17,831
|
|
|
$
|
445
|
|
|
$
|
19,047
|
|
|
$
|
1,685,609
|
|
|
$
|
6,164
|
|
|
|
Allowance for Loan and Lease Losses
|
|
|
Loan Balances
|
|
December 31, 2016
|
|
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
|
|
$
|
74
|
|
|
$
|
3,822
|
|
|
$
|
277
|
|
|
$
|
6,906
|
|
|
$
|
379,487
|
|
|
$
|
2,714
|
|
Multifamily residential
|
|
|
--
|
|
|
|
962
|
|
|
|
--
|
|
|
|
--
|
|
|
|
92,460
|
|
|
|
--
|
|
Nonfarm nonresidential
|
|
|
--
|
|
|
|
3,210
|
|
|
|
89
|
|
|
|
9,421
|
|
|
|
478,176
|
|
|
|
7,576
|
|
Farmland
|
|
|
--
|
|
|
|
863
|
|
|
|
--
|
|
|
|
783
|
|
|
|
93,182
|
|
|
|
53
|
|
Construction and land development
|
|
|
--
|
|
|
|
1,791
|
|
|
|
--
|
|
|
|
539
|
|
|
|
123,814
|
|
|
|
1,432
|
|
Commercial
|
|
|
488
|
|
|
|
3,421
|
|
|
|
227
|
|
|
|
4,358
|
|
|
|
318,182
|
|
|
|
556
|
|
Consumer
|
|
|
5
|
|
|
|
355
|
|
|
|
--
|
|
|
|
173
|
|
|
|
36,039
|
|
|
|
53
|
|
Total
|
|
$
|
567
|
|
|
$
|
14,424
|
|
|
$
|
593
|
|
|
$
|
22,180
|
|
|
$
|
1,521,340
|
|
|
$
|
12,384
|
|
A summary of the activity in the
allowance for losses on real estate owned is as follows for the three and nine months ended September 30, 2017 and 2016 (in thousands):
|
|
Three Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
2017
|
|
|
September
30,
2016
|
|
|
September
30,
2017
|
|
|
September
30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
—beginning of period
|
|
$
|
373
|
|
|
$
|
3,825
|
|
|
$
|
459
|
|
|
$
|
4,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for estimated losses
|
|
|
14
|
|
|
|
289
|
|
|
|
117
|
|
|
|
302
|
|
Losses charged off
|
|
|
--
|
|
|
|
(3,402
|
)
|
|
|
(189
|
)
|
|
|
(3,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
—end of period
|
|
$
|
387
|
|
|
$
|
712
|
|
|
$
|
387
|
|
|
$
|
712
|
|
6
.
|
OFFICE PROPERTIES AND EQUIPMENT
|
Office properties and equipmen
t consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):
|
|
September
30
,
2017
|
|
|
December 31,
201
6
|
|
|
|
|
|
|
|
|
|
|
Land and land improvements
|
|
$
|
10,492
|
|
|
$
|
10,896
|
|
Buildings and improvements
|
|
|
47,035
|
|
|
|
48,059
|
|
Furniture and equipment
|
|
|
13,969
|
|
|
|
13,126
|
|
Automobiles and other
|
|
|
222
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
71,718
|
|
|
|
72,303
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(20,365
|
)
|
|
|
(18,254
|
)
|
|
|
|
|
|
|
|
|
|
Office properties and equipment
—net
|
|
$
|
51,353
|
|
|
$
|
54,049
|
|
Depreciation expense for
the nine months ended September 30, 2017 and 2016 was approximately $2.6 million and $2.8 million, respectively.
At
September 30, 2017, office properties held for sale included six properties with an aggregate carrying value totaling $4.7 million. Office properties held for sale are carried at the lower of carrying amount or fair value less estimated costs to sell. During the nine months ended September 30, 2017, five properties were sold at a net loss of $8,000. During the nine months ended September 30, 2016, two properties were sold resulting in a net gain of $1.1 million. Impairment charges of $279,000 and $640,000 were recognized for the three months ended September 30, 2017 and 2016, respectively, and $634,000 and $987,000 were recognized for the nine months ended September 30, 2017 and 2016, respectively. Impairment charges and realized gains and losses on office properties held for sale are recorded in other noninterest expense in the consolidated statements of income.
7
.
|
GOODWILL AND
CORE DEPOSIT INTANGIBLE
S
- NET
|
Goodwill represents the excess of the cost over the fair value of net assets acquired in a business combination. At
September 30, 2017, goodwill consisted of $25.7 million related to the FNSC acquisition which is not deductible for tax purposes and $14.5 million related to the Metropolitan acquisition which is deductible for tax purposes. Goodwill is not amortized but is tested for impairment at least annually and updated quarterly if necessary. The Company performed its annual impairment test of goodwill as of September 30, 2017 and no impairment of the Company’s goodwill was indicated. The Company’s core deposit intangible is related to the core deposit premiums of First National Bank of Hot Springs, Heritage Bank and Metropolitan. These core deposit intangibles are amortized on a straight line basis over their estimated lives ranging from 12 to 13 years.
Changes in the
carrying amount and accumulated amortization of the Company’s core deposit intangible for the nine months ended September 30, 2017 and the year ended December 31, 2016, were as follows (in thousands):
|
|
September
30
,
2017
|
|
|
December 31,
201
6
|
|
|
|
|
|
|
|
|
|
|
Balance
—beginning of period
|
|
$
|
10,353
|
|
|
$
|
11,374
|
|
|
|
|
|
|
|
|
|
|
Amortization expense
|
|
|
(766
|
)
|
|
|
(1,021
|
)
|
|
|
|
|
|
|
|
|
|
Balance
—end of period
|
|
$
|
9,587
|
|
|
$
|
10,353
|
|
The Company
’s projected amortization expense for the remainder of 2017 is approximately $0.3 million and approximately $1.0 million in each of the years ending December 31, 2018 through 2022, and $4.3 million thereafter.
Deposits
as of September 30, 2017 and December 31, 2016 are summarized as follows (in thousands):
|
|
September
30
,
2017
|
|
|
December 31,
201
6
|
|
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
$
|
722,702
|
|
|
$
|
724,137
|
|
Money market accounts
|
|
|
216,522
|
|
|
|
206,388
|
|
Savings accounts
|
|
|
163,823
|
|
|
|
164,653
|
|
Certificates of deposit
|
|
|
486,089
|
|
|
|
548,902
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,589,136
|
|
|
$
|
1,644,080
|
|
Overdrafts of checking accounts of $
300,000 and $389,000 at September 30, 2017 and December 31, 2016, respectively, have been reclassified for financial reporting and are reflected in net loans receivable on the consolidated statements of financial condition.
As of
September 30, 2017 and December 31, 2016, the Bank had $56.1 million and $37.1 million, respectively, of brokered deposits.
The aggregate amount of time deposits in denominations of $100 thousand or more was
approximately $259.1 million and $298.3 million at September 30, 2017 and December 31, 2016, respectively. The aggregate amount of time deposits in denominations of $250 thousand or more was approximately $107.9 million and $120.4 million at September 30, 2017 and December 31, 2016, respectively.
At
September 30, 2017, scheduled maturities of certificates of deposit were as follows (in thousands):
|
|
Amount
|
|
|
|
|
|
|
Within one year
|
|
$
|
323,813
|
|
One to two years
|
|
|
84,498
|
|
Two to three years
|
|
|
37,327
|
|
Three to four years
|
|
|
18,519
|
|
Four to five years
|
|
|
14,670
|
|
Over five years
|
|
|
7,262
|
|
|
|
|
|
|
Total
|
|
$
|
486,089
|
|
9
.
|
SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND FEDERAL FUNDS PURCHASED
|
Securities sold under agreements to repurchase totaled
$21.6 million and $19.1 million at September 30, 2017 and December 31, 2016, respectively. Securities sold under repurchase agreements generally have maturities of one day and are recorded based on the amount of cash received from Bank customers in connection with the borrowing. Securities pledged as collateral under repurchase agreements are included in investment securities on the consolidated statements of financial condition and are disclosed in Note 3. The fair value of the collateral pledged to a third party is monitored and additional collateral is pledged or returned, as deemed appropriate.
The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of
September 30, 2017 and December 31, 2016 consisted of the following (in thousands):
|
|
September
30
, 2017
|
|
|
|
Overnight
and
Continuous
|
|
|
Up to 30
Days
|
|
|
30-90 Days
|
|
|
Greater than
90 days
|
|
|
Total
|
|
Securities sold under agreements to
repurchase:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
7,544
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
7,544
|
|
Residential mortgage-backed securities
|
|
|
14,085
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
14,085
|
|
Total
|
|
$
|
21,629
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
21,629
|
|
|
|
December 31,
201
6
|
|
|
|
Overnight
and
Continuous
|
|
|
Up to 30
Days
|
|
|
30-90 Days
|
|
|
Greater than
90 days
|
|
|
Total
|
|
Securities sold under agreements to repurchase:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
3,318
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
3,318
|
|
Residential mortgage-backed securities
|
|
|
15,796
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
15,796
|
|
Total
|
|
$
|
19,114
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
19,114
|
|
At
September 30, 2017, the Company and the Bank had unused credit lines allowing contingent access to overnight borrowings of up to $103.0 million on an unsecured basis.
Other borrowings are summarized as follows (in thousands):
|
|
September
30
,
2017
|
|
|
December 31,
201
6
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances with rates ranging
from 1.12% to 5.57% maturing through July 1, 2027
|
|
$
|
359,791
|
|
|
$
|
129,992
|
|
Line of credit with a bank, $14.75 million total credit line, floating rate of 1.95% above the three-month London Interbank Offered Rate (“LIBOR”), reset quarterly, interest payments due quarterly, maturing May 30, 201
9
|
|
|
2,400
|
|
|
|
4,950
|
|
Term notes payable to a bank, floating rate of 1.95% above the three-month LIBOR rate, reset quarterly, principal and interest payments due quarterly, maturing May 30, 2019
|
|
|
10,125
|
|
|
|
17,062
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
372,316
|
|
|
$
|
152,004
|
|
Federal Home Loan Bank.
At September 30, 2017 and December 31, 2016, FHLB advances included $300.0 million and $70.0 million, respectively, of advances with original maturities of one year or less.
The Bank currently pledges as collateral for FHLB advances certain qualifying one- to four-family residential mortgage loans and a blanket lien on substantially all remaining loans. Additionally, as of September 30, 2017, the Bank has FHLB letters of credit totaling $60.0 million, of which $25.0 million matures in the fourth quarter of 2017 and $35.0 million matures in the first quarter of 2018. The letters of credit were used to secure public deposits and certain other deposits as of September 30, 2017 and December 31, 2016.
Notes Payable.
The line of credit and notes payable to an unaffiliated bank are collateralized by 100% of the stock of the Bank. The loan agreement governing the line of credit and notes payable contains affirmative and negative covenants addressing the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, maintain property and insurance coverage, pledge assets and incur liens, engage in mergers and acquisitions, redeem capital stock and engage in transactions with affiliates. The agreement also contains financial covenants, including a minimum fixed charge coverage ratio of 2.0 to 1.0, a maximum loan to value ratio of 50%, a maximum classified asset ratio of 50% and Tier 1 Leverage ratio of 8%. At September 30, 2017, the Company was in compliance with the applicable covenants imposed by the loan agreement.
At
September 30, 2017, scheduled maturities of other borrowings were as follows (in thousands):
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Rate
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
1.18
|
%
|
|
|
$
|
346,997
|
|
One to two years
|
|
2.73
|
|
|
|
|
17,465
|
|
Two to three years
|
|
2.37
|
|
|
|
|
451
|
|
Three to four years
|
|
2.11
|
|
|
|
|
631
|
|
Four to five years
|
|
2.51
|
|
|
|
|
1,336
|
|
Over five years
|
|
2.71
|
|
|
|
|
5,436
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1.28
|
%
|
|
|
$
|
372,316
|
|
The provision
s for income taxes are summarized as follows (in thousands):
|
|
Nine
Months Ended
September
30
,
|
|
|
|
201
7
|
|
|
201
6
|
|
|
|
|
|
|
|
|
|
|
Income tax provision:
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
3,935
|
|
|
$
|
254
|
|
State
|
|
|
224
|
|
|
|
196
|
|
Total current
|
|
|
4,159
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,234
|
|
|
|
4,351
|
|
State
|
|
|
1,057
|
|
|
|
764
|
|
Valuation allowance
|
|
|
--
|
|
|
|
(897
|
)
|
Total deferred
|
|
|
3,291
|
|
|
|
4,218
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,450
|
|
|
$
|
4,668
|
|
The reasons for the differences between the statutory federal income tax rates and the effective tax rates are summarized as follows (
dollars in thousands):
|
|
Nine
Months Ended
September
30
,
|
|
|
|
201
7
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes at statutory
federal income tax rate
|
|
$
|
8,455
|
|
|
|
35.0
|
%
|
|
$
|
6,053
|
|
|
|
35.0
|
%
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graduated tax rates
|
|
|
--
|
|
|
|
--
|
|
|
|
(31
|
)
|
|
|
(0.2
|
)
|
State income tax
—net of federal benefits
|
|
|
832
|
|
|
|
3.4
|
|
|
|
619
|
|
|
|
3.6
|
|
Valuation allowance
—net
|
|
|
--
|
|
|
|
--
|
|
|
|
(897
|
)
|
|
|
(5.2
|
)
|
Earnings on life insurance policies
|
|
|
(543
|
)
|
|
|
(2.2
|
)
|
|
|
(411
|
)
|
|
|
(2.4
|
)
|
Nontaxable investments
|
|
|
(903
|
)
|
|
|
(3.7
|
)
|
|
|
(436
|
)
|
|
|
(2.5
|
)
|
Other
—net
|
|
|
(391
|
)
|
|
|
(1.7
|
)
|
|
|
(229
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,450
|
|
|
|
30.8
|
%
|
|
$
|
4,668
|
|
|
|
27.0
|
%
|
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):
|
|
September
30
,
2017
|
|
|
December 31,
201
6
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
$
|
7,328
|
|
|
$
|
8,278
|
|
Discount on purchased loans
|
|
|
1,395
|
|
|
|
2,044
|
|
Real estate owned
|
|
|
719
|
|
|
|
263
|
|
Section 382 net operating loss carryforward
|
|
|
1,928
|
|
|
|
1,976
|
|
Net operating loss carryforward
|
|
|
--
|
|
|
|
1,346
|
|
Nonaccrual loan interest
|
|
|
1,269
|
|
|
|
1,471
|
|
Unrealized loss on securities available for sale
|
|
|
--
|
|
|
|
891
|
|
Other
|
|
|
1,460
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
14,099
|
|
|
|
18,192
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Office properties
|
|
|
(2,741
|
)
|
|
|
(2,964
|
)
|
Core deposit intangible
s
|
|
|
(2,142
|
)
|
|
|
(2,293
|
)
|
Prepaid expenses and other
|
|
|
(1,939
|
)
|
|
|
(1,316
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(6,822
|
)
|
|
|
(6,573
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
7,277
|
|
|
$
|
11,619
|
|
A financial institution may, for federal income tax purposes, carryback net operating losses
(“NOL”) to the preceding two taxable years and forward to the succeeding 20 taxable years. At September 30, 2017, the Company had a $5.5 million NOL for federal income tax purposes that will be carried forward, comprised of Internal Revenue Code (“IRC” or the “Code”) Section 382 NOL carryforwards that have an annual limit of $405,000 that can be utilized to offset taxable income. The Company does not have any remaining non-Section 382 federal NOL carryforwards. At September 30, 2017, the Company does not have any remaining unused NOL for Arkansas state income tax purposes.
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 September 30, 2017 or December 31, 2016. 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.
Prior to the quarter ended June 30, 2016, the Company had certain deferred tax assets related to net unrealized built-in losses (“NUBILs”) established under
Code 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 (“BSF Holdings”).
If these losses had been realized before May 3, 2016 (five years after the ownership change date), then they would not be allowed to be taken as a deduction and would have been permanently lost. If these losses were to be realized after May 3, 2016, then the future deduction for the losses is no longer limited. As a result of passing the five year anniversary date of the ownership change, during the second quarter of 2016 the Bank reversed the valuation allowance of $0.9 million for the remaining NUBILs.
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 periods ended September 30, 2017 or 2016. 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, 2014 and forward.
1
2.
|
STOCK BASED COMPENSATION
|
The Company
’s 2011 Omnibus Incentive Plan (the “2011 Plan”) was approved by the Company’s stockholders on April 29, 2011 and became effective May 3, 2011. An amendment of the 2011 Plan was approved by the Company’s stockholders on May 25, 2016. The objectives of the 2011 Plan are to optimize the profitability and growth of the Company through incentives that are consistent with the Company’s goals and that align the personal interests of participants with those of the Company’s stockholders. The 2011 Plan provides for a committee of the Company’s Board of Directors to award nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other awards representing up to 2,144,743 shares of Company stock. Awards may be granted under the 2011 Plan up to ten years following the effective date of the plan. Each award under the 2011 Plan is governed by the terms of the individual award agreement, which specifies pricing, term, vesting, and other pertinent provisions. Shares issued in connection with stock compensation awards are issued from available authorized shares.
Option awards are generally granted with an exercise price equal to the fair market value of the Company
’s stock at the date of grant, generally vest based on five years of continuous service and have seven year contractual terms. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. Expected volatilities are based on implied volatilities from historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise, employee termination, and expected term of the options within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
A summary of the
stock option activity in the Company’s 2011 Plan for the nine months ended September 30, 2017, is presented below. No options have been granted since 2012.
|
|
Shares
Underlying
Awards
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding
—January 1, 2017
|
|
|
198,563
|
|
|
$
|
6.73
|
|
Granted
|
|
|
--
|
|
|
$
|
--
|
|
Exercised
|
|
|
55,442
|
|
|
$
|
5.54
|
|
Forfeited
|
|
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
Outstanding
—
September 30, 2017
|
|
|
143,121
|
|
|
$
|
7.19
|
|
Exercisable
—
September 30, 2017
|
|
|
135,899
|
|
|
$
|
7.09
|
|
The weighted average remaining contractual life of the outstanding options
was 1.3 years and the aggregate intrinsic value of the options was approximately $440,000 at September 30, 2017. The weighted average remaining contractual life of options exercisable was 1.3 years and the aggregate intrinsic value of the exercisable options was approximately $431,000 at September 30, 2017.
As of
September 30, 2017, there was $5,000 of total unrecognized compensation costs related to nonvested stock options under the 2011 Plan. The cost is expected to be recognized over a weighted-average period of 0.2 years. Compensation expense attributable to option awards totaled approximately $7,000 and $24,000 for the three month periods ended September 30, 2017 and 2016, respectively, and approximately $28,000 and $92,000 for the nine month periods ended September 30, 2017 and 2016, respectively.
Restricted Stock Units.
The fair value of each restricted stock unit (“RSU”) award is determined based on the closing market price of the Company’s stock on the grant date and amortized to compensation expense on a straight-line basis over the vesting period. The vesting periods range from three to five years.
A summary of the
RSU activity in the Company’s 2011 Plan for the nine months ended September 30, 2017, is presented below:
|
|
Restricted
Stock Units
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
Outstanding
—January 1, 2017
|
|
|
262,669
|
|
|
$
|
8.41
|
|
Granted
|
|
|
47,766
|
|
|
$
|
10.09
|
|
Vested
|
|
|
(83,470
|
)
|
|
$
|
8.20
|
|
Forfeited
|
|
|
(6,440
|
)
|
|
$
|
8.75
|
|
|
|
|
|
|
|
|
|
|
Outstanding
—
September 30, 2017
|
|
|
220,525
|
|
|
$
|
8.85
|
|
As of
September 30, 2017, there was $968,000 of total unrecognized compensation costs related to nonvested RSUs under the 2011 Plan. The cost is expected to be recognized over a weighted-average period of 1.4 years. Compensation expense attributable to awards of RSUs totaled approximately $210,000 and $254,000 for the three month periods ended September 30, 2017 and 2016, respectively, and approximately $717,000 and $940,000 for the nine months ended September 30, 2017 and 2016, respectively.
Change in Control.
Pursuant to the 2011 Plan, all unvested stock options and restricted stock units will vest in full upon the occurrence of a change in control transaction. In accordance with the terms of the Merger Agreement, all equity awards outstanding under the 2011 Plan at the effective time of the Merger, whether or not vested, will be cancelled and automatically converted into the right to receive a cash amount equal to (i) in the case of options, the aggregate number of shares of Company common stock subject to such option multiplied by the difference of $10.28 and the exercise price of such option and (ii) in the case of restricted stock units, $10.28 per unit.
Performance Awards.
In January 2017, the Company’s Board of Directors approved the grant of performance-based restricted stock units (“PSUs”) to certain members of executive and operational management under the 2011 Plan for performance year 2017. PSUs are subject to the Company’s achievement of specified performance criteria for the year ended December 31, 2017. The value of the incentive can range from zero to 40% of the grantee’s base pay and will be paid 25% in cash and 75% in RSUs after the Compensation Committee or the Board has determined whether the performance goals have been achieved. The number of RSUs to be granted will be determined based on the dollar value of the award divided by the closing stock price on the date of grant following the performance period. The RSUs will vest 1/3 on the grant date and 1/3 on each of the next two anniversaries of the grant date.
RSUs which have been granted pursuant to past performance awards are reflected in the RSU table above. The Company began accruing estimated compensation cost for performance awards as of the date of the Board’s action, which was determined to be the service inception date. Compensation expense recognized on the stock portion of performance awards totaled approximately $61,000 and $8,000 for the three month periods ended September 30, 2017 and 2016, respectively, and approximately $91,000 and $23,000 for the nine month periods ended September 30, 2017 and 2016, respectively.
The terms of the 2017 performance-based incentive awards provide that, if a change in control occurs during 2017, the 2017 performance-based incentive awards will become payable 100% in cash based on
the Company’s core earnings per share through the last day of the calendar month ending prior to the change in control, with the performance measures of core earnings per share and cash payouts applicable to the awards prorated through that date.
Basic earnings per share is computed by dividing reported earnings available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing reported earnings available to common stockholders by the weighted average number of common shares outstanding after consideration of the dilutive effect, if any, of the Company
’s outstanding common stock options and warrants using the treasury stock method. The following table reflects the calculation of weighted average shares outstanding for the basic and diluted earnings per share calculations:
|
|
Three Months
Ended
September
3
0
,
|
|
|
Nine
Months
Ended
September
3
0
,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic weighted average shares outstanding
|
|
|
37,718,303
|
|
|
|
37,595,454
|
|
|
|
37,693,009
|
|
|
|
37,634,670
|
|
Effect of dilutive securities
|
|
|
202,713
|
|
|
|
211,965
|
|
|
|
201,899
|
|
|
|
197,558
|
|
Diluted weighted average shares outstanding
|
|
|
37,921,016
|
|
|
|
37,807,419
|
|
|
|
37,894,908
|
|
|
|
37,832,228
|
|
There were no antidilutive shares for the three
or nine months ended September 30, 2017 or 2016.
1
4.
|
FAIR VALUE MEASUREMENTS
|
ASC 820,
Fair Value Measurement
, provides a framework for measuring fair value and defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level
1
|
Unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
|
|
|
Level
2
|
Observable inputs other than Level 1 prices
, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.
|
|
|
Level 3
|
Unobservable inputs that reflect management
’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
|
Financial instruments are broken down by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, due to an event or circumstance, were required to be remeasured at fair value after initial recognition in the financial statements at some time during the reporting period.
The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at
September 30, 2017 and December 31, 2016, as well as the general classification of such assets pursuant to the valuation hierarchy.
Securities Available for Sale
Investment securities available for sale are recorded at fair value on a recurring basis. The fair values used by the Company are obtained from an independent pricing service, which represent either quoted market prices for the identical asset or fair values determined by pricing models, or other model-based valuation techniques, that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems. Recurring Level 2 securities include U.S. Treasury securities, U.S.
government agency securities, residential mortgage-backed securities, municipal bonds and corporate debt securities. Inputs used for valuing Level 2 securities include observable data that may include dealer quotes, benchmark yields, market spreads, live trading levels and market consensus prepayment speeds, among other things. Additional inputs include indicative values derived from the independent pricing service’s proprietary computerized models. No securities were included in the Recurring Level 3 category at or for the periods ended September 30, 2017 or December 31, 2016.
The following table presents
major categories of assets measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 (in thousands):
|
|
Fair Value
|
|
|
Quoted Prices
in Active
Markets for Identical
Assets
(Level 1)
|
|
|
Significant
Other Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
September
30
, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and
government agencies
|
|
$
|
4,973
|
|
|
$
|
--
|
|
|
$
|
4,973
|
|
|
$
|
--
|
|
Municipal securities
|
|
|
94,472
|
|
|
|
--
|
|
|
|
94,472
|
|
|
|
--
|
|
Residential m
ortgage-backed securities
|
|
|
100,727
|
|
|
|
--
|
|
|
|
100,727
|
|
|
|
--
|
|
Corporate debt
securities
|
|
|
5,220
|
|
|
|
--
|
|
|
|
5,220
|
|
|
|
--
|
|
Total
|
|
$
|
205,392
|
|
|
$
|
--
|
|
|
$
|
205,392
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
201
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and
government agencies
|
|
$
|
5,631
|
|
|
$
|
--
|
|
|
$
|
5,631
|
|
|
$
|
--
|
|
Municipal securities
|
|
|
87,050
|
|
|
|
--
|
|
|
|
87,050
|
|
|
|
--
|
|
Residential m
ortgage-backed securities
|
|
|
95,795
|
|
|
|
--
|
|
|
|
95,795
|
|
|
|
--
|
|
Total
|
|
$
|
188,476
|
|
|
$
|
--
|
|
|
$
|
188,476
|
|
|
$
|
--
|
|
The following is a description of valuation methodologies used for significant assets measured at fair value on a nonrecurring basis.
Impaired
Loans Receivable
Loans which meet certain criteria are evaluated individually for impairment. A loan is considered impaired when, based upon current information and events, it is probable the Bank will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.
The majority of the Bank’s impaired loans at September 30, 2017 and December 31, 2016 are secured by real estate. Impaired loans are individually measured for impairment by comparing the carrying value of the loan to the discounted cash flows or the fair value of the collateral, less estimated selling costs, as appropriate. Fair value is estimated through current appraisals, real estate brokers’ opinions or listing prices. Fair values may be adjusted by management to reflect current economic and market conditions and, as such, are classified as Level 3. During the reported periods, selling costs were estimated at 8%. Fair value adjustments are made by partial charge-offs or adjustments to the ALLL.
Real Estate Owned, net
Real Estate Owned (“REO”) represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at the lower of cost or fair value less estimated selling costs.
Fair value is estimated through current appraisals, real estate brokers’ opinions or listing prices. As these properties are actively marketed, estimated fair values may be adjusted by management to reflect current economic and market conditions and, as such, are classified as Level 3. During the reported periods, collateral discounts ranged from 0% to 25% and selling costs were typically estimated at 8%. Fair value adjustments are recorded in earnings during the period such adjustments are made. REO loss provisions recorded during the nine months ended September 30, 2017 and 2016 were $117,000, and $302,000, respectively.
The following table
presents major categories of assets measured at fair value on a nonrecurring basis as of September 30, 2017 and December 31, 2016 (in thousands). The assets disclosed in the following table represent REO properties or collateral-dependent impaired loans that were remeasured at fair value during the year with a resulting valuation adjustment or fair value write-down.
|
|
Fair Value
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
September
30
, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,832
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
2,832
|
|
REO, net
|
|
|
645
|
|
|
|
--
|
|
|
|
--
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
7,105
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
7,105
|
|
REO, net
|
|
|
963
|
|
|
|
--
|
|
|
|
--
|
|
|
|
963
|
|
1
5.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The estimated fair values of financial instruments that are reported at amortized cost in the Company
’s statement of financial condition, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value, are as follows (in thousands):
|
|
September
30
, 2017
|
|
|
December 31,
201
6
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
FINANCIAL ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
80,571
|
|
|
$
|
80,571
|
|
|
$
|
78,789
|
|
|
$
|
78,789
|
|
Level 2 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity securities
|
|
|
42,879
|
|
|
|
42,446
|
|
|
|
26,977
|
|
|
|
25,090
|
|
Interest-bearing time deposits in banks
|
|
|
4,075
|
|
|
|
4,095
|
|
|
|
4,571
|
|
|
|
4,572
|
|
Other investment securities
|
|
|
24,802
|
|
|
|
24,802
|
|
|
|
13,759
|
|
|
|
13,759
|
|
Loans held for sale
|
|
|
7,258
|
|
|
|
7,258
|
|
|
|
8,954
|
|
|
|
8,954
|
|
Cash surrender value of life insurance
|
|
|
57,794
|
|
|
|
57,794
|
|
|
|
57,267
|
|
|
|
57,267
|
|
Accrued interest receivable
|
|
|
8,027
|
|
|
|
8,027
|
|
|
|
7,006
|
|
|
|
7,006
|
|
Level 3 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable—net
|
|
|
1,692,463
|
|
|
|
1,696,254
|
|
|
|
1,540,805
|
|
|
|
1,551,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreement to repurchase
|
|
|
21,629
|
|
|
|
21,629
|
|
|
|
19,114
|
|
|
|
19,114
|
|
Level 2 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, money market and savings accounts
|
|
|
1,103,047
|
|
|
|
1,103,047
|
|
|
|
1,095,178
|
|
|
|
1,095,178
|
|
Other borrowings
|
|
|
372,316
|
|
|
|
372,124
|
|
|
|
152,004
|
|
|
|
151,605
|
|
Accrued interest payable
|
|
|
640
|
|
|
|
640
|
|
|
|
314
|
|
|
|
314
|
|
Level 3 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
486,089
|
|
|
|
484,958
|
|
|
|
548,902
|
|
|
|
548,520
|
|
For cash and cash equivalents, the carrying amount approximates fair value (level 1). For investments held to maturity, the fair values
are obtained from an independent pricing service, which represent either quoted market prices for the identical asset or fair values determined by pricing models, or other model-based valuation techniques, that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems. For other investment securities, loans held for sale, cash surrender value of life insurance and accrued interest receivable, the carrying value is a reasonable estimate of fair value, primarily because of the short-term nature of the instruments or, as to other investment securities, the ability to sell the stock back to the issuer at cost (level 2). Interest bearing time deposits in banks were valued using discounted cash flows based on current rates for similar types of deposits (level 2). Fair values of impaired loans are estimated as described in Note 14. Non-impaired loans were valued using discounted cash flows. The discount rates used to determine the present value of these loans were based on interest rates currently being charged by the Bank on comparable loans (level 3).
For securities sold under agreements to repurchase, the carrying amount approximates fair value (level 1). The fair value of checking accounts, savings accounts and money market deposits is the amount payable on demand at the reporting date (level 2). The fair value of fixed-maturity certificates of deposit is estimated using the discount rates currently offered by the Bank for deposits of similar terms (level 3). The fair value of other borrowings is estimated using the rates for borrowings of similar remaining maturities at the reporting date (level 2). For accrued interest
payable, the carrying value is a reasonable estimate of fair value, primarily because of the short-term nature of the instruments (level 2).
The fair value estimates presented herein are based on pertinent information available to management as of
September 30, 2017 and December 31, 2016. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since the reporting date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
The Company
is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial statements of the Company.
However, three
shareholder lawsuits have been filed against the Company in connection with the proposed Merger with Arvest. The first action,
Owens and Hurliman v. Massey, et al
, Case No. 60CV-17-5022, is a putative class action that was first filed on September 11, 2017 in the Circuit Court of Pulaski County, Arkansas. An amended complaint was filed on October 13, 2017, and the action was removed to the United States District Court for the Eastern District of Arkansas on November 1, 2017. The complaint names the individual members of the Company board, as well as BSF Holdings, as defendants. The complaint generally alleges, among other things, that members of the Company board breached their fiduciary duties to the Company’s shareholders by (i) agreeing to sell the Company for an inadequate price, (ii) agreeing to inappropriate deal protection provisions in the merger agreement that may preclude the Company from soliciting any potential acquirers and limit the ability of the Company board to engage in discussions or negotiations for superior acquisition proposals, and (iii) disseminating a proxy statement that is materially incomplete and misleading. The complaint also alleges that Richard Massey and BSF Holdings, in their capacities as shareholders of the Company, breached fiduciary duties owed by them to the minority shareholders of the Company. The complaint seeks certification by the court as a shareholders’ class action, approval of the plaintiffs as proper plaintiff class representatives, injunctive relief enjoining the defendants from consummating the merger unless and until the Company (a) adopts and implements a procedure or process to obtain a merger agreement providing the best possible terms for shareholders and (b) supplements its proxy disclosure (or, in the event the merger is consummated, rescinding the merger or awarding rescissory damages). The complaint also seeks to recover costs and disbursement from the defendants, including attorneys’ fees and experts’ fees.
The second action,
Reichert v. Bear State Financial, Inc., et al
, Case No. 4:17-cv-654, was filed on October 11, 2017 in the United States District Court for the Eastern District of Arkansas. The third action,
Parshall v. Bear State Financial, Inc., et al
, Case No. 4:17-cv-669, is a putative class action filed on October 13, 2017 in the United States District Court for the Eastern District of Arkansas. The
Reichert
complaint names the Company and the individual members of the Company’s board as defendants. The
Parshall
complaint names the Company, the Bank, the individual members of the Company board and Arvest and Acquisition Sub as defendants. The
Reichert
and
Parshall
complaints generally allege, among other things, that defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by disseminating materially deficient and misleading disclosures in the proxy statement dated October 5, 2017 relating to the proposed Merger. The
Reichert
and
Parshall
complaints seek injunctive relief enjoining the defendants from consummating the Merger unless and until the Company discloses the material information identified in the complaints. The complaints also seek to recover rescissory damages against the defendants and costs associated with bringing the actions, including attorneys’ fees and experts’ fees.
The Company believes these allegations are without merit and intends to defend vigorously against these allegations. At this time, the Company is unable to state whether the likelihood of an unfavorable outcome of the lawsuits is probable or remote. The Company is also unable to provide an estimate of the range or amount of potential loss if the outcome should be unfavorable
The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking regulators.
The Bank is a state chartered bank jointly supervised by the Arkansas State Bank Department (“ASBD”) and the Board of Governors of the Federal Reserve System (“FRB”). The FRB is the primary regulator for the Company. Failure to meet minimum regulatory capital requirements can result in certain mandatory—and possible additional discretionary—actions by regulators that, if undertaken, could have a direct and material effect on the Company’s or the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of tier 1 capital (as defined by regulation) to average assets (as defined by regulation) and common equity tier 1 capital, tier 1 capital and total capital (as defined by regulation) to risk-weighted assets (as defined by regulation). Management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject.
As of the most recent notification from regulatory authorities, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed any of the Bank
’s categorizations.
The actual
and required capital amounts (in thousands) and ratios of the Company (Consolidated) and the Bank as of September 30, 2017 and December 31, 2016 are presented in the following tables:
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To be Categorized
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as Well
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Capitalized Under
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For Capital
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Prompt Corrective
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Actual
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Adequacy Purposes
*
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Action Provisions
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September
30,
2017
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Amount
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Ratio
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Amount
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Ratio
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Amount
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Ratio
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Tier 1
Capital to Adjusted Average Assets
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Consolidated
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$
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201,385
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9.16
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%
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$
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87,932
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4.00
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%
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N/A
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N/A
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Bear State
Bank
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211,433
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9.62
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%
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87,905
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4.00
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%
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$
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109,881
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5.00
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%
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Common Equity Tier 1 to Risk-Weighted Assets
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Consolidated
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$
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201,385
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10.84
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%
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$
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83,631
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4.50
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%
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N/A
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N/A
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Bear State
Bank
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211,433
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11.38
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%
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83,571
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4.50
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%
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$
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120,714
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6.50
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%
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Tier I Capital to Risk-Weighted Assets
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Consolidated
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$
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201,385
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10.84
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%
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$
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111,508
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6.00
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%
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N/A
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N/A
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Bear State
Bank
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211,433
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11.38
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%
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111,428
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6.00
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%
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$
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148,571
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8.00
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%
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Total Capital to Risk-Weighted Assets
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Consolidated
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$
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220,067
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11.84
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%
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$
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148,677
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8.00
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%
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N/A
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N/A
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Bear State
Bank
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230,115
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12.39
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%
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148,571
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8.00
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%
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$
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185,714
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10.00
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%
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December
31, 201
6
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Tier 1 Capital to Adjusted Average Assets
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Consolidated
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$
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186,604
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9.47
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%
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$
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78,840
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4.00
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%
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N/A
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N/A
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Bear State Bank
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204,319
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10.38
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%
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78,710
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4.00
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%
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$
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98,388
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5.00
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%
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Common Equity Tier 1 to Risk-Weighted Assets
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Consolidated
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$
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186,604
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11.04
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%
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$
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76,084
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4.50
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%
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N/A
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N/A
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Bear State Bank
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204,319
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12.10
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%
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76,017
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4.50
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%
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$
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109,802
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6.50
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%
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Tier I Capital to Risk-Weighted Assets
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Consolidated
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$
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186,604
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11.04
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%
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$
|
101,445
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6.00
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%
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N/A
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N/A
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Bear State Bank
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204,319
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12.10
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%
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101,355
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6.00
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%
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$
|
135,141
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8.00
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%
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Total Capital to Risk-Weighted Assets
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Consolidated
|
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$
|
202,188
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11.96
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%
|
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$
|
135,261
|
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bear State Bank
|
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219,903
|
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|
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13.02
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%
|
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135,141
|
|
|
|
8.00
|
%
|
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$
|
168,926
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|
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|
10.00
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%
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*
Beginning in 2016, a Capital Conservation Buffer (“CCB”) requirement became effective for banking organizations. The Basel III Rules limit capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital, tier 1 capital and total capital to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital requirements. The capital conservation buffer began to be phased in on January 1, 2016, at 0.625% of risk-weighted assets, and will continue to be increased each year by that amount until fully implemented at 2.5% on January 1, 2019. When fully phased in on January 1, 2019, the Basel III Rules will require the Company and Bank to maintain (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer, which effectively results in a minimum ratio of 7.0% upon full implementation, (ii) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, plus a 2.5% capital conservation buffer, which effectively results in a minimum ratio of 8.50% upon full implementation, (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus a 2.5% capital conservation buffer, which effectively results in a minimum ratio of 10.5% upon full implementation and (iv) a minimum leverage ratio of at least 4.0%.
Dividends
.
The Company may not declare or pay cash dividends on its shares of common stock if the effect thereof would cause its stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements for insured institutions. In addition, the Bank is subject to limitations on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. ASBD regulations specify that the maximum dividend state banks may pay
to the parent company in any calendar year without prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year. Since the Bank is also under supervision of the FRB, the maximum dividend that may be paid without prior approval by the FRB is the Bank’s net profits to date for that year combined with its retained net profits for the preceding two years. At September 30, 2017, the Bank had approximately $20.7 million available for payment of dividends to the Company without prior regulatory approval from the ASBD and approximately $21.0 million available for payment of dividends to the Company without prior regulatory approval from the FRB.
The principal source of the Company
’s revenues is dividends from the Bank. Our ability to pay dividends to our stockholders depends to a large extent upon the dividends we receive from the Bank.
Repurchase Program.
During the three and nine months ended September 30, 2017, the Company did not repurchase any shares of its common stock. The Company’s share repurchase program was initially approved by the Board of Directors on March 13, 2015 and amended on April 20, 2016, whereby the Company is authorized to repurchase up to $2 million of its common stock (the “Repurchase Program”). As of September 30, 2017, the Company had $2 million remaining under the Repurchase Program.
On
October 18, 2017, the Company announced that the Board of Directors authorized a $0.03 per share cash dividend to shareholders of record at the close of business on November 1, 2017 payable on November 15, 2017.