Bear State Financial 8-K/A Report of Independent Auditors

Exhibit 99.2

FIRST NATIONAL SECURITY COMPANY

CONDENSEDCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)

(Unaudited)

	March 31, 2014		December 31, 2013
ASSETS
Cash and cash equivalents	$	157,240	$	104,079
Federal funds sold		3,450		16,125
Investment securities held to maturity, approximate fair values of $990and $885, respectively		981		876
Investment securities available for sale		122,724		142,991
Other investment securities—at cost		6,234		6,874
Loans receivable, net of allowance of $12,888 and $12,630, respectively		598,869		584,984
Accrued interest receivable		2,871		2,879
Real estate owned - net		99		164
Office properties and equipment - net		33,246		33,138
Cash surrender value of life insurance		1,927		1,914
Goodwill		56,219		56,219
Core deposit intangible - net		607		646
Prepaid expenses and other assets		2,121		1,801
TOTAL	$	986,588	$	952,690
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits
Noninterest bearing	$	149,853	$	149,149
Interest bearing		627,178		596,335
		777,031		745,484
Repurchase agreements and federal funds purchased		10,639		10,000
Other borrowings		41,268		42,142
Other liabilities		2,640		1,462
Total liabilities		831,578		799,088
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value—500,000 shares authorized; noneissued at March 31, 2014 or December 31, 2013		--		--
Common stock, $.01 par value—500,000 shares authorized; 107,800 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively		1		1
Additional paid-in capital		10,866		10,866
Accumulated other comprehensive income		116		133
Retained earnings		144,027		142,602
Total stockholders’ equity		155,010		153,602
TOTAL	$	986,588	$	952,690

See notes to unaudited condensed consolidated financial statements.

1

FIRST NATIONAL SECURITY COMPANY

CONDENSEDCONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands, except earnings per share)

(Unaudited)

	Three Months Ended
	March 31,			March 31,
	2014			2013
INTEREST INCOME:
Loans receivable	$	7,788		$	8,133
Investment securities:
Taxable		129			168
Nontaxable		37			45
Other		142			143
Total interest income		8,096			8,489
INTEREST EXPENSE:
Deposits		462			509
Other borrowings		427			526
Total interest expense		889			1,035
NET INTEREST INCOME		7,207			7,454
PROVISION FOR LOAN LOSSES		300			90
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		6,907			7,364
NONINTEREST INCOME:
Net gain (loss) on sales of securities available for sale		(1	)		99
Deposit fee income		1,180			1,176
Earnings on life insurance policies		13			13
Other		292			322
Total noninterest income		1,484			1,610
NONINTEREST EXPENSES:
Salaries and employee benefits		3,242			2,978
Net occupancy expense		1,028			1,054
Amortization of intangible assets		39			104
Other		1,713			1,442
Total noninterest expenses		6,022			5,578
INCOME BEFORE INCOME TAXES		2,369			3,396
INCOME TAX PROVISION		944			1,261
NET INCOME	$	1,425		$	2,135
Weighted average shares outstanding		107,800			107,800
Basic earnings per share	$	13.22		$	19.81
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising during the period	$	(18	)	$	(60	)
Reclassification adjustments for realized (gain) lossincluded in net income		1			(99	)
Other comprehensive income (loss)		(17	)		(159	)
COMPREHENSIVE INCOME	$	1,408		$	1,976

See notes to unaudited condensed consolidated financial statements.

2

FIRST NATIONAL SECURITY COMPANY

CONDENSEDCONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(In thousands, except share data)

(Unaudited)

	Issued						Accumulated
	Common Stock						Other					Total
					AdditionalPaid-		Comprehensive			Retained		Stockholders’
	Shares		Amount		In Capital		Income (Loss)			Earnings		Equity
BALANCE – January 1, 2014		107,800	$	1	$	10,866	$	133		$	142,602	$	153,602
Net income		--		--		--		--			1,425		1,425
Other comprehensive loss		--		--		--		(17	)		--		(17	)
BALANCE – March 31, 2014		107,800	$	1	$	10,866	$	116		$	144,027	$	155,010

See notes to unaudited condensed consolidated financial statements.

3

FIRST NATIONAL SECURITY COMPANY

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2014			2013
OPERATING ACTIVITIES:
Net income	$	1,425		$	2,135
Adjustments to reconcile net income to net cashprovided by operating activities:
Provision for loan losses		300			90
Provision for real estate losses		--			30
Net amortization of intangible assets		39			104
Net accretion of investment securities		--			28
Loss (gain) on sale of investment securities, net		1			(99	)
Loss on sale of real estate owned, net		9			--
Depreciation		387			448
Earnings on life insurance policies		(13	)		(13	)
Changes in operating assets and liabilities:
Accrued interest receivable		8			323
Prepaid expenses and other assets		(320	)		(54	)
Other liabilities		1,178			1,020
Net cash provided by operating activities		3,014			4,012
INVESTING ACTIVITIES:
Net decrease in federal funds sold		12,675			8,068
Redemption of other investment securities		640			120
Purchases of investment securities held to maturity (“HTM”)		(110	)		--
Proceeds from maturities/calls/paydowns of investment securities HTM		5			7
Purchases of investment securities available for sale (“AFS”)		(39,401	)		(63,773	)
Proceeds from maturities/calls/paydowns of investment securities AFS		59,650			72,431
Loan (originations) repayments, net		(13,867	)		7,260
Loan participations purchased		(318	)		--
Proceeds from sales of real estate owned		56			528
Purchases of office properties and equipment		(495	)		(942	)
Net cash provided by investing activities		18,835			23,699
FINANCING ACTIVITIES:
Net increase (decrease) in deposits	$	31,547		$	(26,448	)
Repayment of advances from Federal Home Loan Bank		(874	)		(1,406	)
Net increase in repurchase agreements and federal funds purchased		639			--
Net cash provided by (used in) financing activities		31,312			(27,854	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		53,161			(143	)
CASH AND CASH EQUIVALENTS:
Beginning of period		104,079			135,858
End of period	$	157,240		$	135,715
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-
Cash paid for interest	$	894		$	933
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Real estate and other assets acquired in settlement of loans	$	--		$	499

See notes to unaudited condensed consolidated financial statements.

4

FIRST NATIONAL SECURITY COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of First National Security Company (the “Company”) include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. 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 Company has presented the condensed consolidated financial statements in accordance with the requirements of Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”) requirements. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments which 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.

The results of operations for the three months ended March 31, 2014, are not necessarily indicative of the results to be expected for the year ending December 31, 2014. The unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2013, contained in this Form 8-K/A. The condensed consolidated balance sheet of the Company has been derived from the audited consolidated balance sheet of the Company as of that date.

On June 13, 2014, Bear State Financial, Inc. (“BSF”) completed its previously-announced acquisition of the Company whereby the Company merged with and into BSF. The financial statements of the Company as of March 31, 2014 and for the three months then ended do not reflect any adjustments attributable to the acquisition.

2. RESTRICTIONS ON CASH AND CASH EQUIVALENTS

The Company’s bank subsidiaries are required to maintain certain minimum cash reserves based upon liabilities to depositors. The minimum consolidated cash reserve requirements were approximately $16.0 million and $17.0 million at March 31, 2014 and December 31, 2013, respectively.

3. INVESTMENT SECURITIES AVAILABLE FOR SALE

Investment securities available for sale consisted of the following as of the dates indicated (in thousands):

	March 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Held to maturity	Cost		Gains		Losses		Value
Municipal securities	$	882	$	2	$	--	$	884
Mortgage-backed securities		99		7		--		106
Total	$	981	$	9	$	--	$	990

	March 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Available for sale	Cost		Gains		Losses			Value
U.S. government agencies	$	110,063	$	86	$	(90	)	$	110,059
Municipal securities		5,064		147		(2	)		5,209
Mortgage-backed securities		7,421		124		(89	)		7,456
Total	$	122,548	$	357	$	(181	)	$	122,724

	December 31, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Held to maturity	Cost		Gains		Losses		Value
Municipal securities	$	773	$	2	$	--	$	775
Mortgage-backed securities		103		7		--		110
Total	$	876	$	9	$	--	$	885

5

	December 31, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale
U.S. government agencies	$	130,983	$	80	$	(22	)	$	131,041
Municipal securities		6,003		140		(3	)		6,140
Mortgage-backed securities		5,804		118		(112	)		5,810
Total	$	142,790	$	338	$	(137	)	$	142,991

The following tables summarize the gross unrealized losses and fair value of the Company’s investments 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):

	March 31, 2014
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Available for sale
U.S. government agencies	$	40,392	$	90	$	--	$	--	$	40,392	$	90
Municipal securities		629		2		--		--		629		2
Mortgage-backed securities		2,311		69		362		20		2,673		89
Total	$	43,332	$	161	$	362	$	20	$	43,694	$	181

	December 31, 2013
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Available for sale
U.S. government agencies	$	4,978	$	22	$	--	$	--	$	4,978	$	22
Municipal securities		343		3		--		--		343		3
Mortgage-backed securities		3,185		112		--		--		3,185		112
Total	$	8,506	$	137	$	--	$	--	$	8,506	$	137

Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company expects to receive full value for the securities.  Furthermore, as of March 31, 2014 and December 31, 2013, management also had the ability and intent to hold the securities classified as available-for-sale for a period of time sufficient for a recovery of cost.  Management does not believe any of the securities are impaired due to reasons of credit quality.  Accordingly, as of March 31, 2014 and December 31, 2013, since it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, management believes the impairments detailed in the table above are temporary.

Securities with a carrying amount of approximately $98.8 million at March 31, 2014 and $125.0 million at December 31, 2013 were pledged to secure public deposits and for other purposes, including securities with a fair value of approximately $10.0 million at March 31, 2014 and December 31, 2013, for securities sold under agreements to repurchase (which amounted to $10.0 million at March 31, 2014 and December 31, 2013).

The following table sets forth the amount (dollars in thousands) of investment securities that contractually mature during each of the periods indicated at March 31, 2014. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligation without prepayment penalties.

	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within one year	$	441	$	441	$	66,386	$	66,417
Due from one year to five years		441		443		46,155		46,160
Due from five years to ten years		--		--		2,586		2,691
		882		884		115,127		115,268
Mortgage-backed securities		99		106		7,421		7,456
Total	$	981	$	990	$	122,548	$	122,724

6

4. LOANS RECEIVABLE

Loans receivable consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):

	March 31, 2014			December 31, 2013
Real estate:
One- to four-family residential	$	179,911		$	170,594
Multifamily residential		16,048			16,921
Nonfarm nonresidential		190,983			181,442
Agricultural		44,135			44,390
Construction and land development		69,900			71,052
Commercial and agricultural		79,936			81,551
Consumer		28,021			28,488
Other		2,823			3,176
Total loans receivable		611,757			597,614
Allowance for loan and lease losses		(12,888	)		(12,630	)
Loans receivable—net	$	598,869		$	584,984

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

March 31, 2014	30-89 Days Past Due(1)		90 Days or More Past Due(2)		Current		Total
One- to four-family residential	$	1,173	$	328	$	178,410	$	179,911
Multifamily residential		--		--		16,048		16,048
Nonfarm nonresidential		201		--		190,782		190,983
Agricultural		68		--		44,067		44,135
Construction and land development		469		--		69,431		69,900
Commercial and agricultural		861		11		79,064		79,936
Consumer		198		41		27,782		28,021
Other		--		14		2,809		2,823
Total	$	2,970	$	394	$	608,393	$	611,757

December 31, 2013	30-89 Days Past Due (1)		90 Days or More Past Due(2)		Current		Total
One- to four-family residential	$	2,244	$	316	$	168,034	$	170,594
Multifamily residential		--		422		16,499		16,921
Nonfarm nonresidential		2,175		759		178,508		181,442
Agricultural		--		--		44,390		44,390
Construction and land development		74		21		70,957		71,052
Commercial and agricultural		335		--		81,216		81,551
Consumer		258		68		28,162		28,488
Other		14		--		3,162		3,176
Total	$	5,100	$	1,586	$	590,928	$	597,614

(1) Includes $29,000 and $221,000 of loans on nonaccrual status at March 31, 2014 and December 31, 2013, respectively.

(2) Includes $91,000 and $1.3 million of loans on nonaccrual status at March 31, 2014 and December 31, 2013, respectively.

7

The following is a summary of impaired loans, all of which had an allowance for loan losses allocation, as of March 31, 2014 and December 31, 2013:

	March 31, 2014						December 31, 2013
	Unpaid Principal Balance		Recorded Investment		Valuation Allowance		Unpaid Principal Balance		Recorded Investment		Valuation Allowance
One- to four-family residential	$	--	$	--	$	--	$	--	$	--	$	--
Multifamily residential		--		--		--		--		--		--
Nonfarm nonresidential		1,503		1,503		303		1,524		1,524		324
Construction and land development		--		--		--		--		--		--
Commercial		--		--		--		--		--		--
Consumer		--		--		--		--		--		--
Total impaired loans	$	1,503	$	1,503	$	303	$	1,524	$	1,524	$	324

The average recorded balance of impaired loans was $1.5 million for the three months ended March 31, 2014 and the year ended December 31, 2013. Interest income recognized on impaired loans was not significant during the three month periods ended March 31, 2014 and 2013.

The following categories of credit quality indicators are used by the Company:

Satisfactory – Loans in this category are considered to be a satisfactory credit risk and are generally considered to be collectible in full.

Special Mention – Loans in this category have potential weaknesses which, if left uncorrected, may result in deterioration of repayment prospects.

Watch – Loans in this category are presently protected from apparent loss, however, weaknesses exist which could cause future impairment of repayment of principal and interest.

Substandard – Loans in this category are characterized by deterioration in quality exhibited by a number of weaknesses requiring corrective action and posing some risk of loss.

Based on analyses performed at March 31, 2014 and December 31, 2013, the risk categories of loans are as follows (in thousands):

	March 31, 2014
	Satisfactory		Special Mention		Watch		Substandard		Total
One- to four-family residential	$	169,356	$	121	$	5,340	$	5,094	$	179,911
Multifamily residential		14,901		--		1,147		--		16,048
Nonfarm nonresidential		174,514		--		10,741		5,728		190,983
Agricultural		43,465		--		537		133		44,135
Construction and land development		65,616		114		2,329		1,841		69,900
Commercial and agricultural		76,215		--		3,158		563		79,936
Consumer		27,723		6		91		201		28,021
Other		2,823		--		--		--		2,823
Total	$	574,613	$	241	$	23,343	$	13,560	$	611,757

	December 31, 2013
	Satisfactory		Special Mention		Watch		Substandard		Total
One- to four-family residential	$	160,056	$	123	$	5,389	$	5,026	$	170,594
Multifamily residential		15,335		--		1,164		422		16,921
Nonfarm nonresidential		163,948		--		10,833		6,661		181,442
Agricultural		43,711		--		541		138		44,390
Construction and land development		66,744		116		2,295		1,897		71,052
Commercial and agricultural		78,376		--		2,560		615		81,551
Consumer		28,154		6		94		234		28,488
Other		3,176		--		--		--		3,176
Total	$	559,500	$	245	$	22,876	$	14,993	$	597,614

As of March 31, 2014 and December 31, 2013, the Company did not have any loans classified as doubtful or loss.

8

5. ALLOWANCES FOR LOAN AND LEASE LOSSES LOSSES

The tables below provide a rollforward of the allowance for loan and lease losses (“ALLL”) by portfolio segment for the three months ended March 31, 2014 and 2013 (in thousands):

	Three Months EndedMarch 31, 2014
	One- to Four-Family Residential		Multifamily Residential			Nonfarm Nonresidential			Agricultural			Construction and Land Development			Commercial andAgricultural			Consumer			Other			Unallocated		Total
Balance, beginning of period	$	2,097	$	422		$	3,001		$	700		$	875		$	359		$	254		$	39		$	4,883	$	12,630
Losses charged off		--		--			(36	)		--			--			--			(35	)		--			--		(71	)
Recoveries		12		--			5			--			--			2			10			--			--		29
Provision charged to expense		115		(22	)		159			(4	)		(14	)		(7	)		(4	)		(4	)		81		300
Balance, end of period	$	2,224	$	400		$	3,129		$	696		$	861		$	354		$	225		$	35		$	4,964	$	12,888

	Three Months EndedMarch 31, 2013
	One- to Four-Family Residential			Multifamily Residential		Nonfarm Nonresidential			Agricultural			Construction and Land Development		Commercial andAgricultural			Consumer			Other			Unallocated		Total
Balance, beginning of period	$	2,076		$	484	$	3,019		$	629		$	870	$	306		$	258		$	39		$	5,532	$	13,213
Losses charged off		(58	)		--		--			--			--		(301	)		(21	)		(2	)		--		(382	)
Recoveries		14			--		--			82			--		1			8			2			--		107
Provision charged to expense		(32	)		130		(172	)		(7	)		25		1			(9	)		3			151		90
Balance, end of period	$	2,000		$	614	$	2,847		$	704		$	895	$	7		$	236		$	42		$	5,683	$	13,028

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 March 31, 2014 and December 31, 2013 (in thousands):

	March 31, 2014
	One- to Four-Family Residential		Multifamily Residential		Nonfarm Nonresidential		Agricultural		Construction and Land Development		Commercial andAgricultural		Consumer		Other		Unallocated		Total
ALLL Balances:
Individually evaluated for impairment	$	--	$	--	$	303	$	--	$	--	$	--	$	--	$	--	$	--	$	303
Collectively evaluated for impairment		2,224		400		2,826		696		861		354		225		35		4,964		12,585
Ending balance	$	2,224	$	400	$	3,129	$	696	$	861	$	354	$	225	$	35		4,964	$	12,888
Loan balances:
Individually evaluated for impairment	$	--	$	--	$	1,503	$	--	$	--	$	--	$	--	$	--	$	--	$	1,503
Collectively evaluated for impairment		179,911		16,048		189,480		44,135		69,900		79,936		28,021		2,823		--		610,254
Ending balance	$	179,911	$	16,048	$	190,983	$	44,135	$	69,900	$	79,936	$	28,021	$	2,823	$	--	$	611,757

			December 31, 2013
	One- to Four-Family Residential		Multifamily Residential		Nonfarm Nonresidential		Agricultural		Construction and Land Development		Commercial andAgricultural		Consumer		Other		Unallocated		Total
ALLL Balances:
Individually evaluated for impairment	$	--	$	--	$	324	$	--	$	--	$	--	$	--	$	--	$	--	$	324
Collectively evaluated for impairment		2,097		422		2,677		700		875		359		254		39		4,883		12,306
Ending balance	$	2,097	$	422	$	3,001		700	$	875	$	359	$	254	$	39	$	4,883	$	12,630
Loan balances:
Individually evaluated for impairment	$	--	$	--	$	1,524	$	--	$	--	$	--	$	--	$	--	$	--	$	1,524
Collectively evaluated for impairment		170,594		16,921		179,918		44,390		71,052		81,551		28,488		3,176		--		596,090
Ending balance	$	170,594	$	16,921	$	181,442	$	44,390	$	71,052	$	81,551	$	28,488	$	3,176	$	--	$	597,614

6. 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 March 31, 2014 and December 31, 2013, as well as the general classification of such assets pursuant to the valuation hierarchy.

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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. government-sponsored entities, mortgage-backed securities and municipal bonds. 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 March 31, 2014 or December 31, 2013.

The following table presents major categories of assets measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013 (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)
March 31, 2014
Available for sale investment securities:
U.S. government agencies	$	110,059	$	--	$	110,059	$	--
Municipal securities		5,209		--		5,209		--
Mortgage-backed securities		7,456		--		7,456		--
Total	$	122,724	$	--	$	122,724	$	--
December 31, 2013
Available for sale investment securities:
U.S. government agencies	$	131,041	$	--	$	131,041	$	--
Municipal securities		6,140		--		6,140		--
Mortgage-backed securities		5,810		--		5,810		--
Total	$	142,991	$	--	$	142,991	$	--

The following is a description of valuation methodologies used for significant assets measured at fair value on a nonrecurring basis.

ImpairedLoans Receivable

Impaired loans that are collateral dependent are the only material financial assets valued on a non-recurring basis which are held by the Company at fair value. Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the net realizable value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to require increase, such increase is reported as a component of the provision for loan losses. The fair value of loans with specific allocated losses was approximately $1.2 million as of March 31, 2014 and December 31, 2013. This valuation is considered Level 3, consisting of appraisals of underlying collateral.

Real Estate Owned, net

As of March 31, 2014 and December 31, 2013, the Company had $99,000 and $164,000, respectively, in OREO which includes all real estate, other than bank premises used in bank operations, owned or controlled by the Company, including real estate acquired in settlement of loans. OREO assets held for sale are the only material nonfinancial assets valued on a nonrecurring basis which are held by the Company at fair value, less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of OREO held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral. As of December 31, 2013, the fair value of OREO held for sale, less estimated costs to sell, for which write-downs were recognized by a charge to income during the period was approximately $15,000. There were no writedowns recognized in the first quarter of 2014.

The following table presents major categories of assets measured at fair value on a nonrecurring basis at March 31, 2014 and December 31, 2013 (in thousands). The assets disclosed in the following table represent REO properties or impaired loans that were remeasured at fair value during the period 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)
March 31, 2014
Impaired loans	$	1,200	$	--	$	--	$	1,200
REO, net		--		--		--		--
December 31, 2013
Impaired loans	$	1,200	$	--	$	--	$	1,200
REO, net		15		--		--		15

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7. 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):

	March 31, 2014				December 31, 2013
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
FINANCIAL ASSETS:
Level 1 inputs:
Cash and cash equivalents	$	157,240	$	157,240	$	104,079	$	104,079
Federal funds sold		3,450		3,450		16,125		16,125
Level 2 inputs:
Investment securities held to maturity		981		990		876		885
Other investments		6,234		6,234		6,874		6,874
Cash surrender value of life insurance		1,927		1,927		1,914		1,914
Accrued interest receivable		2,871		2,871		2,879		2,879
Level 3 inputs:
Loans receivable—net		598,869		594,880		584,984		585,300
FINANCIAL LIABILITIES:
Level 2 inputs:
Checking, money market and savings accounts		582,580		582,580		549,216		549,216
Repurchase agreements and federal funds purchased		10,639		10,639		10,000		10,000
Other borrowings		41,268		41,332		42,142		42,400
Accrued interest payable		234		234		239		239
Level 3 inputs:
Certificates of deposit		194,451		194,817		196,268		196,384

For cash and cash equivalents and federal funds sold, the carrying amount approximates fair value (level 1). For other investments, 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 investments, the ability to sell the stock back to the issuer at cost (level 2). For investment securities held to maturity, fair value is estimated based on quoted market prices of the same or similar instruments (level 2). The fair value of loans was estimated using discounted cash flow analyses using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality (level 3).

The fair values of checking accounts, savings accounts and money market deposits and repurchase agreements and federal funds purchased are the amounts 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 FHLB advances is estimated using the rates for advances 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 March 31, 2014 and December 31, 2013. 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.

8. SUBSEQUENT EVENTS

On June 13, 2014, the Company completed its previously-announced merger with Bear State Financial, Inc. (“BSF”, formerly First Federal Bancshares of Arkansas, Inc.) whereby the Company merged with and into BSF in a transaction valued at approximately $124.4 million. In connection with the merger, Company stockholders received in the aggregate 6,252,400 shares of BSF common stock, valued at approximately $50.4 million and $74 million in cash in exchange for 100% of the outstanding shares of Company common stock.

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