form_10q.htm
 

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q
 

     (Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________
 
Commission file number 0-12247


SOUTHSIDE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
   
TEXAS
75-1848732
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
1201 S. Beckham, Tyler, Texas
75701
(Address of principal executive offices)
(Zip Code)
903-531-7111
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o
Accelerated filer  x
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

The number of shares of the issuer's common stock, par value $1.25, outstanding as of April 23, 2010 was 15,793,726 shares.


 
 
 

TABLE OF CONTENTS
 
 
                ITEM 4.  CONTROLS AND PROCEDURES

 
 
 


PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share amounts)
   
March 31,
    
December 31,
  
ASSETS
  
2010
    
2009
  
Cash and due from banks
   $ 35,805     $ 50,350  
Interest earning deposits
     2,357       1,816  
Total cash and cash equivalents
     38,162       52,166  
Investment securities:
                
Available for sale, at estimated fair value
     282,199       265,060  
Held to maturity, at amortized cost
     1,494       1,493  
Mortgage-backed and related securities:
                
Available for sale, at estimated fair value
     1,090,224       1,238,182  
Held to maturity, at amortized cost
     439,121       242,665  
FHLB stock, at cost
     36,305       38,629  
Other investments, at cost
     2,065       2,065  
Loans held for sale
     2,036       2,857  
Loans:
                
Loans
     1,017,444       1,033,576  
Less:  allowance for loan loss
     (19,468 )     (19,896 )
      Net Loans
     997,976       1,013,680  
Premises and equipment, net
     47,466       46,477  
Goodwill
     22,034       22,034  
Other intangible assets, net
     1,010       1,096  
Interest receivable
     15,348       18,482  
Deferred tax asset
     4,159       1,611  
Other assets
     70,142       77,791  
TOTAL ASSETS
   $ 3,049,741     $ 3,024,288  
LIABILITIES AND EQUITY
                
Deposits:
                
Noninterest bearing
   $ 403,575     $ 394,001  
Interest bearing
     1,524,851       1,476,420  
Total Deposits
     1,928,426       1,870,421  
Short-term obligations:
                
Federal funds purchased and repurchase agreements
     7,170       13,325  
FHLB advances
     321,202       322,351  
Other obligations
     2,776       2,760  
Total Short-term obligations
     331,148       338,436  
Long-term obligations:
                
FHLB  advances
     463,058       532,519  
Long-term debt
     60,311       60,311  
Total Long-term obligations
     523,369       592,830  
Other liabilities
     59,127       20,352  
TOTAL LIABILITIES
     2,842,070       2,822,039  
                 
       Off-Balance-Sheet Arrangements, Commitments and Contingencies (Note 12)
                
                 
Shareholders' equity:
                
Common stock - $1.25 par, 40,000,000 shares authorized, 17,557,088 shares
     21,946       20,928  
 issued in 2010 (including 753,710 shares declared on March 18, 2010 as a stock dividend) and
 16,592,417 shares issued in 2009
                
Paid-in capital
     161,460       146,357  
Retained earnings
     47,401       53,812  
Treasury stock (1,763,362 and 1,762,261 shares at cost)
     (23,569 )     (23,545 )
Accumulated other comprehensive (loss) income
     (409 )     4,229  
TOTAL SHAREHOLDERS' EQUITY
     206,829       201,781  
Noncontrolling interest
     842       468  
TOTAL EQUITY
     207,671       202,249  
TOTAL LIABILITIES AND EQUITY
   $ 3,049,741     $ 3,024,288  

The accompanying notes are an integral part of these consolidated financial statements.

 
1
 

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
   
Three Months
  
   
Ended March 31,
  
   
2010
    
2009
  
Interest income
            
Loans
   $ 17,765     $ 18,313  
Investment securities – taxable
     26       319  
Investment securities – tax-exempt
     2,826       1,494  
Mortgage-backed and related securities
     14,277       16,404  
FHLB stock and other investments
     82       104  
Other interest earning assets
     11       26  
Total interest income
     34,987       36,660  
Interest expense
                
Deposits
     5,005       6,372  
Short-term obligations
     1,680       1,165  
Long-term obligations
     5,226       6,886  
Total interest expense
     11,911       14,423  
Net interest income
     23,076       22,237  
Provision for loan losses
     3,867       3,590  
Net interest income after provision for loan losses
     19,209       18,647  
Noninterest income
                
Deposit services
     4,064       4,035  
Gain on sale of securities available for sale
     8,355       13,796  
                 
Total other-than-temporary impairment losses
     (39 )     (5,627 )
Portion of loss recognized in other comprehensive income (before taxes)
     (36 )     4,727  
Net impairment losses recognized in earnings
     (75 )     (900 )
                 
Gain on sale of loans
     281       335  
Trust income
     530       563  
Bank owned life insurance income
     285       301  
Other
     933       784  
Total noninterest income
     14,373       18,914  
Noninterest expense
                
Salaries and employee benefits
     10,942       10,484  
Occupancy expense
     1,643       1,418  
Equipment expense
     437       375  
Advertising, travel & entertainment
     537       509  
ATM and debit card expense
     167       299  
Director fees
     177       146  
Supplies
     270       212  
Professional fees
     406       630  
Postage
     186       188  
Telephone and communications
     373       281  
FDIC Insurance
     679       536  
Other
     1,635       1,439  
Total noninterest expense
     17,452       16,517  
                 
Income before income tax expense
     16,130       21,044  
Provision for income tax expense
     3,955       6,146  
Net income
     12,175       14,898  
Less: Net income attributable to the noncontrolling interest
     (530 )     (753 )
Net income attributable to Southside Bancshares, Inc.
   $ 11,645     $ 14,145  
Earnings per common share – basic
   $ 0.74     $ 0.91  
Earnings per common share – diluted
   $ 0.74     $ 0.90  
Dividends paid per common share
   $ 0.17     $ 0.13  


The accompanying notes are an integral part of these consolidated financial statements.

 
2
 

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
(in thousands, except share amounts)

   
Three Months Ended
March 31,
  
   
2010
    
2009
  
Common Stock
            
Balance, beginning of period
   $ 20,928     $ 19,695  
Issuance of common stock (60,543 shares in 2010 and 128,513 shares in 2009)
     76       160  
Stock dividend declared
     942       885  
Balance, end of period
     21,946       20,740  
Paid-in capital
                
Balance, beginning of period
     146,357       131,112  
Issuance of common stock (60,543 shares in 2010 and 128,513 shares in 2009)
     396       668  
Tax benefit of incentive stock options
     145       164  
Stock dividend declared
     14,562       12,620  
Balance, end of period
     161,460       144,564  
Retained earnings
                
Balance, beginning of period
     53,812       34,021  
Net income attributable to Southside Bancshares, Inc.
     11,645       14,145  
Dividends paid on common stock ($0.17 per share in 2010 and $0.13 per share in 2009)
     (2,552 )     (1,825 )
Stock dividend declared
     (15,504 )     (13,505 )
Balance, end of period
     47,401       32,836  
Treasury Stock
                
Balance, beginning of period
     (23,545 )     (23,115 )
Purchase of common stock (1,101 shares in 2010 and 30,691 shares in 2009)
     (24 )     (430 )
Balance, end of period
     (23,569 )     (23,545 )
Accumulated other comprehensive (loss) income
                
Balance, beginning of period
     4,229       (1,096 )
Net unrealized gains on available for sale securities, net of tax
     560       10,496  
Reclassification adjustment for gains on sales of available for sale securities included in net income, net of tax
     (5,431 )     (8,967 )
Non-credit portion of other-than-temporary impairment losses on available for sale
                
securities, net of tax
     23       408  
Other-than-temporary impairment charges on available for sale securities included in
                
net income, net of tax
     49       585  
Adjustment to net periodic benefit cost, net of tax
     161       209  
Net change in accumulated other comprehensive (loss) income
     (4,638 )     2,731  
Balance, end of period
     (409 )     1,635  
Total shareholders’ equity
     206,829       176,230  
Noncontrolling interest
                
Balance, beginning of period
     468       472  
Net income attributable to noncontrolling interest shareholders
     530       753  
Capital distribution to noncontrolling interest shareholders
     (156 )     (992 )
Balance, end of period
     842       233  
Total equity
   $ 207,671     $ 176,463  
                 
Comprehensive income
                
Net income
   $ 12,175     $ 14,898  
Net change in accumulated other comprehensive (loss) income
     (4,638 )     2,731  
Comprehensive income
     7,537       17,629  
Comprehensive income attributable to the noncontrolling interest
     (530 )     (753 )
Comprehensive income attributable to Southside Bancshares, Inc.
   $ 7,007     $ 16,876  


The accompanying notes are an integral part of these consolidated financial statements.

 
3
 

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
   
Three Months Ended
March 31,
  
   
2010
    
2009
  
             
OPERATING ACTIVITIES:
            
Net income
   $ 12,175     $ 14,898  
Adjustments to reconcile net income to net cash provided by operations:
                
Depreciation
     775       601  
Amortization of premium
     7,120       2,193  
Accretion of discount and loan fees
     (1,271 )     (995 )
Provision for loan losses
     3,867       3,590  
Decrease in interest receivable
     3,134       2,666  
Decrease in other assets
     1,052       670  
Net change in deferred taxes
     (50 )     (455 )
Decrease in interest payable
     (430 )     (498 )
Increase in other liabilities
     4,380       8,708  
Decrease (increase) in loans held for sale
     821       (3,371 )
Gain on sale of securities available for sale
     (8,355 )     (13,796 )
Net other-than-temporary impairment losses
     75       900  
Gain on sale of assets
     (7 )     –  
Impairment on other real estate owned
     20       –  
(Gain) loss on sale of other real estate owned
     (15 )     1  
Net cash provided by operating activities
     23,291       15,112  
                 
INVESTING ACTIVITIES:
                
Proceeds from sales of investment securities available for sale
     12,265       124,567  
Proceeds from sales of mortgage-backed securities available for sale
     388,909       53,170  
Proceeds from maturities of investment securities available for sale
     2,784       40,800  
Proceeds from maturities of mortgage-backed securities available for sale
     96,982       48,759  
Proceeds from maturities of mortgage-backed securities held to maturity
     18,129       9,653  
Proceeds from redemption of FHLB stock
     2,360       –  
Purchases of investment securities available for sale
     (15,248 )     (30,720 )
Purchases of mortgage-backed securities available for sale
     (317,794 )     (184,673 )
Purchases of mortgage-backed securities held to maturity
     (215,686 )     (41,461 )
Purchases of FHLB stock and other investments
     (36 )     (46 )
Net decrease in loans
     11,328       4,715  
Purchases of premises and equipment
     (1,795 )     (1,804 )
Proceeds from sales of premises and equipment
     38       –  
Proceeds on bank owned life insurance
     –       511  
Proceeds from sales of other real estate owned
     419       217  
Proceeds from sales of repossessed assets
     1,199       594  
Net cash (used in) provided by investing activities
     (16,146 )     24,282  


The accompanying notes are an integral part of these consolidated financial statements.


 
4
 

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
(in thousands)
   
Three Months Ended
  
   
March 31,
  
   
2010
    
2009
  
FINANCING ACTIVITIES:
            
 Net increase (decrease) in demand and savings accounts
    
125,151
      
(19,520
)
 Net (decrease) increase in certificates of deposit
    
(67,420
)
    
143,301
  
 Net (decrease) increase in federal funds purchased and repurchase agreements
    
(6,155
)
    
224
  
 Proceeds from FHLB advances
    
1,203,170
      
1,195,000
  
 Repayment of FHLB advances
    
(1,273,780
)
    
(1,336,973
)
 Net capital distributions to non-controlling interest in consolidated entities
    
(156
)
    
(992
)
 Tax benefit of incentive stock options
    
145
      
164
  
 Purchase of common stock
    
(24
)
    
(430
)
 Proceeds from the issuance of common stock
    
472
      
828
  
 Dividends paid
    
(2,552
)
    
(1,825
)
      Net cash used in financing activities
    
(21,149
)
    
(20,223
)
                 
Net (decrease) increase in cash and cash equivalents
    
(14,004
)
    
19,171
  
Cash and cash equivalents at beginning of period
    
52,166
      
66,774
  
Cash and cash equivalents at end of period
  
$
38,162
    
$
85,945
  
                 
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
                
 Interest paid
  
$
12,341
    
$
14,921
  
 Income taxes paid
    
–
      
500
  
                 
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
                
 Acquisition of other repossessed assets and real estate through foreclosure
  
$
1,930
    
$
4,238
  
 Declaration of 5% stock dividend
    
15,504
      
13,505
  
 Adjustment to pension liability
    
(247
)
    
(321
)
 Unsettled trades to purchase securities
    
(37,458
)
    
(58,307
)
 Unsettled trades to sell securities
    
1,453
      
–
  
 Unsettled issuances of brokered CDs
    
19,830
      
–
  

The accompanying notes are an integral part of these consolidated financial statements



 
5
 

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
   1.     Basis of Presentation

In this report, the words “the Company,” “we,” “us,” and “our” refer to the combined entities of Southside Bancshares, Inc. and its subsidiaries.  The words “Southside” and “Southside Bancshares” refer to Southside Bancshares, Inc.  The words “Southside Bank” and “the Bank” refer to Southside Bank (which, subsequent to the internal merger of Fort Worth National Bank (“FWNB”) with and into Southside Bank, includes FWNB).  “FWBS” refers to Fort Worth Bancshares, Inc., a bank holding company acquired by Southside of which FWNB was a wholly-owned subsidiary.  “SFG” refers to Southside Financial Group, LLC, of which Southside owns a 50% interest and consolidates for financial reporting.

The consolidated balance sheet as of March 31, 2010, and the related consolidated statements of income, equity and cash flows and notes to the financial statements for the three month period ended March 31, 2010 and 2009 are unaudited; in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included.  Such adjustments consisted only of normal recurring items.  All significant intercompany accounts and transactions are eliminated in consolidation.  The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires the use of management’s estimates. These estimates are subjective in nature and involve matters of judgment.  Actual amounts could differ from these estimates.

Interim results are not necessarily indicative of results for a full year.  These financial statements should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2009.  All share data has been adjusted to give retroactive recognition to stock splits and stock dividends.  For a description of our significant accounting and reporting policies, refer to Note 1 of the Notes to Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2009.


 
6
 
 
2.     Earnings Per Share

Earnings per share attributable to Southside Bancshares, Inc. on a basic and diluted basis have been adjusted to give retroactive recognition to stock splits and stock dividends and is calculated as follows (in thousands, except per share amounts):

   
Three Months
  
   
Ended March 31,
  
   
2010
    
2009
  
    Basic and Diluted Earnings:
            
       Net Income - Southside Bancshares, Inc.
  
$
11,645
    
$
14,145
  
                 
    Basic weighted-average shares outstanding
    
15,751
      
15,490
  
       Add:   Stock options
    
64
      
221
  
       Diluted weighted-average shares outstanding
    
15,815
      
15,711
  
                 
    Basic Earnings Per Share:
                
       Net Income - Southside Bancshares, Inc.
  
$
0.74
    
$
0.91
  
                 
    Diluted Earnings Per Share:
                
       Net Income - Southside Bancshares, Inc.
  
$
0.74
    
$
0.90
  

For the three month period ended March 31, 2010 and 2009, there were no antidilutive options.

 
7
 

3.  Comprehensive (Loss) Income

The components of other comprehensive (loss) income are as follows (in thousands):

   
Three Months Ended March 31, 2010
  
   
Before-Tax
    
Tax (Expense)
    
Net-of-Tax
  
   
Amount
    
Benefit
    
Amount
  
Unrealized losses on securities:
                  
Unrealized holding gains arising during period
   $ 861     $ (301 )   $ 560  
Non credit portion of other-than-temporary
impairment losses on the AFS securities
     36       (13 )     23  
Less:  reclassification adjustment for gains
                        
   included in net income
     8,355       (2,924 )     5,431  
Less:  other-than-temporary impairment charges
 on AFS securities included in net income
     (75 )     26       (49 )
Net unrealized losses on securities
     (7,383 )     2,584       (4,799 )
   Change in pension plans
     247       (86 )     161  
Other comprehensive loss
   $ (7,136 )   $ 2,498     $ (4,638 )



   
Three Months Ended March 31, 2009
  
   
Before-Tax
    
Tax (Expense)
    
Net-of-Tax
  
   
Amount
    
Benefit
    
Amount
  
Unrealized gains on securities:
                  
Unrealized holding gains arising during period
   $ 16,149     $ (5,653 )   $ 10,496  
Non credit portion of other-than-temporary
impairment losses on the AFS securities
     627       (219 )     408  
Less:  reclassification adjustment for gains
                        
  included in net income
     13,796       (4,829 )     8,967  
   Less: other-than-temporary impairment charges
      on AFS securities included in net income
     (900 )     315       (585 )
Net unrealized gains on securities
     3,880       (1,358 )     2,522  
   Change in pension plans
     321       (112 )     209  
Other comprehensive income
   $ 4,201     $ (1,470 )   $ 2,731  




 
8
 

 
    4. Securities

The amortized cost and estimated market value of investment and mortgage-backed securities as of March 31, 2010 and December 31, 2009, are reflected in the tables below (in thousands):
 
   
March 31, 2010
  
   
Amortized
    
Gross
Unrealized
    
Gross Unrealized Losses
    
Estimated
  
 AVAILABLE FOR SALE:
  
Cost
    
Gains
    
OTTI
    
Other
    
Market Value
  
Investment Securities:
                              
U.S. Treasury
   $ 4,900     $ –     $ –     $ –     $ 4,900  
State and Political Subdivisions
     265,933       11,001       –       240       276,694  
Other Stocks and Bonds
     3,308       4       2,694       13       605  
Mortgage-backed Securities:
                                        
U.S. Government Agencies
     168,331       3,367       –       1,659       170,039  
Government-Sponsored Enterprises
     911,763       14,369       –       5,947       920,185  
Total
   $ 1,354,235     $ 28,741     $ 2,694     $ 7,859     $ 1,372,423  

   
March 31, 2010
  
   
Amortized
    
Gross
Unrealized
    
Gross Unrealized Losses
    
Estimated
  
 HELD TO MATURITY:
  
Cost
    
Gains
    
OTTI
    
Other
    
Market Value
  
Investment Securities:
                              
State and Political Subdivisions
   $ 1,013     $ 111     $ –     $ –     $ 1,124  
Other Stocks and Bonds
     481       18       –       –       499  
Mortgage-backed Securities:
                                        
U.S. Government Agencies
     27,614       521       –       430       27,705  
Government-Sponsored Enterprises
     411,507       4,558       –       3,238       412,827  
Total
   $ 440,615     $ 5,208     $ –     $ 3,668     $ 442,155  
 
   
December 31, 2009
  
   
Amortized
    
Gross
Unrealized
    
Gross Unrealized Losses
    
Estimated
  
 AVAILABLE FOR SALE:
  
Cost
    
Gains
    
OTTI
    
Other
    
Market Value
  
Investment Securities:
                              
U.S. Treasury
   $ 4,898     $ 1     $ –     $ –     $ 4,899  
State and Political Subdivisions
     250,391       9,431       –       296       259,526  
Other Stocks and Bonds
     3,383       3       2,730       21       635  
Mortgage-backed Securities:
                                        
U.S. Government Agencies
     126,264       3,725       –       407       129,582  
Government-Sponsored Enterprises
     1,092,659       20,787       –       4,846       1,108,600  
Total
   $ 1,477,595     $ 33,947     $ 2,730     $ 5,570     $ 1,503,242  
 
   
December 31, 2009
  
   
Amortized
    
Gross
Unrealized
    
Gross Unrealized Losses
    
Estimated
  
 HELD TO MATURITY:
  
Cost
    
Gains
    
OTTI
    
Other
    
Market Value
  
Investment Securities:
                              
State and Political Subdivisions
   $ 1,013     $ 103     $ –     $ –     $ 1,116  
Other Stocks and Bonds
     480       22       –       –       502  
Mortgage-backed Securities:
                                        
U.S. Government Agencies
     16,677       534       –       36       17,175  
Government-Sponsored Enterprises
     225,988       5,248       –       766       230,470  
Total
   $ 244,158     $ 5,907     $ –     $ 802     $ 249,263  

 
9
 


The following table represents the unrealized loss on securities for the three months ended March 31, 2010 and year ended December 31, 2009 (in thousands):

 
Less Than 12 Months
  
More Than 12 Months
  
Total
  
 
Fair Value
  
Unrealized Loss
  
Fair Value
  
Unrealized Loss
  
Fair Value
  
Unrealized Loss
  
As of March 31, 2010:
                        
                         
Available for Sale
                        
U.S. Treasury
   $ 4,900     $ –     $ –     $ –     $ 4,900     $ –  
State and Political Subdivisions
     7,321       61       4,019       179       11,340       240  
Other Stocks and Bonds
     –       –       409       2,707       409       2,707  
Mortgage-Backed Securities
     491,022       7,606       63       –       491,085       7,606  
Total
   $ 503,243     $ 7,667     $ 4,491     $ 2,886     $ 507,734     $ 10,553  
                                                 
Held to Maturity
                                                
Mortgage-Backed Securities
   $ 229,370     $ 3,667     $ 196     $ 1     $ 229,566     $ 3,668  
Total
   $ 229,370     $ 3,667     $ 196     $ 1     $ 229,566     $ 3,668  

As of December 31, 2009:
                                    
                                     
Available for Sale
                                    
State and Political Subdivisions
   $ 14,520     $ 160     $ 2,953     $ 136     $ 17,473     $ 296  
Other Stocks and Bonds
     –       –       441       2,751       441       2,751  
Mortgage-Backed Securities
     391,889       5,250       1,065       3       392,954       5,253  
Total
   $ 406,409     $ 5,410     $ 4,459     $ 2,890     $ 410,868     $ 8,300  
                                                 
Held to Maturity
                                                
Mortgage-Backed Securities
   $ 19,705     $ 802     $ –     $ –     $ 19,705     $ 802  
Total
   $ 19,705     $ 802     $ –     $ –     $ 19,705     $ 802  

When it is determined that a decline in fair value of HTM and AFS securities is other-than-temporary, the carrying value of the security is reduced to its estimated fair value, with a corresponding charge to earnings for the credit portion and the non credit portion to other comprehensive income.  In estimating other-than-temporary impairment losses, management considers, among other things, the length of time and the extent to which the fair value has been less than cost and the financial condition and near-term prospects of the issuer.  Additionally, we do not currently intend to sell the securities and it is not more likely than not that we will be required to sell the securities before the anticipated recovery of its amortized cost basis.

The turmoil in the capital markets had a significant impact on our estimate of fair value for certain of our securities.  We believe the market values are reflective of illiquidity and credit impairment.  At March 31, 2010, we have in AFS Other Stocks and Bonds, $2.9 million amortized cost basis in pooled trust preferred securities (“TRUPs”).  Those securities are structured products with cash flows dependent upon securities issued by U.S. financial institutions, including banks and insurance companies.  Our estimate of fair value at March 31, 2010 for the TRUPs is approximately $231,000 and reflects the market illiquidity.  With the exception of the TRUPs, to the best of management’s knowledge and based on our consideration of the qualitative factors associated with each security, there were no securities in our investment and mortgage-backed securities portfolio at March 31, 2010 with an other-than-temporary impairment.

Given the facts and circumstances associated with the TRUPs we performed detailed cash flow modeling for each TRUP using an industry-accepted cash flow model. Prior to loading the required assumptions into the model we reviewed the financial condition of each of the underlying issuing banks within the TRUP collateral pool that had not deferred or defaulted as of March 31, 2010.  Management’s best estimate of a deferral assumption was assigned to each issuing bank based on the category in which it fell.  Our analysis of the underlying cash flows contemplated various default, deferral and recovery scenarios to arrive at our best estimate of cash flows.  Based on that detailed analysis, we have concluded that the other-than-temporary impairment, which captures the credit component in compliance with FASB ASC Topic 320, “Investments – Debt and Equity Securities,” was estimated at $3.1 million and $3.0 million at March 31, 2010 and December 31, 2009, respectively. The non credit charge to other comprehensive income was estimated at $2.7 million at March 31, 2010 and December 31, 2009.  Therefore, the carrying amount of the TRUPs was written down with $75,000 recognized in earnings for the three months ended March 31, 2010 and $3.0 million recognized in earnings for the year ended December 31, 2009.  The cash flow model assumptions represent management’s best estimate and consider a variety of qualitative factors, which include, among others, the credit rating downgrades, the severity and duration of the mark-to-market loss, and the

 
10
 

structural nuances of each TRUP.  Management believes that the detailed review of the collateral and cash flow modeling support the conclusion that the TRUPs had an other-than-temporary impairment at March 31, 2010.  We will continue to update our assumptions and the resulting analysis each reporting period to reflect changing market conditions.  Additionally, we do not currently intend to sell the TRUPs and it is not more likely than not that we will be required to sell the TRUPs before the anticipated recovery of their amortized cost basis.

The table below provides more detail on the TRUPs (dollars in thousands).


 
TRUP
    
 
Par
    
Credit
Loss
    
 
Amortized Cost
    
 
Fair Value
    
 
Tranche
    
 
Credit Rating
                                     
1
  
$
2,000
  
$
1,075
  
$
   925
  
$
168
    
C1
    
Ca
2
    
2,000
    
   550
    
1,450
    
  36
    
B1
    
Ca
3
    
2,000
    
1,450
    
   550
    
  27
    
B2
    
C
   
$
6,000
  
$
3,075
  
$
2,925
  
$
231
            

The following table presents the impairment activity related to credit loss, which is recognized in earnings, and the impairment activity related to all other factors, which are recognized in other comprehensive income.

 
 
Three Months Ended March 31,2010
  
 
Impairment Related to Credit Loss
  
Impairment Related to All Other Factors
  
Total Impairment
  
 
 
                   
Balance, beginning of the period
   $ 3,000     $ 2,730     $ 5,730  
Charges on securities for which other-than-temporary impairment charges were not previously recognized
     –       –       –  
Additional charges on securities for which other-than-temporary impairment charges were previously recognized
     75       (36 )     39  
Balance, end of the period
   $ 3,075     $ 2,694     $ 5,769  

Management has the ability and intent to hold the securities classified as HTM until they mature, at which time we will receive full value for the securities. Furthermore, as of March 31, 2010, management also had the ability and intent to hold the securities classified as AFS for a period of time sufficient for a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality.

Interest income recognized on AFS and HTM securities for the period presented:

   
Three Months Ended
  
   
March 31, 2010
    
March 31, 2009
  
U.S. Treasury
   $ 2     $ 13  
U.S. Government Agencies
     –       140  
State and Political Subdivisions
     2,836       1,593  
Other Stocks and Bonds
     14       67  
Mortgage-backed Securities
     14,277       16,404  
                 
Total interest income on securities
   $ 17,129     $ 18,217  


There were no securities transferred from AFS to HTM during the three months ended March 31, 2010 and 2009.  There were no sales from the HTM portfolio during the three months ended March 31, 2010 or 2009.  There were $440.6 million of securities classified as HTM for the three months ended March 31, 2010 compared to $244.2 million of securities classified as HTM for the year ended December 31, 2009.

Of the $8.4 million in net securities gains from the AFS portfolio for the three months ended March 31, 2010, there were $9.3 million in realized gains and $0.9 in realized losses.  Of the $13.8 million in net securities gains from the AFS portfolio for the three months ended March 31, 2009, there were $13.9 million in realized gains and $0.1 million in realized losses.

 
11
 

The amortized cost and fair value of securities at March 31, 2010, are presented below by contractual maturity.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.  Mortgage-backed securities are presented in total by category due to the fact that mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with varying maturities.  The characteristics of the underlying pool of mortgages, such as fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder.  The term of a mortgage-backed pass-through security thus approximates the term of the underlying mortgages and can vary significantly due to prepayments.

 
   
March 31, 2010
  
   
Amortized Cost
    
Fair Value
  
   
(in thousands)
  
             
Available for sale securities:
            
             
Investment Securities
            
Due in one year or less
   $ 7,864     $ 7,921  
Due after one year through five years
     8,713       9,001  
Due after five years through ten years
     31,360       32,483  
Due after ten years
     226,204       232,794  
      274,141       282,199  
Mortgage-backed securities
     1,080,094       1,090,224  
Total
   $ 1,354,235     $ 1,372,423  
 
 
   
March 31, 2010
  
   
Amortized Cost
    
Fair Value
  
             
Held to maturity securities:
            
             
Investment Securities
            
Due in one year or less
   $ –     $ –  
Due after one year through five years
     –       –  
Due after five years through ten years
     481       499  
Due after ten years
     1,013       1,124  
      1,494       1,623  
Mortgage-backed securities
     439,121       440,532  
Total
   $ 440,615     $ 442,155  
 
Investment and mortgage-backed securities with book values of $1.02 billion at March 31, 2010 and $1.06 billion at December 31, 2009 were pledged to collateralize Federal Home Loan Bank (“FHLB”) advances, repurchase agreements, public funds and trust deposits or for other purposes as required by law.

Securities with limited marketability, such as FHLB stock and other investments, are carried at cost, which approximates its fair value and assessed for other-than-temporary impairment.  These securities have no maturity date.


 
12
 

5.  Loans and Allowance for Probable Loan Losses

The following table sets forth loan totals by category for the periods presented (in thousands):

 
At
    
At
  
 
March 31,
    
December 31,
  
 
2010
    
2009
  
Real Estate Loans:
          
   Construction
   $ 86,372     $ 88,566  
   1-4 Family Residential
     233,879       234,379  
   Other
     209,412       212,731  
Commercial Loans
     153,670       159,529  
Municipal Loans
     155,304       150,111  
Loans to Individuals
     178,807       188,260  
Total Loans
   $ 1,017,444     $ 1,033,576  

The summaries of the Allowance for Loan Losses and Reserve for Unfunded Loan Commitments are as follows (in thousands):

   
Three Months
  
   
Ended March 31,
  
   
2010
    
2009
  
Allowance for Loan Losses:
            
                 
Balance at beginning of period
  
$
19,896
    
$
16,112
  
Provision for loan losses
    
3,867
      
3,590
  
Loans charged off
    
(4,926
)
    
(2,704
)
Recoveries of loans charged off
    
631
      
434
  
Balance at end of period
  
$
19,468
    
$
17,432
  
                 
Reserve for Unfunded Loan Commitments:
                
                 
Balance at beginning of period
  
$
5
    
$
7
  
Provision for losses on unfunded loan
        commitments
    
15
      
–
  
Balance at end of period
  
$
20
    
$
7
  


 
13
 

6.  Goodwill and Core Deposit Intangible Assets

Goodwill.  Goodwill totaled $22.0 million at both March 31, 2010 and December 31, 2009.
 
We measured our goodwill for impairment at December 31, 2009.  We have identified Southside Bank as the sole operating segment and reporting unit for our impairment assessment.
 
Step one of the impairment test involves comparing the fair value of the reporting unit which, in our case, is the entire entity, to the carrying value of the reporting unit.  If the fair value of the reporting unit is greater than the carrying value of the reporting unit, no additional testing is required. If the fair value of the reporting unit is less than the carrying value of the reporting unit, step two of the impairment test must be performed.  At December 31, 2009, the fair value of the reporting unit was greater than the carrying value of the reporting unit.  As a result, we did not record any goodwill impairment for the year ended December 31, 2009.  As of March 31, 2010, there were no trigger events to warrant an updated impairment analysis.

During the fourth quarter of 2007, we recorded core deposit intangibles totaling $2.0 million in connection with the acquisition of FWBS.  Core deposit intangibles are amortized on an accelerated basis over their estimated lives, which range from four to ten years.

Core Deposit Intangibles.  Core deposit intangible assets were as follows (in thousands):

   
Gross Intangible Assets
    
Accumulated Amortization
    
Net Intangible Assets
  
       
                     
March 31, 2010
                    
   Core deposits
  
$
2,047
    
$
(1,037
)
  
$
1,010
  
   
$
2,047
    
$
(1,037
)
  
$
1,010
  
                     
December 31, 2009
                    
   Core deposits
  
$
2,047
    
$
(951
)
  
$
1,096
  
   
$
2,047
    
$
(951
)
  
$
1,096
  
                         

For the three months ended March 31, 2010 and 2009, amortization expense related to intangible assets totaled $86,000 and $102,000, respectively.  The estimated aggregate future amortization expense for intangible assets remaining as of March 31, 2010 is as follows (in thousands):

Remainder of 2010
$
233
2011
  
255
2012
  
198
2013
  
146
2014
  
99
Thereafter
  
79
 
$
1,010


 
14
 

7. Long-term Obligations

Long-term obligations are summarized as follows (in thousands):

   
March 31,
    
December 31,
  
   
2010
    
2009
  
FHLB Advances (1)
            
   Varying maturities to 2028
   $ 463,058     $ 532,519  
                 
Long-term Debt (2)
                
   Southside Statutory Trust III Due 2033 (3)
     20,619       20,619  
   Southside Statutory Trust IV Due 2037 (4)
     23,196       23,196  
   Southside Statutory Trust V Due 2037 (5)
     12,887       12,887  
   Magnolia Trust Company I Due 2035 (6)
     3,609       3,609  
      Total Long-term Debt
     60,311       60,311  
      Total Long-term Obligations
   $ 523,369     $ 592,830  
       
 
(1)
At March 31, 2010, the weighted average cost of these advances was 3.66%.
 
(2)
This long-term debt consists of trust preferred securities that qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations.
 
(3)
This debt carries an adjustable rate of 3.23013% through June 29, 2010 and adjusts quarterly at a rate equal to three-month LIBOR plus 294 basis points.
 
(4)
This debt carries a fixed rate of 6.518% through October 30, 2012 and thereafter, adjusts quarterly at a rate equal to three-month LIBOR plus 130 basis points.
 
(5)
This debt carries a fixed rate of 7.48% through December 15, 2012 and thereafter, adjusts quarterly at a rate equal to three-month LIBOR plus 225 basis points.
 
(6)
This debt carries an adjustable rate of 2.05194% through May 23, 2010 and thereafter, adjusts quarterly at a rate equal to three-month LIBOR plus 180 basis points.

8.  Employee Benefit Plans

The components of net periodic benefit cost are as follows (in thousands):

   
Three Months Ended March 31,
  
   
Defined Benefit
              
   
Pension Plan
    
Restoration Plan
  
   
2010
    
2009
    
2010
    
2009
  
Service cost
  
$
339
    
$
339
    
$
29
    
$
23
  
Interest cost
    
678
      
641
      
72
      
60
  
Expected return on assets
    
(879
)
    
(678
)
    
–
      
–
  
Net loss recognition
    
213
      
293
      
45
      
39
  
Prior service credit amortization
    
(10
)
    
(10
)
    
(1
)
    
(1
)
Net periodic benefit cost
  
$
341
    
$
585
    
$
145
    
$
121
  
                                 

Employer Contributions.  We previously disclosed in our financial statements for the year ended December 31, 2009, that we expected to contribute $3.0 million to our defined benefit pension plan and $80,000 to our post retirement benefit plan in 2010.  As of March 31, 2010, no contributions had been made to our defined benefit plan, and contributions of $20,000 had been made to our post retirement benefit plan.

9.  Incentive Stock Options

In April 1993, we adopted the Southside Bancshares, Inc. 1993 Incentive Stock Option Plan ("the ISO Plan"), a stock-based incentive compensation plan.  The ISO Plan expired March 31, 2003.

As of March 31, 2010 and 2009, there were no nonvested shares.  For the three months ended March 31, 2010 and 2009, there was no stock-based compensation expense. 

As of March 31, 2010 and 2009, there was no unrecognized compensation cost related to the ISO Plan for nonvested options granted in March 2003.

 
15
 

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes method of option pricing with the following weighted-average assumptions for grants in 2003: dividend yield of 1.93%; risk-free interest rate of 4.93%; expected life of six years; and expected volatility of 28.90%.

Under the ISO Plan, we were authorized to issue shares of common stock pursuant to "Awards" granted in the form of incentive stock options (intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended).  Before the ISO Plan expired, awards were granted to selected employees and directors.  No stock options have been available for grant under the ISO Plan since its expiration in March 2003.  

The ISO Plan provided that the exercise price of any stock option not be less than the fair market value of the common stock on the date of grant.  The outstanding stock options have contractual terms of 10 years.  All options vest on a graded schedule, 20% per year for five years, beginning on the first anniversary date of the grant date.

A summary of the status of our outstanding stock options as of March 31, 2010 and the changes during the three months ended March 31, 2010 is presented below:

 
Number of Options
  
Weighted Average Exercise Prices
  
Weighted Average Remaining Contract Life (Years)
  
Aggregate Intrinsic Value
 (in thousands)
  
                 
Outstanding at December 31, 2009
108,115
  
$
5.14
  
–
    
–
  
Exercised
(51,933
)
$
4.53
  
–
    
–
  
Cancelled
–
  
$
–
  
–
    
–
  
Outstanding at March 31, 2010
56,182
  
$
5.70
  
0.89
  
$
834
  
Exercisable at March 31, 2010
56,182
  
$
5.70
  
0.89
  
$
834
  

The total intrinsic value (i.e., the amount by which the fair value of the underlying common stock exceeds the exercise price of a stock option on exercise date) of stock options exercised during the three months ended March 31, 2010 and 2009 were $775,000 and $1.2 million, respectively.

Cash received from stock option exercises for the three months ended March 31, 2010 and 2009 was $212,000 and $178,000, respectively.  The tax benefit realized for the deductions related to the stock option exercises were $145,000 and $164,000 for the three months ended March 31, 2010 and 2009, respectively.

On April 16, 2009, our shareholders approved the Southside Bancshares, Inc. 2009 Incentive Plan (the “2009 Incentive Plan”), which is a stock-based incentive compensation plan.  A total of 1,050,000 shares of our common stock are reserved and available for issuance pursuant to awards granted under the 2009 Incentive Plan.  As of March 31, 2010, no awards had been granted under this plan.


 
16
 

10.  Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

Valuation techniques including the market approach, the income approach and/or the cost approach are utilized to determine fair value.  Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability.  An entity must consider all aspects of nonperforming risk, including the entity’s own credit standing when measuring fair value of a liability.  Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  A fair value hierarchy for valuation inputs gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities Available for Sale - Securities classified as available for sale primarily consist of U. S. Treasuries, government-sponsored enterprise debentures, mortgage-backed securities, municipal bonds, and, to a lesser extent, TRUPs and equity securities.  We use quoted market prices of identical assets on active exchanges, or Level 1 measurements, where possible.  Where such quoted market prices are not available, we typically employ quoted market prices of similar instruments (including matrix pricing) and/or discounted cash flows using observable inputs to estimate a value of these securities, or Level 2 measurements.  Discounted cash flow analyses are typically based on market interest rates, prepayment speeds and/or option adjusted spreads.  Level 3 measurements include a range of fair value estimates in the marketplace as a result of the illiquid market specific to the type of security or discounted cash flow analyses based on assumptions that are not readily observable in the market place.  Such assumptions include projections of future cash flows, including loss assumptions and discount rates.

Certain financial assets are measured at fair value in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of fair value accounting or write-downs of individual assets.  Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our monthly and/or quarterly valuation process.  There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2010.

Loans Held for Sale - These loans are reported at the lower of cost or fair value. Fair value is determined based on expected proceeds, which are based on sales contracts and commitments and are considered Level 2 inputs.   At March 31, 2010, based on our estimates of fair value, no valuation allowance was recognized.


 
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Impaired Loans – Certain impaired loans may be reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using Level 3 inputs based on customized discounting criteria or appraisals.  During the three months ended March 31, 2010, certain impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for possible loan losses based upon the fair value of the underlying collateral. Impaired loans with a carrying value of $20.4 million were reduced by specific valuation allowance allocations totaling $4.3 million to a total reported fair value of $16.1 million based on collateral valuations utilizing Level 3 valuation inputs. During the three months ended March 31, 2009, certain impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for possible loan losses based upon the fair value of the underlying collateral. Impaired loans with a carrying value of $12.1 million were reduced by specific valuation allowance allocations totaling $3.5 million to a total reported fair value of $8.6 million based on collateral valuations utilizing Level 3 valuation inputs.

 
Certain non-financial assets and non-financial liabilities measured at fair value on a recurring basis include reporting units measured at fair value in the first step of a goodwill impairment test. Certain non-financial assets measured at fair value on a non-recurring basis include non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, as well as intangible assets and other non-financial long-lived assets (such as real estate owned) that are measured at fair value in the event of an impairment. The framework became applicable to these fair value measurements beginning January 1, 2009.

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2010 and December 31, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

   
As of March 31, 2010
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Securities Available For Sale
  
Input
    
Input
    
Input
    
Fair Value
  
                         
                         
Investment Securities:
                        
U.S. Treasury
   $ 4,900     $ –     $ –     $ 4,900  
State and Political Subdivisions
     –       276,694       –       276,694  
Other Stocks and Bonds
     374       –       231       605  
Mortgage-backed Securities:
                                
U.S. Government Agencies
     –       170,039       –       170,039  
Government-Sponsored Enterprise
     –       920,185       –       920,185  
Total
   $ 5,274     $ 1,366,918     $ 231     $ 1,372,423  

 
   
As of December 31, 2009
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Securities Available For Sale
  
Input
    
Input
    
Input
    
Fair Value
  
                         
                         
Investment Securities:
                        
U.S. Treasury
   $ 4,899     $ –     $ –     $ 4,899  
State and Political Subdivisions
     –       259,526       –       259,526  
Other Stocks and Bonds
     365       –       270       635  
Mortgage-backed Securities:
                                
U.S. Government Agencies
     –       129,582       –       129,582  
Government-Sponsored Enterprise
     –       1,108,600       –       1,108,600  
Total
   $ 5,264     $ 1,497,708     $ 270     $ 1,503,242  
















 
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The following tables present additional information about financial assets and liabilities measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value (in thousands):

   
Three Months Ended March 31,
   
2010
    
2009
Other Stocks and Bonds
            
             
Balance at Beginning of Period
   $ 270     $ 646  
                 
Total gains or losses (realized/unrealized):
                
  Included in earnings (or changes in net assets)
     (75 )     (900 )
Included in other comprehensive income (loss)
     36       627  
Purchases, issuances and settlements
     –       –  
Transfers in and/or out of Level 3
     –       –  
Balance at End of Period
   $ 231     $ 373  
                 
The amount of total gains or losses for the periods included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date
   $ (75 )   $ (900 )

Disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet is required, for which it is practicable to estimate that value.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other estimation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Such techniques and assumptions, as they apply to individual categories of our financial instruments, are as follows:

 
Cash and cash equivalents - The carrying amounts for cash and cash equivalents is a reasonable estimate of those assets' fair value.

Investment and mortgage-backed and related securities - Fair values for these securities are based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices for similar securities or estimates from independent pricing services.

 
FHLB stock and other investments - The carrying amount of FHLB stock is a reasonable estimate of those assets’ fair value.

 
Loans receivable - For adjustable rate loans that reprice frequently and with no significant change in credit risk, the carrying amounts are a reasonable estimate of those assets' fair value.  The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Nonperforming loans are estimated using discounted cash flow analyses or the underlying value of the collateral where applicable.



 
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Deposit liabilities - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount on demand at the reporting date, that is, the carrying value.  Fair values for fixed rate certificates of deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities.

 
Federal funds purchased and repurchase agreements - Federal funds purchased and repurchase agreements generally have an original term to maturity of one day and thus are considered short-term borrowings.  Consequently, their carrying value is a reasonable estimate of fair value.

 
FHLB advances - The fair value of these advances is estimated by discounting the future cash flows using rates at which advances would be made to borrowers with similar credit ratings and for the same remaining maturities.

 
Long-term debt - The carrying amount for the long-term debt is estimated by discounting future cash flows using rates at which long-term debt would be made to borrowers with similar credit ratings and for the remaining maturities.

The following table presents our assets, liabilities, and unrecognized financial instruments at both their respective carrying amounts and fair value:

   
At March 31, 2010
    
At December 31, 2009
  
   
Carrying
          
Carrying
        
   
Amount
    
Fair Value
    
Amount
    
Fair Value
  
   
(in thousands)