Edgar Filing: SOUTHSIDE BANCSHARES INC

SBSI 10-Q 09.30.14

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 September 30, 2014



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 incorporation or organization)		(I.R.S. Employer Identification No.)

1201 S. Beckham Avenue, 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 x 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.



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 November 3, 2014 was 18,917,402 shares.

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TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS	1
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	59
ITEM 4. CONTROLS AND PROCEDURES	60
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	61
ITEM 1A. RISK FACTORS	61
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	61
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	61
ITEM 4. MINE SAFETY DISCLOSURES	61
ITEM 5. OTHER INFORMATION	61
ITEM 6. EXHIBITS	61
SIGNATURES	62
EXHIBIT INDEX	63
EXHIBIT 31.1 – CERTIFICATION PURSUANT TO SECTION 302
EXHIBIT 31.2 – CERTIFICATION PURSUANT TO SECTION 302
EXHIBIT 32 – CERTIFICATION PURSUANT TO SECTION 906

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share amounts)

	September 30, 2014			December 31, 2013
ASSETS
Cash and due from banks	$	49,937		$	45,624
Interest earning deposits	19,284			8,807
Total cash and cash equivalents	69,221			54,431
Investment securities:
Available for sale, at estimated fair value	321,221			337,429
Held to maturity, at carrying value (estimated fair value of $398,386 and $377,383, respectively)	389,529			391,552
Mortgage-backed securities:
Available for sale, at estimated fair value	674,529			840,258
Held to maturity, at carrying value (estimated fair value of $260,695 and $271,836, respectively)	256,528			275,569
FHLB stock, at cost	24,435			34,065
Other investments, at cost	2,099			2,065
Loans held for sale	75,436			151
Loans:
Loans	1,398,674			1,351,273
Less: Allowance for loan losses	(13,415		)	(18,877		)
Net Loans	1,385,259			1,332,396
Premises and equipment, net	53,889			52,060
Goodwill	22,034			22,034
Other intangible assets, net	100			178
Interest receivable	14,221			21,973
Deferred tax asset	12,822			18,415
Unsettled trades to sell securities	5,120			3,933
Other assets	61,588			59,154
TOTAL ASSETS	$	3,368,031		$	3,445,663
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	585,415		$	529,897
Interest bearing	1,858,149			1,997,911
Total deposits	2,443,564			2,527,808
Short-term obligations:
Federal funds purchased and repurchase agreements	2,116			859
FHLB advances	51,808			73,445
Total short-term obligations	53,924			74,304
Long-term obligations:
FHLB advances	476,004			499,349
Long-term debt	60,311			60,311
Total long-term obligations	536,315			559,660
Unsettled trades to purchase securities	15,224			973
Other liabilities	27,895			23,400
TOTAL LIABILITIES	3,076,922			3,186,145

Off-Balance-Sheet Arrangements, Commitments and Contingencies (Note 12)

Shareholders' equity:
Common stock ($1.25 par, 40,000,000 shares authorized, 21,384,554 shares issued at September 30, 2014 and 20,386,221 shares issued at December 31, 2013)	26,731			25,483
Paid-in capital	244,150			214,091
Retained earnings	65,409			78,673
Treasury stock (2,469,638 shares at cost)	(37,692		)	(37,692		)
Accumulated other comprehensive loss	(7,489		)	(21,037		)
TOTAL SHAREHOLDERS' EQUITY	291,109			259,518
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,368,031		$	3,445,663

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

SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Interest income
Loans	$	17,168		$	18,625		$	53,836		$	54,680
Investment securities – taxable	210			139			476			672
Investment securities – tax-exempt	6,325			6,927			18,304			17,322
Mortgage-backed securities	6,070			5,069			21,309			13,685
FHLB stock and other investments	36			36			144			135
Other interest earning assets	31			15			96			93
Total interest income	29,840			30,811			94,165			86,587
Interest expense
Deposits	1,876			2,011			5,976			6,082
Short-term obligations	226			116			353			1,755
Long-term obligations	2,018			2,043			6,368			5,778
Total interest expense	4,120			4,170			12,697			13,615
Net interest income	25,720			26,641			81,468			72,972
Provision for loan losses	4,868			3,640			11,651			6,153
Net interest income after provision for loan losses	20,852			23,001			69,817			66,819
Noninterest income
Deposit services	3,860			4,005			11,292			11,662
Net gain (loss) on sale of securities available for sale	1,151			(142		)	1,660			9,204
Total other-than-temporary impairment losses	—			—			—			(52		)
Portion of loss recognized in other comprehensive income (before taxes)	—			—			—			10
Net impairment losses recognized in earnings	—			—			—			(42		)

Impairment of investment in SFG Finance, LLC	(2,239		)	—			(2,239		)	—
Gain on sale of loans	108			130			269			690
Trust income	798			759			2,340			2,212
Bank owned life insurance income	320			327			941			845
Other	1,021			1,334			3,077			3,178
Total noninterest income	5,019			6,413			17,340			27,749
Noninterest expense
Salaries and employee benefits	12,798			13,167			38,992			39,777
Occupancy expense	1,773			1,922			5,313			5,690
Advertising, travel & entertainment	489			599			1,637			1,896
ATM and debit card expense	327			310			946			994
Professional fees	1,132			730			3,363			1,932
Software and data processing expense	543			528			1,530			1,515
Telephone and communications	292			383			890			1,218
FDIC insurance	437			433			1,319			1,263
FHLB prepayment fees	—			—			—			988
Other	2,226			2,192			6,635			6,476
Total noninterest expense	20,017			20,264			60,625			61,749

Income before income tax expense	5,854			9,150			26,532			32,819
Income tax (benefit) expense	(243		)	257			1,754			3,816
Net income	$	6,097		$	8,893		$	24,778		$	29,003
Earnings per common share – basic	$	0.32		$	0.47		$	1.32		$	1.54
Earnings per common share – diluted	$	0.32		$	0.47		$	1.31		$	1.54
Dividends paid per common share	$	0.22		$	0.20		$	0.64		$	0.60

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

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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Net income	$	6,097		$	8,893		$	24,778		$	29,003
Other comprehensive income (loss):
Unrealized holding gains (losses) on available for sale securities during the period	2,751			(2,686		)	21,070			(46,966		)
Change in net unrealized loss on securities transferred to held to maturity	282			165			836			193
Noncredit portion of other-than-temporary impairment losses on the AFS securities	—			—			—			(10		)
Reclassification adjustment for net (gain) loss on sale of available for sale securities, included in net income	(1,151		)	142			(1,660		)	(9,204		)
Reclassification of other-than-temporary impairment charges on available for sale securities, included in net income	—			—			—			42
Amortization of net actuarial loss, included in net periodic benefit cost	260			697			781			2,091
Amortization of prior service credit, included in net periodic benefit cost	(3		)	(10		)	(10		)	(32		)
Other comprehensive income (loss), before tax	2,139			(1,692		)	21,017			(53,886		)
Income tax (expense) benefit related to other items of comprehensive income	(862		)	592			(7,469		)	18,860
Other comprehensive income (loss), net of tax	1,277			(1,100		)	13,548			(35,026		)
Comprehensive income (loss)	$	7,374		$	7,793		$	38,326		$	(6,023	)

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

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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (in thousands, except share and per share data)

	Common Stock		Paid In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance at December 31, 2012	$	24,308	$	195,602	$	70,708		$	(35,793	)	$	2,938		$	257,763
Net Income					29,003									29,003
Other comprehensive loss											(35,026		)	(35,026		)
Issuance of common stock (43,733 shares)	54		959											1,013
Purchase of common stock (90,300 shares)								(1,899		)				(1,899		)
Stock compensation expense			571											571
Tax benefits related to stock awards			43											43
Net issuance of common stock under employee stock plan	24		72		(68		)							28
Cash dividends paid on common stock ($0.60 per share)					(10,539		)							(10,539		)
Stock dividend declared	1,065		15,995		(17,060		)							—
Balance at September 30, 2013	$	25,451	$	213,242	$	72,044		$	(37,692	)	$	(32,088	)	$	240,957

Balance at December 31, 2013	$	25,483	$	214,091	$	78,673		$	(37,692	)	$	(21,037	)	$	259,518
Net Income					24,778									24,778
Other comprehensive income											13,548			13,548
Issuance of common stock (26,894 shares)	34		763											797
Stock compensation expense			842											842
Tax benefits related to stock awards			249											249
Net issuance of common stock under employee stock plan	90		1,025		(112		)							1,003
Cash dividends paid on common stock ($0.64 per share)					(11,865		)							(11,865		)
Impairment of investment in SFG Finance, LLC.			2,239											2,239
Stock dividend declared	1,124		24,941		(26,065		)							—
Balance at September 30, 2014	$	26,731	$	244,150	$	65,409		$	(37,692	)	$	(7,489	)	$	291,109

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

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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (in thousands)

	Nine Months Ended
	September 30,
	2014			2013
OPERATING ACTIVITIES:
Net income	$	24,778		$	29,003
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	2,429			2,756
Amortization of premium	15,620			24,029
Accretion of discount and loan fees	(2,763		)	(4,462		)
Provision for loan losses	11,651			6,153
Stock compensation expense	842			571
Deferred tax benefit	(2,322		)	(202		)
Excess tax benefits from stock-based compensation	(253		)	(43		)
Net gain on sale of securities available for sale	(1,660		)	(9,204		)
Net other-than-temporary impairment losses	—			42
Impairment of investment in SFG Finance, LLC.	2,239			—
Loss on premises and equipment	14			4
Loss (gain) on other real estate owned	65			(59		)
Net change in:
Interest receivable	7,752			2,235
Other assets	(2,185		)	(6,796		)
Interest payable	(69		)	(447		)
Other liabilities	4,943			2,661
Loans originated for sale	(533		)	3,105
Net cash provided by operating activities	60,548			49,346

INVESTING ACTIVITIES:
Securities held to maturity:
Purchases	—			(127,479		)
Maturities, calls and principal repayments	18,883			150,737
Securities available for sale:
Purchases	(538,361		)	(1,303,285		)
Sales	529,054			697,458
Maturities, calls and principal repayments	214,296			287,582
Proceeds from redemption of FHLB stock	11,437			5,819
Purchases of FHLB stock and other investments	(1,841		)	(10,711		)
Net loans originated	(142,523		)	(62,287		)
Purchases of premises and equipment	(4,280		)	(3,898		)
Proceeds from sales of premises and equipment	8			—
Proceeds from sales of other real estate owned	275			480
Proceeds from sales of repossessed assets	5,158			3,155
Net cash provided by (used in) investing activities	92,106			(362,429		)

(continued)

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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (continued) (in thousands)

	Nine Months Ended
	September 30,
	2014			2013
FINANCING ACTIVITIES:
Net (decrease) increase in demand and savings accounts	(11,761		)	23,483
Net (decrease) increase in certificates of deposit	(72,566		)	32,966
Net increase (decrease) in federal funds purchased and repurchase agreements	1,257			(126		)
Proceeds from FHLB advances	6,485,983			13,062,172
Repayment of FHLB advances	(6,530,965		)	(12,885,012		)
Excess tax benefits from stock-based awards	253			43
Net issuance of common stock under employee stock plan	1,003			28
Purchase of common stock	—			(1,899		)
Proceeds from the issuance of common stock	797			1,013
Cash dividends paid	(11,865		)	(10,539		)
Net cash (used in) provided by financing activities	(137,864		)	222,129

Net increase (decrease) in cash and cash equivalents	14,790			(90,954		)
Cash and cash equivalents at beginning of period	54,431			150,630
Cash and cash equivalents at end of period	$	69,221		$	59,676

SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:

Interest paid	$	12,766		$	14,062
Income taxes paid	$	4,300		$	2,700

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Loans transferred to other repossessed assets and real estate through foreclosure	$	4,581		$	3,931
Loans transferred to held for sale from held for investment	$	74,752		$	—
Transfer of available for sale securities to held to maturity securities	$	—		$	452,884
Adjustment to pension liability	$	(771	)	$	(2,059	)
5% stock dividend	$	26,065		$	17,060
Unsettled trades to purchase securities	$	(15,224	)	$	(25,414	)
Unsettled trades to sell securities	$	5,120		$	—

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

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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED 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. “SFG” refers to SFG Finance, LLC (formerly Southside Financial Group, LLC), which is a wholly-owned subsidiary of the Bank.

In early 2013, we decided to close Southside Securities, Inc., our introducing broker-dealer. We completed the closure of Southside Securities, Inc. during the second quarter of 2013.

The consolidated balance sheet as of September 30, 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows and notes to the financial statements for the three- and nine-month periods ended September 30, 2014 and 2013 are unaudited; in the opinion of management, all adjustments necessary for a fair statement 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, 2013. For a description of our significant accounting and reporting policies, refer to Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013.

On March 20, 2014, our board of directors declared a 5% stock dividend to common stock shareholders of record as of April 10, 2014, which was paid on May 1, 2014. All share data has been adjusted to give retroactive recognition to stock dividends.

Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (ASU) 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" in April 2014 to change the criteria used for accounting for dispositions and enhance the requirements for reporting a discontinued operation. Dispositions which represent a strategic shift that has or will have a major effect on the entity's financial condition or operating results are required to be reported as discontinued operations. ASU 2014-08 is effective for interim and annual periods beginning after December 15, 2014 with early adoption permitted. We early adopted ASU 2014-08 in September 2014 in connection with the SFG loans transferred to held for sale, which occurred during the third quarter of 2014. The adoption of ASU 2014-08 did not have a material impact on our consolidated financial statements.

The FASB issued ASU 2014-04 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure” in January 2014 to clarify when an entity is considered to have obtained physical possession of a residential real estate property collateralizing a consumer mortgage loan. Upon physical possession (from an in-substance possession or foreclosure) of such real property, an entity is required to reclassify the nonperforming mortgage loan to other real estate owned. The ASU is effective for our interim and annual periods beginning after January 1, 2015. Early adoption is permitted. ASU 2014-04 is not expected to have a material impact on our consolidated financial statements.

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2. Pending Acquisition

On April 28, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with OmniAmerican Bancorp, Inc., a Maryland corporation (“OmniAmerican”) and the holding company for OmniAmerican Bank, a federal savings association based in Fort Worth, Texas. As of September 30, 2014, OmniAmerican had $1.3 billion in assets. The Merger Agreement provides that, subject to the terms and conditions thereof, OmniAmerican will merge with and into the Company, with the Company as the surviving corporation. The merger is expected to close during the fourth quarter of 2014, subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.

Pursuant to the Merger Agreement, each outstanding share of common stock of OmniAmerican will be converted into (a) 0.4459 of a share of common stock of the Company, subject to adjustment pursuant to the terms of the Merger Agreement and (b) $13.125 in cash.

On October 14, 2014, the shareholders of the Company approved the issuance of shares of Company common stock to the stockholders of OmniAmerican, and the stockholders of OmniAmerican approved the merger and also approved, on an advisory basis, certain compensation that will or may become payable to OmniAmerican's named executive officers in connection with the merger.

3. Earnings Per Share

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Basic and Diluted Earnings:
Net income	$	6,097	$	8,893	$	24,778	$	29,003
Basic weighted-average shares outstanding	18,864		18,772		18,838		18,756
Add: Stock options	101		52		94		34
Diluted weighted-average shares outstanding	18,965		18,824		18,932		18,790

Basic Earnings Per Share:	$	0.32	$	0.47	$	1.32	$	1.54

Diluted Earnings Per Share:	$	0.32	$	0.47	$	1.31	$	1.54

For the three- and nine-month periods ended September 30, 2014, there were approximately 3,000 and 14,000 anti-dilutive shares, respectively. For the nine-month period ended September 30, 2013, there were approximately 6,000 anti-dilutive shares. For the three-month period ended September 30, 2013, there were no anti-dilutive shares.

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4. Accumulated Other Comprehensive (Loss) Income

The changes in accumulated other comprehensive income by component are as follows (in thousands):



	Nine Months Ended September 30, 2014
	Unrealized Gains (Losses) on Securities					Pension Plans
	Other			OTTI		Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	(8,656	)	$	—	$	(12	)	$	(12,369	)	$	(21,037	)
Other comprehensive income (loss) before reclassifications	21,906			—		—			—			21,906
Reclassified to income	(1,660		)	—		(10		)	781			(889		)
Income tax benefit (expense)	(7,016		)	—		4			(457		)	(7,469		)
Net current-period other comprehensive income (loss), net of tax	13,230			—		(6		)	324			13,548
Ending balance, net of tax	$	4,574		$	—	$	(18	)	$	(12,045	)	$	(7,489	)


	Three Months Ended September 30, 2014
	Unrealized Gains (Losses) on Securities					Pension Plans
	Other			OTTI		Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	3,281		$	—	$	(17	)	$	(12,030	)	$	(8,766	)
Other comprehensive income (loss) before reclassifications	3,033			—		—			—			3,033
Reclassified to income	(1,151		)	—		(3		)	260			(894		)
Income tax benefit (expense)	(589		)	—		2			(275		)	(862		)
Net current-period other comprehensive income (loss), net of tax	1,293			—		(1		)	(15		)	1,277
Ending balance, net of tax	$	4,574		$	—	$	(18	)	$	(12,045	)	$	(7,489	)

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	Nine Months Ended September 30, 2013
	Unrealized Gains (Losses) on Securities						Pension Plans
	Other			OTTI			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	30,500		$	(1,140	)	$	248		$	(26,670	)	$	2,938
Other comprehensive income (loss) before reclassifications	(46,960		)	177			—			—			(46,783		)
Reclassified to income	(9,204		)	42			(32		)	2,091			(7,103		)
Income tax benefit (expense)	19,657			(76		)	11			(732		)	18,860
Net current-period other comprehensive (loss) income, net of tax	(36,507		)	143			(21		)	1,359			(35,026		)
Ending balance, net of tax	$	(6,007	)	$	(997	)	$	227		$	(25,311	)	$	(32,088	)


	Three Months Ended September 30, 2013
	Unrealized Gains (Losses) on Securities						Pension Plans
	Other			OTTI			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	(4,446	)	$	(1,012	)	$	234		$	(25,764	)	$	(30,988	)
Other comprehensive income (loss) before reclassifications	(2,544		)	23			—			—			(2,521		)
Reclassified to income	142			—			(10		)	697			829
Income tax benefit (expense)	841			(8		)	3			(244		)	592
Net current-period other comprehensive (loss) income, net of tax	(1,561		)	15			(7		)	453			(1,100		)
Ending balance, net of tax	$	(6,007	)	$	(997	)	$	227		$	(25,311	)	$	(32,088	)

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The reclassifications out of accumulated other comprehensive income into net income are presented below (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Unrealized gains and losses on available for sale securities:
Realized net gain (loss) on sale of securities ⁽¹⁾	$	1,151		$	(142	)	$	1,660		$	9,204
Impairment losses⁽²⁾	—			—			—			(42		)
Total before tax	1,151			(142		)	1,660			9,162
Tax (expense) benefit	(386		)	50			(564		)	(3,207		)
Net of tax	$	765		$	(92	)	$	1,096		$	5,955

Amortization of pension plan items:
Net actuarial loss ⁽³⁾	$	(260	)	$	(697	)	$	(781	)	$	(2,091	)
Prior service credit ⁽³⁾	3			10			10			32
Total before tax	(257		)	(687		)	(771		)	(2,059		)
Tax benefit	82			241			262			721
Net of tax	$	(175	)	$	(446	)	$	(509	)	$	(1,338	)
Total reclassifications for the period, net of tax	$	590		$	(538	)	$	587		$	4,617

(1) Listed as Net gain (loss) on sale of securities available for sale on the Statements of Income.

(2)Listed as Net impairment losses recognized in earnings on the Statements of Income.

(3) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost presented in “Note 8 - Employee Benefit Plans.”

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5. Securities

The amortized cost, carrying value, and estimated fair value of investment and mortgage-backed securities as of September 30, 2014 and December 31, 2013 are reflected in the tables below (in thousands):



	September 30, 2014
			Recognized in OCI						Not recognized in OCI
	Amortized		Gross Unrealized		Gross Unrealized		Carrying		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Value		Gains		Losses		Fair Value
Investment Securities:
U.S. Treasuries	$	34,814	$	4	$	47	$	34,771					$	34,771
State and Political Subdivisions	266,781		7,576		1,166		273,191						273,191
Other Stocks and Bonds	13,083		176		—		13,259						13,259
Mortgage-backed Securities: ⁽¹⁾
Residential	568,822		12,919		850		580,891						580,891
Commercial	93,921		389		672		93,638						93,638
Total	$	977,421	$	21,064	$	2,735	$	995,750					$	995,750

HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	394,309	$	5,265	$	10,045	$	389,529	$	9,875	$	1,018	$	398,386
Mortgage-backed Securities: ⁽¹⁾
Residential	55,256		—		75		55,181		3,131		—		58,312
Commercial	207,890		—		6,543		201,347		3,197		2,161		202,383
Total	$	657,455	$	5,265	$	16,663	$	646,057	$	16,203	$	3,179	$	659,081

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	December 31, 2013
			Recognized in OCI						Not recognized in OCI
	Amortized		Gross Unrealized		Gross Unrealized		Carrying		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Value		Gains		Losses		Fair Value
Investment Securities:
U.S. Government Agency Debentures	$	11,612	$	—	$	1,483	$	10,129					$	10,129
State and Political Subdivisions	322,412		4,537		12,875		314,074						314,074
Other Stocks and Bonds	13,074		159		7		13,226						13,226
Mortgage-backed Securities:⁽¹⁾
Residential	760,418		14,940		3,273		772,085						772,085
Commercial	71,262		220		3,309		68,173						68,173
Total	$	1,178,778	$	19,856	$	20,947	$	1,177,687					$	1,177,687

HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	396,549	$	5,925	$	10,922	$	391,552	$	1,207	$	15,376	$	377,383
Mortgage-backed Securities:⁽¹⁾
Residential	74,129		—		99		74,030		3,923		—		77,953
Commercial	208,667		—		7,128		201,539		—		7,656		193,883
Total	$	679,345	$	5,925	$	18,149	$	667,121	$	5,130	$	23,032	$	649,219

(1) All mortgage-backed securities are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

During 2013, the Company transferred certain commercial mortgage-backed securities and state and political subdivision securities from available for sale (“AFS”) to held to maturity (“HTM”). We transferred these securities due to overall balance sheet strategies, and our management has the current intent and ability to hold these securities until maturity. The net unrealized loss on the transferred securities included in accumulated other comprehensive income at the time of transfer will be amortized over the remaining life of the underlying security as an adjustment of the yield on those securities. There were no securities transferred from AFS to HTM during the nine months ended September 30, 2014.

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The following table represents the unrealized loss on securities as of September 30, 2014 and December 31, 2013 (in thousands):



	As of September 30, 2014
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE
Investment Securities:
U.S. Treasuries	$	29,805	$	47	$	—	$	—	$	29,805	$	47
State and Political Subdivisions	27,890		53		59,584		1,113		87,474		1,166
Mortgage-backed Securities:
Residential	67,538		272		20,651		578		88,189		850
Commercial	59,826		388		9,928		284		69,754		672
Total	$	185,059	$	760	$	90,163	$	1,975	$	275,222	$	2,735
HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	5,925	$	38	$	90,535	$	980	$	96,460	$	1,018
Mortgage-backed Securities:
Commercial	54,471		494		58,235		1,667		112,706		2,161
Total	$	60,396	$	532	$	148,770	$	2,647	$	209,166	$	3,179

	As of December 31, 2013
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE
Investment Securities:
U.S. Government Agency Debentures	$	—	$	—	$	10,129	$	1,483	$	10,129	$	1,483
State and Political Subdivisions	191,117		11,757		18,408		1,118		209,525		12,875
Other Stocks and Bonds	2,992		7		—		—		2,992		7
Mortgage-backed Securities:
Residential	126,965		3,266		1,351		7		128,316		3,273
Commercial	65,406		3,309		—		—		65,406		3,309
Total	$	386,480	$	18,339	$	29,888	$	2,608	$	416,368	$	20,947
HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	283,667	$	15,311	$	1,705	$	65	$	285,372	$	15,376
Mortgage-backed Securities:
Commercial	193,883		7,656		—		—		193,883		7,656
Total	$	477,550	$	22,967	$	1,705	$	65	$	479,255	$	23,032

We review securities in an unrealized loss position to evaluate if a classification of other-than-temporarily impaired is warranted. 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. The Company considers an other-than-temporary impairment to have occurred when there is an adverse change in expected cash flows. 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 to other comprehensive income for the noncredit portion.

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The majority of the unrealized loss positions are comprised of highly rated municipal securities and U.S. Agency mortgage- backed securities (“MBS”) where the unrealized loss is a direct result of the change in interest rates and spreads. Based upon the length of time and the extent to which fair value is less than cost, we believe the securities with an unrealized loss are not other-than-temporarily impaired at September 30, 2014.

Prior to December 31, 2013, we held pooled trust preferred securities ("TRUPs"). The turmoil in the capital markets had a significant impact on our estimate of fair value of our TRUPs. These TRUPs were structured products with cash flows dependent upon securities issued by U.S. financial institutions, including banks and insurance companies. Given the facts and circumstances associated with the TRUPs, we reviewed the financial condition of each of the underlying issuing banks within the TRUP collateral pool that had not deferred and defaulted and performed detailed cash flow modeling for each TRUP. During the nine months ended September 30, 2013, the additional write-down recognized in earnings was approximately $42,000.

The following table presents a roll forward of the credit losses recognized in earnings on the TRUPs (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013