Edgar Filing: SOUTHSIDE BANCSHARES INC

SBSI 9.30.2013 10-Q

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, 2013



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, 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. (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 October 31, 2013 was 17,900,001 shares.

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	38
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, 2013			December 31, 2012
ASSETS
Cash and due from banks	$	51,823		$	47,312
Interest earning deposits	7,853			103,318
Total cash and cash equivalents	59,676			150,630
Investment securities:
Available for sale, at estimated fair value	363,640			617,707
Held to maturity, at amortized cost	391,242			1,009
Mortgage-backed and related securities:
Available for sale, at estimated fair value	861,845			806,360
Held to maturity, at amortized cost	293,712			245,538
FHLB stock, at cost	32,781			27,889
Other investments, at cost	2,064			2,064
Loans held for sale	496			3,601
Loans:
Loans	1,317,568			1,262,977
Less: Allowance for loan losses	(19,356		)	(20,585		)
Net Loans	1,298,212			1,242,392
Premises and equipment, net	51,213			50,075
Goodwill	22,034			22,034
Other intangible assets, net	211			324
Interest receivable	16,701			18,936
Deferred tax asset	22,361			4,120
Other assets	51,786			44,724
TOTAL ASSETS	$	3,467,974		$	3,237,403
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	557,996		$	595,093
Interest bearing	1,850,370			1,756,804
Total deposits	2,408,366			2,351,897
Short-term obligations:
Federal funds purchased and repurchase agreements	858			984
FHLB advances	229,103			150,985
Other obligations	219			219
Total short-term obligations	230,180			152,188
Long-term obligations:
FHLB advances	468,139			369,097
Long-term debt	60,311			60,311
Total long-term obligations	528,450			429,408
Unsettled trades to purchase securities	25,414			10,047
Other liabilities	36,256			36,100
TOTAL LIABILITIES	3,228,666			2,979,640

Off-Balance-Sheet Arrangements, Commitments and Contingencies (Note 10)

Shareholders' equity:
Common stock ($1.25 par, 40,000,000 shares authorized, 20,360,959 shares issued at September 30, 2013 and 19,446,187 shares issued at December 31, 2012)	25,451			24,308
Paid-in capital	213,242			195,602
Retained earnings	69,252			70,708
Treasury stock (2,469,638 and 2,379,338 shares at cost)	(37,692		)	(35,793		)
Accumulated other comprehensive (loss) income	(30,945		)	2,938
TOTAL SHAREHOLDERS' EQUITY	239,308			257,763
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,467,974		$	3,237,403

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

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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,
	2013			2012			2013			2012
Interest income
Loans	$	18,625		$	17,847		$	54,680		$	52,143
Investment securities – taxable	139			22			672			73
Investment securities – tax-exempt	5,556			3,839			14,391			9,467
Mortgage-backed and related securities	5,069			6,695			13,685			27,730
FHLB stock and other investments	36			57			135			190
Other interest earning assets	15			4			93			19
Total interest income	29,440			28,464			83,656			89,622
Interest expense
Deposits	2,011			2,455			6,082			8,615
Short-term obligations	116			1,551			1,755			4,877
Long-term obligations	2,043			2,450			5,778			7,581
Total interest expense	4,170			6,456			13,615			21,073
Net interest income	25,270			22,008			70,041			68,549
Provision for loan losses	3,640			3,265			6,153			8,491
Net interest income after provision for loan losses	21,630			18,743			63,888			60,058
Noninterest income
Deposit services	4,005			3,907			11,662			11,493
(Loss) gain on sale of securities available for sale	(3		)	4,302			9,414			13,571
Loss on sale of securities carried at fair value through income	—			—			—			(498		)

Total other-than-temporary impairment losses	—			—			(52		)	(21		)
Portion of loss recognized in other comprehensive income (loss) (before taxes)	—			—			10			(160		)
Net impairment losses recognized in earnings	—			—			(42		)	(181		)

FHLB advance option impairment charges	—			(195		)	—			(2,031		)
Gain on sale of loans	130			314			690			743
Trust income	759			705			2,212			2,051
Bank owned life insurance income	327			260			845			780
Other	1,334			1,205			3,178			3,439
Total noninterest income	6,552			10,498			27,959			29,367
Noninterest expense
Salaries and employee benefits	13,167			11,919			39,777			35,894
Occupancy expense	1,922			1,980			5,690			5,589
Advertising, travel & entertainment	599			606			1,896			1,813
ATM and debit card expense	310			251			994			817
Director fees	263			261			800			802
Supplies	173			178			592			559
Professional fees	730			781			1,932			2,084
Telephone and communications	383			416			1,218			1,267
FDIC insurance	433			429			1,263			1,313
FHLB prepayment fees	—			—			988			—
Other	2,284			2,255			6,599			6,556
Total noninterest expense	20,264			19,076			61,749			56,694

Income before income tax expense	7,918			10,165			30,098			32,731
Provision for income tax expense	304			1,558			3,887			6,256
Net income	$	7,614		$	8,607		$	26,211		$	26,475
Earnings per common share – basic	$	0.43		$	0.47		$	1.47		$	1.45
Earnings per common share – diluted	$	0.42		$	0.47		$	1.46		$	1.45
Dividends paid per common share	$	0.20		$	0.20		$	0.60		$	0.58

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 (LOSS) (UNAUDITED) (in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Net income	$	7,614		$	8,607		$	26,211		$	26,475
Other comprehensive income (loss):
Unrealized holding (losses) gains on available for sale securities during the period	(1,960		)	15,469			(44,841		)	11,425
Change in net unrealized (gain) loss on securities transferred to held to maturity	67			—			37			—
Noncredit portion of other-than-temporary impairment losses on the AFS securities	—			—			(10		)	181
Reclassification adjustment for loss (gain) on sale of available for sale securities, included in net income	3			(4,302		)	(9,414		)	(13,571		)
Reclassification of other-than-temporary impairment charges on available for sale securities, included in net income	—			—			42			181
Amortization of net actuarial loss, included in net periodic benefit cost	697			505			2,091			1,516
Amortization of prior service credit, included in net periodic benefit cost	(10		)	(10		)	(32		)	(32		)
Other comprehensive (loss) income, before tax	(1,203		)	11,662			(52,127		)	(300		)
Income tax benefit related to other items of comprehensive income	420			(4,081		)	18,244			106
Other comprehensive (loss) income, net of tax	(783		)	7,581			(33,883		)	(194		)
Comprehensive income (loss)	$	6,831		$	16,188		$	(7,672	)	$	26,281

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 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 Equity
Balance at December 31, 2011	$	23,146	$	176,791	$	72,646		$	(28,377	)	$	14,721		$	258,927
Net Income					26,475									26,475
Other comprehensive loss											(194		)	(194		)
Issuance of common stock (45,620 shares)	57		906											963
Stock compensation expense			303											303
Tax benefits related to stock awards			11											11
Net issuance of common stock under employee stock plans	10		49		(63		)							(4		)
Cash dividends paid on common stock ($0.58 per share)					(9,908		)							(9,908		)
Stock dividend declared	1,034		16,425		(17,459		)							—
Balance at September 30, 2012	$	24,247	$	194,485	$	71,691		$	(28,377	)	$	14,527		$	276,573

Balance at December 31, 2012	$	24,308	$	195,602	$	70,708		$	(35,793	)	$	2,938		$	257,763
Net Income					26,211									26,211
Other comprehensive loss											(33,883		)	(33,883		)
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 plans	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	$	69,252		$	(37,692	)	$	(30,945	)	$	239,308

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,
	2013			2012
OPERATING ACTIVITIES:
Net income	$	26,211		$	26,475
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	2,756			2,706
Amortization of premium	27,203			35,354
Accretion of discount and loan fees	(4,705		)	(3,611		)
Provision for loan losses	6,153			8,491
Stock compensation expense	571			303
Deferred tax expense (benefit)	3			(1,988		)
Excess tax benefits from stock-based compensation	(43		)	(11		)
Loss on sale of securities carried at fair value through income	—			498
Gain on sale of securities available for sale	(9,414		)	(13,571		)
Net other-than-temporary impairment losses	42			181
FHLB advance option impairment charges	—			2,031
Loss on sale of assets	4			—
Impairment on other real estate owned	—			28
Gain on sale of other real estate owned	(59		)	(2		)
Net change in:
Interest receivable	2,235			4,698
Other assets	(6,930		)	(1,171		)
Interest payable	(447		)	(559		)
Other liabilities	2,661			(1,683		)
Loans held for sale	3,105			2,394
Net cash provided by operating activities	49,346			60,563

INVESTING ACTIVITIES:
Securities held to maturity:
Purchases	(127,479		)	—
Maturities, calls and principal repayments	150,737			67,162
Securities available for sale:
Purchases	(1,303,285		)	(1,446,425		)
Sales	697,458			745,085
Maturities, calls and principal repayments	287,582			279,995
Securities carried at fair value through income:
Purchases	—			(57,606		)
Sales	—			675,255
Maturities, calls and principal repayments	—			25,279
Proceeds from redemption of FHLB stock	5,819			12,266
Purchases of FHLB stock and other investments	(10,711		)	(12,336		)
Net increase in loans	(62,287		)	(142,126		)
Purchases of premises and equipment	(3,898		)	(2,036		)
Proceeds from sales of other real estate owned	480			401
Proceeds from sales of repossessed assets	3,155			3,416
Net cash (used in) provided by investing activities	(362,429		)	148,330

(continued)

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

	Nine Months Ended
	September 30,
	2013			2012
FINANCING ACTIVITIES:
Net increase in demand and savings accounts	23,483			157,650
Net increase (decrease) in certificates of deposit	32,966			(178,046		)
Net decrease in federal funds purchased and repurchase agreements	(126		)	(1,477		)
Proceeds from FHLB advances	13,062,172			12,560,845
Repayment of FHLB advances	(12,885,012		)	(12,650,197		)
Excess tax benefits from stock-based awards	43			11
Net issuance of common stock under employee stock plan	28			—
Purchase of common stock	(1,899		)	—
Proceeds from the issuance of common stock	1,013			963
Cash dividends paid	(10,539		)	(9,908		)
Net cash provided by (used in) financing activities	222,129			(120,159		)

Net (decrease) increase in cash and cash equivalents	(90,954		)	88,734
Cash and cash equivalents at beginning of period	150,630			43,238
Cash and cash equivalents at end of period	$	59,676		$	131,972


SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:

Interest paid	$	14,062		$	21,633
Income taxes paid	$	2,700		$	11,200

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Loans transferred to other repossessed assets and real estate through foreclosure	$	3,931		$	4,028
Transfer of available for sale securities to held to maturity securities	$	452,884		$	—
Adjustment to pension liability	$	(2,059	)	$	(1,484	)
5% stock dividend	$	17,060		$	17,459
Unsettled trades to purchase securities	$	(25,414	)	$	(17,326	)

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

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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. “FWBS” refers to Fort Worth Bancshares, Inc., a bank holding company acquired by Southside. “SFG” refers to SFG Finance, LLC (formerly Southside Financial Group, LLC) which is a wholly-owned subsidiary of the Bank as of July 15, 2011.

As mentioned in our 10-K for the year ended December 31, 2012, we made a decision to close our broker-dealer subsidiary, Southside Securities, Inc. The closure was completed during the second quarter of 2013.

The consolidated balance sheet as of September 30, 2013, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows and notes to the financial statements for the three- and nine-month periods ended September 30, 2013 and 2012 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, 2012. 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, 2012.

On March 28, 2013 our board of directors declared a 5% stock dividend to common stock shareholders of record as of April 18, 2013, which was paid on May 9, 2013. All share data has been adjusted to give retroactive recognition to stock dividends.

Subsequent Event

During the three months ended December 31, 2013, we will record approximately $2.0 million of income related to death benefit proceeds.

Accounting Pronouncements

We adopted an accounting standard on January 1, 2013, requiring an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. The adoption of this standard did not have a significant impact on our consolidated financial statements.

In addition, we adopted an accounting standard on January 1, 2013, requiring entities to provide information about the significant amounts reclassified out of accumulated other comprehensive income by component. This update also requires companies to disclose the income statement line items impacted by any significant reclassifications. The adoption of this standard as disclosed in “Note 3 - Accumulated Other Comprehensive Income (Loss),” did not have a significant impact on our consolidated financial statements.

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2. 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,
	2013		2012		2013		2012
Basic and Diluted Earnings:
Net income	$	7,614	$	8,607	$	26,211	$	26,475
Basic weighted-average shares outstanding	17,876		18,233		17,860		18,211
Add: Stock options	49		15		32		12
Diluted weighted-average shares outstanding	17,925		18,248		17,892		18,223

Basic Earnings Per Share:	$	0.43	$	0.47	$	1.47	$	1.45

Diluted Earnings Per Share:	$	0.42	$	0.47	$	1.46	$	1.45

There were no anti-dilutive shares for the three month period ended September 30, 2013. For the nine month period ended September 30, 2013, there were approximately 6,000 anti-dilutive shares. For the three- and nine-month periods ended September 30, 2012, there were approximately 17,000 and 10,000 anti-dilutive shares, respectively.

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3. Accumulated Other Comprehensive (Loss) Income

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



	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 (loss) income before reclassifications	(45,028		)	177			—			—			(44,851		)
Reclassified from accumulated other comprehensive income ⁽¹⁾	(9,377		)	42			(32		)	2,091			(7,276		)
Income tax benefit (expense)	19,041			(76		)	11			(732		)	18,244
Net current-period other comprehensive (loss) income, net of tax	(35,364		)	143			(21		)	1,359			(33,883		)
Ending balance, net of tax	$	(4,864	)	$	(997	)	$	227		$	(25,311	)	$	(30,945	)



	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	$	(3,620	)	$	(1,012	)	$	234		$	(25,764	)	$	(30,162	)
Other comprehensive (loss) income before reclassifications	(1,983		)	23			—			—			(1,960		)
Reclassified from accumulated other comprehensive income ⁽¹⁾	70			—			(10		)	697			757
Income tax benefit (expense)	669			(8		)	3			(244		)	420
Net current-period other comprehensive (loss) income, net of tax	(1,244		)	15			(7		)	453			(783		)
Ending balance, net of tax	$	(4,864	)	$	(997	)	$	227		$	(25,311	)	$	(30,945	)

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	Nine Months Ended September 30, 2012
	Unrealized Gains (Losses) on Securities						Pension Plans
	Other			OTTI			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	37,271		$	(1,577	)	$	276		$	(21,249	)	$	14,721
Other comprehensive income before reclassifications	11,402			204			—			—			11,606
Reclassified from accumulated other comprehensive income	(13,571		)	181			(32		)	1,516			(11,906		)
Income tax benefit (expense)	760			(135		)	11			(530		)	106
Net current-period other comprehensive (loss) income, net of tax	(1,409		)	250			(21		)	986			(194		)
Ending balance, net of tax	$	35,862		$	(1,327	)	$	255		$	(20,263	)	$	14,527



	Three Months Ended September 30, 2012
	Unrealized Gains (Losses) on Securities						Pension Plans
	Other			OTTI			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	28,655		$	(1,379	)	$	262		$	(20,592	)	$	6,946
Other comprehensive income before reclassifications	15,389			80			—			—			15,469
Reclassified from accumulated other comprehensive income	(4,302		)	—			(10		)	505			(3,807		)
Income tax benefit (expense)	(3,880		)	(28		)	3			(176		)	(4,081		)
Net current-period other comprehensive (loss) income, net of tax	7,207			52			(7		)	329			7,581
Ending balance, net of tax	$	35,862		$	(1,327	)	$	255		$	(20,263	)	$	14,527

(1) Includes realized gains on sale of securities and amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity.

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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,
	2013			2012			2013			2012
Unrealized holding gains arising during period:
Realized (loss) gain on sale of securities ⁽¹⁾	$	(3	)	$	4,302		$	9,414		$	13,571
Change in unrealized loss on securities transferred to held to maturity ⁽²⁾	(67		)	—			(37		)	—
Impairment losses⁽³⁾	—			—			(42		)	(181		)
Total before tax	(70		)	4,302			9,335			13,390
Tax benefit (expense)	24			(1,506		)	(3,268		)	(4,687		)
Net of tax	$	(46	)	$	2,796		$	6,067		$	8,703

Amortization of pension plan items:
Net loss ⁽⁴⁾	$	(697	)	$	(505	)	$	(2,091	)	$	(1,516	)
Prior service credit ⁽⁴⁾	10			10			32			32
Total before tax	(687		)	(495		)	(2,059		)	(1,484		)
Tax benefit (expense)	241			173			721			519
Net of tax	$	(446	)	$	(322	)	$	(1,338	)	$	(965	)
Total reclassifications for the period, net of tax	$	(492	)	$	2,474		$	4,729		$	7,738

(1) Listed as Gain on sale of securities available for sale on the Statements of Income.

(2) Included in Interest income on the Statements of Income.

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

(4) These accumulated other comprehensive income components are included in the computation of net periodic pension cost presented in “Note 7 - Employee Benefit Plans.”

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4. Securities

The amortized cost and estimated fair value of investment and mortgage-backed securities as of September 30, 2013 and December 31, 2012, are reflected in the tables below (in thousands):



	September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Estimated Fair Value
AVAILABLE FOR SALE	Amortized Cost		Gross Unrealized Gains		OTTI		Other		Estimated Fair Value
Investment Securities:
U.S. Government Agency Debentures	$	12,624	$	—	$	—	$	1,449	$	11,175
State and Political Subdivisions	343,955		5,954		—		11,777		338,132
Other Stocks and Bonds	15,773		145		1,535		50		14,333
Mortgage-backed Securities: ⁽¹⁾
Residential	783,586		16,141		—		2,322		797,405
Commercial	67,102		257		—		2,919		64,440
Total	$	1,223,040	$	22,497	$	1,535	$	18,517	$	1,225,485



	September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Estimated Fair Value
HELD TO MATURITY	Amortized Cost		Gross Unrealized Gains		OTTI		Other		Estimated Fair Value
Investment Securities:
State and Political Subdivisions	$	391,242	$	1,672	$	—	$	13,144	$	379,770
Mortgage-backed Securities: ⁽¹⁾
Residential	92,127		4,581		—		—		96,708
Commercial	201,585		711		—		6,153		196,143
Total	$	684,954	$	6,964	$	—	$	19,297	$	672,621



	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Estimated Fair Value
AVAILABLE FOR SALE	Amortized Cost		Gross Unrealized Gains		OTTI		Other		Estimated Fair Value
Investment Securities:
U.S. Government Agency Debentures	$	61,461	$	—	$	—	$	598	$	60,863
State and Political Subdivisions	515,116		30,888		—		316		545,688
Other Stocks and Bonds	12,807		104		1,754		1		11,156
Mortgage-backed Securities: ⁽¹⁾
Residential	789,356		18,003		—		999		806,360
Total	$	1,378,740	$	48,995	$	1,754	$	1,914	$	1,424,067

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	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Estimated Fair Value
HELD TO MATURITY	Amortized Cost		Gross Unrealized Gains		OTTI		Other		Estimated Fair Value
Investment Securities:
State and Political Subdivisions	$	1,009	$	128	$	—	$	—	$	1,137
Mortgage-backed Securities: ⁽¹⁾
Residential	245,538		8,770		—		47		254,261
Total	$	246,547	$	8,898	$	—	$	47	$	255,398

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

Securities carried at fair value through income were as follows (in thousands):



	At September 30,		At December 31,		At December 31,
	2013		2012		2011
Mortgage-backed Securities:
U.S. Government Agencies	$	—	$	—	$	30,413
Government-Sponsored Enterprises	—		—		617,346
Total	$	—	$	—	$	647,759

Net gains and losses on securities carried at fair value through income were as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net (loss) gain on sales transactions	$	—	$	—	$	—	$	(498	)
Net mark-to-market gains	—		—		—		—
Net (loss) gain on securities carried at fair value through income	$	—	$	—	$	—	$	(498	)

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The following table represents the unrealized loss on securities for the nine months ended September 30, 2013 and year ended December 31, 2012 (in thousands):



	As of September 30, 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	$	11,175	$	1,449	$	—	$	—	$	11,175	$	1,449
State and Political Subdivisions	212,259		11,777		—		—		212,259		11,777
Other Stocks and Bonds	5,264		50		1,167		1,535		6,431		1,585
Mortgage-backed Securities:
Residential	113,952		1,976		25,938		346		139,890		2,322
Commercial	61,621		2,919		—		—		61,621		2,919
Total	$	404,271	$	18,171	$	27,105	$	1,881	$	431,376	$	20,052
HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	285,797	$	13,144	$	—	$	—	$	285,797	$	13,144
Mortgage-backed Securities:
Commercial	109,084		6,153		—		—		109,084		6,153
Total	$	394,881	$	19,297	$	—	$	—	$	394,881	$	19,297

	As of December 31, 2012
	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	$	60,863	$	598	$	—	$	—	$	60,863	$	598
State and Political Subdivisions	49,548		316		—		—		49,548		316
Other Stocks and Bonds	4,856		1		990		1,754		5,846		1,755
Mortgage-backed Securities:
Residential	260,909		967		3,122		32		264,031		999
Total	$	376,176	$	1,882	$	4,112	$	1,786	$	380,288	$	3,668
HELD TO MATURITY
Mortgage-backed Securities:
Residential	$	3,251	$	47	$	—	$	—	$	3,251	$	47
Total	$	3,251	$	47	$	—	$	—	$	3,251	$	47

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When it is determined that a decline in fair value of Held to Maturity (“HTM”) and Available for Sale (“AFS”) securities are 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. In estimating other-than-temporary impairment losses, management considers, among other things, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) whether we have a current intent to sell the security and whether it is not more likely than not that we will be required to sell the security before the anticipated recovery of their amortized cost basis.

At September 30, 2013, we have in AFS Other Stocks and Bonds, $2.7 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 September 30, 2013 for the TRUPs is approximately $1.2 million 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 September 30, 2013 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 September 30, 2013. 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, was estimated at $3.3 million at September 30, 2013 and December 31, 2012. The noncredit charge to other comprehensive income was estimated at $1.5 million and $1.8 million at September 30, 2013 and December 31, 2012, respectively. For the nine months ended September 30, 2013 and 2012, the additional write-down recognized in earnings was approximately $42,000 and $181,000, respectively. 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 structural nuances of each TRUP. 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 at September 30, 2013 (in thousands):



TRUP	Par		Credit Loss		Amortized Cost		Fair Value		Tranche	Credit Rating
1	$	2,000	$	1,298	$	702	$	27	C1	Ca
2	2,000		550		1,450		741		B1	C
3	2,000		1,450		550		399		B2	C
	$	6,000	$	3,298	$	2,702	$	1,167

The following tables present 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		2012		2013		2012
Balance, beginning of period	$	3,298	$	3,256	$	3,256	$	3,075
Additions for credit losses recognized on debt securities that had previously incurred impairment losses	—		—		42		181
Balance, end of period	$	3,298	$	3,256	$	3,298	$	3,256

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Interest income recognized on securities for the periods presented (in thousands):



	Nine Months Ended September 30,
	2013		2012
U.S. Treasury	$	17	$	—
U.S. Government Agency Debentures	378		—
State and Political Subdivisions	14,516		9,489