Edgar Filing: SOUTHSIDE BANCSHARES INC

SBSI 10-Q Doc_06.30.15

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 June 30, 2015



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 August 7, 2015 was 25,357,855 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	41
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	61
ITEM 4. CONTROLS AND PROCEDURES	62
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	63
ITEM 1A. RISK FACTORS	63
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	63
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	63
ITEM 4. MINE SAFETY DISCLOSURES	63
ITEM 5. OTHER INFORMATION	63
ITEM 6. EXHIBITS	63
SIGNATURES	64
EXHIBIT INDEX	65
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)

	June 30, 2015			December 31, 2014
ASSETS
Cash and due from banks	$	50,406		$	64,001
Interest earning deposits	26,623			20,654
Total cash and cash equivalents	77,029			84,655
Investment securities:
Available for sale, at estimated fair value	371,019			306,706
Held to maturity, at carrying value (estimated fair value of $391,191 and $400,248, respectively)	387,212			388,823
Mortgage-backed securities:
Available for sale, at estimated fair value	1,094,802			1,142,002
Held to maturity, at carrying value (estimated fair value of $362,283 and $261,339, respectively)	356,669			253,496
FHLB stock, at cost	37,769			39,942
Other investments	5,350			3,929
Loans held for sale	7,431			2,899
Loans:
Loans	2,179,863			2,181,133
Less: Allowance for loan losses	(16,822		)	(13,292		)
Net Loans	2,163,041			2,167,841
Premises and equipment, net	110,493			112,860
Goodwill	90,571			91,372
Other intangible assets, net	7,654			8,844
Interest receivable	22,666			22,436
Deferred tax asset	18,906			12,707
Unsettled trades to sell securities	—			57,202
Bank owned life insurance	93,673			92,384
Other assets	11,733			19,163
TOTAL ASSETS	$	4,856,018		$	4,807,261
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	715,966		$	661,014
Interest bearing	2,752,717			2,713,403
Total deposits	3,468,683			3,374,417
Short-term obligations:
Federal funds purchased and repurchase agreements	2,084			4,237
FHLB advances	282,699			297,368
Total short-term obligations	284,783			301,605
Long-term obligations:
FHLB advances	572,254			600,052
Long-term debt	60,311			60,311
Total long-term obligations	632,565			660,363
Unsettled trades to purchase securities	3,453			5,982
Other liabilities	34,860			39,651
TOTAL LIABILITIES	4,424,344			4,382,018

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

Shareholders' equity:
Common stock ($1.25 par, 40,000,000 shares authorized, 27,821,074 shares issued at June 30, 2015 and 26,578,127 shares issued at December 31, 2014)	34,776			33,223
Paid-in capital	422,392			389,886
Retained earnings	31,871			55,396
Treasury stock (2,469,638 shares at cost)	(37,692		)	(37,692		)
Accumulated other comprehensive loss	(19,673		)	(15,570		)
TOTAL SHAREHOLDERS' EQUITY	431,674			425,243
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,856,018		$	4,807,261

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				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Interest income
Loans	$	23,887	$	18,305	$	47,803	$	36,668
Investment securities – taxable	459		143		696		266
Investment securities – tax-exempt	5,644		6,021		11,509		11,979
Mortgage-backed securities	7,666		7,557		16,128		15,239
FHLB stock and other investments	65		38		158		108
Other interest earning assets	29		22		63		65
Total interest income	37,750		32,086		76,357		64,325
Interest expense
Deposits	2,493		1,984		5,022		4,100
Short-term obligations	154		56		296		127
Long-term obligations	2,198		2,190		4,343		4,350
Total interest expense	4,845		4,230		9,661		8,577
Net interest income	32,905		27,856		66,696		55,748
Provision for loan losses	268		2,650		4,116		6,783
Net interest income after provision for loan losses	32,637		25,206		62,580		48,965
Noninterest income
Deposit services	4,920		3,794		9,909		7,432
Net gain on sale of securities available for sale	105		498		2,581		509
Gain on sale of loans	822		81		1,199		161
Trust income	820		762		1,713		1,542
Bank owned life insurance income	653		307		1,322		621
Other	1,099		1,073		2,743		2,056
Total noninterest income	8,419		6,515		19,467		12,321
Noninterest expense
Salaries and employee benefits	16,869		13,092		35,068		26,194
Occupancy expense	2,593		1,786		6,052		3,540
Advertising, travel & entertainment	683		605		1,340		1,148
ATM and debit card expense	750		302		1,429		619
Professional fees	793		1,304		1,535		2,231
Software and data processing expense	1,237		486		2,268		987
Telephone and communications	603		320		1,072		598
FDIC insurance	629		434		1,267		882
Other	3,768		2,097		7,603		4,409
Total noninterest expense	27,925		20,426		57,634		40,608

Income before income tax expense	13,131		11,295		24,413		20,678
Income tax expense	1,967		838		3,870		1,997
Net income	$	11,164	$	10,457	$	20,543	$	18,681
Earnings per common share – basic	$	0.44	$	0.53	$	0.81	$	0.94
Earnings per common share – diluted	$	0.44	$	0.53	$	0.81	$	0.94
Dividends paid per common share	$	0.23	$	0.21	$	0.46	$	0.42

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						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Net income	$	11,164		$	10,457		$	20,543		$	18,681
Other comprehensive income:
Net unrealized holding (losses) gains on available for sale securities during the period	(14,915		)	8,308			(5,395		)	18,319
Change in net unrealized loss on securities transferred to held to maturity	244			278			526			554
Reclassification adjustment for net gain on sale of available for sale securities, included in net income	(105		)	(498		)	(2,581		)	(509		)
Amortization of net actuarial loss, included in net periodic benefit cost	614			289			1,145			521
Amortization of prior service credit, included in net periodic benefit cost	(4		)	(4		)	(8		)	(7		)
Other comprehensive (loss) income, before tax	(14,166		)	8,373			(6,313		)	18,878
Income tax benefit (expense) related to other items of comprehensive income	4,959			(2,930		)	2,210			(6,607		)
Other comprehensive (loss) income, net of tax	(9,207		)	5,443			(4,103		)	12,271
Comprehensive income	$	1,957		$	15,900		$	16,440		$	30,952

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, 2013	$	25,483	$	214,091	$	78,673		$	(37,692	)	$	(21,037	)	$	259,518
Net income	—		—		18,681			—			—			18,681
Other comprehensive income	—		—		—			—			12,271			12,271
Issuance of common stock (18,265 shares)	23		500		—			—			—			523
Stock compensation expense	—		577		—			—			—			577
Tax benefits related to stock awards	—		38		—			—			—			38
Net issuance of common stock under employee stock plans	14		158		(103		)	—			—			69
Cash dividends paid on common stock ($0.42 per share)	—		—		(7,717		)	—			—			(7,717		)
Stock dividend declared	1,124		24,941		(26,065		)	—			—			—
Balance at June 30, 2014	$	26,644	$	240,305	$	63,469		$	(37,692	)	$	(8,766	)	$	283,960

Balance at December 31, 2014	$	33,223	$	389,886	$	55,396		$	(37,692	)	$	(15,570	)	$	425,243
Net income	—		—		20,543			—			—			20,543
Other comprehensive loss	—		—		—			—			(4,103		)	(4,103		)
Issuance of common stock (21,499 shares)	26		587		—			—			—			613
Stock compensation expense	—		567		—			—			—			567
Tax benefits related to stock awards	—		32		—			—			—			32
Net issuance of common stock under employee stock plans	15		157		(21		)	—			—			151
Cash dividends paid on common stock ($0.46 per share)	—		—		(11,372		)	—			—			(11,372		)
Stock dividend declared	1,512		31,163		(32,675		)	—			—			—
Balance at June 30, 2015	$	34,776	$	422,392	$	31,871		$	(37,692	)	$	(19,673	)	$	431,674

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)

	Six Months Ended
	June 30,
	2015			2014
OPERATING ACTIVITIES:
Net income	$	20,543		$	18,681
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	4,052			1,615
Amortization of premium	14,286			10,750
Accretion of discount and loan fees	(4,373		)	(1,971		)
Provision for loan losses	4,116			6,783
Stock compensation expense	567			577
Deferred tax benefit	(2,019		)	(1,361		)
Tax benefit related to stock awards	(32		)	(42		)
Net gain on sale of securities available for sale	(2,581		)	(509		)
Net loss (gain) on premises and equipment	137			(7		)
Net loss on other real estate owned	382			65
Net change in:
Interest receivable	(230		)	1,461
Other assets	2,070			(1,459		)
Interest payable	(52		)	(40		)
Other liabilities	(3,601		)	3,356
Loans originated for sale	(4,532		)	(604		)
Net cash provided by operating activities	28,733			37,295

INVESTING ACTIVITIES:
Securities held to maturity:
Purchases	(56,752		)	—
Maturities, calls and principal repayments	11,411			14,797
Securities available for sale:
Purchases	(528,964		)	(327,668		)
Sales	336,136			252,696
Maturities, calls and principal repayments	158,022			153,637
Proceeds from redemption of FHLB stock	5,692			8,938
Purchases of FHLB stock and other investments	(3,594		)	(384		)
Net loans originated	1,235			(49,047		)
Purchases of premises and equipment	(1,828		)	(2,878		)
Proceeds from sales of premises and equipment	6			8
Proceeds from sales of other real estate owned	634			275
Proceeds from sales of repossessed assets	1,619			3,268
Net cash (used in) provided by investing activities	(76,383		)	53,642

(continued)

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

	Six Months Ended
	June 30,
	2015			2014
FINANCING ACTIVITIES:
Net increase in demand and savings accounts	80,540			157,322
Net increase (decrease) in certificates of deposit	14,368			(83,711		)
Net (decrease) increase in federal funds purchased and repurchase agreements	(2,153		)	1,198
Proceeds from FHLB advances	8,447,303			6,267,018
Repayment of FHLB advances	(8,489,458		)	(6,325,689		)
Tax benefit related to stock awards	32			42
Net issuance of common stock under employee stock plan	151			69
Proceeds from the issuance of common stock	613			523
Cash dividends paid	(11,372		)	(7,717		)
Net cash provided by financing activities	40,024			9,055

Net (decrease) increase in cash and cash equivalents	(7,626		)	99,992
Cash and cash equivalents at beginning of period	84,655			54,431
Cash and cash equivalents at end of period	$	77,029		$	154,423

SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:

Interest paid	$	9,713		$	8,617
Income taxes paid	$	2,000		$	3,550

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Loans transferred to other repossessed assets and real estate through foreclosure	$	1,073		$	2,807
Transfer of available for sale securities to held to maturity securities	$	57,724		$	—
Adjustment to pension liability	$	(1,137	)	$	(514	)
5% stock dividend	$	32,675		$	26,065
Unsettled trades to purchase securities	$	(3,453	)	$	(10,269	)
Unsettled trades to sell securities	$	—		$	19,183

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. “OABC” and “Omni” refer to OmniAmerican Bancorp, Inc. “SFG” refers to SFG Finance, LLC (formerly Southside Financial Group, LLC), which was a wholly-owned subsidiary of the Bank and was dissolved in April 2015.

The consolidated balance sheet as of June 30, 2015, 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 six-month periods ended June 30, 2015 and 2014 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.

Certain prior period amounts have been reclassified to conform to current year presentation and had no impact on net income, equity or cash flows.

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, 2014. For a description of our significant accounting and reporting policies, refer to "Note 1- Summary of Significant Accounting and Reporting Policies" in our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014.

On April 13, 2015, our board of directors declared a 5% stock dividend to common stock shareholders of record as of April 27, 2015, which was paid on May 14, 2015. All share data has been adjusted to give retroactive recognition to stock dividends.

Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-04, “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” This update clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of the residential real estate property collateralizing a consumer mortgage loan, upon either: (i) the creditor obtaining legal title to the property upon completion of the foreclosure; or (ii) the borrower conveying all interest in the property to the creditor to satisfy the loan through completion of a deed-in-lieu of foreclosure or through a similar legal agreement. ASU 2014-04 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. The adoption of this guidance did not have a significant impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This update states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update affects entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is not permitted. We are reviewing the potential impact the adoption of this guidance will have on our consolidated financial statements.

In June 2014, the FASB issued ASU 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” This update aligns the accounting for repurchase-to-maturity

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transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements by accounting for these transactions as secured borrowings. This update also requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return of the transferred financial assets throughout the term of the transaction. ASU 2014-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. The adoption of this guidance did not have a significant impact on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-14, “Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.” This update affects creditors that hold government-guaranteed mortgage loans, including those guaranteed by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD), and the U.S. Department of Veterans Affairs (VA). The update requires that, upon foreclosure, a guaranteed mortgage loan be derecognized and a separate other receivable be recognized when specific criteria are met. ASU 2014-14 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. The adoption of this guidance did not have a significant impact on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” ASU 2015-05 affects the accounting for fees paid by a customer in cloud computing arrangements such as (i) software as a service, (ii) platform as a service (iii) infrastructure as a service and (iv) other similar hosting arrangements. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements.

In May 2015, the FASB issued ASU 2015-07, "Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share." ASU 2015-07 eliminates the current requirement to categorize within the fair value hierarchy investments whose fair values are measured at net asset value ("NAV"). Instead, entities will be required to disclose the fair values of such investments so that financial statement users can reconcile amounts reported in the fair value hierarchy table and the amounts reported on the balance sheet. ASU 2015-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements.

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2. Acquisition

On December 17, 2014, we acquired 100% of the outstanding stock of OmniAmerican Bancorp, Inc. and its wholly-owned subsidiary OmniAmerican Bank (collectively, "Omni") headquartered in Fort Worth, Texas. Omni operated 14 banking offices in Fort Worth, Texas and surrounding areas. We acquired Omni to further expand our presence in the growing Fort Worth market. The operations of Omni were merged into ours as of the date of the acquisition.

The Omni acquisition was accounted for using the purchase method of accounting and accordingly, purchased assets, including identifiable intangible assets, and assumed liabilities were recorded at their respective acquisition date fair values. The purchase price allocation remains preliminary and is subject to final determination and valuation of the fair value of assets acquired and liabilities assumed. Subsequent to filing our Annual Report on Form 10-K for the year ended December 31, 2014, we continued to evaluate the assets and liabilities assumed. This evaluation resulted in adjustments to goodwill, consisting primarily of a $1.4 million adjustment to the fair value of Visa Class B stock included in other investments on the consolidated balance sheets, not previously recorded. The impact of the adjustments to goodwill, net of deferred tax, is reflected below. For more information concerning the fair value of the assets acquired and liabilities assumed in relation to the acquisition of Omni, see "Note 2 - Acquisition" in our Annual Report on Form 10-K for the year ended December 31, 2014.

The following table reflects the changes in the carrying amount of our goodwill for the six months ended June 30, 2015 (in thousands):



	Goodwill

Balance as of December 31, 2014	$	91,372
Less: measurement period adjustments	(801		)
Balance as of June 30, 2015	$	90,571

In connection with the integration of our policies and operations, certain loans acquired have been reclassified as of December 31, 2014 to be consistent with our current classification methodology, see “Note 6 - Loans and Allowance for Probable Loan Losses” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Composition of Loans” in this Quarterly Report on Form 10-Q.

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 June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Basic and Diluted Earnings:
Net income	$	11,164	$	10,457	$	20,543	$	18,681
Basic weighted-average shares outstanding	25,337		19,776		25,330		19,769
Add: Stock awards	88		97		84		93
Diluted weighted-average shares outstanding	25,425		19,873		25,414		19,862

Basic Earnings Per Share:	$	0.44	$	0.53	$	0.81	$	0.94

Diluted Earnings Per Share:	$	0.44	$	0.53	$	0.81	$	0.94

For both the three- and six-month periods ended June 30, 2015, there were approximately 12,000 anti-dilutive shares. For the three- and six-month periods ended June 30, 2014, there were approximately 18,000 and 22,000 anti-dilutive shares, respectively.

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4. Accumulated Other Comprehensive (Loss) Income

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



	Three Months Ended June 30, 2015
	Unrealized Gains (Losses) on Securities			Pension Plans
	Other			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	11,000		$	4		$	(21,470	)	$	(10,466	)
Other comprehensive loss before reclassifications	(14,671		)	—			—			(14,671		)
Reclassified to income	(105		)	(4		)	614			505
Income tax benefit (expense)	5,172			2			(215		)	4,959
Net current-period other comprehensive (loss) income, net of tax	(9,604		)	(2		)	399			(9,207		)
Ending balance, net of tax	$	1,396		$	2		$	(21,071	)	$	(19,673	)

	Six Months Ended June 30, 2015
	Unrealized Gains (Losses) on Securities			Pension Plans
	Other			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	6,238		$	7		$	(21,815	)	$	(15,570	)
Other comprehensive loss before reclassifications	(4,869		)	—			—			(4,869		)
Reclassified to income	(2,581		)	(8		)	1,145			(1,444		)
Income tax benefit (expense)	2,608			3			(401		)	2,210
Net current-period other comprehensive (loss) income, net of tax	(4,842		)	(5		)	744			(4,103		)
Ending balance, net of tax	$	1,396		$	2		$	(21,071	)	$	(19,673	)

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	Three Months Ended June 30, 2014
	Unrealized Gains (Losses) on Securities			Pension Plans
	Other			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	(1,977	)	$	(14	)	$	(12,218	)	$	(14,209	)
Other comprehensive income before reclassifications	8,586			—			—			8,586
Reclassified to income	(498		)	(4		)	289			(213		)
Income tax (expense) benefit	(2,830		)	1			(101		)	(2,930		)
Net current-period other comprehensive income (loss), net of tax	5,258			(3		)	188			5,443
Ending balance, net of tax	$	3,281		$	(17	)	$	(12,030	)	$	(8,766	)

	Six Months Ended June 30, 2014
	Unrealized Gains (Losses) on Securities			Pension Plans
	Other			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	(8,656	)	$	(12	)	$	(12,369	)	$	(21,037	)
Other comprehensive income before reclassifications	18,873			—			—			18,873
Reclassified to income	(509		)	(7		)	521			5
Income tax (expense) benefit	(6,427		)	2			(182		)	(6,607		)
Net current-period other comprehensive income (loss), net of tax	11,937			(5		)	339			12,271
Ending balance, net of tax	$	3,281		$	(17	)	$	(12,030	)	$	(8,766	)

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Unrealized gains and losses on available for sale securities:
Realized net gain on sale of securities ⁽¹⁾	$	105		$	498		$	2,581		$	509
Tax expense	(36		)	(174		)	(903		)	(178		)
Net of tax	69			324			1,678			331

Amortization of pension plan:
Net actuarial loss ⁽²⁾	$	(614	)	$	(289	)	$	(1,145	)	$	(521	)
Prior service credit ⁽²⁾	4			4			8			7
Total before tax	(610		)	(285		)	(1,137		)	(514		)
Tax benefit	213			100			398			180
Net of tax	(397		)	(185		)	(739		)	(334		)
Total reclassifications for the period, net of tax	$	(328	)	$	139		$	939		$	(3	)

(1) Listed as net gain on sale of securities available for sale on the consolidated statements of income.

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension 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 June 30, 2015 and December 31, 2014 are reflected in the tables below (in thousands):



	June 30, 2015
			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. Treasury	$	101,239	$	198	$	914	$	100,523	$	—	$	—	$	100,523
U.S. Government Agency Debentures	4,845		1		—		4,846		—		—		4,846
State and Political Subdivisions	243,446		5,156		2,182		246,420		—		—		246,420
Other Stocks and Bonds	13,092		111		—		13,203		—		—		13,203
Other Equity Securities	6,058		—		31		6,027		—		—		6,027
Mortgage-backed Securities: ⁽¹⁾
Residential	713,576		13,622		872		726,326		—		—		726,326
Commercial	372,155		874		4,553		368,476		—		—		368,476
Total	$	1,454,411	$	19,962	$	8,552	$	1,465,821	$	—	$	—	$	1,465,821

HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	391,784	$	5,193	$	9,765	$	387,212	$	6,613	$	2,634	$	391,191
Mortgage-backed Securities: ⁽¹⁾
Residential	41,215		—		61		41,154		2,602		—		43,756
Commercial	320,144		1,315		5,944		315,515		4,989		1,977		318,527
Total	$	753,143	$	6,508	$	15,770	$	743,881	$	14,204	$	4,611	$	753,474

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	December 31, 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. Treasury	$	14,883	$	30	$	7	$	14,906	$	—	$	—	$	14,906
U.S. Government Agency Debentures	4,835		—		7		4,828		—		—		4,828
State and Political Subdivisions	260,535		8,055		906		267,684		—		—		267,684
Other Stocks and Bonds	13,086		153		—		13,239		—		—		13,239
Other Equity Securities	6,061		—		12		6,049		—		—		6,049
Mortgage-backed Securities:⁽¹⁾
Residential	952,481		12,624		807		964,298		—		—		964,298
Commercial	176,112		1,743		151		177,704		—		—		177,704
Total	$	1,427,993	$	22,605	$	1,890	$	1,448,708	$	—	$	—	$	1,448,708

HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	393,525	$	5,168	$	9,870	$	388,823	$	12,181	$	756	$	400,248
Mortgage-backed Securities:⁽¹⁾
Residential	52,287		—		70		52,217		2,871		—		55,088
Commercial	207,624		—		6,345		201,279		5,461		489		206,251
Total	$	653,436	$	5,168	$	16,285	$	642,319	$	20,513	$	1,245	$	661,587

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

From time to time, the Company may transfer securities from available for sale (“AFS”) to held to maturity (“HTM”) due to overall balance sheet strategies. Our management has the current intent and ability to hold the transferred securities until maturity. Any net unrealized gain or 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. AFS securities transferred with losses included in accumulated other comprehensive income continue to be included in management’s assessment for other-than-temporary impairment for each individual security.

During the second quarter of 2015, the Company transferred commercial mortgage-backed securities with a fair value of $57.7 million from AFS to HTM. The unrealized gain on the securities transferred from AFS to HTM was $1.3 million ($864,000, net of tax) at the date of transfer based on the fair value of the securities on the transfer date.

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The following table represents the unrealized loss on securities as of June 30, 2015 and December 31, 2014 (in thousands):



	As of June 30, 2015
	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. Treasury	$	71,085	$	914	$	—	$	—	$	71,085	$	914
State and Political Subdivisions	93,099		1,178		26,796		1,004		119,895		2,182
Other Equity Securities	6,027		31		—		—		6,027		31
Mortgage-backed Securities:
Residential	139,161		849		8,329		23		147,490		872
Commercial	265,182		4,553		—		—		265,182		4,553
Total	$	574,554	$	7,525	$	35,125	$	1,027	$	609,679	$	8,552
HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	119,415	$	986	$	56,247	$	1,648	$	175,662	$	2,634
Mortgage-backed Securities:
Commercial	137,569		1,885		6,516		92		144,085		1,977
Total	$	256,984	$	2,871	$	62,763	$	1,740	$	319,747	$	4,611

	As of December 31, 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. Treasury	$	4,968	$	7	$	—	$	—	$	4,968	$	7
U.S. Government Agency Debentures	4,828		7		—		—		4,828		7
State and Political Subdivisions	28,155		90		44,269		816		72,424		906
Other Equity Securities	6,049		12		—		—		6,049		12
Mortgage-backed Securities:
Residential	347,777		573		27,632		234		375,409		807
Commercial	21,103		54		10,116		97		31,219		151
Total	$	412,880	$	743	$	82,017	$	1,147	$	494,897	$	1,890
HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	7,843	$	31	$	64,946	$	725	$	72,789	$	756
Mortgage-backed Securities:
Commercial	—		—		44,144		489		44,144		489
Total	$	7,843	$	31	$	109,090	$	1,214	$	116,933	$	1,245

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We review those securities in an unrealized loss position for significant differences between fair value and the cost basis to evaluate if a classification of other-than-temporary impairment 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 the noncredit portion to other comprehensive income. 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 do not have other-than-temporary impairment at June 30, 2015.

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. For those securities in an unrealized loss position, 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 security before the anticipated recovery of its amortized cost basis. 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 MBS portfolio with an other-than-temporary impairment at June 30, 2015.

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



	Three Months Ended June 30,
	2015		2014
U.S. Treasury	$	345	$	41
U.S. Government Agency Debentures	32		41
State and Political Subdivisions	5,645		6,031
Other Stocks and Bonds	52		51
Other Equity Securities	29		—
Mortgage-backed Securities	7,666		7,557
Total interest income on securities	$	13,769	$	13,721



	Six Months Ended June 30,
	2015		2014
U.S. Treasury	$	461	$	41
U.S. Government Agency Debentures	64		100
State and Political Subdivisions	11,515		12,001
Other Stocks and Bonds	104		103
Other Equity Securities	61		—
Mortgage-backed Securities	16,128		15,239
Total interest income on securities	$	28,333	$	27,484

Of the approximately $2.6 million in net securities gains from the AFS portfolio for the six months ended June 30, 2015, there were $2.7 million in realized gains and $120,000 in realized losses. Of the $509,000 in net securities gains from the AFS portfolio for the six months ended June 30, 2014, there were $4.6 million in realized gains and $4.1 million in realized losses. There were no sales from the HTM portfolio during the six months ended June 30, 2015 or 2014. We calculate realized gains and losses on sales o