Edgar Filing: SOUTHSIDE BANCSHARES INC

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, 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 November 4, 2015 was 25,372,528 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	43
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	66
ITEM 4. CONTROLS AND PROCEDURES	67
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	68
ITEM 1A. RISK FACTORS	68
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	68
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	68
ITEM 4. MINE SAFETY DISCLOSURES	68
ITEM 5. OTHER INFORMATION	68
ITEM 6. EXHIBITS	68
SIGNATURES	69
EXHIBIT INDEX	70
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, 2015			December 31, 2014
ASSETS
Cash and due from banks	$	52,311		$	64,001
Interest earning deposits	19,583			20,654
Total cash and cash equivalents	71,894			84,655
Investment securities:
Available for sale, at estimated fair value	301,627			306,706
Held to maturity, at carrying value (estimated fair value of $395,401 and $400,248, respectively)	386,385			388,823
Mortgage-backed securities:
Available for sale, at estimated fair value	1,073,368			1,142,002
Held to maturity, at carrying value (estimated fair value of $397,572 and $261,339, respectively)	385,529			253,496
FHLB stock, at cost	43,446			39,942
Other investments	5,446			3,929
Loans held for sale	4,883			2,899
Loans:
Loans	2,239,146			2,181,133
Less: Allowance for loan losses	(18,402		)	(13,292		)
Net Loans	2,220,744			2,167,841
Premises and equipment, net	109,087			112,860
Goodwill	91,520			91,372
Other intangible assets, net	7,090			8,844
Interest receivable	17,143			22,436
Deferred tax asset	14,952			12,707
Unsettled trades to sell securities	—			57,202
Bank owned life insurance	94,303			92,384
Other assets	10,058			19,163
TOTAL ASSETS	$	4,837,475		$	4,807,261
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	681,618		$	661,014
Interest bearing	2,646,259			2,713,403
Total deposits	3,327,877			3,374,417
Short-term obligations:
Federal funds purchased and repurchase agreements	2,270			4,237
FHLB advances	442,738			297,368
Total short-term obligations	445,008			301,605
Long-term obligations:
FHLB advances	498,556			600,052
Long-term debt	60,311			60,311
Total long-term obligations	558,867			660,363
Unsettled trades to purchase securities	21,783			5,982
Other liabilities	36,792			39,651
TOTAL LIABILITIES	4,390,327			4,382,018

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

Shareholders' equity:
Common stock ($1.25 par, 40,000,000 shares authorized, 27,842,166 shares issued at September 30, 2015 and 26,578,127 shares issued at December 31, 2014)	34,803			33,223
Paid-in capital	423,167			389,886
Retained earnings	37,783			55,396
Treasury stock (2,469,638 shares at cost)	(37,692		)	(37,692		)
Accumulated other comprehensive loss	(10,913		)	(15,570		)
TOTAL SHAREHOLDERS' EQUITY	447,148			425,243
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,837,475		$	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					Nine Months Ended
	September 30,					September 30,
	2015		2014			2015		2014
Interest income
Loans	$	23,787	$	17,168		$	71,590	$	53,836
Investment securities – taxable	475		210			1,171		476
Investment securities – tax-exempt	5,551		6,325			17,060		18,304
Mortgage-backed securities	8,318		6,070			24,446		21,309
FHLB stock and other investments	65		36			223		144
Other interest earning assets	15		31			78		96
Total interest income	38,211		29,840			114,568		94,165
Interest expense
Deposits	2,485		1,876			7,507		5,976
Short-term obligations	354		226			650		353
Long-term obligations	2,087		2,018			6,430		6,368
Total interest expense	4,926		4,120			14,587		12,697
Net interest income	33,285		25,720			99,981		81,468
Provision for loan losses	2,276		4,868			6,392		11,651
Net interest income after provision for loan losses	31,009		20,852			93,589		69,817
Noninterest income
Deposit services	5,213		3,860			15,122		11,292
Net gain on sale of securities available for sale	875		1,151			3,456		1,660
Impairment of investment in SFG Finance, LLC	—		(2,239		)	—		(2,239		)
Gain on sale of loans	305		108			1,504		269
Trust income	835		798			2,548		2,340
Bank owned life insurance income	661		320			1,983		941
Other	1,227		1,021			3,970		3,077
Total noninterest income	9,116		5,019			28,583		17,340
Noninterest expense
Salaries and employee benefits	15,733		12,798			50,801		38,992
Occupancy expense	3,071		1,773			9,123		5,313
Advertising, travel & entertainment	642		489			1,982		1,637
ATM and debit card expense	617		327			2,046		946
Professional fees	825		1,132			2,360		3,363
Software and data processing expense	819		543			3,087		1,530
Telephone and communications	534		292			1,606		890
FDIC insurance	624		437			1,891		1,319
Other	3,527		2,226			11,130		6,635
Total noninterest expense	26,392		20,017			84,026		60,625

Income before income tax expense	13,733		5,854			38,146		26,532
Income tax expense (benefit)	1,971		(243		)	5,841		1,754
Net income	$	11,762	$	6,097		$	32,305	$	24,778
Earnings per common share – basic	$	0.46	$	0.31		$	1.27	$	1.25
Earnings per common share – diluted	$	0.46	$	0.31		$	1.27	$	1.25
Dividends paid per common share	$	0.23	$	0.22		$	0.69	$	0.64

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,
	2015			2014			2015			2014
Net income	$	11,762		$	6,097		$	32,305		$	24,778
Other comprehensive income:
Net unrealized holding gains on available for sale securities during the period	13,446			2,751			8,051			21,070
Change in net unrealized loss on securities transferred to held to maturity	220			282			746			836
Reclassification adjustment for net gain on sale of available for sale securities, included in net income	(875		)	(1,151		)	(3,456		)	(1,660		)
Amortization of net actuarial loss, included in net periodic benefit cost	691			260			1,836			781
Amortization of prior service credit, included in net periodic benefit cost	(4		)	(3		)	(12		)	(10		)
Other comprehensive income, before tax	13,478			2,139			7,165			21,017
Income tax expense related to other items of comprehensive income	(4,718		)	(862		)	(2,508		)	(7,469		)
Other comprehensive income, net of tax	8,760			1,277			4,657			13,548
Comprehensive income	$	20,522		$	7,374		$	36,962		$	38,326

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	—		—		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 plans	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

Balance at December 31, 2014	$	33,223	$	389,886	$	55,396		$	(37,692	)	$	(15,570	)	$	425,243
Net income	—		—		32,305			—			—			32,305
Other comprehensive income	—		—		—			—			4,657			4,657
Issuance of common stock (33,948 shares)	42		894		—			—			—			936
Stock compensation expense	—		981		—			—			—			981
Tax benefits related to stock awards	—		61		—			—			—			61
Net issuance of common stock under employee stock plans	26		182		(39		)	—			—			169
Cash dividends paid on common stock ($0.69 per share)	—		—		(17,204		)	—			—			(17,204		)
Stock dividend declared	1,512		31,163		(32,675		)	—			—			—
Balance at September 30, 2015	$	34,803	$	423,167	$	37,783		$	(37,692	)	$	(10,913	)	$	447,148

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,
	2015			2014
OPERATING ACTIVITIES:
Net income	$	32,305		$	24,778
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	6,467			2,591
Securities premium amortization (discount accretion), net	16,895			14,099
Accretion of loan (discounts) premium amortization, net	(2,065		)	(1,404		)
Provision for loan losses	6,392			11,651
Stock compensation expense	981			842
Deferred tax benefit	(2,714		)	(2,322		)
Tax benefit related to stock awards	(61		)	(253		)
Net gain on sale of securities available for sale	(3,456		)	(1,660		)
Impairment of investment in SFG Finance, LLC.	—			2,239
Net loss on premises and equipment	211			14
Net loss on other real estate owned	387			65
Net change in:
Interest receivable	5,293			7,752
Other assets	2,124			(2,185		)
Interest payable	28			(69		)
Other liabilities	(1,064		)	4,943
Loans originated for sale	(1,984		)	(533		)
Net cash provided by operating activities	59,739			60,548

INVESTING ACTIVITIES:
Securities held to maturity:
Purchases	(80,714		)	—
Maturities, calls and principal repayments	17,994			18,883
Securities available for sale:
Purchases	(697,879		)	(538,361		)
Sales	543,456			529,054
Maturities, calls and principal repayments	226,125			214,296
Proceeds from redemption of FHLB stock	8,603			11,437
Purchases of FHLB stock and other investments	(12,248		)	(1,841		)
Net loans originated	(58,658		)	(142,523		)
Purchases of premises and equipment	(2,524		)	(4,280		)
Proceeds from sales of premises and equipment	10			8
Proceeds from sales of other real estate owned	634			275
Proceeds from sales of repossessed assets	2,008			5,158
Net cash (used in) provided by investing activities	(53,193		)	92,106

(continued)

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

	Nine Months Ended
	September 30,
	2015			2014
FINANCING ACTIVITIES:
Net change in deposits	(45,588		)	(84,327		)
Net (decrease) increase in federal funds purchased and repurchase agreements	(1,967		)	1,257
Proceeds from FHLB advances	13,860,663			6,485,983
Repayment of FHLB advances	(13,816,377		)	(6,530,965		)
Tax benefit related to stock awards	61			253
Net issuance of common stock under employee stock plan	169			1,003
Proceeds from the issuance of common stock	936			797
Cash dividends paid	(17,204		)	(11,865		)
Net cash used in financing activities	(19,307		)	(137,864		)

Net (decrease) increase in cash and cash equivalents	(12,761		)	14,790
Cash and cash equivalents at beginning of period	84,655			54,431
Cash and cash equivalents at end of period	$	71,894		$	69,221

SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:

Interest paid	$	14,558		$	12,766
Income taxes paid	$	5,250		$	4,300

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Loans transferred to other repossessed assets and real estate through foreclosure	$	1,453		$	4,581
Loans transferred to held for sale from held for investment	$	—		$	74,752
Transfer of available for sale securities to held to maturity securities	$	57,724		$	—
Adjustment to pension liability	$	(1,824	)	$	(771	)
5% stock dividend	$	32,675		$	26,065
Unsettled trades to purchase securities	$	(21,783	)	$	(15,224	)
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. Summary of Significant Accounting and Reporting Policies

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. and its subsidiaries. “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 September 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 nine-month periods ended September 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.

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 this stock dividend.

Goodwill

The Company evaluates goodwill for impairment on an annual basis or on an interim basis if events or changes in circumstances indicate that the fair value of the asset has decreased below its carrying value. During the three months ended September 30, 2015, the Company changed its annual goodwill impairment testing date from December 31 to October 1. The Company believes this new date is preferable as it provides additional time prior to the Company's year-end to complete the annual goodwill impairment test, especially given recent acquisitions and potential future growth. This change does not accelerate, delay, avoid, or cause an impairment charge, nor does this change result in adjustments to previously issued financial statements. There were no impairments of goodwill during the three and nine months ended September 30, 2015 or 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.

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

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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. In August 2015, FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which effectively delayed the adoption date by one year. We are required to adopt ASU 2014-09 in the first quarter of fiscal 2018 and early adoption is permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. We have not yet selected a transition method nor have we determined the impact of adoption 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 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 related to the Omni acquisition 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, which upon the filing of the short-period Federal Income Tax return for Omni and its subsidiaries and other immaterial adjustments was partially offset by a $1.0 million decrease to taxes receivable included in other assets on the consolidated balance sheets. 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 nine months ended September 30, 2015 (in thousands):



	Goodwill

Balance as of December 31, 2014	$	91,372
Plus: measurement period adjustments	148
Balance as of September 30, 2015	$	91,520

In connection with the integration of Omni into our 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.

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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,
	2015		2014		2015		2014
Basic and Diluted Earnings:
Net income	$	11,762	$	6,097	$	32,305	$	24,778
Basic weighted-average shares outstanding	25,360		19,809		25,340		19,782
Add: Stock awards	85		106		84		99
Diluted weighted-average shares outstanding	25,445		19,915		25,424		19,881

Basic Earnings Per Share:	$	0.46	$	0.31	$	1.27	$	1.25

Diluted Earnings Per Share:	$	0.46	$	0.31	$	1.27	$	1.25

For the three- and nine-month periods ended September 30, 2015, there were approximately 58,000 and 27,000 anti-dilutive shares, respectively. For the three- and nine-month periods ended September 30, 2014, there were approximately 3,000 and 15,000 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 September 30, 2015
	Unrealized Gains (Losses) on Securities			Pension Plans
	Other			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	1,396		$	2		$	(21,071	)	$	(19,673	)
Other comprehensive income before reclassifications	13,666			—			—			13,666
Reclassified to income	(875		)	(4		)	691			(188		)
Income tax (expense) benefit	(4,477		)	1			(242		)	(4,718		)
Net current-period other comprehensive income (loss), net of tax	8,314			(3		)	449			8,760
Ending balance, net of tax	$	9,710		$	(1	)	$	(20,622	)	$	(10,913	)

	Nine Months Ended September 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 income before reclassifications	8,797			—						8,797
Reclassified to income	(3,456		)	(12		)	1,836			(1,632		)
Income tax (expense) benefit	(1,869		)	4			(643		)	(2,508		)
Net current-period other comprehensive income (loss), net of tax	3,472			(8		)	1,193			4,657
Ending balance, net of tax	$	9,710		$	(1	)	$	(20,622	)	$	(10,913	)

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	Three Months Ended September 30, 2014
	Unrealized Gains (Losses) on Securities			Pension Plans
	Other			Net Prior Service (Cost) Credit			Net Gain (Loss)			Total
Beginning balance, net of tax	$	3,281		$	(17	)	$	(12,030	)	$	(8,766	)
Other comprehensive income before reclassifications	3,033			—			—			3,033
Reclassified to income	(1,151		)	(3		)	260			(894		)
Income tax (expense) benefit	(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	)

	Nine Months Ended September 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	21,906			—			—			21,906
Reclassified to income	(1,660		)	(10		)	781			(889		)
Income tax (expense) benefit	(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	)

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Unrealized gains and losses on available for sale securities:
Realized net gain on sale of securities ⁽¹⁾	$	875		$	1,151		$	3,456		$	1,660
Tax expense	(307		)	(386		)	(1,210		)	(564		)
Net of tax	568			765			2,246			1,096

Amortization of pension plan:
Net actuarial loss ⁽²⁾	$	(691	)	$	(260	)	$	(1,836	)	$	(781	)
Prior service credit ⁽²⁾	4			3			12			10
Total before tax	(687		)	(257		)	(1,824		)	(771		)
Tax benefit	241			82			639			262
Net of tax	(446		)	(175		)	(1,185		)	(509		)
Total reclassifications for the period, net of tax	$	122		$	590		$	1,061		$	587

(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, gross unrealized gains and losses, carrying value, and estimated fair value of investment and mortgage-backed securities as of September 30, 2015 and December 31, 2014 are reflected in the tables below (in thousands):



	September 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	$	9,971	$	115	$	—	$	10,086	$	—	$	—	$	10,086
U.S. Government Agency Debentures	4,849		95		—		4,944		—		—		4,944
State and Political Subdivisions	261,987		7,113		1,449		267,651		—		—		267,651
Other Stocks and Bonds	12,769		94		—		12,863		—		—		12,863
Other Equity Securities	6,055		28		—		6,083		—		—		6,083
Mortgage-backed Securities: ⁽¹⁾
Residential	612,400		13,880		157		626,123		—		—		626,123
Commercial	442,983		4,880		618		447,245		—		—		447,245
Total	$	1,351,014	$	26,205	$	2,224	$	1,374,995	$	—	$	—	$	1,374,995

HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	390,904	$	4,913	$	9,432	$	386,385	$	10,515	$	1,499	$	395,401
Mortgage-backed Securities: ⁽¹⁾
Residential	34,803		—		55		34,748		2,415		—		37,163
Commercial	355,249		1,274		5,742		350,781		9,699		71		360,409
Total	$	780,956	$	6,187	$	15,229	$	771,914	$	22,629	$	1,570	$	792,973

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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 September 30, 2015 and December 31, 2014 (in thousands):



	As of September 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:
State and Political Subdivisions	$	45,805	$	611	$	26,843	$	838	$	72,648	$	1,449
Mortgage-backed Securities:
Residential	63,028		147		3,413		10		66,441		157
Commercial	115,819		618		—		—		115,819		618
Total	$	224,652	$	1,376	$	30,256	$	848	$	254,908	$	2,224
HELD TO MATURITY
Investment Securities:
State and Political Subdivisions	$	38,890	$	307	$	60,179	$	1,192	$	99,069	$	1,499
Mortgage-backed Securities:
Commercial	9,956		68		2,560		3		12,516		71
Total	$	48,846	$	375	$	62,739	$	1,195	$	111,585	$	1,570

	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 or 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 that none of the securities with an unrealized loss have other-than-temporary impairment at September 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 securities before the anticipated recovery of their 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 September 30, 2015.

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



	Three Months Ended September 30,
	2015		2014
U.S. Treasury	$	360	$	150
U.S. Government Agency Debentures	33		—
State and Political Subdivisions	5,550		6,332
Other Stocks and Bonds	54		53
Other Equity Securities	29		—
Mortgage-backed Securities	8,318		6,070
Total interest income on securities	$	14,344	$	12,605



	Nine Months Ended September 30,
	2015		2014
U.S. Treasury	$	821	$	191
U.S. Government Agency Debentures	97		100
State and Political Subdivisions	17,065		18,333
Other Stocks and Bonds	158		156
Other Equity Securities	90		—
Mortgage-backed Securities	24,446		21,309
Total interest income on securities	$	42,677