Interest-bearing Time Deposits in Banks and Securities

6 Months Ended

Jun. 30, 2019

Cash and Cash Equivalents [Abstract]

Interest-bearing Time Deposits in Banks and Securities

Note 4 – Interest-bearing Time Deposits in Banks and Securities

Interest-bearing time deposits in banks totaled $960,000, $1,458,000 and $1,458,000 at June 30, 2019 and 2018 and December 31, 2018, respectively, and have original maturities ranging from one to three months.

Management classifies debt and equity securities as held-to-maturity, available-for-sale, or trading based on its intent. Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income using the interest method. Debt securities not classified as held-to-maturity or trading are classified as available-for-sale and recorded at fair value, with all unrealized gains and unrealized losses judged to be temporary, net of deferred income taxes, excluded from earnings and reported in the consolidated statements of comprehensive earnings. Available-for-sale debt securities that have unrealized gains and losses are excluded from earnings and reported net of tax in accumulated other comprehensive income until realized. Declines in the fair value of available-for-sale debt securities below their cost that are deemed to be other-than-temporary are reflected in earnings as a realized loss if there is no ability or intent to hold to recovery. If the Company does not intend to sell and will not be required to sell prior to recovery of its amortized cost basis, only the credit component of the impairment is reflected in earnings as a realized loss with the noncredit portion recognized in other comprehensive income. In estimating other-than-temporary impairment losses, we consider (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) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. 

Effective January 1, 2018, in accordance with ASU 2016-01 (see note 13), increases or decreases in the fair value of equity securities are recorded in earnings. Prior to January 1, 2018, such increases or decreases were recorded similar to increases or decreases in debt securities.

The Company records its available-for-sale and equity securities portfolio at fair value. Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security.

When the fair value of a debt security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other-than-temporary impairment condition exists. Available-for-sale and held-to-maturity debt securities are analyzed quarterly for possible other-than-temporary impairment. The analysis considers (i) whether we have the intent to sell our debt securities prior to recovery and/or maturity, (ii) whether it is more likely than not that we will have to sell our debt securities prior to recovery and/or maturity, (iii) the length of time and extent to which the fair value has been less than amortized cost, and (iv) the financial condition of the issuer. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the debt security may be different than previously estimated, which could have a material effect on the Company’s results of operations and financial condition.

The Company’s investment portfolio consists of U.S. Treasury securities, obligations of state and political subdivisions, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds. Pricing for such securities is generally readily available and transparent in the market. The Company utilizes independent third-party pricing services to value its investment securities, which the Company reviews as well as the underlying pricing methodologies for reasonableness and to ensure such prices are aligned with pricing matrices. The Company validates prices supplied by the independent pricing services by comparison to prices obtained from other third-party sources on a quarterly basis.

A summary of the Company’s available-for-sale securities follows (in thousands):

	June 30, 2019
	Amortized Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
U.S. Treasury securities	$	9,984	$	36	$	—		$	10,020
Obligations of states and political subdivisions		1,103,682		53,593		(61	)		1,157,214
Corporate bonds and other		4,643		51		—			4,694
Residential mortgage-backed securities		1,579,544		19,732		(3,101	)		1,596,175
Commercial mortgage-backed securities		484,919		6,929		(459	)		491,389
Total securities available-for-sale	$	3,182,772	$	80,341	$	(3,621	)	$	3,259,492

	June 30, 2018
	Amortized Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
U.S. Treasury Securities	$	9,957	$	8	$	—		$	9,965
Obligations of U.S. government sponsored enterprises and agencies		304		—		(1	)		303
Obligations of states and political subdivisions		1,257,547		29,924		(2,696	)		1,284,775
Corporate bonds and other		4,861		—		(79	)		4,782
Residential mortgage-backed securities		1,464,345		1,630		(30,718	)		1,435,257
Commercial mortgage-backed securities		471,398		—		(8,913	)		462,485
Total securities available-for-sale	$	3,208,412	$	31,562	$	(42,407	)	$	3,197,567
	December 31, 2018
	Amortized Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
U.S. Treasury securities	$	9,970	$	—	$	(8	)	$	9,962
Obligations of U.S. government sponsored enterprises and agencies		301		—		—			301
Obligations of states and political subdivisions		1,229,828		30,013		(1,970	)		1,257,871
Corporate bonds and other		4,875		—		(77	)		4,798
Residential mortgage-backed securities		1,472,228		3,928		(21,611	)		1,454,545
Commercial mortgage-backed securities		436,366		670		(5,736	)		431,300
Total securities available-for-sale	$	3,153,568	$	34,611	$	(29,402	)	$	3,158,777

The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at June 30, 2019 were computed by using scheduled amortization of balances and historical prepayment rates. At June 30, 2019 and 2018, and December 31, 2018, the Company did not hold CMOs that entail higher risks than standard mortgage-backed securities.

The amortized cost and estimated fair value of available-for-sale securities at June 30, 2019 by contractual and expected maturity, are shown below (in thousands):

	Amortized Cost Basis		Estimated Fair Value
Due within one year	$	165,912	$	167,217
Due after one year through five years		483,916		506,941
Due after five years through ten years		466,755		495,582
Due after ten years		1,726		2,188
Mortgage-backed securities		2,064,463		2,087,564
Total	$	3,182,772	$	3,259,492

The following tables disclose the Company’s investment securities that have been in a continuous unrealized-loss position for less than 12 months and for 12 or more months (in thousands):

	Less than 12 Months				12 Months or Longer				Total
June 30, 2019	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of states and political subdivisions	$	—	$	—	$	9,777	$	61	$	9,777	$	61
Residential mortgage-backed securities		17,594		77		404,946		3,024		422,540		3,101
Commercial mortgage-backed securities		—		—		134,881		459		134,881		459
Total	$	17,594	$	77	$	549,604	$	3,544	$	567,198	$	3,621
	Less than 12 Months				12 Months or Longer				Total
June 30, 2018	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of U.S. government sponsored enterprises and agencies	$	303	$	1	$	—	$	—	$	303	$	1
Obligations of states and political subdivisions		136,950		1,122		43,239		1,574		180,189		2,696
Corporate bonds and other		4,617		76		233		3		4,850		79
Residential mortgage-backed securities		1,073,327		21,838		227,155		8,880		1,300,482		30,718
Commercial mortgage-backed securities		379,201		7,477		83,285		1,436		462,486		8,913
Total	$	1,594,398	$	30,514	$	353,912	$	11,893	$	1,948,310	$	42,407
	Less than 12 Months				12 Months or Longer				Total
December 31, 2018	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Treasury securities	$	9,962	$	8	$	—	$	—	$	9,962	$	8
Obligations of U.S. government sponsored enterprises and agencies		—		—		301		—		301		—
Obligations of state and political subdivisions		27,489		107		114,461		1,863		141,950		1,970
Corporate bonds and other		4,348		68		450		9		4,798		77
Residential mortgage-backed securities		119,584		483		922,289		21,128		1,041,873		21,611
Commercial mortgage-backed securities		1,994		5		343,015		5,731		345,009		5,736
Total	$	163,377	$	671	$	1,380,516	$	28,731	$	1,543,893	$	29,402

The number of investments in an unrealized loss position totaled 109 at June 30, 2019. We do not believe these unrealized losses are “other-than-temporary” as (i) we do not have the intent to sell our securities prior to recovery and/or maturity and (ii) it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. In making this determination, we also consider the length of time and extent to which fair value has been less than cost and the financial condition of the issuer. The unrealized losses noted are interest rate related due to the level of interest rates at June 30, 2019 compared to the time of purchase. We have reviewed the ratings of the issuers and have not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies. At June 30, 2019, 84.95% of our available-for-sale securities that are obligations of states and political subdivisions were issued within the State of Texas, of which 33.55% are guaranteed by the Texas Permanent School Fund.

At June 30, 2019, $2,137,620,000 of the Company’s securities were pledged as collateral for public or trust fund deposits, repurchase agreements and for other purposes required or permitted by law.

During the three months ended June 30, 2019 and 2018, sales of investment securities that were classified as available-for-sale totaled $65,821,000 and $57,680,000, respectively. Gross realized gains from security sales during the second quarter of 2019 and 2018 totaled $689,000 and $287,000, respectively. Gross realized losses from security sales during second quarter of 2019 and 2018 totaled $13,000 and $220,000, respectively.

During the six months ended June 30, 2019 and 2018, sales of investment securities classified as available-for-sale totaled $66,052,000 and $149,125,000, respectively. Gross realized gains from security sales during the six-month periods ended June 30, 2019 and 2018 totaled $693,000 and $1,529,000, respectively. Gross realized losses from security sales during the six-month periods ended June 30, 2019 and 2018 totaled $17,000 and $241,000, respectively.

The specific identification method was used to determine cost in order to compute the realized gains and losses.