Securities

A summary of the amortized cost and estimated fair value of securities, excluding trading securities, is presented below.



	September 30, 2014								December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Held to Maturity
U.S. Treasury	$	248,902	$	15,844	$	—	$	264,746	$	248,592	$	20,139	$	—	$	268,731
Residential mortgage-backed securities	8,445		67		20		8,492		9,674		89		143		9,620
States and political subdivisions	2,683,315		28,822		15,940		2,696,197		2,880,482		7,691		137,861		2,750,312
Other	1,350		—		—		1,350		1,000		—		—		1,000
Total	$	2,942,012	$	44,733	$	15,960	$	2,970,785	$	3,139,748	$	27,919	$	138,004	$	3,029,663
Available for Sale
U.S. Treasury	$	2,892,208	$	16,937	$	889	$	2,908,256	$	2,522,159	$	18,395	$	—	$	2,540,554
U.S. Government agencies/corporations	—		—		—		—		54,024		—		44		53,980
Residential mortgage-backed securities	1,415,433		68,839		661		1,483,611		1,710,664		66,791		1,439		1,776,016
States and political subdivisions	2,388,740		88,047		—		2,476,787		1,476,316		20,090		7,492		1,488,914
Other	42,998		—		—		42,998		35,972		—		—		35,972
Total	$	6,739,379	$	173,823	$	1,550	$	6,911,652	$	5,799,135	$	105,276	$	8,975	$	5,895,436

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At September 30, 2014, approximately 97.0% of the securities in the Corporation’s municipal bond portfolio were issued by political subdivisions or agencies within the State of Texas, of which approximately 62.3% are either guaranteed by the Texas Permanent School Fund, which has a “triple A” insurer financial strength rating, or secured by U.S. Treasury securities via defeasance of the debt by the issuers. Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are carried at cost and are reported as other available for sale securities in the above table. The carrying value of securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law was $2.7 billion at September 30, 2014 and $3.0 billion and December 31, 2013.

During the fourth quarter of 2012, the Corporation reclassified certain securities from available for sale to held to maturity. The securities had an aggregate fair value of $2.3 billion with an aggregate net unrealized gain of $165.7 million ($107.7 million, net of tax) on the date of the transfer. The net unamortized, unrealized gain on the transferred securities included in accumulated other comprehensive income in the accompanying balance sheet as of September 30, 2014 totaled $102.2 million ($66.4 million, net of tax). This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.

As of September 30, 2014, securities, with unrealized losses segregated by length of impairment, were as follows:



	Less than 12 Months				More than 12 Months				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Held to Maturity
Residential mortgage-backed securities	$	3,242	$	20	$	—	$	—	$	3,242	$	20
States and political subdivisions	87,246		277		985,618		15,663		1,072,864		15,940
Total	$	90,488	$	297	$	985,618	$	15,663	$	1,076,106	$	15,960
Available for Sale
U.S. Treasury	$	247,480	$	889	$	—	$	—	$	247,480	$	889
Residential mortgage-backed securities	7,423		54		17,105		607		24,528		661
Total	$	254,903	$	943	$	17,105	$	607	$	272,008	$	1,550

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.

Management has the ability and intent to hold the securities classified as held to maturity in the table above until they mature, at which time the Corporation will receive full value for the securities. Furthermore, as of September 30, 2014, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that the Corporation will not have to sell any such securities before a recovery of cost. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2014, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Corporation’s consolidated income statement.

The amortized cost and estimated fair value of securities, excluding trading securities, at September 30, 2014 are presented below by contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage-backed securities and equity securities are shown separately since they are not due at a single maturity date.



	Held to Maturity				Available for Sale
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	124,693	$	127,767	$	787,678	$	791,624
Due after one year through five years	498,817		530,551		1,792,593		1,806,723
Due after five years through ten years	186,813		186,085		1,459,094		1,488,506
Due after ten years	2,123,244		2,117,890		1,241,583		1,298,190
Residential mortgage-backed securities	8,445		8,492		1,415,433		1,483,611
Equity securities	—		—		42,998		42,998
Total	$	2,942,012	$	2,970,785	$	6,739,379	$	6,911,652

Sales of securities available for sale were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Proceeds from sales	$	3,649,954		$	1,474		$	3,651,982		$	8,497,061
Gross realized gains	33			—			36			11
Gross realized losses	—			(14		)	(1		)	(14		)
Tax (expense) benefit of securities gains/losses	(11		)	5			(12		)	1

Purchase premiums and discounts on securities are amortized or accreted to interest income over the expected lives of the securities using the interest method with a constant effective yield. Expectations related to prepayments are considered in the calculation of the constant effective yield necessary to apply the interest method for mortgage-backed securities and certain pools of municipal securities. Premium amortization and discount accretion for mortgage-backed securities and pools of municipal securities is adjusted for changes in prepayment estimates, as applicable. Premium amortization and discount accretion included in interest income on securities was as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Premium amortization	(17,471		)	(13,526		)	(48,862		)	(34,942		)
Discount accretion	$	1,865		$	1,596		$	4,897		$	4,888
Net (premium amortization) discount accretion	$	(15,606	)	$	(11,930	)	$	(43,965	)	$	(30,054	)

Trading account securities, at estimated fair value, were as follows:



	September 30, 2014		December 31, 2013
U.S. Treasury	$	15,689	$	15,389
States and political subdivisions	863		1,009
Total	$	16,552	$	16,398

Net gains and losses on trading account securities were as follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014		2013
Net gain on sales transactions	$	167	$	108		$	660	$	684
Net mark-to-market gains (losses)	13		(29		)	10		(409		)
Net gain (loss) on trading account securities	$	180	$	79		$	670	$	275