Securities

Securities. Year-end securities held to maturity and available for sale consisted of the following:



	2016								2015
	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	$	249,889	$	1,762	$	—	$	251,651	$	249,441	$	7,776	$	—	$	257,217
Residential mortgage-backed securities	4,511		39		—		4,550		6,456		63		4		6,515
States and political subdivisions	1,994,710		16,821		6,335		2,005,196		2,405,762		46,003		6,149		2,445,616
Other	1,350		—		—		1,350		1,350		—		13		1,337
Total	$	2,250,460	$	18,622	$	6,335	$	2,262,747	$	2,663,009	$	53,842	$	6,166	$	2,710,685
Available for Sale:
U.S. Treasury	$	4,003,692	$	24,984	$	8,945	$	4,019,731	$	3,980,986	$	22,041	$	8,507	$	3,994,520
Residential mortgage-backed securities	756,072		30,388		1,293		785,167		1,000,024		42,142		734		1,041,432
States and political subdivisions	5,403,918		50,101		98,134		5,355,885		3,996,113		133,305		1,459		4,127,959
Other	42,494		—		—		42,494		42,447		—		—		42,447
Total	$	10,206,176	$	105,473	$	108,372	$	10,203,277	$	9,019,570	$	197,488	$	10,700	$	9,206,358

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At December 31, 2016, approximately 98.1% of the securities in our municipal bond portfolio were issued by political subdivisions or agencies within the State of Texas, of which approximately 69.4% 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 table above. 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 $3.9 billion at both December 31, 2016 and 2015.

During 2012, we 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 totaled $27.7 million ($18.0 million, net of tax) at December 31, 2016 and $60.3 million ($39.2 million, net of tax) at December 31, 2015. 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.

Unrealized Losses. Year-end 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
2016
Held to Maturity:
States and political subdivisions	$	425,896	$	2,596	$	183,245	$	3,739	$	609,141	$	6,335
Total	$	425,896	$	2,596	$	183,245	$	3,739	$	609,141	$	6,335
Available for Sale:
U.S. Treasury	$	1,421,216	$	8,945	$	—	$	—	$	1,421,216	$	8,945
Residential mortgage-backed securities	81,442		1,031		6,413		262		87,855		1,293
States and political subdivisions	2,695,997		98,134		—		—		2,695,997		98,134
Total	$	4,198,655	$	108,110	$	6,413	$	262	$	4,205,068	$	108,372



	Less than 12 Months				More than 12 Months				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
2015
Held to Maturity:
Residential mortgage-backed securities	$	900	$	4	$	—	$	—	$	900	$	4
States and political subdivisions	146,854		1,325		202,423		4,824		349,277		6,149
Other	1,337		13		—		—		1,337		13
Total	$	149,091	$	1,342	$	202,423	$	4,824	$	351,514	$	6,166
Available for Sale:
U.S. Treasury	$	886,087	$	8,507	$	—	$	—	$	886,087	$	8,507
Residential mortgage-backed securities	21,392		212		17,781		522		39,173		734
States and political subdivisions	120,782		1,237		18,485		222		139,267		1,459
Total	$	1,028,261	$	9,956	$	36,266	$	744	$	1,064,527	$	10,700

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 our ability to retain our 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 we will receive full value for the securities. Furthermore, as of December 31, 2016, 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 we 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 December 31, 2016, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in our consolidated income statement.

Contractual Maturities. The amortized cost and estimated fair value of securities, excluding trading securities, at December 31, 2016 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	$	738,493	$	745,518	$	90,632	$	91,753
Due after one year through five years	297,244		311,767		4,632,290		4,649,251
Due after five years through ten years	312,357		311,980		348,731		357,762
Due after ten years	897,855		888,932		4,335,957		4,276,850
Residential mortgage-backed securities	4,511		4,550		756,072		785,167
Equity securities	—		—		42,494		42,494
Total	$	2,250,460	$	2,262,747	$	10,206,176	$	10,203,277

Sales of Securities. During 2016, we sold certain securities issued by municipalities that, based upon our internal credit analysis, had experienced significant deterioration in creditworthiness. The risk exposure presented by these municipalities had increased beyond acceptable levels and we determined that it was reasonably possible that all amounts due would not be collected. In the first case, our credit analysis determined that most of the affected municipalities had been significantly impacted by the significant decline in market oil prices due to the fact that their tax bases are heavily reliant on the energy industry relative to other sectors of the economy. Specifically, the revenues of these municipalities had been adversely impacted by the sustained low-level of oil prices. Additionally, some of these municipalities had already been downgraded or had been put on credit watch and were subsequently downgraded by various credit rating agencies. In the second case, we sold certain securities related to a municipality that was unrelated to a reliance on the energy industry. This municipality had experienced significant deterioration in creditworthiness as a result of the emergence of significant funding obligations which resulted in credit downgrades. In both cases, some of the securities we sold to were classified as held to maturity prior to their sale. Despite their classification as held to maturity, we believe the sale of these securities was merited and permissible under the applicable accounting guidelines because of the significant deterioration in the creditworthiness of the issuers.

Sales of securities held to maturity were as follows:



	2016			2015		2014
Proceeds from sales	$	136,719		$	—	$	—
Amortized cost	132,974			—		—
Gross realized gains	3,770			—		—
Gross realized losses	(25		)	—		—
Tax expense related to securities gains/losses	(1,311		)	—		—

Sales of securities available for sale were as follows:



	2016			2015			2014
Proceeds from sales	$	14,847,380		$	12,683,169		$	12,151,287
Gross realized gains	13,289			228			39
Gross realized losses	(2,059		)	(159		)	(1		)
Tax expense related to securities gains/losses	(3,931		)	(24		)	(13		)

Premiums and Discounts. Premium amortization and discount accretion included in interest income on securities was as follows:



	2016			2015			2014
Premium amortization	$	(90,782	)	$	(84,467	)	$	(68,070	)
Discount accretion	11,077			10,682			6,802
Net (premium amortization) discount accretion	$	(79,705	)	$	(73,785	)	$	(61,268	)

Trading Account Securities. Year-end trading account securities, at estimated fair value, were as follows:



	2016		2015
U.S. Treasury	$	16,594	$	16,443
States and political subdivisions	109		136
Total	$	16,703	$	16,579

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



	2016			2015			2014
Net gain on sales transactions	$	1,236		$	1,109		$	829
Net mark-to-market gains (losses)	(157		)	(53		)	—
Net gain on trading account securities	$	1,079		$	1,056		$	829