Securities

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



	March 31, 2017								December 31, 2016
	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
Residential mortgage-backed securities	4,313		30		—		4,343		4,511		39		—		4,550
States and political subdivisions	1,634,592		27,531		3,039		1,659,084		1,994,710		16,821		6,335		2,005,196
Other	1,350		—		4		1,346		1,350		—		—		1,350
Total	$	1,640,255	$	27,561	$	3,043	$	1,664,773	$	2,250,460	$	18,622	$	6,335	$	2,262,747
Available for Sale
U.S. Treasury	$	4,203,543	$	25,386	$	7,698	$	4,221,231	$	4,003,692	$	24,984	$	8,945	$	4,019,731
Residential mortgage-backed securities	711,040		27,305		1,426		736,919		756,072		30,388		1,293		785,167
States and political subdivisions	5,624,493		70,205		82,860		5,611,838		5,403,918		50,101		98,134		5,355,885
Other	42,505		—		—		42,505		42,494		—		—		42,494
Total	$	10,581,581	$	122,896	$	91,984	$	10,612,493	$	10,206,176	$	105,473	$	108,372	$	10,203,277

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At March 31, 2017, 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 67.2% are either guaranteed by the Texas Permanent School Fund, which has a “triple A” insurer financial strength rating, or are 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 $3.4 billion at March 31, 2017 and $3.9 billion and December 31, 2016.

During the fourth quarter of 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 remaining transferred securities included in accumulated other comprehensive income in the accompanying balance sheet as of March 31, 2017 totaled $21.5 million ($14.0 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.

Unrealized Losses. As of March 31, 2017, 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
States and political subdivisions	$	27,969	$	249	$	120,214	$	2,790	$	148,183	$	3,039
Other	1,346		4		—		—		1,346		4
Total	$	29,315	$	253	$	120,214	$	2,790	$	149,529	$	3,043
Available for Sale
U.S. Treasury	$	1,621,498	$	7,698	$	—	$	—	$	1,621,498	$	7,698
Residential mortgage-backed securities	61,669		1,166		$	6,200	260		67,869		1,426
States and political subdivisions	2,182,114		82,860		—		—		2,182,114		82,860
Total	$	3,865,281	$	91,724	$	6,200	$	260	$	3,871,481	$	91,984

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 March 31, 2017, 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 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 March 31, 2017, 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 March 31, 2017 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	$	327,143	$	335,353	$	50,830	$	51,606
Due after one year through five years	166,880		174,676		4,793,171		4,819,082
Due after five years through ten years	349,195		353,119		366,528		376,888
Due after ten years	792,724		797,282		4,617,507		4,585,493
Residential mortgage-backed securities	4,313		4,343		711,040		736,919
Equity securities	—		—		42,505		42,505
Total	$	1,640,255	$	1,664,773	$	10,581,581	$	10,612,493

Sales of Securities. As more fully discussed in our 2016 Form 10-K, during 2016, we sold certain securities issued by municipalities that, based upon our internal credit analysis, had experienced significant deterioration in creditworthiness. Some of the securities we sold 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:



	Three Months Ended March 31,
	2017		2016
Proceeds from sales	$	—	$	135,610
Amortized cost	—		131,840
Gross realized gains	—		3,770
Gross realized losses	—		—
Tax (expense) benefit of securities gains/losses	—		(1,319		)

Sales of securities available for sale were as follows:



	Three Months Ended March 31,
	2017		2016
Proceeds from sales	$	—	$	1,060,196
Gross realized gains	—		11,133
Gross realized losses	—		—
Tax (expense) benefit of securities gains/losses	—		(3,897		)

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



	Three Months Ended March 31,
	2017			2016
Premium amortization	$	(24,028	)	$	(22,340	)
Discount accretion	2,390			2,615
Net (premium amortization) discount accretion	$	(21,638	)	$	(19,725	)

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



	March 31, 2017		December 31, 2016
U.S. Treasury	$	17,094	$	16,594
States and political subdivisions	—		109
Total	$	17,094	$	16,703

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



	Three Months Ended March 31,
	2017		2016
Net gain on sales transactions	$	311	$	302
Net mark-to-market gains (losses)	13		1
Net gain (loss) on trading account securities	$	324	$	303