Securities

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



	September 30, 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	3,708		21		24		3,705		4,511		39		—		4,550
States and political subdivisions	1,437,164		36,991		2,556		1,471,599		1,994,710		16,821		6,335		2,005,196
Other	1,350		—		1		1,349		1,350		—		—		1,350
Total	$	1,442,222	$	37,012	$	2,581	$	1,476,653	$	2,250,460	$	18,622	$	6,335	$	2,262,747
Available for Sale
U.S. Treasury	$	3,452,882	$	23,796	$	3,050	$	3,473,628	$	4,003,692	$	24,984	$	8,945	$	4,019,731
Residential mortgage-backed securities	658,281		24,218		1,304		681,195		756,072		30,388		1,293		785,167
States and political subdivisions	5,898,098		130,142		40,501		5,987,739		5,403,918		50,101		98,134		5,355,885
Other	42,538		—		—		42,538		42,494		—		—		42,494
Total	$	10,051,799	$	178,156	$	44,855	$	10,185,100	$	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 September 30, 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 67.7% 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 $3.5 billion at September 30, 2017 and $3.9 billion at 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 September 30, 2017 totaled $14.1 million ($9.2 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 September 30, 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
Residential mortgage-backed securities	$	2,212	$	24	$	—	$	—	$	2,212	$	24
States and political subdivisions	5,301		28		74,965		2,528		80,266		2,556
Other	1,349		1		—		—		1,349		1
Total	$	8,862	$	53	$	74,965	$	2,528	$	83,827	$	2,581
Available for Sale
U.S. Treasury	$	840,074	$	3,050	$	—	$	—	$	840,074	$	3,050
Residential mortgage-backed securities	75,441		618		19,458		686		94,899		1,304
States and political subdivisions	986,705		9,713		842,751		30,788		1,829,456		40,501
Total	$	1,902,220	$	13,381	$	862,209	$	31,474	$	2,764,429	$	44,855

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 expect to receive full value for the securities. Furthermore, as of September 30, 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 securities 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, 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 September 30, 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	$	251,739	$	256,716	$	37,321	$	38,127
Due after one year through five years	116,604		121,451		4,056,709		4,085,795
Due after five years through ten years	411,074		420,160		385,649		399,538
Due after ten years	659,097		674,621		4,871,301		4,937,907
Residential mortgage-backed securities	3,708		3,705		658,281		681,195
Equity securities	—		—		42,538		42,538
Total	$	1,442,222	$	1,476,653	$	10,051,799	$	10,185,100

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 September 30,				Nine Months Ended September 30,
	2017		2016		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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Proceeds from sales	$	746,524		$	7,980,049		$	8,993,963		$	9,040,245
Gross realized gains	—			1			—			11,134
Gross realized losses	(4,867		)	(38		)	(4,917		)	(38		)
Tax (expense) benefit of securities gains/losses	1,703			13			1,721			(3,884		)

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Premium amortization	$	(24,586	)	$	(22,762	)	$	(72,733	)	$	(67,321	)
Discount accretion	1,783			2,497			6,278			8,250
Net (premium amortization) discount accretion	$	(22,803	)	$	(20,265	)	$	(66,455	)	$	(59,071	)

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



	September 30, 2017		December 31, 2016
U.S. Treasury	$	18,814	$	16,594
States and political subdivisions	907		109
Total	$	19,721	$	16,703

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



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Net gain on sales transactions	$	414		$	379	$	1,018		$	1,032
Net mark-to-market gains (losses)	(8		)	—		(51		)	(1		)
Net gain (loss) on trading account securities	$	406		$	379	$	967		$	1,031