Securities

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



	2018								2017
	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:
Residential mortgage-backed securities	$	2,737	$	8	$	85	$	2,660	$	3,610	$	15	$	38	$	3,587
States and political subdivisions	1,101,820		11,525		552		1,112,793		1,428,488		26,462		2,746		1,452,204
Other	1,500		—		—		1,500		—		—		—		—
Total	$	1,106,057	$	11,533	$	637	$	1,116,953	$	1,432,098	$	26,477	$	2,784	$	1,455,791
Available for Sale:
U.S. Treasury	$	3,455,417	$	1,772	$	29,500	$	3,427,689	$	3,453,391	$	7,494	$	15,732	$	3,445,153
Residential mortgage-backed securities	823,208		13,079		6,547		829,740		648,288		19,048		2,250		665,086
States and political subdivisions	7,089,132		70,760		72,690		7,087,202		6,185,711		167,293		16,795		6,336,209
Other	42,690		—		—		42,690		42,561		—		—		42,561
Total	$	11,410,447	$	85,611	$	108,737	$	11,387,321	$	10,329,951	$	193,835	$	34,777	$	10,489,009

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At December 31, 2018, approximately 98.4% of the securities in our municipal bond portfolio were issued by the State of Texas or political subdivisions or agencies within the State of Texas, of which approximately 68.2% 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 $3.8 billion at both December 31, 2018 and December 31, 2017.

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 remaining transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $2.7 million ($2.2 million, net of tax) at December 31, 2018 and $11.6 million ($7.5 million, net of tax) at December 31, 2017. 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
2018
Held to Maturity:
Residential mortgage-backed securities	$	—	$	—	$	2,034	$	85	$	2,034	$	85
States and political subdivisions	205,686		541		5,952		11		211,638		552
Total	$	205,686	$	541	$	7,986	$	96	$	213,672	$	637
Available for Sale:
U.S. Treasury	$	—	$	—	$	3,139,639	$	29,500	$	3,139,639	$	29,500
Residential mortgage-backed securities	152,682		205		213,982		6,342		366,664		6,547
States and political subdivisions	1,136,322		7,026		2,058,048		65,664		3,194,370		72,690
Total	$	1,289,004	$	7,231	$	5,411,669	$	101,506	$	6,700,673	$	108,737



	Less than 12 Months				More than 12 Months				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
2017
Held to Maturity:
Residential mortgage-backed securities	$	2,694	$	38	$	—	$	—	$	2,694	$	38
States and political subdivisions	28,591		58		74,113		2,688		102,704		2,746
Total	$	31,285	$	96	$	74,113	$	2,688	$	105,398	$	2,784
Available for Sale:
U.S. Treasury	$	2,336,081	$	9,861	$	517,575	$	5,871	$	2,853,656	$	15,732
Residential mortgage-backed securities	144,264		949		45,436		1,301		189,700		2,250
States and political subdivisions	148,575		1,194		838,329		15,601		986,904		16,795
Total	$	2,628,920	$	12,004	$	1,401,340	$	22,773	$	4,030,260	$	34,777

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 December 31, 2018, 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 December 31, 2018, 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, 2018 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	$	72,476	$	73,139	$	2,235,652	$	2,215,867
Due after one year through five years	122,796		124,738		1,858,631		1,853,056
Due after five years through ten years	483,934		487,202		486,008		492,435
Due after ten years	424,114		429,214		5,964,258		5,953,533
Residential mortgage-backed securities	2,737		2,660		823,208		829,740
Equity securities	—		—		42,690		42,690
Total	$	1,106,057	$	1,116,953	$	11,410,447	$	11,387,321

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 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:



	2018		2017		2016
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:



	2018			2017			2016
Proceeds from sales	$	16,806,062		$	11,963,359		$	14,847,380
Gross realized gains	3			1			13,289
Gross realized losses	(159		)	(4,942		)	(2,059		)
Tax benefit (expense) related to securities gains/losses	33			1,729			(3,931		)

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



	2018			2017			2016
Premium amortization	$	(108,483	)	$	(97,841	)	$	(90,782	)
Discount accretion	7,955			7,908			11,077
Net (premium amortization) discount accretion	$	(100,528	)	$	(89,933	)	$	(79,705	)

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



	2018		2017
U.S. Treasury	$	21,928	$	19,210
States and political subdivisions	2,158		1,888
Total	$	24,086	$	21,098

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



	2018		2017			2016
Net gain on sales transactions	$	1,816	$	1,408		$	1,236
Net mark-to-market gains (losses)	105		(43		)	(157		)
Net gain on trading account securities	$	1,921	$	1,365		$	1,079