Securities

6 Months Ended

Jun. 30, 2019

Investments, Debt and Equity Securities [Abstract]

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



	June 30, 2019								December 31, 2018
	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	$	2,554	$	13	$	4	$	2,563	$	2,737	$	8	$	85	$	2,660
States and political subdivisions	1,031,245		26,670		—		1,057,915		1,101,820		11,525		552		1,112,793
Other	1,500		—		—		1,500		1,500		—		—		1,500
Total	$	1,035,299	$	26,683	$	4	$	1,061,978	$	1,106,057	$	11,533	$	637	$	1,116,953
Available for Sale
U.S. Treasury	$	2,907,476	$	18,187	$	4,943	$	2,920,720	$	3,455,417	$	1,772	$	29,500	$	3,427,689
Residential mortgage-backed securities	2,212,761		36,354		1,403		2,247,712		823,208		13,079		6,547		829,740
States and political subdivisions	6,783,505		287,668		2,872		7,068,301		7,089,132		70,760		72,690		7,087,202
Other	42,780		—		—		42,780		42,690		—		—		42,690
Total	$	11,946,522	$	342,209	$	9,218	$	12,279,513	$	11,410,447	$	85,611	$	108,737	$	11,387,321

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At June 30, 2019, approximately 99.7% of the securities in our municipal bond portfolio were issued by political subdivisions or agencies within the State of Texas, of which approximately 69.0% 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 and that do not have readily determinable fair values are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar securities of the same issuer. These securities include stock in the Federal Reserve Bank and the Federal Home Loan Bank 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 June 30, 2019 and $3.8 billion at December 31, 2018.

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 June 30, 2019 totaled $2.1 million ($1.6 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 June 30, 2019, 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	$	—	$	—	$	900	$	4	$	900	$	4
Total	$	—	$	—	$	900	$	4	$	900	$	4
Available for Sale
U.S. Treasury	$	—	$	—	$	1,819,942	$	4,943	$	1,819,942	$	4,943
Residential mortgage-backed securities	12,258		38		116,919		1,365		129,177		1,403
States and political subdivisions	49,020		1,279		186,554		1,593		235,574		2,872
Total	$	61,278	$	1,317	$	2,123,415	$	7,901	$	2,184,693	$	9,218

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 June 30, 2019, 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 June 30, 2019, 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 June 30, 2019 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	$	21,334	$	21,546	$	1,974,510	$	1,968,237
Due after one year through five years	128,125		131,517		1,427,453		1,454,226
Due after five years through ten years	534,695		547,279		400,327		421,390
Due after ten years	348,591		359,073		5,888,691		6,145,168
Residential mortgage-backed securities	2,554		2,563		2,212,761		2,247,712
Equity securities	—		—		42,780		42,780
Total	$	1,035,299	$	1,061,978	$	11,946,522	$	12,279,513

Sales of Securities. Sales of securities available for sale were as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Proceeds from sales	$	2,346,626		$	7,905,521		$	3,291,529		$	10,890,388
Gross realized gains	803			3			803			3
Gross realized losses	(634		)	(63		)	(634		)	(82		)
Tax (expense) benefit of securities gains/losses	(35		)	13			(35		)	17

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Premium amortization	$	(29,408	)	$	(26,689	)	$	(59,287	)	$	(52,723	)
Discount accretion	1,378			2,010			2,561			3,787
Net (premium amortization) discount accretion	$	(28,030	)	$	(24,679	)	$	(56,726	)	$	(48,936	)

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



	June 30, 2019		December 31, 2018
U.S. Treasury	$	22,642	$	21,928
States and political subdivisions	2,840		2,158
Total	$	25,482	$	24,086

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net gain on sales transactions	$	552	$	434	$	1,058	$	939
Net mark-to-market gains (losses)	27		23		31		(13		)
Net gain (loss) on trading account securities	$	579	$	457	$	1,089	$	926