Securities

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Debt securities

The amortized cost, gross unrealized gains and losses and estimated fair value of investment and mortgage-backed securities available for sale (“AFS”) and held to maturity (“HTM”) as of September 30, 2019 and December 31, 2018 are reflected in the tables below (in thousands):



	September 30, 2019
	Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:
State and political subdivisions	$	635,299	$	25,716	$	922	$	660,093
Other stocks and bonds	3,000		—		44		2,956
Mortgage-backed securities: ⁽¹⁾
Residential	1,309,776		29,454		441		1,338,789
Commercial	231,734		6,812		3		238,543
Total	$	2,179,809	$	61,982	$	1,410	$	2,240,381

HELD TO MATURITY
Investment securities:
State and political subdivisions	$	2,895	$	33	$	—	$	2,928
Mortgage-backed securities: ⁽¹⁾
Residential	59,739		3,292		110		62,921
Commercial	78,321		2,881		11		81,191
Total	$	140,955	$	6,206	$	121	$	147,040



	December 31, 2018
	Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:
State and political subdivisions	$	728,142	$	6,115	$	17,656	$	716,601
Other stocks and bonds	3,000		—		291		2,709
Mortgage-backed securities: ⁽¹⁾
Residential	738,585		3,498		9,111		732,972
Commercial	543,758		941		7,545		537,154
Total	$	2,013,485	$	10,554	$	34,603	$	1,989,436

HELD TO MATURITY
Investment securities:
State and political subdivisions	$	3,083	$	5	$	42	$	3,046
Mortgage-backed securities: ⁽¹⁾
Residential	59,655		154		1,140		58,669
Commercial	100,193		201		2,328		98,066
Total	$	162,931	$	360	$	3,510	$	159,781


(1)	All mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

From time to time, we have transferred securities from AFS to HTM due to overall balance sheet strategies. The remaining net unamortized, unrealized loss on the transferred securities included in AOCI in the accompanying balance sheets totaled $3.8 million ($3.0 million, net of tax) at September 30, 2019 and $15.3 million ($12.1 million, net of tax) at December 31, 2018. Any net unrealized gain or loss on the transferred securities included in AOCI at the time of transfer will be amortized over the remaining life of the

underlying security as an adjustment to the yield on those securities. Securities transferred with losses included in AOCI continue to be included in management’s assessment for other-than-temporary impairment for each individual security. There were no securities transferred from AFS to HTM during the nine months ended September 30, 2019 or the year ended December 31, 2018.

On January 1, 2019, we adopted ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities,” and in conjunction with the adoption recognized a cumulative effect adjustment to reduce retained earnings by $16.5 million, before tax, related to premiums on callable debt securities. Prior to January 1, 2019, premiums were amortized over the contractual life of the security. With the adoption of ASU 2017-08, premiums on debt securities will be amortized to the earliest call date.

The following tables represent the estimated fair value and unrealized loss on investment and mortgage-backed securities AFS and HTM as of September 30, 2019 and December 31, 2018 (in thousands):



	September 30, 2019
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE
Investment securities:
State and political subdivisions	$	74,770	$	794	$	7,580	$	128	$	82,350	$	922
Other stocks and bonds	—		—		2,956		44		2,956		44
Mortgage-backed securities:
Residential	50,835		294		24,908		147		75,743		441
Commercial	—		—		1,451		3		1,451		3
Total	$	125,605	$	1,088	$	36,895	$	322	$	162,500	$	1,410

HELD TO MATURITY
Mortgage-backed securities:
Residential	$	287	$	3	$	2,316	$	107	$	2,603	$	110
Commercial	—		—		1,841		11		1,841		11
Total	$	287	$	3	$	4,157	$	118	$	4,444	$	121

	December 31, 2018
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE
Investment securities:
State and political subdivisions	$	98,112	$	899	$	399,205	$	16,757	$	497,317	$	17,656
Other stocks and bonds	2,709		291		—		—		2,709		291
Mortgage-backed securities:
Residential	5,552		27		488,334		9,084		493,886		9,111
Commercial	9,529		30		457,704		7,515		467,233		7,545
Total	$	115,902	$	1,247	$	1,345,243	$	33,356	$	1,461,145	$	34,603

HELD TO MATURITY
Investment securities:
State and political subdivisions	$	235	$	1	$	2,022	$	41	$	2,257	$	42
Mortgage-backed securities:
Residential	4,826		60		51,046		1,080		55,872		1,140
Commercial	399		2		89,168		2,326		89,567		2,328
Total	$	5,460	$	63	$	142,236	$	3,447	$	147,696	$	3,510

We review those securities in an unrealized loss position for significant differences between fair value and the cost basis to evaluate if a classification of other-than-temporary impairment is warranted. In estimating other-than-temporary impairment losses, management considers, among other things, the length of time and the extent to which the fair value has been less than cost and the financial condition and near-term prospects of the issuer. We consider an other-than-temporary impairment to have occurred when there is an adverse change in expected cash flows. When it is determined that a decline in fair value of AFS and HTM securities is other-than-temporary, the carrying value of the security is reduced to its estimated fair value, with a corresponding charge to earnings for the credit portion and a charge to other comprehensive income for the noncredit portion. Based upon the length of time and the extent to which fair value is less than cost, we believe that none of the securities with an unrealized loss have other-than-temporary impairment at September 30, 2019.

The majority of the securities in an unrealized loss position are highly rated Texas municipal securities and U.S. agency MBS where the unrealized loss is a direct result of the change in interest rates and spreads. For those securities in an unrealized loss position, we do not currently intend to sell the securities and it is not more likely than not that we will be required to sell the securities before the anticipated recovery of their amortized cost basis. To the best of management’s knowledge and based on our consideration of the qualitative factors associated with each security, there were no securities in our investment and MBS portfolio with an other-than-temporary impairment at September 30, 2019.

The following table reflects interest income recognized on securities for the periods presented (in thousands):




	Three Months Ended September 30,
	2019		2018
U.S. Treasury	$	—	$	10
State and political subdivisions	4,167		6,331
Other stocks and bonds	26		26
Mortgage-backed securities	12,569		10,086
Total interest income on securities	$	16,762	$	16,453



	Nine Months Ended September 30,
	2019		2018
U.S. Treasury	$	—	$	141
U.S. government agency debentures	—		89
State and political subdivisions	11,812		19,065
Other stocks and bonds	81		84
Mortgage-backed securities	38,289		31,190
Total interest income on securities	$	50,182	$	50,569

There was a $714,000 net realized gain from the AFS securities portfolio for the nine months ended September 30, 2019, which consisted of $5.6 million in realized gains and $4.9 million in realized losses. There was a $1.9 million net realized loss from the AFS securities portfolio for the nine months ended September 30, 2018, which consisted of $3.8 million in realized losses and $1.9 million in realized gains. There were no sales from the HTM portfolio during the nine months ended September 30, 2019 or 2018. We calculate realized gains and losses on sales of securities under the specific identification method.

The amortized cost and estimated fair value of AFS and HTM securities at September 30, 2019, are presented below by contractual maturity (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. MBS are presented in total by category due to the fact that MBS typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with varying maturities. The characteristics of the underlying pool of mortgages, such as fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the security holder. The term of a mortgage-backed pass-through security thus approximates the term of the underlying mortgages and can vary significantly due to prepayments.



	September 30, 2019
	Amortized Cost		Fair Value
AVAILABLE FOR SALE
Investment securities:
Due in one year or less	$	1,263	$	1,267
Due after one year through five years	9,177		9,284
Due after five years through ten years	33,327		34,725
Due after ten years	594,532		617,773
	638,299		663,049
Mortgage-backed securities:	1,541,510		1,577,332
Total	$	2,179,809	$	2,240,381



	September 30, 2019
	Amortized Cost		Fair Value
HELD TO MATURITY
Investment securities:
Due in one year or less	$	115	$	116
Due after one year through five years	1,668		1,683
Due after five years through ten years	1,112		1,129
Due after ten years	—		—
	2,895		2,928
Mortgage-backed securities:	138,060		144,112
Total	$	140,955	$	147,040

Investment securities and MBS with carrying values of $871.9 million and $1.08 billion were pledged as of September 30, 2019 and December 31, 2018, respectively, to collateralize FHLB borrowings, repurchase agreements and public funds or for other purposes as required by law.

Equity Investments

Equity investments on our consolidated balance sheets include Community Reinvestment Act funds with a readily determinable fair value as well as equity investments without readily determinable fair values. At September 30, 2019 and December 31, 2018, we had equity investments recorded in our consolidated balance sheets of $12.4 million and $12.1 million, respectively.

Any realized and unrealized gains and losses on equity investments are reported in income. Equity investments without readily determinable fair values are recorded at cost less any impairment, if any.

The following is a summary of unrealized and realized gains and losses on equity investments recognized in other noninterest income in the consolidated statements of income during the three and nine months ended September 30, 2019 and 2018 (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019		2018
Net (losses) gains recognized during the period on equity investments	$	(27	)	$	(42	)	$	136	$	(176	)
Less: Net gains (losses) recognized during the period on equity investments sold during the period	—			—			—		—
Unrealized (losses) gains recognized during the reporting period on equity investments still held at the reporting date	$	(27	)	$	(42	)	$	136	$	(176	)

Equity investments are assessed quarterly for other-than-temporary impairment. Based upon that evaluation, management does not consider any of our equity investments to be other-than-temporarily impaired at September 30, 2019.

FHLB Stock

Our FHLB stock, which has limited marketability, is carried at cost and is assessed quarterly for other-than-temporary impairment. Based upon evaluation by management at September 30, 2019, our FHLB stock was not impaired and thus was not considered to be other-than-temporarily impaired.