Note 4 - Interest-bearing Time Deposits in Banks and Securities

Interest-bearing time deposits in banks totaled $2,427,000, $5,456,000 and $3,495,000 at June 30, 2016 and 2015 and December 31, 2015, respectively, and have original maturities generally ranging from one to three years.

Management classifies debt and equity securities as held-to-maturity, available-for-sale, or trading based on its intent. Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income using the interest method. Securities not classified as held-to-maturity or trading are classified as available-for-sale and recorded at fair value, with all unrealized gains and unrealized losses judged to be temporary, net of deferred income taxes, excluded from earnings and reported in the consolidated statements of comprehensive earnings. Available-for-sale securities that have unrealized losses that are judged other-than-temporary are included in gain (loss) on sale of securities and a new cost basis is established. Securities classified as trading are recorded at fair value with unrealized gains and losses included in earnings.

The Company records its available-for-sale and trading securities portfolio at fair value. Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security.

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other-than-temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other-than-temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity, (ii) whether it is more likely than not that we will have to sell our securities prior to recovery and/or maturity, (iii) the length of time and extent to which the fair value has been less than amortized cost, and (iv) the financial condition of the issuer. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the Company’s results of operations and financial condition.

The Company’s investment portfolio consists of U.S. Treasury securities, obligations of U.S. government sponsored enterprises and agencies, obligations of states and political subdivisions, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds. Pricing for such securities is generally readily available and transparent in the market. The Company utilizes independent third party pricing services to value its investment securities, which the Company reviews as well as the underlying pricing methodologies for reasonableness and to ensure such prices are aligned with pricing matrices. The Company validates quarterly, on a sample basis, prices supplied by the independent pricing services by comparison to prices obtained from other third party sources.

A summary of the Company’s available-for-sale securities follows (in thousands):


	June 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost Basis		Holding Gains		Holding Losses			Fair Value
U.S. Treasury securities	$	10,721	$	90	$	—		$	10,811
Obligations of U.S. government sponsored enterprises and agencies		121,174		1,178		—			122,352
Obligations of states and political subdivisions		1,418,342		97,980		(10	)		1,516,312
Corporate bonds and other		71,687		1,723		—			73,410
Residential mortgage-backed securities		787,451		18,928		(606	)		805,773
Commercial mortgage-backed securities		261,662		5,068		(32	)		266,698

Total securities available-for-sale	$	2,671,037	$	124,967	$	(648	)	$	2,795,356


	June 30, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost Basis		Holding Gains		Holding Losses			Fair Value
U.S. Treasury securities	$	10,864	$	72	$	—		$	10,936
Obligations of U.S. government sponsored enterprises and agencies		164,351		985		—			165,336
Obligations of states and political subdivisions		1,340,163		49,483		(5,400	)		1,384,246
Corporate bonds and other		94,485		2,623		—			97,108
Residential mortgage-backed securities		856,546		14,383		(2,838	)		868,091
Commercial mortgage-backed securities		203,482		591		(677	)		203,396

Total securities available-for-sale	$	2,669,891	$	68,137	$	(8,915	)	$	2,729,113


	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost Basis		Holding Gains		Holding Losses			Fair Value
U.S. Treasury securities	$	10,792	$	5	$	(2	)	$	10,795
Obligations of U.S. government sponsored enterprises and agencies		148,393		268		(107	)		148,554
Obligations of states and political subdivisions		1,379,879		71,382		(134	)		1,451,127
Corporate bonds and other		86,182		1,778		(5	)		87,955
Residential mortgage-backed securities		781,648		10,993		(3,759	)		788,882
Commercial mortgage-backed securities		247,991		429		(1,834	)		246,586

Total securities available-for-sale	$	2,654,885	$	84,855	$	(5,841	)	$	2,733,899

Disclosures related to the Company’s held-to-maturity securities, which totaled $137,000, $295,000 and $278,000 at June 30, 2016 and 2015, and December 31, 2015, respectively, have not been presented due to insignificance.

The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at June 30, 2016 were computed by using scheduled amortization of balances and historical prepayment rates. At June 30, 2016 and 2015, and December 31, 2015, the Company did not hold CMOs that entail higher risks than standard mortgage-backed securities.

The amortized cost and estimated fair value of available-for-sale securities at June 30, 2016, by contractual and expected maturity, are shown below (in thousands):


	Amortized		Estimated
	Cost Basis		Fair Value
Due within one year	$	180,342	$	182,079
Due after one year through five years		669,211		705,585
Due after five years through ten years		762,452		824,643
Due after ten years		9,919		10,578
Mortgage-backed securities		1,049,113		1,072,471

Total	$	2,671,037	$	2,795,356

The following tables disclose, as of June 30, 2016 and 2015, and December 31, 2015, the Company’s investment securities that have been in a continuous unrealized-loss position for less than 12 months and for 12 or more months (in thousands):


	Less than 12 Months				12 Months or Longer				Total
June 30, 2016	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of states and political subdivisions	$	5,959	$	7	$	745	$	3	$	6,704	$	10
Residential mortgage-backed securities		16,085		14		60,360		592		76,445		606
Commercial mortgage-backed securities		—		—		14,152		32		14,152		32

Total	$	22,044	$	21	$	75,257	$	627	$	97,301	$	648


	Less than 12 Months				12 Months or Longer				Total
June 30, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of states and political subdivisions	$	304,510	$	5,335	$	2,531	$	65	$	307,041	$	5,400
Residential mortgage-backed securities		176,569		844		65,562		1,994		242,131		2,838
Commercial mortgage-backed securities		134,151		628		9,504		49		143,655		677

Total	$	615,230	$	6,807	$	77,597	$	2,108	$	692,827	$	8,915


	Less than 12 Months				12 Months or Longer				Total
December 31, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Treasury securities	$	5,110	$	2	$	—	$	—	$	5,110	$	2
Obligations of U.S. government sponsored enterprises and agencies		50,388		107		—		—		50,388		107
Obligations of states and political subdivisions		32,929		127		1,513		7		34,442		134
Corporate bonds and other		7,004		5		—		—		7,004		5
Residential mortgage-backed securities		231,481		1,765		63,919		1,994		295,400		3,759
Commercial mortgage-backed securities		196,163		1,752		9,345		82		205,508		1,834

Total	$	523,075	$	3,758	$	74,777	$	2,083	$	597,852	$	5,841

The number of investments in an unrealized loss position totaled 24 at June 30, 2016. We do not believe these unrealized losses are “other-than-temporary” as (i) we do not have the intent to sell our securities prior to recovery and/or maturity and (ii) it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. In making this determination, we also consider the length of time and extent to which fair value has been less than cost and the financial condition of the issuer. The unrealized losses noted are interest rate related due to the level of interest rates at June 30, 2016 compared to the time of purchase. We have reviewed the ratings of the issuers and have not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies. At June 30, 2016, 80.05% of our available-for-sale securities that are obligations of states and political subdivisions were issued within the State of Texas, of which 30.25% are guaranteed by the Texas Permanent School Fund.

At June 30, 2016, $1,718,683,000 of the Company’s securities were pledged as collateral for public or trust fund deposits, repurchase agreements and for other purposes required or permitted by law.

During the quarters ended June 30, 2016 and 2015, sales of investment securities that were classified as available-for-sale totaled $12,829,000 and $6,631,000, respectively. Gross realized gains from security sales during the second quarter of 2016 and 2015 totaled $912,000 and $243,000, respectively. Gross realized losses from security sales during the second quarter of 2015 totaled $4,000. There were no gross realized losses during the second quarter of 2016. During the six months ended June 30, 2016 and 2015, sales of investment securities that were classified as available-for-sale totaled $13,382,000 and $7,760,000, respectively. Gross realized gains from security sales during the six-month period ended June 30, 2016 and 2015 totaled $919,000 and $248,000, respectively. Gross realized losses from security sales during the six-month periods ended June 30, 2016 and 2015 totaled $5,000 and $4,000, respectively.

The specific identification method was used to determine cost in order to compute the realized gains and losses.