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

Interest-bearing time deposits in banks totaled $1,458,000, $1,707,000 and $1,458,000 at March 31, 2018 and 2017 and December 31, 2017, respectively, and have original maturities generally ranging from one to two 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):


	March 31, 2018
	Amortized Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
Obligations of U.S. government sponsored enterprises and agencies	$	50,467	$	—	$	(252	)	$	50,215
Obligations of states and political subdivisions		1,289,886		33,014		(2,767	)		1,320,133
Corporate bonds and other		9,382		—		(55	)		9,327
Residential mortgage-backed securities		1,449,482		2,912		(24,622	)		1,427,772
Commercial mortgage-backed securities		476,060		235		(7,549	)		468,746

Total securities available-for-sale	$	3,275,277	$	36,161	$	(35,245	)	$	3,276,193


	March 31, 2017
	Amortized Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
U.S. Treasury securities	$	10,614	$	5	$	—		$	10,619
Obligations of U.S. government sponsored enterprises and agencies		79,777		130		(2	)		79,905
Obligations of states and political subdivisions		1,524,010		47,902		(7,399	)		1,564,513
Corporate bonds and other		47,601		333		(3	)		47,931
Residential mortgage-backed securities		989,272		7,718		(5,437	)		991,553
Commercial mortgage-backed securities		324,716		561		(1,519	)		323,758

Total securities available-for-sale	$	2,975,990	$	56,649	$	(14,360	)	$	3,018,279


	December 31, 2017
	Amortized Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
Obligations of U.S. government sponsored enterprises and agencies	$	60,516	$	—	$	(186	)	$	60,330
Obligations of states and political subdivisions		1,369,295		52,491		(936	)		1,420,850
Corporate bonds and other		11,421		43		(5	)		11,459
Residential mortgage-backed securities		1,223,452		4,561		(8,916	)		1,219,097
Commercial mortgage-backed securities		377,934		263		(2,460	)		375,737

Total securities available-for-sale	$	3,042,618	$	57,358	$	(12,503	)	$	3,087,473

Disclosures related to the Company’s held-to-maturity securities, which totaled $114,000 at March 31, 2017, have not been presented due to insignificance. There were no such balances in held-to-maturity securities at March 31, 2018 and December 31, 2017.

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 March 31, 2018 were computed by using scheduled amortization of balances and historical prepayment rates. At March 31, 2018 and 2017, and December 31, 2017, 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 March 31, 2018, by contractual and expected maturity, are shown below (in thousands):


	Amortized Cost Basis		Estimated Fair Value
Due within one year	$	228,504	$	230,019
Due after one year through five years		630,063		648,915
Due after five years through ten years		489,472		498,752
Due after ten years		1,696		1,989
Mortgage-backed securities		1,925,542		1,896,518

Total	$	3,275,277	$	3,276,193

The following tables disclose, as of March 31, 2018 and 2017, and December 31, 2017, 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
March 31, 2018	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of U.S.government sponsored enterprises and agencies	$	50,215	$	252	$	—	$	—	$	50,215	$	252
Obligations of states and political subdivisions		156,791		1,103		43,335		1,664		200,126		2,767
Corporate bonds and other		9,135		51		235		4		9,370		55
Residential mortgage-backed securities		963,962		16,825		224,777		7,797		1,188,739		24,622
Commercial mortgage-backed securities		319,062		6,056		89,801		1,493		408,863		7,549

Total	$	1,499,165	$	24,287	$	358,148	$	10,958	$	1,857,313	$	35,245


	Less than 12 Months				12 Months or Longer				Total
March 31, 2017	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of U.S.government sponsored enterprises and agencies	$	10,008	$	2	$	—	$	—	$	10,008	$	2
Obligations of states and political subdivisions		259,419		7,391		1,215		8		260,634		7,399
Corporate bonds and other		9,001		3		—		—		9,001		3
Residential mortgage-backed securities		494,836		4,544		31,558		893		526,394		5,437
Commercial mortgage-backed securities		225,789		1,454		12,788		65		238,577		1,519

Total	$	999,053	$	13,394	$	45,561	$	966	$	1,044,614	$	14,360


	Less than 12 Months				12 Months or Longer				Total
December 31, 2017	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of U.S. government sponsored enterprises and agencies	$	60,329	$	186	$	—	$	—	$	60,329	$	186
Obligations of state and political subdivisions		66,361		219		44,938		717		111,299		936
Corporate bonds and other		224		2		237		3		461		5
Residential mortgage-backed securities		701,252		3,988		239,641		4,928		940,893		8,916
Commercial mortgage-backed securities		239,548		1,500		92,549		960		332,097		2,460

Total	$	1,067,714	$	5,895	$	377,365	$	6,608	$	1,445,079	$	12,503

The number of investments in an unrealized loss position totaled 484 at March 31, 2018. 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 March 31, 2018 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 March 31, 2018, 82.61% of our available-for-sale securities that are obligations of states and political subdivisions were issued within the State of Texas, of which 28.97% are guaranteed by the Texas Permanent School Fund.

At March 31, 2018, $2,026,719,000 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 March 31, 2018 and 2017, sales of investment securities that were classified as available-for-sale totaled $91,445,000 and $6,180,000, respectively. Gross realized gains from security sales during the first quarter of 2018 and 2017 totaled $1,242,000 and $5,000, respectively. Gross realized losses from security sales during the first quarter of 2018 and 2017 totaled $21,000 and $2,000, respectively.

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