XML 22 R11.htm IDEA: XBRL DOCUMENT

Investment Securities

6 Months Ended

Jun. 30, 2021

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Note 4: Investment Securities

The Company’s investment securities portfolio consists of obligations of state and political subdivisions, U.S. federal government agencies such as Government National Mortgage Association (“GNMA”) and Small Business Administration (“SBA”), U.S. government treasuries, and U.S. government-sponsored enterprises (“GSEs”), such as Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Federal Home Loan Bank of San Francisco (“FHLB”). The Company also invests in residential and commercial mortgage-backed securities (“MBS”/ “CMBS”) and collateralized mortgage obligations (“CMOs”) issued or guaranteed by the GSEs, as reflected in the following tables.

A summary of the amortized cost and fair value related to securities held-to-maturity as of June 30, 2021 and December 31, 2020 is presented below.

Schedule of Securities Held-To-Maturity

Held-to-maturity:						Gross Unrealized
(in thousands)		Amortized Cost				Gains				(Losses)				Fair Value
June 30, 2021
Obligations of state and political subdivisions			6,473				385				—				6,858
Total held-to-maturity		$	6,473			$	385			$	—			$	6,858
December 31, 2020
Obligations of state and political subdivisions			7,979				776				—				8,755
Total held-to-maturity		$	7,979			$	776			$	—			$	8,755

For securities issued by states and political subdivisions, management considers (i) issuer and/or guarantor credit ratings, (ii) historical probability of default and loss given default rates for given bond ratings and remaining maturity, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal credit review of the financial information, and (v) whether or not such securities have credit enhancements such as guarantees, contain a defeasance clause, or are pre-refunded by the issuers.

A summary of the amortized cost and fair value related to securities available-for-sale as of June 30, 2021 and December 31, 2020 is presented below.

Available-for-sale:						Gross Unrealized
(in thousands)		Amortized Cost				Gains				(Losses)				Fair Value
June 30, 2021
Mortgage-backed securities		$	70,257			$	179			$	(438	)		$	69,998
U.S. government agencies			29,284				215				(255	)			29,244
U.S. government treasuries			10,058				11				(1	)			10,068
Obligations of state and political subdivisions			49,440				812				(129	)			50,123
Collateralized mortgage obligations			626				15				—				641
Total available-for-sale		$	159,665			$	1,232			$	(823	)		$	160,074
December 31, 2020
Mortgage-backed securities		$	23,601			$	338			$	(7	)		$	23,932
U.S. government agencies			32,069				111				(352	)			31,828
Obligations of state and political subdivisions			57,137				1,291				(8	)			58,420
Collateralized mortgage obligations			748				21				—				769
Total available-for-sale		$	113,555			$	1,761			$	(367	)		$	114,949

The amortized cost and fair value of investment debt securities by contractual maturity at June 30, 2021 and December 31, 2020 are shown below. Expected maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties.

		June 30, 2021																December 31, 2020
		Held-to-Maturity								Available-for-Sale								Held-to-Maturity								Available-for-Sale
(in thousands)		Amortized Cost				Fair Value				Amortized Cost				Fair Value				Amortized Cost				Fair Value				Amortized Cost				Fair Value
Within one year		$	420			$	445			$	—			$	—			$	494			$	543			$	—			$	—
After one but within five years			1,950				2,066				510				532				2,143				2,351				1,141				1,206
After five years through ten years			2,755				2,919				6,713				6,835				2,755				3,023				8,340				8,599
After ten years			1,348				1,428				42,217				42,756				2,587				2,838				47,656				48,615

Investment securities not due at a single maturity date:
Mortgage-backed securities			—				—				70,257				69,998				—				—				23,601				23,932
Collateralized mortgage obligations			—				—				626				641				—				—				748				769
U.S. government treasuries			—				—				10,058				10,068				—				—				—				—
U.S. government agencies			—				—				29,284				29,244				—				—				32,069				31,828
Total		$	6,473			$	6,858			$	159,665			$	160,074			$	7,979			$	8,755			$	113,555			$	114,949

Sales of investment securities and gross gains and losses are shown in the following table:


		For the three months ended								For the six months ended
(in thousands)		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
Available-for-sale:
Sales proceeds		$	4,726			$	13,538			$	16,182			$	32,234
Gross realized gains			92				434				274				966

Pledged investment securities are shown in the following table:

(in thousands)		June 30, 2021				December 31, 2020
Pledged to the State of California:
Secure deposits of public funds and borrowings		$	48,663			$	52,897
Total pledged investment securities		$	48,663			$	52,897

The following table details the gross unrealized losses and fair values aggregated by investment category and length of time that individual available-for-sale securities have been in a continuous unrealized loss position at June 30, 2021 and December 31, 2020:


(in thousands)		< 12 continuous months								≥ 12 continuous months								Total securities in a loss position
		Fair value				Unrealized loss				Fair value				Unrealized loss				Fair value				Unrealized loss
June 30, 2021
Mortgage-backed securities		$	53,204			$	(438	)		$	—			$	—			$	53,204			$	(438	)
U.S. government agencies			4,021				(43	)			11,516				(212	)			15,537				(255	)
Obligations of state and political subdivisions			15,759				(129	)			—				—				15,759				(129	)
U.S. government treasuries			2,190				(1	)			—				—				2,190				(1	)
Total temporarily impaired securities		$	75,174			$	(611	)		$	11,516			$	(212	)		$	86,690			$	(823	)

(in thousands)		< 12 continuous months								≥ 12 continuous months								Total securities in a loss position
		Fair value				Unrealized loss				Fair value				Unrealized loss				Fair value				Unrealized loss
December 31, 2020
Mortgage-backed securities		$	1,786			$	(7	)		$	—			$	—			$	1,786			$	(7	)
U.S. government agencies			10,800				(56	)			15,195				(296	)			25,995				(352	)
Obligations of state and political subdivisions			3,922				(8	)			—				—				3,922				(8	)
Total temporarily impaired securities		$	16,508			$	(71	)		$	15,195			$	(296	)		$	31,703			$	(367	)

There were 81 and 31 securities in unrealized loss positions at June 30, 2021 and December 31, 2020, respectively, which were all classified as available-for-sale. As of June 30, 2021, the investment portfolio included 11 investment securities that had been in a continuous loss position for twelve months or more and 70 investment securities that had been in a loss position for less than twelve months.

The Company periodically evaluates each available-for-sale investment security in an unrealized loss position to determine if the impairment is temporary or other than temporary and has determined that no investment security is other than temporarily impaired. The unrealized losses are due primarily to interest rate changes and the Company does not intend to sell the securities and it is more likely than not that the Company will not be required to sell the securities before the earlier of the forecasted recovery or the maturity of the underlying debt security.

There were no held-to-maturity securities in a continuous loss position at June 30, 2021 or December 31, 2020.

Obligations issued or guaranteed by government agencies such as GNMA and SBA or GSEs under conservatorship such as FNMA and FHLMC are guaranteed or sponsored by agencies of the U.S. government and have strong credit profiles. The Company therefore expects to receive all contractual interest payments on time and believes the risk of credit losses on these securities is remote.

The Company’s investment in obligations of state and political subdivisions are deemed credit worthy after management’s comprehensive analysis of the issuers’ latest financial information, credit ratings by major credit agencies, and/or credit enhancements.

Non-Marketable Securities Included in Other Assets

FHLB Capital Stock: As a member of the FHLB, the Company is required to maintain a minimum investment in FHLB capital stock determined by the board of directors of the FHLB. The minimum investment requirements can increase in the event the Company increases its total asset size or borrowings with the FHLB. Shares cannot be purchased or sold except between the FHLB and its members at the $100 per share par value. The Company held $6.7 million and $6.2 million of FHLB stock at June 30, 2021 and December 31, 2020, respectively. The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks, and they do not have a readily determinable market value. Based on management’s analysis of FHLB’s financial condition and certain qualitative factors, management determined that the FHLB stock was not impaired at June 30, 2021 and December 31, 2020. On April 29, 2021, FHLB announced a cash dividend for the first quarter of 2021 at an annualized dividend rate of 6.00%, which was paid on May 11, 2021. For the three and six months ended June 30, 2021, cash dividends received on FHLB capital stock in the amount of $0.1 million and $0.2 million, respectively, were recorded as non-interest income on the consolidated statements of income.