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Investments
 6 Months Ended
Jun. 30, 2016
Investments, Debt and Equity Securities [Abstract]  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure
Note 10 – Investments
Investment Securities
Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management. Pursuant to FASB’s guidance on accounting for debt and equity securities, available for sale securities are carried on the Company’s financial statements at their estimated fair market values, with monthly tax-effected “mark-to-market” adjustments made vis-à-vis accumulated other comprehensive income in shareholders’ equity.
 
Amortized Cost And Estimated Fair Value
(dollars in thousands, unaudited):
The amortized cost and estimated fair value of investment securities available-for-sale are as follows
 
 
 
 
June 30, 2016
 
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Government agencies
 
$
24,466
 
$
409
 
$
(3)
 
$
24,872
 
Mortgage-backed securities
 
 
391,345
 
 
3,951
 
 
(682)
 
 
394,614
 
State and poltical subdivisions
 
 
103,433
 
 
4,503
 
 
(10)
 
 
107,926
 
Other securities
 
 
500
 
 
627
 
 
-
 
 
1,127
 
Total investment securities
 
$
519,744
 
$
9,490
 
$
(695)
 
$
528,539
 
 
 
 
December 31, 2015
 
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Government agencies
 
$
28,801
 
$
303
 
$
(62)
 
$
29,042
 
Mortgage-backed securities
 
 
374,683
 
 
2,440
 
 
(2,062)
 
 
375,061
 
State and political subdivisons
 
 
99,093
 
 
3,146
 
 
(56)
 
 
102,183
 
Other securities
 
 
575
 
 
721
 
 
-
 
 
1,296
 
Total investment securities
 
$
503,152
 
$
6,610
 
$
(2,180)
 
$
507,582
 
   
At June 30, 2016 and December 31, 2015, the Company had 90 securities and 175 securities, respectively, with unrealized losses. Management has evaluated those securities as of the respective dates, and does not believe that any of the unrealized losses are other than temporary. Gross unrealized losses on our investment securities as of the indicated dates are disclosed in the table below, categorized by investment type and by the duration of time that loss positions on individual securities have continuously existed (over or under twelve months).
 
Investment Portfolio - Unrealized Losses
(dollars in thousands, unaudited)
 
 
 
June 30, 2016
 
 
 
Less than twelve months
 
Twelve months or more
 
 
 
Gross 
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Government agencies
 
$
(3)
 
$
3,301
 
$
-
 
$
-
 
Mortgage-backed securities
 
 
(323)
 
 
67,579
 
 
(359)
 
 
51,187
 
State and political subdivisions
 
 
(10)
 
 
1,583
 
 
-
 
 
-
 
Total
 
$
(336)
 
$
72,463
 
$
(359)
 
$
51,187
 
 
 
 
December 31, 2015
 
 
 
Less than twelve months
 
Twelve months or more
 
 
 
Gross 
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Government agencies
 
$
(62)
 
$
10,329
 
$
-
 
$
-
 
Mortgage-backed securities
 
 
(1,608)
 
 
187,734
 
 
(454)
 
 
35,511
 
State and political subdivisions
 
 
(17)
 
 
3,409
 
 
(39)
 
 
3,847
 
Total
 
$
(1,687)
 
$
201,472
 
$
(493)
 
$
39,358
 
 
The table below summarizes the Company’s gross realized gains and losses as well as gross proceeds from the sales of securities, for the periods indicated:
 
Investment Portfolio - Realized Gains/(Losses)
(dollars in thousands, unaudited)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
 
2016
 
2015
 
2016
 
2015
 
Proceeds from sales, calls and maturities of securities available for sale
 
$
2,790
 
$
2,963
 
$
5,395
 
$
22,828
 
Gross gains on sales, calls and maturities of securities available for sale
 
$
146
 
$
307
 
$
160
 
$
522
 
Gross losses on sales, calls and maturities of securities available for sale
 
 
-
 
 
-
 
 
(38)
 
 
(199)
 
Net gains on sale of securities available for sale
 
$
146
 
$
307
 
$
122
 
$
323
 
   
The amortized cost and estimated fair value of investment securities available-for-sale at June 30, 2016 and December 31, 2015 are shown below, grouped by the remaining time to contractual maturity dates. The expected life of investment securities may not be consistent with contractual maturity dates, since the issuers of the securities could have the right to call or prepay obligations with or without penalties.
 
Estimated Fair Value of Contractual Maturities
(dollars in thousands, unaudited)
 
 
 
June 30, 2016
 
 
 
Amortized
Cost
 
Fair Value
 
 
 
 
 
 
 
 
 
Maturing within one year
 
$
6,164
 
$
6,370
 
Maturing after one year through five years
 
 
250,424
 
 
253,919
 
Maturing after five years through ten years
 
 
47,068
 
 
48,674
 
Maturing after ten years
 
 
47,348
 
 
49,287
 
 
 
 
 
 
 
 
 
Investment securities not due at a single maturity date:
 
 
 
 
 
 
 
U.S Government agencies collateralized by mortgage obligations
 
 
168,240
 
 
169,162
 
Other securities
 
 
500
 
 
1,127
 
 
 
$
519,744
 
$
528,539
 
  
 
 
December 31, 2015
 
 
 
Amortized
Cost
 
Fair Value
 
 
 
 
 
 
 
 
 
Maturing within one year
 
$
3,657
 
$
3,706
 
Maturing after one year through five years
 
 
242,719
 
 
244,733
 
Maturing after five years through ten years
 
 
50,144
 
 
51,308
 
Maturing after ten years
 
 
50,413
 
 
51,671
 
 
 
 
 
 
 
 
 
Investment securities not due at a single maturity date:
 
 
 
 
 
 
 
U.S Government agencies collateralized by mortgage obligations
 
 
155,644
 
 
154,868
 
Other securities
 
 
575
 
 
1,296
 
 
 
$
503,152
 
$
507,582
 
 
At June 30, 2016, the Company’s investment portfolio included securities issued by 292 different government municipalities and agencies located within 27 states with a fair value of $107.9 million. The largest exposure to any single municipality or agency was a $934,000 (fair value) bond issued by the Thurston School District in Washington, to be repaid by property taxes.
 
The Company’s investments in bonds issued by states, municipalities and political subdivisions are evaluated in accordance with Supervision and Regulation Letter 12-15 issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Organization Ratings,” and other regulatory guidance. Credit ratings are considered in our analysis only as a guide to the historical default rate associated with similarly-rated bonds. There have been no significant differences in our internal analyses compared with the ratings assigned by the third party credit rating agencies.
    
The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations:
 
Revenue and General Obligation Bonds by Location
(dollars in thousands, unaudited)
 
 
 
June 30, 2016
 
December 31, 2015
 
 
 
Amortized
 
Fair Market
 
Amortized
 
Fair Market
 
General obligation bonds
 
Cost
 
Value
 
Cost
 
Value
 
State of issuance
 
 
 
 
 
 
 
 
 
 
 
 
 
California
 
$
23,250
 
$
24,690
 
$
20,473
 
$
21,642
 
Texas
 
 
17,656
 
 
18,326
 
 
16,575
 
 
16,954
 
Illinois
 
 
10,234
 
 
10,545
 
 
9,997
 
 
10,191
 
Ohio
 
 
9,059
 
 
9,305
 
 
7,610
 
 
7,748
 
Washington
 
 
5,873
 
 
6,090
 
 
5,905
 
 
6,081
 
Arizona
 
 
2,023
 
 
2,103
 
 
2,039
 
 
2,108
 
Utah
 
 
951
 
 
1,013
 
 
953
 
 
990
 
Other states
 
 
18,518
 
 
19,298
 
 
20,334
 
 
20,848
 
Total General Obligation Bonds
 
 
87,564
 
 
91,370
 
 
83,886
 
 
86,562
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
State of issuance
 
 
 
 
 
 
 
 
 
 
 
 
 
Texas
 
 
4,969
 
 
5,153
 
 
3,732
 
 
3,863
 
Utah
 
 
4,426
 
 
4,631
 
 
4,434
 
 
4,519
 
Washington
 
 
1,306
 
 
1,387
 
 
1,791
 
 
1,827
 
California
 
 
1,002
 
 
1,030
 
 
1,002
 
 
1,028
 
Ohio
 
 
318
 
 
319
 
 
318
 
 
319
 
Other states
 
 
3,848
 
 
4,036
 
 
3,930
 
 
4,065
 
Total Revenue Bonds
 
 
15,869
 
 
16,556
 
 
15,207
 
 
15,621
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Obligations of States and Political Subdivisions
 
$
103,433
 
$
107,926
 
$
99,093
 
$
102,183
 
 
The revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and economic improvements. The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates.
 
Revenue Bonds by Type
(dollars in thousands, unaudited)
 
 
 
June 30, 2016
 
December 31, 2015
 
 
 
Amortized
 
Fair Market
 
Amortized
 
Fair Market
 
Revenue bonds
 
Cost
 
Value
 
Cost
 
Value
 
Revenue source:
 
 
 
 
 
 
 
 
 
 
 
 
 
Water
 
$
4,402
 
$
4,516
 
$
3,942
 
$
4,052
 
College & University
 
 
2,706
 
 
2,876
 
 
2,975
 
 
3,103
 
Sales Tax
 
 
2,256
 
 
2,373
 
 
2,630
 
 
2,663
 
Lease
 
 
2,299
 
 
2,403
 
 
2,040
 
 
2,100
 
Port, Airport & Marina
 
 
1,302
 
 
1,374
 
 
-
 
 
-
 
Electric & Power
 
 
729
 
 
753
 
 
679
 
 
691
 
Other sources
 
 
2,175
 
 
2,261
 
 
2,941
 
 
3,012
 
Total Revenue Bonds
 
$
15,869
 
$
16,556
 
$
15,207
 
$
15,621
 
 
Low-Income Housing Tax Credit (“LIHTC”) Fund Investments
 
The Company has the ability to invest in limited partnerships which own housing projects that qualify for federal and/or California state tax credits, by mandating a specified percentage of low-income tenants for each project. The tax credits flow through to investors, augmenting any returns that might be derived from an increase in property values. Because rent levels are lower than standard market rents and the projects are generally highly leveraged, each project also typically generates tax-deductible operating losses that are allocated to the limited partners.
 
The Company invested in seven LIHTC fund limited partnerships from 2001 through 2007, and in the second quarter of 2016 we committed $3 million to another such fund. Our investments to date have all been in California-focused funds which help the Company meet its obligations under the Community Reinvestment Act. We utilize the equity method of accounting for our LIHTC fund investments. Under the equity method, our balance sheet initially reflects an asset that represents the total cash expected to be invested over the life of the partnership. Any commitments or contingent commitments for future investment are reflected as a liability. The income statement treatment under the equity method reflects tax credits received by the Company “below the line” within the income tax provision, while fund operating results are included “above the line” in non-interest income. As noted above, operating results are typically losses that are netted against non-interest income.
 
As of June 30, 2016 our total LIHTC investment balance was $7.4 million, which includes $2.4 million in remaining commitments for additional capital contributions to the limited partnerships. There were $343,000 in tax credits derived from our LIHTC investments which were recognized during the six months ended June 30, 2016, and a pass-through operating loss of $519,000 associated with those investments was included in pre-tax income for the same time period. Our LIHTC investments are evaluated annually for potential impairment, and we have concluded that the carrying value of the investments is stated fairly and is not impaired.