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Investment Securities | 6 Months Ended
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Jun. 30, 2015
Investments, Debt and Equity Securities [Abstract] |
Investment Securities | Investment Securities Our investment securities portfolio consists of obligations of state and political subdivisions, corporate bonds, U.S. government agency securities, including mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) issued or guaranteed by Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), or Government National Mortgage Association ("GNMA"), debentures issued by government-sponsored agencies such as FNMA, FHLB and FHLMC, as well as privately issued CMOs, as reflected in the table below:
| June 30, 2015 |  | December 31, 2014
| Amortized | Fair | Gross Unrealized |  | Amortized | Fair | Gross Unrealized
(in thousands; 2015 unaudited) | Cost | Value | Gains | (Losses) |  | Cost | Value | Gains | (Losses)
Held-to-maturity |  |  |  |  |  |  |  |  |
Obligations of state and political subdivisions | $ | 54,183 |  | $ | 55,455 |  | $ | 1,332 |  | $ | (60 | ) |  | $ | 63,425 |  | $ | 65,121 |  | $ | 1,736 |  | $ | (40 | )
Corporate bonds | 27,615 |  | 27,732 |  | 122 |  | (5 | ) |  | 40,257 |  | 40,448 |  | 216 |  | (25 | )
MBS pass-through securities issued by FHLMC and FNMA | 12,677 |  | 12,830 |  | 160 |  | (7 | ) |  | 12,755 |  | 13,074 |  | 319 |  | — |
Total held-to-maturity | 94,475 | 96,017 | 1,614 | (72 | ) |  | 116,437 | 118,643 | 2,271 | (65 | )
Available-for-sale |  |  |  |  |  |  |  |  |
Securities of U.S. government agencies: |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | 120,719 |  | 121,273 |  | 748 |  | (194 | ) |  | 92,963 |  | 94,214 |  | 1,262 |  | (11 | )
CMOs issued by FNMA | 12,993 |  | 13,106 |  | 150 |  | (37 | ) |  | 14,771 |  | 14,790 |  | 77 |  | (58 | )
CMOs issued by FHLMC | 27,065 |  | 27,191 |  | 164 |  | (38 | ) |  | 31,238 |  | 31,260 |  | 109 |  | (87 | )
CMOs issued by GNMA | 13,950 |  | 14,216 |  | 274 |  | (8 | ) |  | 17,573 |  | 17,855 |  | 298 |  | (16 | )
Debentures of government- sponsored agencies | 31,121 |  | 31,072 |  | 98 |  | (147 | ) |  | 14,694 |  | 14,557 |  | 95 |  | (232 | )
Privately issued CMOs | 5,011 |  | 5,209 |  | 200 |  | (2 | ) |  | 7,137 |  | 7,294 |  | 172 |  | (15 | )
Obligations of state and political subdivisions | 36,909 |  | 36,937 |  | 123 |  | (95 | ) |  | 15,733 |  | 15,880 |  | 155 |  | (8 | )
Corporate bonds | 4,941 |  | 5,014 |  | 73 |  | — |  |  | 4,936 |  | 4,998 |  | 66 |  | (4 | )
Total available-for-sale | 252,709 | 254,018 | 1,830 | (521 | ) |  | 199,045 |  | 200,848 |  | 2,234 |  | (431 | )
Total investment securities | $ | 347,184 |  | $ | 350,035 |  | $ | 3,444 |  | $ | (593 | ) |  | $ | 315,482 |  | $ | 319,491 |  | $ | 4,505 |  | $ | (496 | )
The amortized cost and fair value of investment debt securities by contractual maturity at June 30, 2015 are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
| June 30, 2015 |  | December 31, 2014
| Held-to-Maturity |  | Available-for-Sale |  | Held-to-Maturity |  | Available-for-Sale
(in thousands; 2015 unaudited) | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
Within one year | $ | 30,306 |  |  | $ | 30,400 |  |  | $ | 11,426 |  |  | $ | 11,508 |  |  | $ | 39,778 |  |  | $ | 39,913 |  |  | $ | 2,378 |  |  | $ | 2,388 |
After one year but within five years | 41,659 |  |  | 42,429 |  |  | 56,275 |  |  | 56,324 |  |  | 50,983 |  |  | 51,953 |  |  | 43,866 |  |  | 43,919 |
After five years through ten years | 10,965 |  |  | 11,477 |  |  | 45,935 |  |  | 45,885 |  |  | 11,679 |  |  | 12,426 |  |  | 9,644 |  |  | 9,749 |
After ten years | 11,545 |  |  | 11,711 |  |  | 139,073 |  |  | 140,301 |  |  | 13,997 |  |  | 14,351 |  |  | 143,157 |  |  | 144,792 |
Total | $ | 94,475 |  |  | $ | 96,017 |  |  | $ | 252,709 |  |  | $ | 254,018 |  |  | $ | 116,437 |  |  | $ | 118,643 |  |  | $ | 199,045 |  |  | $ | 200,848 |
We sold two available-for-sale securities in 2015 with total proceeds of $1.6 million and realized a gross gain of $8 thousand. We sold one available-for-sale and six held-to-maturity securities in the first six months of 2014 with total proceeds of $2.0 million and $2.1 million, respectively, and incurred a gross loss of $15 thousand and gross gains of $104 thousand, respectively. The sales of the held-to-maturity securities were due to evidence of significant deterioration of creditworthiness of the issuers since purchase. Investment securities carried at $70.1 million and $74.7 million at June 30, 2015 and December 31, 2014, respectively, were pledged to the State of California: $69.3 million and $73.8 million to secure public deposits in compliance with the Local Agency Security Program at June 30, 2015 and December 31, 2014, respectively, and $848 thousand and $856 thousand to provide collateral for trust deposits at June 30, 2015 and December 31, 2014, respectively. In addition, investment securities carried at $1.1 million were pledged to collateralize a Wealth Management and Trust Services (“WMTS”) checking account at both June 30, 2015 and December 31, 2014. Other-Than-Temporarily Impaired Debt Securities We have evaluated the credit of our investment securities and their issuer and/or insurers. Based on our evaluation, Management has determined that no investment security in our investment portfolio is other-than-temporarily impaired as of June 30, 2015. We do not have the intent, and it is more likely than not that we will not have to sell securities temporarily impaired at June 30, 2015 before recovery of the cost basis. Thirty-five and twenty-eight investment securities were in unrealized loss positions at June 30, 2015 and December 31, 2014, respectively. Those securities are summarized and classified according to the duration of the loss period in the table below:
June 30, 2015 |  | < 12 continuous months |  |  | > 12 continuous months |  |  | Total securities in a loss position
(in thousands; unaudited) |  | Fair value |  | Unrealized loss |  | Fair value |  | Unrealized loss |  | Fair value |  | Unrealized loss
Held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |
Obligations of state & political subdivisions |  | $ | 12,348 |  |  | $ | (47 | ) |  | $ | 357 |  |  | $ | (13 | ) |  | $ | 12,705 |  |  | $ | (60 | )
Corporate bonds |  | 5,543 |  |  | (5 | ) |  | — |  |  | — |  |  | 5,543 |  |  | (5 | )
MBS pass-through securities issued by FHLMC and FNMA |  | 2,356 |  |  | (7 | ) |  | — |  |  | — |  |  | 2,356 |  |  | (7 | )
Total held-to-maturity |  | 20,247 |  |  | (59 | ) |  | 357 |  |  | (13 | ) |  | 20,604 |  |  | (72 | )
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA |  | 30,577 |  |  | (194 | ) |  | — |  |  | — |  |  | 30,577 |  |  | (194 | )
CMOs issued by FNMA |  | — |  |  | — |  |  | 3,698 |  |  | (37 | ) |  | 3,698 |  |  | (37 | )
CMOs issued by FHLMC |  | — |  |  | — |  |  | 2,140 |  |  | (38 | ) |  | 2,140 |  |  | (38 | )
CMOs issued by GNMA |  | 2,810 |  |  | (8 | ) |  | — |  |  | — |  |  | 2,810 |  |  | (8 | )
Debentures of government- sponsored agencies |  | — |  |  | — |  |  | 9,853 |  |  | (147 | ) |  | 9,853 |  |  | (147 | )
Privately issued CMOs |  | 414 |  |  | (2 | ) |  | — |  |  | — |  |  | 414 |  |  | (2 | )
Obligations of state & political subdivisions |  | 15,390 |  |  | (93 | ) |  | 585 |  |  | (2 | ) |  | 15,975 |  |  | (95 | )
Total available-for-sale |  | 49,191 |  |  | (297 | ) |  | 16,276 |  |  | (224 | ) |  | 65,467 |  |  | (521 | )
Total temporarily impaired securities |  | $ | 69,438 |  |  | $ | (356 | ) |  | $ | 16,633 |  |  | $ | (237 | ) |  | $ | 86,071 |  |  | $ | (593 | )
December 31, 2014 |  | < 12 continuous months |  |  | > 12 continuous months |  |  | Total securities in a loss position |
(dollars in thousands) |  | Fair value |  | Unrealized loss |  | Fair value |  | Unrealized loss |  | Fair value |  | Unrealized loss
Held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |
Obligations of state & political subdivisions |  | $ | 5,830 |  |  | $ | (27 | ) |  | $ | 359 |  |  | $ | (13 | ) |  | $ | 6,189 |  |  | $ | (40 | )
Corporate bonds |  | 3,009 |  |  | (1 | ) |  | 3,533 |  |  | (24 | ) |  | 6,542 |  |  | (25 | )
Total held-to-maturity |  | 8,839 |  |  | (28 | ) |  | 3,892 |  |  | (37 | ) |  | 12,731 |  |  | (65 | )
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA |  | 1,960 |  |  | (11 | ) |  | — |  |  | — |  |  | 1,960 |  |  | (11 | )
CMOs issued by FNMA |  | — |  |  | — |  |  | 4,115 |  |  | (58 | ) |  | 4,115 |  |  | (58 | )
CMOs issued by FHLMC |  | 17,157 |  |  | (44 | ) |  | 2,291 |  |  | (43 | ) |  | 19,448 |  |  | (87 | )
CMOs issued by GNMA |  | 3,262 |  |  | (16 | ) |  | — |  |  | — |  |  | 3,262 |  |  | (16 | )
Debentures of government- sponsored agencies |  | 494 |  |  | (1 | ) |  | 9,769 |  |  | (231 | ) |  | 10,263 |  |  | (232 | )
Privately issued CMOs |  | 817 |  |  | (15 | ) |  | — |  |  | — |  |  | 817 |  |  | (15 | )
Obligations of state & political subdivisions |  | 2,695 |  |  | (3 | ) |  | 1,112 |  |  | (5 | ) |  | 3,807 |  |  | (8 | )
Corporate bonds |  | 1,002 |  |  | (1 | ) |  | 990 |  |  | (3 | ) |  | 1,992 |  |  | (4 | )
Total available-for-sale |  | 27,387 |  |  | (91 | ) |  | 18,277 |  |  | (340 | ) |  | 45,664 |  |  | (431 | )
Total temporarily impaired securities |  | $ | 36,226 |  |  | $ | (119 | ) |  | $ | 22,169 |  |  | $ | (377 | ) |  | $ | 58,395 |  |  | $ | (496 | )
As of June 30, 2015, there were six investment positions that had been in a continuous loss position for more than twelve months. These securities consisted of a government-sponsored agency debenture, obligations of U.S. state and political subdivisions, and CMOs. We have evaluated each of the bonds and believe that the decline in fair value is primarily driven by factors other than credit. It is probable that we will be able to collect all amounts due according to the contractual terms and no other-than-temporary impairment exists on these securities. The CMOs issued by FNMA and FHLMC are supported by the U.S. Federal Government to protect us from credit losses. Additionally, the obligations of state and political subdivisions were deemed creditworthy based on our review of the issuers' recent financial information and their insurers, if any. Based upon our assessment of the credit fundamentals and the credit enhancements, we concluded that these securities were not other-than-temporarily impaired at June 30, 2015. Twenty-nine investment securities in our portfolio were in a temporary loss position for less than twelve months as of June 30, 2015. They consisted of a U.S. Agency CMO, MBS pass-through securities, obligations of U.S. state and political subdivisions, corporate bonds and privately issued CMOs. We determine that the strengths of GNMA through the U.S. Federal Government guarantee is sufficient to protect us from credit losses. Other temporarily impaired securities are deemed creditworthy after internal analysis. Additionally, all are rated as investment grade by at least one major rating agency. As a result of this impairment analysis, we concluded that these securities were not other-than-temporarily impaired at June 30, 2015. Non-Marketable Securities As a member of the FHLB, we are required to maintain a minimum investment in the FHLB capital stock determined by the Board of Directors of the FHLB. The minimum investment requirements can increase in the event we increase our 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. We held $8.4 million and $8.2 million of FHLB stock recorded at cost in other assets on the consolidated statements of condition at June 30, 2015 and December 31, 2014, 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. Management does not believe that the FHLB stock is other-than-temporarily-impaired, as we expect to be able to redeem this stock at cost. FHLB distributed on May 14, 2015 a cash dividend at an annualized dividend rate of 7.67% in addition to a special dividend distributed on June 23, 2015 at an annualized dividend rate of 14.98% for shares outstanding during the first quarter of 2015. On July 28, 2015, FHLB announced a cash dividend for the second quarter of 2015 at an annualized dividend rate of 10.01% to be distributed in mid August. Cash dividends paid on FHLB capital stock are recorded as non-interest income. As a member bank of Visa U.S.A., we hold 16,939 shares of Visa Inc. Class B common stock with a carrying value of zero, which is equal to our cost basis. These shares are restricted from resale until their conversion into Class A (voting) shares upon the termination of Visa Inc.'s covered litigation escrow account. As a result of the restriction, these shares are not considered available-for-sale and are not carried at fair value. When converting this Class B common stock to Class A common stock under the current conversion rate of 1.6483 and the closing stock price of Class A shares, the value of our shares of Class B common stock would have been $1.9 million at June 30, 2015 and $1.8 million at December 31, 2014. The conversion rate is subject to further reduction upon the final settlement of the covered litigation against Visa Inc. and its member banks. See Note 8 herein. We invest in low income housing tax credit funds as a limited partner, which totaled $2.8 million and $1.8 million recorded in other assets as of June 30, 2015 and December 31, 2014, respectively. In the first six months of 2015, we recognized $132 thousand of low income housing tax credits and other tax benefits, net of $102 thousand of amortization expense of low income housing tax credit investment, as a component of income tax benefit. As of June 30, 2015, our unfunded commitments for these low income housing tax credit funds totaled $2.0 million. We did not recognize any impairment losses on these low income housing tax credit investments during the first six months of 2015, or the year ended December 31, 2014.

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