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, Federal Farm Credit Bureau, FHLB and FHLMC, as well as privately issued CMOs, as reflected in the table below:



	March 31, 2016									December 31, 2015
	Amortized		Fair		Gross Unrealized					Amortized		Fair		Gross Unrealized
(in thousands)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)
Held-to-maturity:
Obligations of state and political subdivisions	$	40,254	$	41,580	$	1,338	$	(12	)	$	42,919	$	44,146	$	1,246	$	(19	)
Corporate bonds	11,544		11,560		19		(3		)	15,072		15,098		42		(16		)
MBS pass-through securities issued by FHLMC and FNMA	11,448		11,708		267		(7		)	11,646		11,810		171		(7		)
Total held-to-maturity	63,246		64,848		1,624		(22		)	69,637		71,054		1,459		(42		)
Available-for-sale:
Securities of U.S. government or government-sponsored agencies:
MBS pass-through securities issued by FHLMC and FNMA	128,434		129,983		1,613		(64		)	138,222		138,462		694		(454		)
CMOs issued by FNMA	17,190		17,290		147		(47		)	18,266		18,219		97		(144		)
CMOs issued by FHLMC	23,287		23,471		196		(12		)	22,889		22,932		82		(39		)
CMOs issued by GNMA	9,394		9,562		172		(4		)	10,326		10,480		169		(15		)
Debentures of government- sponsored agencies	87,592		87,623		93		(62		)	161,690		160,892		28		(826		)
Privately issued CMOs	3,785		3,971		187		(1		)	3,960		4,150		190		—
Obligations of state and political subdivisions	58,412		59,373		964		(3		)	57,110		57,673		580		(17		)
Corporate bonds	4,950		4,961		25		(14		)	4,947		4,979		43		(11		)
Total available-for-sale	333,044		336,234		3,397		(207		)	417,410		417,787		1,883		(1,506		)
Total investment securities	$	396,290	$	401,082	$	5,021	$	(229	)	$	487,047	$	488,841	$	3,342	$	(1,548	)

The amortized cost and fair value of investment debt securities by contractual maturity at March 31, 2016 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.



	March 31, 2016								December 31, 2015
	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	$	16,713	$	16,805	$	8,798	$	8,825	$	18,853	$	18,920	$	12,135	$	12,176
After one year but within five years	28,225		28,929		114,762		115,006		31,677		32,360		188,007		187,326
After five years through ten years	7,974		8,394		64,092		64,720		8,580		8,969		64,899		64,999
After ten years	10,334		10,720		145,392		147,683		10,527		10,805		152,369		153,286
Total	$	63,246	$	64,848	$	333,044	$	336,234	$	69,637	$	71,054	$	417,410	$	417,787

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



	Three months ended
(in thousands)	March 31, 2016		March 31, 2015
Available-for-sale:
Sales proceeds	$	54,985	$	1,559
Gross realized gains	$	110	$	8

Investment securities carried at $84.8 million and $87.9 million at March 31, 2016 and December 31, 2015, respectively, were pledged to the State of California: $84.0 million and $87.1 million to secure public deposits in compliance with the Local Agency Security Program at March 31, 2016 and December 31, 2015, respectively, and $836 thousand and $840 thousand to provide collateral for trust deposits at March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015.

Other-Than-Temporarily Impaired Debt Securities

We have evaluated the credit of our investment securities and their issuers 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 March 31, 2016. We do not have the intent and it is more likely than not that we will not have to sell securities temporarily impaired at March 31, 2016 before recovery of the cost basis.

Twenty-three and fifty-four investment securities were in unrealized loss positions at March 31, 2016 and December 31, 2015, respectively. Those securities are summarized and classified according to the duration of the loss period in the tables below:



March 31, 2016	< 12 continuous months					≥ 12 continuous months					Total securities in a loss position
(in thousands)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Held-to-maturity:
Obligations of state and political subdivisions	$	1,057	$	(12	)	$	—	$	—		$	1,057	$	(12	)
Corporate bonds	3,530		(3		)	—		—			3,530		(3		)
MBS pass-through securities issued by FHLMC and FNMA	—		—			2,320		(7		)	2,320		(7		)
Total held-to-maturity	4,587		(15		)	2,320		(7		)	6,907		(22		)
Available-for-sale:
MBS pass-through securities issued by FHLMC and FNMA	21,435		(64		)	—		—			21,435		(64		)
CMOs issued by FNMA	6,515		(16		)	2,986		(31		)	9,501		(47		)
CMOs issued by FHLMC	1,938		(12		)	—		—			1,938		(12		)
CMOs issued by GNMA	—		—			2,219		(4		)	2,219		(4		)
Debentures of government- sponsored agencies	9,967		(30		)	9,968		(32		)	19,935		(62		)
Privately issued CMOs	212		(1		)	—		—			212		(1		)
Obligations of state & political subdivisions	2,487		(3		)	—		—			2,487		(3		)
Corporate bonds	2,982		(14		)	—		—			2,982		(14		)
Total available-for-sale	45,536		(140		)	15,173		(67		)	60,709		(207		)
Total temporarily impaired securities	$	50,123	$	(155	)	$	17,493	$	(74	)	$	67,616	$	(229	)



December 31, 2015	< 12 continuous months					≥ 12 continuous months					Total securities in a loss position
(in thousands)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Held-to-maturity:
Obligations of state and political subdivisions	$	8,297	$	(19	)	$	—	$	—		$	8,297	$	(19	)
Corporate bonds	3,523		(15		)	1,999		(1		)	5,522		(16		)
MBS pass-through securities issued by FHLMC and FNMA	2,332		(7		)	—		—			2,332		(7		)
Total held-to-maturity	14,152		(41		)	1,999		(1		)	16,151		(42		)
Available-for-sale:
MBS pass-through securities issued by FHLMC and FNMA	68,809		(454		)	—		—			68,809		(454		)
CMOs issued by FNMA	9,277		(80		)	3,158		(64		)	12,435		(144		)
CMOs issued by FHLMC	—		—			1,989		(39		)	1,989		(39		)
CMOs issued by GNMA	164		—			2,374		(15		)	2,538		(15		)
Debentures of government- sponsored agencies	136,064		(713		)	9,887		(113		)	145,951		(826		)
Obligations of state & political subdivisions	4,557		(15		)	579		(2		)	5,136		(17		)
Corporate bonds	2,986		(11		)	—		—			2,986		(11		)
Total available-for-sale	221,857		(1,273		)	17,987		(233		)	239,844		(1,506		)
Total temporarily impaired securities	$	236,009	$	(1,314	)	$	19,986	$	(234	)	$	255,995	$	(1,548	)

As of March 31, 2016, there were four investment positions that had been in a continuous loss position for twelve months or more. These securities consisted of a government-sponsored agency debenture, an MBS and CMOs issued by government or government-sponsored agencies. 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. We determine that the strength of GNMA through the U.S. Federal Government guarantee is sufficient to protect us from credit losses. The government-sponsored agency debenture, the MBS and CMOs issued by FNMA are supported by the U.S. Federal Government to protect us from credit losses. Based upon our assessment of the credit fundamentals, we concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

Nineteen investment securities in our portfolio were in a temporary loss position for less than twelve months as of March 31, 2016. They consisted of U.S. agency CMO and MBS pass-through securities, obligations of U.S. state and political subdivisions, one privately issued CMO and corporate bonds. The government-sponsored agency debenture, MBS and CMOs issued by FNMA and FHLMC are supported by the U.S. Federal Government to protect us from credit losses. Other temporarily impaired securities are deemed creditworthy after internal analysis of the issuer's latest financial information and credit enhancement. Additionally, all are rated as investment grade by at least one major rating agency. As a result of this impairment analysis, we have concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

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 of FHLB stock recorded at cost in other assets on the consolidated statements of condition at both March 31, 2016 and December 31, 2015. 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. On April 28, 2016, FHLB announced a cash dividend for the first quarter of 2016 at an annualized dividend rate of 8.90% to be distributed in mid May 2016. 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 $2.1 million at March 31, 2016 and $2.2 million at December 31, 2015. 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 $2.6 million and $2.7 million recorded in other assets as of March 31, 2016 and December 31, 2015, respectively. In the first quarter of 2016, we recognized $82 thousand of low income housing tax credits and other tax benefits, net of $63 thousand of amortization expense of low income housing tax credit investment, as a component of income tax expense. As of March 31, 2016, our unfunded commitments for these low income housing tax credit funds totaled $1.7 million. We did not recognize any impairment losses on these low income housing tax credit investments during the first quarter of 2016 or 2015.