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Investment Securities | 9 Months Ended
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Sep. 30, 2016
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, Federal Farm Credit Bureau, FHLB and FHLMC, as well as privately issued CMOs, as reflected in the table below:
| September 30, 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 | $ | 32,765 |  | $ | 33,868 |  | $ | 1,106 |  | $ | (3 | ) |  | $ | 42,919 |  | $ | 44,146 |  | $ | 1,246 |  | $ | (19 | )
Corporate bonds | 3,524 |  | 3,523 |  | 0 |  | (1 | ) |  | 15,072 |  | 15,098 |  | 42 |  | (16 | )
MBS pass-through securities issued by FHLMC and FNMA | 10,134 |  | 10,476 |  | 342 |  | — |  |  | 11,646 |  | 11,810 |  | 171 |  | (7 | )
Total held-to-maturity | 46,423 |  | 47,867 |  | 1,448 |  | (4 | ) |  | 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 | 196,987 |  | 198,999 |  | 2,239 |  | (227 | ) |  | 138,222 |  | 138,462 |  | 694 |  | (454 | )
CMOs issued by FNMA | 14,885 |  | 15,104 |  | 219 |  | — |  |  | 18,266 |  | 18,219 |  | 97 |  | (144 | )
CMOs issued by FHLMC | 30,555 |  | 30,887 |  | 332 |  | — |  |  | 22,889 |  | 22,932 |  | 82 |  | (39 | )
CMOs issued by GNMA | 7,654 |  | 7,834 |  | 180 |  | — |  |  | 10,326 |  | 10,480 |  | 169 |  | (15 | )
Debentures of government- sponsored agencies | 40,486 |  | 40,576 |  | 98 |  | (8 | ) |  | 161,690 |  | 160,892 |  | 28 |  | (826 | )
Privately issued CMOs | 560 |  | 560 |  | 1 |  | (1 | ) |  | 3,960 |  | 4,150 |  | 190 |  | — |
Obligations of state and political subdivisions | 78,719 |  | 80,027 |  | 1,401 |  | (93 | ) |  | 57,110 |  | 57,673 |  | 580 |  | (17 | )
Corporate bonds | 4,956 |  | 5,009 |  | 53 |  | — |  |  | 4,947 |  | 4,979 |  | 43 |  | (11 | )
Total available-for-sale | 374,802 |  | 378,996 |  | 4,523 |  | (329 | ) |  | 417,410 |  | 417,787 |  | 1,883 |  | (1,506 | )
Total investment securities | $ | 421,225 |  | $ | 426,863 |  | $ | 5,971 |  | $ | (333 | ) |  | $ | 487,047 |  | $ | 488,841 |  | $ | 3,342 |  | $ | (1,548 | )
The amortized cost and fair value of investment debt securities by contractual maturity at September 30, 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.
| September 30, 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 | $ | 14,037 |  | $ | 14,115 |  |  | $ | 17,067 |  | $ | 17,080 |  |  | $ | 18,853 |  | $ | 18,920 |  |  | $ | 12,135 |  | $ | 12,176 |
After one year but within five years | 16,583 |  | 17,212 |  |  | 67,087 |  | 67,487 |  |  | 31,677 |  | 32,360 |  |  | 188,007 |  | 187,326 |
After five years through ten years | 4,467 |  | 4,739 |  |  | 87,774 |  | 88,871 |  |  | 8,580 |  | 8,969 |  |  | 64,899 |  | 64,999 |
After ten years | 11,336 |  | 11,801 |  |  | 202,873 |  | 205,558 |  |  | 10,527 |  | 10,805 |  |  | 152,369 |  | 153,286 |
Total | $ | 46,423 |  | $ | 47,867 |  |  | $ | 374,801 |  | $ | 378,996 |  |  | $ | 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 |  | Nine months ended
(in thousands) | September 30, 2016 |  | September 30, 2015 |  | September 30, 2016 |  | September 30, 2015
Available-for-sale: |  |  |  |  |  |  |
Sales proceeds | $ | — |  |  | $ | — |  |  | $ | 68,673 |  |  | $ | 1,559 |
Gross realized gains | — |  |  | — |  |  | 458 |  |  | 8 |
Gross realized losses | — |  |  | — |  |  | (64 | ) |  | — |
Held-to-Maturity: |  |  |  |  |  |  |
Sales proceeds | $ | — |  |  | $ | 1,015 |  |  | $ | — |  |  | $ | 1,015 |
Gross realized gains | — |  |  | 72 |  |  | — |  |  | 72 |
Gross realized losses | — |  |  | — |  |  | — |  |  | — |
Investment securities carried at $70.7 million and $87.9 million at September 30, 2016 and December 31, 2015, respectively, were pledged to the State of California: $69.9 million and $87.1 million to secure public deposits in compliance with the Local Agency Security Program at September 30, 2016 and December 31, 2015, respectively, and $827 thousand and $840 thousand to provide collateral for trust deposits at September 30, 2016 and December 31, 2015, respectively. In addition, investment securities carried at $2.1 million and $1.1 million were pledged to collateralize a Wealth Management and Trust Services (“WMTS”) checking account at September 30, 2016 and December 31, 2015, respectively. 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 securities in our investment portfolio is other-than-temporarily impaired as of September 30, 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 September 30, 2016 before recovery of the cost basis. Thirty-seven and fifty-four investment securities were in unrealized loss positions at September 30, 2016 and December 31, 2015, respectively. Those securities are summarized and classified according to the duration of the loss period in the tables below:
September 30, 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 | $ | 547 |  | $ | (3 | ) |  | $ | — |  | $ | — |  |  | $ | 547 |  | $ | (3 | )
Corporate bonds | 3,523 |  | (1 | ) |  | — |  | — |  |  | 3,523 |  | (1 | )
Total held-to-maturity | 4,070 |  | (4 | ) |  | — |  | — |  |  | 4,070 |  | (4 | )
Available-for-sale: |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | 69,229 |  | (227 | ) |  | — |  | — |  |  | 69,229 |  | (227 | )
Debentures of government- sponsored agencies | 14,992 |  | (8 | ) |  | — |  | — |  |  | 14,992 |  | (8 | )
Privately issued CMOs | 162 |  | (1 | ) |  | — |  | — |  |  | 162 |  | (1 | )
Obligations of state & political subdivisions | 14,236 |  | (93 | ) |  | — |  | — |  |  | 14,236 |  | (93 | )
Total available-for-sale | 98,619 |  | (329 | ) |  | — |  | — |  |  | 98,619 |  | (329 | )
Total temporarily impaired securities | $ | 102,689 |  | $ | (333 | ) |  | $ | — |  | $ | — |  |  | $ | 102,689 |  | $ | (333 | )
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 | )
The thirty-seven investment securities in our portfolio in a temporary loss position for less than twelve months as of September 30, 2016 consisted of two debentures of U.S. government-sponsored agencies, twenty-three obligations of U.S. state and political subdivisions, ten MBS securities issued by government-sponsored agencies, one privately issued CMO and one corporate bond. The debentures of government-sponsored agencies are supported by the U.S. Federal Government, which protects us from credit losses. Other temporarily impaired securities are deemed creditworthy after internal analysis of the issuers' 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 September 30, 2016. Non-Marketable Securities As a member of the FHLB, we are 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 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 $10.2 million and $8.4 million of FHLB stock recorded at cost in other assets on the consolidated statements of condition at September 30, 2016 and December 31, 2015, 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. On October 19, 2016, FHLB declared a special cash dividend of $3.41 per share on capital stock outstanding during the third quarter of 2016. In addition, on October 27, 2016, FHLB announced a cash dividend for the third quarter of 2016 at an annualized dividend rate of 8.94%. Both dividends will be distributed in mid November 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 conversion rate of 1.6483, as of the latest SEC Form 10-Q filed by Visa, Inc. on July 25, 2016, and the closing stock price of Class A shares, the value of our shares of Class B common stock would have been $2.3 million at September 30, 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 $2.5 million and $2.7 million recorded in other assets on the consolidated statements of condition at September 30, 2016 and December 31, 2015, respectively. In the first nine months of 2016, we recognized $223 thousand of low income housing tax credits and other tax benefits, net of $177 thousand of amortization expense of low income housing tax credit investment, as a component of income tax expense. As of September 30, 2016, our unfunded commitments for these low income housing tax credit funds totaled $1.5 million. We did not recognize any impairment losses on these low income housing tax credit investments during the first nine months of 2016 or 2015.

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