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Investment Securities | 12 Months Ended
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Dec. 31, 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:
| December 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 | $ | 30,856 |  | $ | 31,544 |  | $ | 694 |  | $ | (6 | ) | $ | 42,919 |  | $ | 44,146 |  | $ | 1,246 |  | $ | (19 | )
Corporate bonds | 3,519 |  | 3,518 |  | — |  | (1 | ) | 15,072 |  | 15,098 |  | 42 |  | (16 | )
MBS pass-through securities issued by FHLMC and FNMA | 10,063 |  | 10,035 |  | 126 |  | (154 | ) | 11,646 |  | 11,810 |  | 171 |  | (7 | )
Total held-to-maturity | 44,438 |  | 45,097 |  | 820 |  | (161 | ) | 69,637 |  | 71,054 |  | 1,459 |  | (42 | )
Available-for-sale: |  |  |  |  |  |  |  |
Securities of U.S. government agencies: |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | 193,998 |  | 190,566 |  | 145 |  | (3,577 | ) | 138,222 |  | 138,462 |  | 694 |  | (454 | )
CMOs issued by FNMA | 13,790 |  | 13,772 |  | 91 |  | (109 | ) | 18,266 |  | 18,219 |  | 97 |  | (144 | )
CMOs issued by FHLMC | 43,452 |  | 42,758 |  | 37 |  | (731 | ) | 22,889 |  | 22,932 |  | 82 |  | (39 | )
CMOs issued by GNMA | 6,844 |  | 6,945 |  | 102 |  | (1 | ) | 10,326 |  | 10,480 |  | 169 |  | (15 | )
Debentures of government- sponsored agencies | 35,486 |  | 35,403 |  | 7 |  | (90 | ) | 161,690 |  | 160,892 |  | 28 |  | (826 | )
Privately issued CMOs | 419 |  | 419 |  | 1 |  | (1 | ) | 3,960 |  | 4,150 |  | 190 |  | — |
Obligations of state and political subdivisions | 79,306 |  | 77,701 |  | 135 |  | (1,740 | ) | 57,110 |  | 57,673 |  | 580 |  | (17 | )
Corporate bonds | 4,959 |  | 5,016 |  | 57 |  | — |  | 4,947 |  | 4,979 |  | 43 |  | (11 | )
Total available-for-sale | 378,254 |  | 372,580 |  | 575 |  | (6,249 | ) | 417,410 |  | 417,787 |  | 1,883 |  | (1,506 | )
Total investment securities | $ | 422,692 |  | $ | 417,677 |  | $ | 1,395 |  | $ | (6,410 | ) | $ | 487,047 |  | $ | 488,841 |  | $ | 3,342 |  | $ | (1,548 | )
The amortized cost and fair value of investment debt securities by contractual maturity at December 31, 2016 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.
| December 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 | $ | 13,473 |  | $ | 13,506 |  | $ | 20,136 |  | $ | 20,109 |  | $ | 18,853 |  | $ | 18,920 |  | $ | 12,135 |  | $ | 12,176 |
After one but within five years | 16,706 |  | 17,150 |  | 58,334 |  | 58,267 |  | 31,677 |  | 32,360 |  | 188,007 |  | 187,326 |
After five years through ten years | 3,000 |  | 3,125 |  | 113,576 |  | 110,842 |  | 8,580 |  | 8,969 |  | 64,899 |  | 64,999 |
After ten years | 11,259 |  | 11,316 |  | 186,208 |  | 183,362 |  | 10,527 |  | 10,805 |  | 152,369 |  | 153,286 |
Total | $ | 44,438 |  | $ | 45,097 |  | $ | 378,254 |  | $ | 372,580 |  | $ | 69,637 |  | $ | 71,054 |  | $ | 417,410 |  | $ | 417,787 |
Sales of investment securities and gross gains and losses are shown in the following table. The sales of the held-to-maturity securities were due to evidence of significant deterioration of the issuers' creditworthiness since purchase.
(in thousands) | 2016 | 2015 | 2014
Available-for-sale: |  |  |
Sales proceeds | $ | 68,673 |  | $ | 2,099 |  | $ | 2,436 |
Gross realized gains | $ | 458 |  | $ | 7 |  | $ | 4 |
Gross realized losses | $ | (64 | ) | $ | (1 | ) | $ | (28 | )
Held-to-maturity: |  |  |
Sales proceeds | $ | 1,265 |  | $ | 1,015 |  | $ | 2,146 |
Gross realized gains | $ | 32 |  | $ | 73 |  | $ | 104 |
Gross realized losses | $ | — |  | $ | — |  | $ | — |
Investment securities carried at $109.1 million and $87.9 million at December 31, 2016 and 2015, respectively, were pledged with the State of California: $108.3 million million and $87.1 million to secure public deposits in compliance with the Local Agency Security Program at December 31, 2016 and 2015, respectively, and $822 thousand and $840 thousand to provide collateral for trust deposits. 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 December 31, 2016 and 2015, respectively. As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain MBS pass-through and CMOs securities issued by FHLMC and FNMA. Effective February 24, 2017, we transferred $129 million of these securities, which we intend and have the ability to hold to maturity, from available-for-sale securities to held-to-maturity at fair value. The unrealized pre-tax loss of $3.0 million at the date of transfer remained in accumulated other comprehensive income and is amortized over the remaining lives of the securities. Other-Than-Temporarily Impaired ("OTTI") 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 December 31, 2016. We do not have the intent, and it is more likely than not that we will not have to sell the remaining securities temporarily impaired at December 31, 2016 before recovery of the amortized cost basis. One hundred thirty-four and fifty-four investment securities were in unrealized loss positions at December 31, 2016 and 2015, respectively. Those securities are summarized and classified according to the duration of the loss period in the tables below:
December 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: |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | $ | 2,250 |  | $ | (154 | ) |  |  |  |  |  |  | $ | 2,250 |  | $ | (154 | )
Obligations of state and political subdivisions | 3,362 |  | (6 | ) |  |  |  |  |  |  | 3,362 |  | (6 | )
Corporate bonds | 3,518 |  | (1 | ) |  |  |  |  |  |  | 3,518 |  | (1 | )
Total held-to-maturity | 9,130 |  | (161 | ) |  | — |  | — |  |  | 9,130 |  | (161 | )
Available-for-sale: |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | 162,016 |  | (3,577 | ) |  |  |  |  |  |  | 162,016 |  | (3,577 | )
CMOs issued by FNMA | 9,498 |  | (109 | ) |  |  |  |  |  |  | 9,498 |  | (109 | )
CMOs issued by FHLMC | 31,545 |  | (731 | ) |  |  |  |  |  |  | 31,545 |  | (731 | )
CMOs issued by GNMA | 1,583 |  | (1 | ) |  |  |  |  |  |  | 1,583 |  | (1 | )
Debentures of government- sponsored agencies | 19,951 |  | (38 | ) |  | 9,946 |  | (52 | ) |  | 29,897 |  | (90 | )
Obligations of state and political subdivisions | 59,567 |  | (1,740 | ) |  |  |  |  |  |  | 59,567 |  | (1,740 | )
Privately issued CMO's | 154 |  | (1 | ) |  |  |  |  |  |  | 154 |  | (1 | )
Total available-for-sale | 284,314 |  | (6,197 | ) |  | 9,946 |  | (52 | ) |  | 294,260 |  | (6,249 | )
Total temporarily impaired securities | $ | 293,444 |  | $ | (6,358 | ) |  | $ | 9,946 |  | $ | (52 | ) |  | $ | 303,390 |  | $ | (6,410 | )
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: |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | $ | 2,332 |  | $ | (7 | ) |  | $ | — |  | $ | — |  |  | $ | 2,332 |  | $ | (7 | )
Obligations of state and political subdivisions | 8,297 |  | (19 | ) |  | — |  | — |  |  | 8,297 |  | (19 | )
Corporate bonds | 3,523 |  | (15 | ) |  | 1,999 |  | (1 | ) |  | 5,522 |  | (16 | )
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 and 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 December 31, 2016, there was one debenture of government-sponsored agency security that had been in a continuous loss position for twelve months or more. We have evaluated it 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 as it is supported by the U.S. Federal Government, which protects us from credit losses. Based upon our assessment of the credit fundamentals, we concluded that this security was not other-than-temporarily impaired at December 31, 2016. One hundred thirty-three investment securities in our portfolio were in a temporary loss position for less than twelve months as of December 31, 2016, and their temporary loss positions mainly arose from changes in interest rates since purchase. They consisted of eighty-six obligations of U.S. state and political subdivisions, one corporate bond, thirty-one MBS securities, thirteen CMOs, one privately issued CMO and one debenture of government-sponsored agencies. The MBS, CMOs and debentures issued by 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 concluded that these securities were not other-than-temporarily impaired at December 31, 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 December 31, 2016 and 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, due to FHLB's current financial position. On February 21, 2017, FHLB announced a cash dividend for the fourth quarter of 2016 at an annualized dividend rate of 9.08%to be distributed in mid-March 2017. 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 February 2, 2017, and the closing stock price of Class A shares, the value of our shares of Class B common stock would have been $2.2 million at both December 31, 2016 and 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 12, Commitments and Contingencies 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 as of December 31, 2016 and 2015, respectively. In 2016, we recognized $297 thousand of low income housing tax credits and other tax benefits, net of $236 thousand of amortization expense of low income housing tax credit investment, as a component of income tax expense. As of December 31, 2016, our unfunded commitments for these low income housing tax credit funds totaled $1.4 million. We did not recognize any impairment losses on these low income housing tax credit investments during 2016 or 2015.

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