XML 21 R9.htm IDEA: XBRL DOCUMENT
v3.8.0.1

Investment Securities | 12 Months Ended
--- | ---
Dec. 31, 2017
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"), Small Business Administration ("SBA") backed securities, 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, 2017 | December 31, 2016
| 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 | $ | 19,646 |  | $ | 19,998 |  | $ | 383 |  | $ | (31 | ) | $ | 30,856 |  | $ | 31,544 |  | $ | 694 |  | $ | (6 | )
Corporate bonds | — |  | — |  | — |  | — |  | 3,519 |  | 3,518 |  | — |  | (1 | )
MBS pass-through securities issued by FHLMC and FNMA | 100,376 |  | 100,096 |  | 234 |  | (514 | ) | 10,063 |  | 10,035 |  | 126 |  | (154 | )
CMOs issued by FHLMC | 31,010 |  | 30,938 |  | 2 |  | (74 | ) | — |  | — |  | — |  | — |
Total held-to-maturity | 151,032 |  | 151,032 |  | 619 |  | (619 | ) | 44,438 |  | 45,097 |  | 820 |  | (161 | )
Available-for-sale: |  |  |  |  |  |  |  |
Securities of U.S. government agencies: |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | 65,559 |  | 65,262 |  | 126 |  | (423 | ) | 193,384 |  | 189,959 |  | 145 |  | (3,570 | )
SBA-backed securities | 25,979 |  | 25,982 |  | 58 |  | (55 | ) | 614 |  | 607 |  | — |  | (7 | )
CMOs issued by FNMA | 35,340 |  | 35,125 |  | 33 |  | (248 | ) | 13,790 |  | 13,772 |  | 91 |  | (109 | )
CMOs issued by FHLMC | 70,514 |  | 69,889 |  | 3 |  | (628 | ) | 43,452 |  | 42,758 |  | 37 |  | (731 | )
CMOs issued by GNMA | 17,953 |  | 17,785 |  | 26 |  | (194 | ) | 6,844 |  | 6,945 |  | 102 |  | (1 | )
Debentures of government- sponsored agencies | 12,940 |  | 12,938 |  | 3 |  | (5 | ) | 35,486 |  | 35,403 |  | 7 |  | (90 | )
Privately issued CMOs | 1,432 |  | 1,431 |  | 1 |  | (2 | ) | 419 |  | 419 |  | 1 |  | (1 | )
Obligations of state and political subdivisions | 98,027 |  | 97,491 |  | 298 |  | (834 | ) | 79,306 |  | 77,701 |  | 135 |  | (1,740 | )
Corporate bonds | 6,541 |  | 6,564 |  | 26 |  | (3 | ) | 4,959 |  | 5,016 |  | 57 |  | — |
Total available-for-sale | 334,285 |  | 332,467 |  | 574 |  | (2,392 | ) | 378,254 |  | 372,580 |  | 575 |  | (6,249 | )
Total investment securities | $ | 485,317 |  | $ | 483,499 |  | $ | 1,193 |  | $ | (3,011 | ) | $ | 422,692 |  | $ | 417,677 |  | $ | 1,395 |  | $ | (6,410 | )
The amortized cost and fair value of investment debt securities by contractual maturity at December 31, 2017 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, 2017 | December 31, 2016
| 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 | $ | 2,151 |  | $ | 2,172 |  | $ | 10,268 |  | $ | 10,272 |  | $ | 13,473 |  | $ | 13,506 |  | $ | 20,136 |  | $ | 20,109 |
After one but within five years | 15,577 |  | 15,791 |  | 71,576 |  | 71,237 |  | 16,706 |  | 17,150 |  | 58,334 |  | 58,267 |
After five years through ten years | 54,641 |  | 54,554 |  | 129,723 |  | 128,954 |  | 3,000 |  | 3,125 |  | 113,576 |  | 110,842 |
After ten years | 78,663 |  | 78,515 |  | 122,718 |  | 122,004 |  | 11,259 |  | 11,316 |  | 186,208 |  | 183,362 |
Total | $ | 151,032 |  | $ | 151,032 |  | $ | 334,285 |  | $ | 332,467 |  | $ | 44,438 |  | $ | 45,097 |  | $ | 378,254 |  | $ | 372,580 |
Sales of investment securities and gross gains and losses are shown in the following table.
(in thousands) | 2017 | 2016 | 2015
Available-for-sale: |  |  |
Sales proceeds | $ | 55,408 |  | $ | 68,673 |  | $ | 2,099 |
Gross realized gains | $ | 46 |  | $ | 458 |  | $ | 7 |
Gross realized losses | $ | (231 | ) | $ | (64 | ) | $ | (1 | )
Held-to-maturity: |  |  |
Sales proceeds | $ | — |  | $ | 1,265 |  | $ | 1,015 |
Gross realized gains | $ | — |  | $ | 32 |  | $ | 73 |
Gross realized losses | $ | — |  | $ | — |  | $ | — |
Pledged investment securities are shown in the following table:
(in thousands) | December 31, 2017 | December 31, 2016
Pledged to the State of California: |  |
Secure public deposits in compliance with the Local Agency Security Program | $ | 107,829 |  | $ | 108,304 |
Collateral for trust deposits | 761 |  | 822 |
Total investment securities pledged to the State of California | $ | 108,590 |  | $ | 109,126 |
Collateral for Wealth Management and Trust Services ("WMTS') checking account | $ | 2,026 |  | $ | 2,146 |
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. During 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 net unrealized pre-tax losses of $3.0 million at the date of transfer remained in accumulated other comprehensive income and are amortized over the remaining lives of the securities. Amortization of the net unrealized pre-tax losses totaled $426 thousand in 2017, and $21 thousand and $61 thousand in 2016 and 2015, respectively, for securities transferred from available-for-sale to held-to-maturity in 2014. There were no securities transferred from available-for-sale to held to maturity in 2016 or 2015. 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, 2017. 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, 2017 before recovery of the amortized cost basis. There were 198 and 134 securities in unrealized loss positions at December 31, 2017 and 2016, respectively. Those securities are summarized and classified according to the duration of the loss period in the tables below:
December 31, 2017 | < 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 | $ | 16,337 |  | $ | (143 | ) |  | $ | 46,845 |  | $ | (371 | ) |  | $ | 63,182 |  | $ | (514 | )
Obligations of state and political subdivisions | 3,648 |  | (31 | ) |  | — |  | — |  |  | 3,648 |  | (31 | )
CMOs issued by FHLMC | 11,066 |  | (31 | ) |  | 13,824 |  | (43 | ) |  | 24,890 |  | (74 | )
Total held-to-maturity | 31,051 |  | (205 | ) |  | 60,669 |  | (414 | ) |  | 91,720 |  | (619 | )
Available-for-sale: |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | 32,189 |  | (121 | ) |  | 15,325 |  | (302 | ) |  | 47,514 |  | (423 | )
SBA-backed securities | 11,028 |  | (53 | ) |  | 165 |  | (2 | ) |  | 11,193 |  | (55 | )
CMOs issued by FNMA | 26,401 |  | (171 | ) |  | 5,440 |  | (77 | ) |  | 31,841 |  | (248 | )
CMOs issued by FHLMC | 69,276 |  | (628 | ) |  | — |  | — |  |  | 69,276 |  | (628 | )
CMOs issued by GNMA | 14,230 |  | (194 | ) |  | — |  | — |  |  | 14,230 |  | (194 | )
Debentures of government-sponsored agencies | 2,984 |  | (5 | ) |  | — |  | — |  |  | 2,984 |  | (5 | )
Obligations of state and political subdivisions | 52,197 |  | (288 | ) |  | 19,548 |  | (546 | ) |  | 71,745 |  | (834 | )
Corporate bonds | 3,060 |  | (3 | ) |  |  |  |  | 3,060 |  | (3 | )
Privately issued CMO's | 1,310 |  | (2 | ) |  | — |  | — |  |  | 1,310 |  | (2 | )
Total available-for-sale | 212,675 |  | (1,465 | ) |  | 40,478 |  | (927 | ) |  | 253,153 |  | (2,392 | )
Total temporarily impaired securities | $ | 243,726 |  | $ | (1,670 | ) |  | $ | 101,147 |  | $ | (1,341 | ) |  | $ | 344,873 |  | $ | (3,011 | )
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 | 161,409 |  | (3,570 | ) |  | — |  | — |  |  | 161,409 |  | (3,570 | )
SBA-backed securities | 607 |  | (7 | ) |  | — |  | — |  |  | 607 |  | (7 | )
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 | )
Corporate bonds | 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 | )
As of December 31, 2017, fifty-five investment securities in our portfolio had been in a continuous loss position for twelve months or more. They consisted of thirty-two obligations of U.S. state and political subdivisions, four CMOs issued by FHLMC, three CMOs issued by FNMA and sixteen agency MBS securities. We have evaluated each issuer's financial information as well as credit enhancement and guarantees, 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. Based upon our assessment of the credit fundamentals, we concluded that these securities were not other-than-temporarily impaired at December 31, 2017. There were one hundred forty-three investment securities in our portfolio that had been in temporary loss positions for less than twelve months as of December 31, 2017, and their temporary loss positions mainly arose from changes in interest rates since purchase. They consisted of eighty-one obligations of U.S. state and political subdivisions, five corporate bonds, sixteen agency MBS securities, thirty-four agency CMOs, two privately issued CMOs and five debentures of government-sponsored agencies. Securities 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 concluded that these securities were not other-than-temporarily impaired at December 31, 2017. 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 $11.1 million and $10.2 million of FHLB stock recorded at cost in other assets on the consolidated statements of condition at December 31, 2017 and 2016, 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, 2018, FHLB announced a cash dividend for the fourth quarter of 2017 at an annualized dividend rate of 7.00% to be distributed in mid-March 2018. 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 1, 2018, and the closing stock price of Class A shares, the value of our shares of Class B common stock would have been $3.2 million and $2.2 million at December 31, 2017 and 2016, respectively. 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 $2.1 million and $2.5 million recorded in other assets as of December 31, 2017 and 2016, respectively. In 2017, we recognized $332 thousand of low income housing tax credits and other tax benefits, net of $331 thousand of amortization expense of low income housing tax credit investment, as a component of income tax expense. As of December 31, 2017, our unfunded commitments for these low income housing tax credit funds totaled $546 thousand. We did not recognize any impairment losses on these low income housing tax credit investments during 2017 or 2016, as the value of the future tax benefits exceeds the carrying value of the investments. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law, which reduces the federal corporate income tax rate from 35% to 21% for tax years beginning 2018. Due to the tax rate change, we revised the amortization schedule according to the proportional amortization method for the tax deduction benefits on these low income housing tax credit investments starting in 2018 using the 21% federal tax rate and recorded a catch-up amortization expense of $67 thousand in 2017 as a component of income tax expense.

X
- References No definition available. + Details
Name: | us-gaap_InvestmentsDebtAndEquitySecuritiesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -URI http://asc.fasb.org/topic&trid=2196928 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=4738149 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 940 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2176304 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2209399 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 954 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2289146 + Details
Name: | us-gaap_InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration