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Investment Securities | 9 Months Ended
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Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract] |
Investment Securities | Investment Securities Our investment securities portfolio consists of obligations of state and political subdivisions, U.S. corporations, U.S. federal government agencies such as Government National Mortgage Association ("GNMA") and Small Business Administration ("SBA"), U.S. government-sponsored enterprise securities ("GSEs"), such as Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Farm Credit Banks Funding Corporation and FHLB. We also invest in residential and commercial mortgage-backed securities (“MBS”/"CMBS") and collateralized mortgage obligations (“CMOs”) issued or guaranteed by the GSEs, and privately issued CMOs, as reflected in the following table:
| September 30, 2019 |  | December 31, 2018
| Amortized | Fair | Gross Unrealized |  | Amortized | Fair | Gross Unrealized
(in thousands) | Cost | Value | Gains | (Losses) |  | Cost | Value | Gains | (Losses)
Held-to-maturity: |  |  |  |  |  |  |  |  |
Securities of U.S. government-sponsored enterprises: |  |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | $ | 80,166 |  | $ | 81,308 |  | $ | 1,357 |  | $ | (215 | ) |  | $ | 88,606 |  | $ | 85,804 |  | $ | 7 |  | $ | (2,809 | )
SBA-backed securities | 8,001 |  | 8,360 |  | 359 |  | — |  |  | 8,720 |  | 8,757 |  | 37 |  | — |
CMOs issued by FNMA | 10,679 |  | 10,981 |  | 302 |  | — |  |  | 11,447 |  | 11,327 |  | — |  | (120 | )
CMOs issued by FHLMC | 32,568 |  | 33,524 |  | 966 |  | (10 | ) |  | 33,583 |  | 33,021 |  | 8 |  | (570 | )
CMOs issued by GNMA | 3,757 |  | 3,810 |  | 53 |  | — |  |  | 3,739 |  | 3,769 |  | 30 |  | — |
Obligations of state and political subdivisions | 7,042 |  | 7,135 |  | 93 |  | — |  |  | 11,111 |  | 11,216 |  | 128 |  | (23 | )
Total held-to-maturity | 142,213 |  | 145,118 |  | 3,130 |  | (225 | ) |  | 157,206 |  | 153,894 |  | 210 |  | (3,522 | )
Available-for-sale: |  |  |  |  |  |  |  |  |
Securities of U.S. government-sponsored enterprises: |  |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | 62,654 |  | 64,290 |  | 1,683 |  | (47 | ) |  | 95,339 |  | 94,467 |  | 358 |  | (1,230 | )
SBA-backed securities | 36,014 |  | 36,943 |  | 990 |  | (61 | ) |  | 50,722 |  | 50,781 |  | 465 |  | (406 | )
CMOs issued by FNMA | 24,168 |  | 24,560 |  | 392 |  | — |  |  | 28,275 |  | 28,079 |  | 134 |  | (330 | )
CMOs issued by FHLMC | 138,731 |  | 144,067 |  | 5,374 |  | (38 | ) |  | 145,979 |  | 144,836 |  | 454 |  | (1,597 | )
CMOs issued by GNMA | 12,621 |  | 12,686 |  | 66 |  | (1 | ) |  | 11,294 |  | 11,021 |  | 1 |  | (274 | )
Debentures of government- sponsored agencies | 23,069 |  | 23,822 |  | 753 |  | — |  |  | 52,956 |  | 53,018 |  | 185 |  | (123 | )
Privately issued CMOs | 120 |  | 119 |  | — |  | (1 | ) |  | 295 |  | 297 |  | 2 |  | — |
Obligations of state and political subdivisions | 48,993 |  | 50,232 |  | 1,292 |  | (53 | ) |  | 79,046 |  | 77,960 |  | 134 |  | (1,220 | )
Corporate bonds | 1,999 |  | 2,005 |  | 7 |  | (1 | ) |  | 2,004 |  | 2,005 |  | 15 |  | (14 | )
Total available-for-sale | 348,369 |  | 358,724 |  | 10,557 |  | (202 | ) |  | 465,910 |  | 462,464 |  | 1,748 |  | (5,194 | )
Total investment securities | $ | 490,582 |  | $ | 503,842 |  | $ | 13,687 |  | $ | (427 | ) |  | $ | 623,116 |  | $ | 616,358 |  | $ | 1,958 |  | $ | (8,716 | )
The amortized cost and fair value of investment debt securities by contractual maturity at September 30, 2019 and December 31, 2018 are shown in the following table 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.
| September 30, 2019 |  | December 31, 2018
| 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 | $ | 5,327 |  | $ | 5,335 |  |  | $ | 5,475 |  | $ | 5,478 |  |  | $ | 6,194 |  | $ | 6,182 |  |  | $ | 9,863 |  | $ | 9,795 |
After one but within five years | 2,269 |  | 2,318 |  |  | 57,102 |  | 58,144 |  |  | 5,481 |  | 5,492 |  |  | 84,871 |  | 84,435 |
After five years through ten years | 56,183 |  | 58,018 |  |  | 188,601 |  | 195,869 |  |  | 59,231 |  | 58,120 |  |  | 252,274 |  | 250,055 |
After ten years | 78,434 |  | 79,447 |  |  | 97,191 |  | 99,233 |  |  | 86,300 |  | 84,100 |  |  | 118,902 |  | 118,179 |
Total | $ | 142,213 |  | $ | 145,118 |  |  | $ | 348,369 |  | $ | 358,724 |  |  | $ | 157,206 |  | $ | 153,894 |  |  | $ | 465,910 |  | $ | 462,464 |
Sales of investment securities and gross gains and losses are shown in the following table.
| Three months ended |  | Nine months ended
(in thousands) | September 30, 2019 | September 30, 2018 |  | September 30, 2019 | September 30, 2018
Available-for-sale: |  |  |  |  |
Sales proceeds | $ | — |  | $ | 11,966 |  |  | $ | 66,081 |  | $ | 16,972 |
Gross realized gains | — |  | — |  |  | 214 |  | 27 |
Gross realized losses | — |  | (90 | ) |  | (159 | ) | (106 | )
Pledged investment securities are shown in the following table.
(in thousands) | September 30, 2019 | December 31, 2018
Pledged to the State of California: |  |
Secure public deposits in compliance with the Local Agency Security Program | $ | 84,574 |  | $ | 125,696 |
Collateral for trust deposits | 745 |  | 734 |
Total investment securities pledged to the State of California | $ | 85,319 |  | $ | 126,430 |
Collateral for Wealth Management and Trust Services checking account | $ | 625 |  | $ | 2,000 |
Other-Than-Temporarily Impaired ("OTTI") Debt Securities There were 37 and 229 securities in unrealized loss positions at September 30, 2019 and December 31, 2018, respectively. Those securities are summarized and classified according to the duration of the loss period in the tables below:
September 30, 2019 | < 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 | $ | 9,063 |  | $ | (24 | ) |  | $ | 23,799 |  | $ | (191 | ) |  | $ | 32,862 |  | $ | (215 | )
CMOs issued by FHLMC | — |  | — |  |  | 1,866 |  | (10 | ) |  | 1,866 |  | (10 | )
Total held-to-maturity | 9,063 |  | (24 | ) |  | 25,665 |  | (201 | ) |  | 34,728 |  | (225 | )
Available-for-sale: |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | 269 |  | (1 | ) |  | 7,628 |  | (46 | ) |  | 7,897 |  | (47 | )
SBA-backed securities | — |  | — |  |  | 2,785 |  | (61 | ) |  | 2,785 |  | (61 | )
CMOs issued by FNMA | — |  | — |  |  | — |  | — |  |  | — |  | — |
CMOs issued by FHLMC | 7,735 |  | (13 | ) |  | 9,722 |  | (25 | ) |  | 17,457 |  | (38 | )
CMOs issued by GNMA | — |  | — |  |  | 130 |  | (1 | ) |  | 130 |  | (1 | )
Privately issued CMOs | 79 |  | (1 | ) |  | — |  | — |  |  | 79 |  | (1 | )
Obligations of state and political subdivisions | 6,936 |  | (49 | ) |  | 966 |  | (4 | ) |  | 7,902 |  | (53 | )
Corporate bonds | — |  | — |  |  | 504 |  | (1 | ) |  | 504 |  | (1 | )
Total available-for-sale | 15,019 |  | (64 | ) |  | 21,735 |  | (138 | ) |  | 36,754 |  | (202 | )
Total temporarily impaired securities | $ | 24,082 |  | $ | (88 | ) |  | $ | 47,400 |  | $ | (339 | ) |  | $ | 71,482 |  | $ | (427 | )
December 31, 2018 | < 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 | $ | 198 |  | $ | (9 | ) |  | $ | 83,990 |  | $ | (2,800 | ) |  | $ | 84,188 |  | $ | (2,809 | )
CMOs issued by FNMA | — |  | — |  |  | 11,327 |  | (120 | ) |  | 11,327 |  | (120 | )
CMOs issued by FHLMC | 2,880 |  | (3 | ) |  | 28,171 |  | (567 | ) |  | 31,051 |  | (570 | )
Obligations of state and political subdivisions | — |  | — |  |  | 3,565 |  | (23 | ) |  | 3,565 |  | (23 | )
Total held-to-maturity | 3,078 |  | (12 | ) |  | 127,053 |  | (3,510 | ) |  | 130,131 |  | (3,522 | )
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |
MBS pass-through securities issued by FHLMC and FNMA | 19,971 |  | (128 | ) |  | 50,077 |  | (1,102 | ) |  | 70,048 |  | (1,230 | )
SBA-backed securities | 13,175 |  | (122 | ) |  | 20,123 |  | (284 | ) |  | 33,298 |  | (406 | )
CMOs issued by FNMA | 2,345 |  | (8 | ) |  | 16,138 |  | (322 | ) |  | 18,483 |  | (330 | )
CMOs issued by FHLMC | 24,094 |  | (330 | ) |  | 74,243 |  | (1,267 | ) |  | 98,337 |  | (1,597 | )
CMOs issued by GNMA | 1,666 |  | (7 | ) |  | 9,112 |  | (267 | ) |  | 10,778 |  | (274 | )
Debentures of government- sponsored agencies | 4,992 |  | (8 | ) |  | 11,349 |  | (115 | ) |  | 16,341 |  | (123 | )
Obligations of state and political subdivisions | 15,290 |  | (54 | ) |  | 52,804 |  | (1,166 | ) |  | 68,094 |  | (1,220 | )
Corporate Bonds | — |  | — |  |  | 1,004 |  | (14 | ) |  | 1,004 |  | (14 | )
Total available-for-sale | 81,533 |  | (657 | ) |  | 234,850 |  | (4,537 | ) |  | 316,383 |  | (5,194 | )
Total temporarily impaired securities | $ | 84,611 |  | $ | (669 | ) |  | $ | 361,903 |  | $ | (8,047 | ) |  | $ | 446,514 |  | $ | (8,716 | )
As of September 30, 2019, the investment portfolio included 25 investment securities that had been in a continuous loss position for twelve months or more and 12 investment securities that had been in a loss position for less than twelve months. Securities issued by government-sponsored agencies, such as FNMA and FHLMC, usually have implicit credit support by the U.S. federal government. However, since 2008, FNMA and FHLMC have been under government conservatorship and, therefore, contractual cash flows for these investments carry explicit guarantees by the U.S. federal government. Securities issued by the SBA and GNMA have explicit credit guarantees by the U.S. federal government, which protects us from credit losses on the contractual cash flows of the securities. Other temporarily impaired securities, including obligations of state and political subdivisions and corporate bonds, were deemed credit worthy after our internal analyses of the issuers’ latest financial information, credit ratings by major credit agencies, and/or credit enhancements. Based on our comprehensive analyses, we determined that the decline in the fair values of these securities was primarily driven by factors other than credit, such as changes in market interest rates and liquidity spreads subsequent to purchase. At September 30, 2019, Management determined that it did not intend to sell investment securities with unrealized losses, and it is more likely than not that we will not be required to sell any of the securities with unrealized losses before recovery of their amortized cost. Therefore, we do not consider these investment securities to be other-than-temporarily impaired at September 30, 2019. 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 $11.7 million and $11.1 million of FHLB stock included in other assets on the consolidated statements of condition at September 30, 2019 and December 31, 2018, 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. Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock was not impaired at September 30, 2019 and December 31, 2018. On October 24, 2019, FHLB announced a cash dividend for the second quarter of 2019 at an annualized dividend rate of 7.00% to be distributed in mid-November 2019. Cash dividends paid on FHLB capital stock are recorded as non-interest income. As a member bank of Visa U.S.A., we held 10,439 shares of Visa Inc. Class B common stock at September 30, 2019 and December 31, 2018. These shares have a carrying value of zero and are restricted from resale to non-member banks of Visa U.S.A. until their conversion into Class A (voting) shares upon the termination of Visa Inc.'s Covered Litigation escrow account. Because of the restriction and the uncertainty on the conversion rate to Class A shares, these shares lack a readily determinable fair value. When converting this Class B common stock to Class A common stock based on the conversion rate of 1.6228 at September 30, 2019 and 1.6298 at December 31, 2018, and the closing stock price of Class A shares at those respective dates, the converted value of our shares of Class B common stock would have been $2.9 million and $2.2 million at September 30, 2019 and December 31, 2018, respectively. The conversion rate is subject to further adjustment upon the final settlement of the covered litigation against Visa Inc. and its member banks. As such, the fair value of these Class B shares can differ significantly from their converted values. For further information, refer to Note 8, Commitments and Contingencies. We invest in low-income housing tax credit funds as a limited partner, which totaled $4.2 million and $4.6 million recorded in other assets as of September 30, 2019 and December 31, 2018, respectively. In the first nine months of 2019, we recognized $480 thousand of low-income housing tax credits and other tax benefits, offset by $381 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense. As of September 30, 2019, our unfunded commitments for these low-income housing tax credit funds totaled $2.8 million. We did not recognize any impairment losses on these low-income housing tax credit investments during the first nine months of 2019 or 2018, as the value of the future tax benefits exceeds the carrying value of the investments.

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