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Investment Securities
9 Months Ended
Sep. 30, 2014
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
Investment Securities
The Company’s investment policy is designed primarily to provide and maintain liquidity, generate a favorable return on assets without incurring undue interest rate and credit risk, and complement the Bank’s lending activities. Securities are classified as either available for sale or held to maturity when acquired.
(a) Securities by Type and Maturity
The amortized cost, gross unrealized gains, gross unrealized losses and fair values of investment securities available for sale at the dates indicated were as follows:
 
Securities Available for Sale
 
September 30, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies
$
19,198

 
$
13

 
$
(38
)
 
$
19,173

Municipal securities
165,418

 
2,723

 
(355
)
 
167,786

Mortgage backed securities and collateralized mortgage obligations-residential:
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
491,835

 
865

 
(2,948
)
 
489,752

Corporate obligations
4,020

 

 
(44
)
 
3,976

Mutual funds and other equities
1,960

 
4

 

 
1,964

Total
$
682,431

 
$
3,605

 
$
(3,385
)
 
$
682,651

 
Securities Available for Sale
 
December 31, 2013
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies
$
6,098

 
$
3

 
$
(62
)
 
$
6,039

Municipal securities
49,989

 
806

 
(1,735
)
 
49,060

Mortgage backed securities and collateralized mortgage obligations-residential:
 
 
 
 
 
 
 
U.S. Government agencies
108,466

 
898

 
(1,329
)
 
108,035

Total
$
164,553

 
$
1,707

 
$
(3,126
)
 
$
163,134



The amortized cost, gross unrecognized gains, gross unrecognized losses and fair values of investment securities held to maturity at the dates indicated were as follows:
 
Securities Held to Maturity
 
September 30, 2014
 
Amortized
Cost
 
Gross
Unrecognized
Gains
 
Gross
Unrecognized
Losses
 
Fair
Value
 
(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies
$
1,596

 
$
153

 
$

 
$
1,749

Municipal securities
24,552

 
649

 
(9
)
 
25,192

Mortgage backed securities and collateralized mortgage obligations-residential:
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
11,092

 
223

 
(162
)
 
11,153

Private residential collateralized mortgage obligations
973

 
71

 
(109
)
 
935

Total
$
38,213

 
$
1,096

 
$
(280
)
 
$
39,029

 
Securities Held to Maturity
 
December 31, 2013
 
Amortized
Cost
 
Gross
Unrecognized
Gains
 
Gross
Unrecognized
Losses
 
Fair
Value
 
(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies
$
1,687

 
$
153

 
$

 
$
1,840

Municipal securities
24,290

 
200

 
(184
)
 
24,306

Mortgage backed securities and collateralized mortgage obligations-residential:
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
9,129

 
144

 
(284
)
 
8,989

Private residential collateralized mortgage obligations
1,048

 
185

 
(28
)
 
1,205

Total
$
36,154

 
$
682

 
$
(496
)
 
$
36,340


There were no securities classified as trading at September 30, 2014 or December 31, 2013.
The amortized cost and fair value of securities at September 30, 2014, by contractual maturity, are set forth below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
 
Securities Available for Sale
 
Securities Held to Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair Value
 
(In thousands)
Due in one year or less
$
8,202

 
$
8,191

 
$
2,434

 
$
2,443

Due after one year through three years
20,578

 
20,678

 
5,661

 
5,722

Due after three years through five years
26,201

 
26,527

 
4,710

 
4,821

Due after five years through ten years
147,623

 
148,637

 
19,771

 
20,486

Due after ten years
479,827

 
478,618

 
5,637

 
5,557

Total
$
682,431

 
$
682,651

 
$
38,213

 
$
39,029


(b) Unrealized Losses and Other-Than-Temporary Impairments
Available for sale investment securities with unrealized losses as of September 30, 2014 and December 31, 2013 were as follows:
 
Securities Available for Sale
 
September 30, 2014
 
Less than 12 Months
 
12 Months or
Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies
$
6,545

 
$
(38
)
 
$

 
$

 
$
6,545

 
$
(38
)
Municipal securities
31,744

 
(355
)
 

 

 
31,744

 
(355
)
Mortgage backed securities and collateralized mortgage obligations-residential:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
363,793

 
(2,948
)
 

 

 
363,793

 
(2,948
)
Corporate obligations
3,975

 
(44
)
 

 

 
3,975

 
(44
)
Total
$
406,057

 
$
(3,385
)
 
$

 
$

 
$
406,057

 
$
(3,385
)
 
Securities Available for Sale
 
December 31, 2013
 
Less than 12 Months
 
12 Months or
Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In thousands)
U.S. Treasury and U.S. Government-sponsored agencies
$
3,031

 
$
(62
)
 
$

 
$

 
$
3,031

 
$
(62
)
Municipal securities
21,471

 
(1,242
)
 
4,644

 
(493
)
 
26,115

 
(1,735
)
Mortgage backed securities and collateralized mortgage obligations-residential:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
56,327

 
(1,184
)
 
7,758

 
(145
)
 
64,085

 
(1,329
)
Total
$
80,829

 
$
(2,488
)
 
$
12,402

 
$
(638
)
 
$
93,231

 
$
(3,126
)


Held to maturity investment securities with unrecognized losses as of September 30, 2014 and December 31, 2013 were as follows:
 
Securities Held to Maturity
 
September 30, 2014
 
Less than 12
Months
 
12 Months or
Longer
 
Total
 
Fair
Value
 
Unrecognized
Losses
 
Fair
Value
 
Unrecognized
Losses
 
Fair
Value
 
Unrecognized
Losses
 
(In thousands)
Municipal securities
$
2,129

 
$
(9
)
 
$

 
$

 
$
2,129

 
$
(9
)
Mortgage backed securities and collateralized mortgage obligations-residential:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
2,924

 
(162
)
 

 

 
2,924

 
(162
)
Private residential collateralized mortgage obligations
972

 
(109
)
 

 

 
972

 
(109
)
Total
$
6,025

 
$
(280
)
 
$

 
$

 
$
6,025

 
$
(280
)

 
Securities Held to Maturity
 
December 31, 2013
 
Less than 12
Months
 
12 Months or
Longer
 
Total
 
Fair
Value
 
Unrecognized
Losses
 
Fair
Value
 
Unrecognized
Losses
 
Fair
Value
 
Unrecognized
Losses
 
(In thousands)
Municipal securities
$
10,967

 
$
(184
)
 
$

 
$

 
$
10,967

 
$
(184
)
Mortgage backed securities and collateralized mortgage obligations-residential:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
4,869

 
(284
)
 

 

 
4,869

 
(284
)
Private residential collateralized mortgage obligations
211

 
(5
)
 
124

 
(23
)
 
335

 
(28
)
Total
$
16,047

 
$
(473
)
 
$
124

 
$
(23
)
 
$
16,171

 
$
(496
)
The Company has evaluated these securities and has determined that, other than certain private residential collateralized mortgage obligations discussed below, the decline in their value is temporary. The unrealized losses are primarily due to increases in market interest rates and larger spreads in the market for mortgage-related products. The fair value of these securities is expected to recover as the securities approach their maturity date and/or as the pricing spreads narrow on mortgage-related securities. The Company has the ability and intent to hold the investments until recovery of the market value which may be the maturity date of the securities.
To analyze the unrealized losses, the Company estimated expected future cash flows of the private residential collateralized mortgage obligations by estimating the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit enhancements such as subordination interests owned by third parties, to the security. The expected future cash flows of the underlying collateral are determined using the remaining contractual cash flows adjusted for future expected credit losses (which considers current delinquencies and nonperforming assets, future expected default rates and collateral value by vintage and geographic region) and prepayments. The expected cash flows of the security are then discounted at the interest rate used to recognize interest income on the security to arrive at a present value amount. The average discount interest rate used in the valuations of the present value as of September 30, 2014 and 2013 was 9.4% and 6.4%, respectively, and the average prepayment rate for each period was 6.0%.
For the nine months ended September 30, 2014, there were four private residential collateralized mortgage obligations determined to be other-than-temporarily impaired. There were no unrealized losses for the three months ended September 30, 2014 and 2013. All unrealized losses for the nine months ended September 30, 2014 and 2013 were deemed to be credit related, and the Company recorded the impairment in earnings. For the nine months ended September 30, 2013, there were six private residential collateralized mortgage obligations determined to be other-than-temporarily impaired. No impairment for the three and nine months ended September 30, 2014 and 2013 was recorded through other comprehensive income (loss).
The following table summarizes activity for the nine months ended September 30, 2014 and 2013 related to the amount of impairments on held to maturity securities:
 
Life-to-Date Gross Other-Than-Temporary Impairments
 
Life-to-Date Other-Than-Temporary Impairments Included in Other Comprehensive Income (Loss)
 
Life-to-Date Net
Other-Than-Temporary Impairments Included in Earnings
 
(In thousands)
December 31, 2012
$
2,565

 
$
1,152

 
$
1,413

Subsequent impairments
26

 

 
26

September 30, 2013
$
2,591

 
$
1,152

 
$
1,439

 
 
 
 
 
 
December 31, 2013
$
2,603

 
$
1,152

 
$
1,451

Subsequent impairments
45

 

 
45

September 30, 2014
$
2,648

 
$
1,152

 
$
1,496


(c) Pledged Securities
The following table summarizes the amortized cost and fair value of available for sale and held to maturity securities that are pledged as collateral for the following obligations at September 30, 2014 and December 31, 2013:
 
September 30, 2014
 
December 31, 2013
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(In thousands)
Washington and Oregon state to secure public deposits
$
145,859

 
$
147,903

 
$
80,386

 
$
80,881

Federal Reserve Bank and FHLB to secure borrowing arrangements
8,994

 
9,096

 

 

Repurchase agreements
45,430

 
45,588

 
34,170

 
33,893

Other securities pledged, principally to secure public deposits
12,897

 
12,908

 

 

Total
$
213,180

 
$
215,495

 
$
114,556

 
$
114,774