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 |
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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 |
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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 |
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(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 |
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(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 |
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