Note 10 – Investments

Investment Securities

Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management. Pursuant to FASB's guidance on accounting for debt and equity securities, available for sale securities are carried on the Company's financial statements at their estimated fair market values, with monthly tax-effected “mark-to-market” adjustments made vis-à-vis accumulated other comprehensive income in shareholders' equity.

Amortized Cost And Estimated Fair Value

The amortized cost and estimated fair value of investment securities available-for-sale are as follows
(dollars in thousands, unaudited):

	June 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value

US Government agencies	$	25,815	$	350	$	(21	)	$	26,144
Mortgage-backed securities		378,713		3,541		(2,023	)		380,231
State and political subdivisions		97,154		2,420		(519	)		99,055
Other securities		749		740		-			1,489
Total investment securities	$	502,431	$	7,051	$	(2,563	)	$	506,919

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value

US Government agencies	$	26,959	$	334	$	(23	)	$	27,270
Mortgage-backed securities		378,339		4,299		(1,196	)		381,442
State and political subdivisions		98,056		3,093		(200	)		100,949
Other securities		1,210		1,012		-			2,222
Total investment securities	$	504,564	$	8,738	$	(1,419	)	$	511,883

At June 30, 2015 and December 31, 2014, the Company had 193 securities and 134 securities, respectively, with unrealized losses. Management has evaluated those securities as of the respective dates, and does not believe that any of the associated unrealized losses are other than temporary. Gross unrealized losses on our investment securities as of the indicated dates are disclosed in the table below, categorized by investment type and by the duration of time that loss positions on individual securities have continuously existed (over or under twelve months).

Investment Portfolio - Unrealized Losses
(dollars in thousands, unaudited)

	June 30, 2015
	Less than twelve months					Twelve months or more
	Gross					Gross
	Unrealized					Unrealized
	Losses			Fair Value		Losses			Fair Value

US Government agencies	$	(21	)	$	2,032	$	-		$	-
Mortgage-backed securities		(1,551	)		140,272		(472	)		38,258
State and political subdivisions		(357	)		23,370		(162	)		5,041
Total	$	(1,929	)	$	165,674	$	(634	)	$	43,299

	December 31, 2014
	Less than twelve months					Twelve months or more
	Gross					Gross
	Unrealized					Unrealized
	Losses			Fair Value		Losses			Fair Value

US Government agencies	$	(23	)	$	3,485	$	-		$	-
Mortgage-backed securities		(564	)		84,004		(632	)		51,982
State and political subdivisions		(31	)		7,738		(169	)		9,045
Total	$	(618	)	$	95,227	$	(801	)	$	61,027

The table below summarizes the Company's gross realized gains and losses as well as gross proceeds from the sales of securities, for the periods indicated:

Investment Portfolio - Realized Gains/(Losses)

(dollars in thousands, unaudited)

	Three months ended June 30,				Six months ended June 30,
	2015		2014			2015			2014
Proceeds from sales, calls and maturities of securities available for sale	$	2,963	$	4,995	$	22,828		$	9,660
Gross gains on sales, calls and maturities of securities available for sale	$	307	$	185	$	522		$	289
Gross losses on sales, calls and maturities of securities available for sale		-		(2)		(199	)		(2	)
Net gains on sale of securities available for sale	$	307	$	183	$	323		$	287

The amortized cost and estimated fair value of investment securities available-for-sale at June 30, 2015 and December 31, 2014 are shown below, grouped by the remaining time to contractual maturity dates. The expected life of investment securities may not be consistent with contractual maturity dates, since the issuers of the securities could have the right to call or prepay obligations with or without penalties.

Estimated Fair Value of Contractual Maturities (dollars in thousands, unaudited)

	June 30, 2015
	Amortized Cost		Fair Value

Maturing within one year	$	2,758	$	2,798
Maturing after one year through five years		237,740		240,900
Maturing after five years through ten years		68,802		70,006
Maturing after ten years		50,015		50,431

Investment securities not due at a single maturity date:
U.S Government agencies collateralized by mortgage obligations		142,367		141,295
Other securities		749		1,489
	$	502,431	$	506,919

	December 31, 2014
	Amortized Cost		Fair Value

Maturing within one year	$	686	$	694
Maturing after one year through five years		222,081		225,415
Maturing after five years through ten years		97,949		99,583
Maturing after ten years		54,531		55,705

Investment securities not due at a single maturity date:
U.S Government agencies collateralized by mortgage obligations		128,107		128,264
Other securities		1,210		2,222
	$	504,564	$	511,883

At June 30, 2015, the Company's investment portfolio included securities issued by 278 different government municipalities and agencies located within 27 states with a fair value of $99.1 million. The largest exposure to any single municipality or agency was a $1.1 million (fair value) refunding bond issued by the Columbia River People's Utility District, to be repaid by future utility revenue.

The Company's investments in bonds issued by states, municipalities and political subdivisions are evaluated in accordance with Supervision and Regulation Letter 12-15 issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Organization Ratings,” and other regulatory guidance. Credit ratings are considered in our analysis only as a guide to the historical default rate associated with similarly-rated bonds. There have been no significant differences in our internal analyses compared with the ratings assigned by the third party credit rating agencies.

The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company's investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations:

Revenue and General Obligation Bonds by Location
dollars in thousands, unaudited

	June 30, 2015				December 31, 2014
	Amortized		Fair Market		Amortized		Fair Market
General obligation bonds	Cost		Value		Cost		Value
State of issuance
California	$	20,624	$	21,702	$	20,078	$	21,288
Texas		14,261		14,297		14,489		14,675
Illinois		8,593		8,645		8,272		8,394
Ohio		7,857		7,865		7,456		7,555
Washington		5,936		6,055		5,966		6,126
Utah		955		968		956		984
Other states		21,987		22,317		21,253		21,832
Total General Obligation Bonds		80,213		81,849		78,470		80,854

Revenue bonds
State of issuance
Utah		4,441		4,440		3,769		3,834
Texas		3,756		3,842		3,273		3,387
California		1,605		1,642		2,174		2,233
Washington		1,166		1,187		1,167		1,197
Ohio		319		324		321		332
Illinois		292		291		294		294
Other states		5,362		5,480		8,588		8,818
Total Revenue Bonds		16,941		17,206		19,586		20,095

Total Obligations of States and Political Subdivisions	$	97,154	$	99,055	$	98,056	$	100,949

The revenue bonds in the Company's investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and economic improvements. The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates.

Revenue Bonds by Type dollars in thousands, unaudited

	June 30, 2015				December 31, 2014
		Amortized		Fair Market		Amortized		Fair Market
Revenue bonds		Cost		Value		Cost		Value
Revenue source:
Water	$	3,722	$	3,780	$	7,100	$	7,278
College & University		3,210		3,296		2,723		2,834
Sales Tax		2,295		2,322		2,361		2,405
Electric & Power		1,876		1,891		1,880		1,914
Lease		2,202		2,178		1,356		1,362
Other sources		3,636		3,739		4,166		4,302
Total Revenue Bonds	$	16,941	$	17,206	$	19,586	$	20,095

Low-Income Housing Tax Credit (“LIHTC”) Fund Investments

The Company has the ability to invest in limited partnerships which own housing projects that qualify for federal and/or California state tax credits, by mandating a specified percentage of low-income tenants for each project. The tax credits flow through to investors, augmenting any return that might be derived from an increase in property values. Because rent levels are lower than standard market rents and the projects are generally highly leveraged, each project also typically generates tax-deductible operating losses that are allocated to the limited partners.

The Company invested in seven such LIHTC fund limited partnerships from 2001 through 2007, and may make similar investments in the future. Our investments to date have all been in California-focused funds, which helps the Company meet its obligations under the Community Reinvestment Act. We utilize the equity method of accounting for our LIHTC fund investments. Under the equity method, our balance sheet initially reflects an asset that represents the total cash expected to be invested over the life of the partnership. Any commitments or contingent commitments for future investment are reflected as a liability. The income statement treatment under the equity method reflects tax credits received by the Company “below the line” within the income tax provision, while any fund operating results are included “above the line” in non-interest income. As noted above, operating results are typically losses that are netted against non-interest income.

As of June 30, 2015, our LIHTC investment balance was $5.3 million, and we had no commitments or contingent commitments for additional capital contributions to the limited partnerships. There were $386,000 in tax credits derived from our LIHTC investments which were recognized during the six months ended June 30, 2015, and a pass-through operating loss of $483,000 associated with those investments was included in pre-tax income for the same time period. Our LIHTC investments are evaluated annually for potential impairment, and we have concluded that the carrying value of the investments is fairly stated and is not impaired.