43
We had no fed funds sold at December 31, 2014 or 2013, and interest-bearing balances held at other banks dropped
to $2 million at December 31, 2014 from $27 million at December 31, 2013 as excess liquidity was invested in
higher-yielding longer-term bonds. The Company’s investment securities reflect an increase of $87 million, or 20%,
during 2014, due to $44 million in bonds added via the Santa Clara Valley Bank acquisition and the purchase of
mortgage-backed securities as we deployed excess liquidity. The Company carries investments on its books at their
fair market values. 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.
The following Investment Portfolio table reflects the amortized cost and fair market values for each primary category
of investments for the past three years:
Investment Portfolio-Available for Sale
(dollars in thousands)
US Government Agencies
26,959
$
27,270
$
5,395
$
5,304
$
2,987
$
2,973
$
Mortgage-backed securities
378,339
381,442
320,223
320,721
298,806
301,389
State and political subdivisions
98,056
100,949
97,361
96,563
70,736
73,986
Equity securities
1,210
2,222
1,336
2,456
1,336
1,840
Total securities
504,564
$
511,883
$
424,315
$
425,044
$
373,865
$
380,188
$
Fair Market Value
As of December 31,
2014
2013
2012
Amortized Cost Fair Market Value Amortized Cost Fair Market Value Amortized Cost
The net unrealized gain on our investment portfolio, or the difference between the fair market value and amortized
cost, was $7.319 million at December 31, 2014, up from a net unrealized gain of $729,000 at December 31, 2013 due
to higher market values resulting from a drop in longer-term interest rates in 2014. The rate decline had a sizeable
impact on the carrying values of our mortgage-backed securities and municipal bonds, in particular. All of the bonds
from the acquisition of SCVB in November 2014 were booked at their fair values as of the acquisition date, with no
unrealized gain or loss at the time.
The value of U.S. Government agency securities increased by $22 million, or 414%, during 2014, due primarily to
bonds from the acquisition. Mortgage-backed securities increased by $61 million, or 19%, due to the acquisition,
bond purchases, and higher market values. New purchases also pushed the balance of municipal bonds up by $4
million, or 5%, due to bond purchases and higher market values. It should be noted that all newly purchased
municipal bonds have strong underlying ratings, and all municipal bonds in our portfolio are evaluated quarterly for
potential impairment. None of the securities from SCVB were municipal bonds. We sold one of our equity positions
for a realized gain of $238,000 in the fourth quarter of 2014, thus the market value of our equity securities reflects a
drop of $234,000, or 10%, for the year.
Investment securities pledged as collateral for FHLB borrowings, repurchase agreements, public deposits and for
other purposes as required or permitted by law totaled $141 million at December 31, 2014 and $164 million at
December 31, 2013, leaving $369 million in unpledged debt securities at December 31, 2014 and $258 million at
December 31, 2013. Securities pledged in excess of actual pledging needs and thus available for liquidity purposes,
if necessary, totaled $25 million at December 31, 2014 and $67 million at December 31, 2013.
The investment maturities table below summarizes contractual maturities for the Company’s investment securities
and their weighted average yields at December 31, 2014. The actual timing of principal payments may differ from
remaining contractual maturities, because obligors may have the right to prepay certain obligations.
