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3. Investment Securities
 12 Months Ended
Mar. 31, 2013
Notes  
3. Investment Securities

3.    INVESTMENT SECURITIES

 

The amortized cost and approximate fair value of investment securities held to maturity consisted of the following (in thousands):

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Estimated Fair Value

March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

$

493

 

$

49

 

$

-

 

$

542

 

 

The amortized cost and approximate fair value of investment securities available for sale consisted of the following (in thousands):

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Estimated Fair Value

March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

2,766

 

$

-

 

$

(1,528)

 

$

1,238

Agency securities

 

5,000

 

 

-

 

 

(22)

 

 

4,978

Total

$

7,766

 

$

-

 

$

(1,550)

 

$

6,216

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

2,974

 

$

-

 

$

(1,808)

 

$

1,166

Agency securities

 

5,000

 

 

-

 

 

(1)

 

 

4,999

Municipal bonds

 

149

 

 

-

 

 

-

 

 

149

Total

$

8,123

 

$

-

 

$

(1,809)

 

$

6,314

 

 

 

The fair value of temporarily impaired securities, the amount of unrealized losses and the length of time these unrealized losses existed as of March 31, 2013 are as follows (in thousands):

 

 

Less than 12 months

 

  12 months or longer

 

  Total

 

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

-

 

$

-

 

$

1,238

 

$

(1,528)

 

$

1,238

 

$

(1,528)

 

Agency securities

 

4,978

 

 

(22)

 

 

-

 

 

-

 

 

4,978

 

 

(22)

 

Total

$

4,978

 

$

(22)

 

$

1,238

 

$

(1,528)

 

$

6,216

 

$

(1,550)

 

 

The fair value of temporarily impaired securities, the amount of unrealized losses and the length of time these unrealized losses existed as of March 31, 2012 are as follows (in thousands):

 

 

Less than 12 months

 

  12 months or longer

 

  Total

 

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

-

 

$

-

 

$

1,166

 

$

(1,808)

 

$

1,166

 

$

(1,808)

 

Agency securities

 

4,999

 

 

(1)

 

 

-

 

 

-

 

 

4,999

 

 

(1)

 

Total

$

4,999

 

$

(1)

 

$

1,166

 

$

(1,808)

 

$

6,165

 

$

(1,809)

 

 

 

 

At March 31, 2013, the Company had a single collateralized debt obligation which is secured by trust preferred securities issued by 17 other holding companies. The Company holds the mezzanine tranche of this security. All tranches senior to the mezzanine tranche have been repaid by the issuers. Four of the issuers in this pool have defaulted (representing 43% of the remaining collateral, including excess collateral), and three other issuers are currently in deferral (8% of the remaining collateral). Subsequent to March 31, 2013, one issuer cured its deferral reducing the number of issuers in deferral to two (5% of remaining collateral). The Company has estimated an expected default rate of 37% for its portion of this security. The expected default rate was estimated based primarily on an analysis of the financial condition of the underlying issuers. The Company estimates that a default rate of 47% would trigger additional OTTI of this security. The Company utilized a discount rate of 20% to estimate the fair value of this security. There was no excess subordination on this security.

 

During the year ended March 31, 2013, the Company determined that there was no additional OTTI charge on the above collateralized debt obligation. The Company does not intend to sell this security and it is not more likely than not that the Company will be required to sell the security before the anticipated recovery of the remaining amortized cost basis.

 

To determine the component of gross OTTI related to credit losses, the Company compared the amortized cost basis of the OTTI security to the present value of the revised expected cash flows, discounted using the current pre-impairment yield.  The revised expected cash flow estimates are based primarily on an analysis of default rates, prepayment speeds and third-party analytical reports.  Significant judgment of management is required in this analysis that includes, but is not limited to, assumptions regarding the ultimate collectibility of principal and interest on the underlying collateral.

 

The unrealized losses on the above single agency security is primarily attributable to increases in market interest rates subsequent to their purchase by the Company. The Company expects the fair value of the agency security to recover as the agency security approaches its maturity date or sooner if market yields for such securities decline. The Company does not believe that the agency security is impaired due to reasons of credit quality or related to any issuer or industry specific event. Based on management’s evaluation and intent, the unrealized loss related to the agency security in this table is considered temporary.

 

The contractual maturities of investment securities available for sale are as follows (in thousands):

 

 

March 31, 2013

 

Amortized Cost

 

 

Estimated Fair Value

 

Due in one year or less

$

-

 

$

-

 

Due after one year through five years

 

-

 

 

-

 

Due after five years through ten years

 

5,000

 

 

4,978

 

Due after ten years

 

2,766

 

 

1,238

 

Total

$

7,766

 

$

6,216

 

 

 

The Company realized no gains or losses on sales of investment securities in the years ended March 31, 2013, 2012 or 2011.

 

Investment securities with an amortized cost of $1.0 million and a fair value of $996,000 at March 31, 2013, were pledged as collateral for government public funds held by the Bank. There were no investment securities pledged as collateral for government public funds held by the Bank at March 31, 2012.