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Investment Securities
 3 Months Ended
Jun. 30, 2015
Notes  
Investment Securities

5.      INVESTMENT SECURITIES

 

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

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Estimated Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

1,919

 

$

-

 

$

(139

)

$

1,780

Agency securities

 

14,008

 

 

23

 

 

(133

)

 

13,898

Total

$

15,927

 

$

23

 

$

(272

)

$

15,678

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

1,919

 

$

-

 

$

(107

)

$

1,812

Agency securities

 

14,008

 

 

38

 

 

(107

)

 

13,939

Total

$

15,927

 

$

38

 

$

(214

)

$

15,751

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

June 30, 2015

 

Amortized

Cost

 

 

Estimated

Fair Value

 

 

 

 

 

 

Due after one year through five years

$

13,000

 

$

12,867

Due after five years through ten years

 

1,008

 

 

1,031

Due after ten years

 

1,919

 

 

1,780

Total

$

15,927

 

$

15,678

 

Expected maturities of investment securities available for sale will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties

 

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

 

 

Less than 12 months

 

  12 months or longer

 

  Total

 

 

 

Estimated

Fair Value

 

 

Unrealized

Losses

 

 

Estimated Fair Value

 

 

Unrealized

Losses

 

 

Estimated Fair Value

 

 

Unrealized

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

-

 

$

-

 

$

1,780

 

$

(139

)

$

1,780

 

$

(139

)

Agency securities

 

-

 

 

-

 

 

12,867

 

 

(133

)

 

12,867

 

 

(133

)

Total

$

-

 

$

-

 

$

14,647

 

$

(272

)

$

14,647

 

$

(272

)

 

 

 

Less than 12 months

 

 

  12 months or longer

 

 

  Total

 

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

-

 

$

-

 

$

1,812

 

$

(107

)

$

1,812

 

$

(107

)

Agency securities

 

-

 

 

-

 

 

12,893

 

 

(107

)

 

12,893

 

 

(107

)

Total

$

-

 

$

-

 

$

14,705

 

$

(214

)

$

14,705

 

$

(214

)

 

At June 30, 2015, the Company had a single collateralized debt obligation which is secured by a pool of trust preferred securities issued by 15 other holding companies. The Company holds the mezzanine tranche of this security. All tranches senior to the mezzanine tranche have been repaid by the issuer. Four of the issuers of trust preferred securities in this pool have defaulted (representing 51% of the remaining collateral, including excess collateral), and one other issuer is currently deferring interest payments (representing 2% of the remaining collateral). The Company has estimated an expected default rate of 44% 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 72% would trigger additional other than temporary impairment (“OTTI”) of this security. The Company utilized a discount rate of 10% to estimate the fair value of this security. There was no excess subordination on this security.

 

During the three months ended June 30, 2015, 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 collateralized debt obligation 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 collectability of principal and interest on the underlying collateral.

 

The unrealized losses on the Company’s agency securities were primarily attributable to increases in market interest rates subsequent to their purchase by the Company. The Company expects the fair value of the agency securities to recover as the agency securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that the agency securities are other than temporarily impaired because of their credit quality or related to any issuer or industry specific event. Based on management’s evaluation and intent, the unrealized losses related to the agency securities in the above table are considered temporary.

 

The Company realized no gains or losses on sales of investment securities for the three months ended June 30, 2015 and 2014. Investment securities with an amortized cost of $3.0 million and a fair value of $3.0 million at both June 30, 2015 and March 31, 2015 were pledged as collateral for governmental public funds held by the Bank.