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Investment Securities

9 Months Ended

Dec. 31, 2015

Notes

Investment Securities

5. INVESTMENT SECURITIES

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

	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value

December 31, 2015
Available For Sale:
Trust preferred	$1,919		-	(132)	1,787
Agency securities	19,533		22	(139)	19,416
Real estate mortgage investment conduits ⁽¹⁾	45,164		85	(215)	45,034
Mortgage-backed securities ⁽¹⁾	78,962		267	(243)	78,986
Other mortgage-backed securities ⁽²⁾	9,049		61	(41)	9,069
Total available for sale	$154,627		435	(770)	154,292

Held To Maturity:
Mortgage-backed securities ⁽³⁾	$77		2	-	79

March 31, 2015
Available For Sale:
Trust preferred	$1,919		-	(107)	1,812
Agency securities	14,008		38	(107)	13,939
Real estate mortgage investment conduits ⁽¹⁾	22,455		255	(1)	22,709
Mortgage-backed securities ⁽¹⁾	67,568		1,006	(60)	68,514
Other mortgage-backed securities ⁽²⁾	5,359		142	(12)	5,489
Total available for sale	$111,309		1,441	(287)	112,463

Held To Maturity:
Mortgage-backed securities ⁽³⁾	$86		2	-	88
⁽¹⁾ Comprised of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Ginnie Mae (“GNMA”) issued securities.
⁽²⁾ Comprised of U.S. Small Business Administration (“SBA”) issued securities and commercial real estate (“CRE”) secured securities issued by private issuers.
⁽³⁾ Comprised of FNMA and FHLMC issued securities.

The contractual maturities of investment securities as of December 31, 2015 are as follows (in thousands):

	Available for Sale			Held to Maturity
	Amortized Cost	Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due after one year through five years	18,982	$18,888		$-		$-
Due after five years through ten years	13,999	13,964		68		69
Due after ten years	121,646	121,440		9		10
Total	154,627	$154,292		$77		$79

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

The fair value of temporarily impaired investment 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

December 31, 2015

Available For Sale:
Trust preferred	$	-		$	-		$	1,787		$	(132	)	$	1,787		$	(132	)
Agency securities		5,995			(31	)		9,893			(108	)		15,888			(139	)
Real estate mortgage investment conduits ⁽¹⁾		26,912			(215	)		-			-			26,912			(215	)
Mortgage-backed securities ⁽¹⁾		36,449			(130	)		4,564			(113	)		41,013			(243	)
Other mortgage-backed securities ⁽²⁾		2,996			(25	)		1,239			(16	)		4,235			(41	)
Total available for sale	$	72,352		$	(401	)	$	17,483		$	(369	)	$	89,835		$	(770	)

⁽¹⁾ Comprised of FHLMC, FNMA and GNMA issued securities.
⁽²⁾ Comprised of SBA and CRE issued securities.

March 31, 2015

Available For Sale:
Trust preferred	$	-		$	-		$	1,812		$	(107	)	$	1,812		$	(107	)
Agency securities		-			-			12,893			(107	)		12,893			(107	)
Real estate mortgage investment conduits ⁽¹⁾		1,323			(1	)		-			-			1,323			(1	)
Mortgage-backed securities ⁽²⁾		-			-			5,098			(60	)		5,098			(60	)
Other mortgage-backed securities ⁽³⁾		-			-			1,417			(12	)		1,417			(12	)
Total available for sale	$	1,323		$	(1	)	$	21,220		$	(286	)	$	22,543		$	(287	)

⁽¹⁾ Comprised of a FHLMC security.
⁽²⁾ Comprised of FHLMC and FNMA issued securities.
⁽³⁾ Comprised of SBA issued securities.

At December 31, 2015, the Company had a single collateralized debt obligation which is secured by a pool of trust preferred securities issued by 15 other bank 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 (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 71% 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 and nine months ended December 31, 2015, the Company determined that there was no additional OTTI charge on this 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 investment securities were primarily attributable to increases in market interest rates subsequent to their purchase by the Company. The Company expects the fair value of these securities to recover as the securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that these 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 investment securities in the above tables are considered temporary.

The Company realized no gains or losses on sales of investment securities available for sale for the three and nine months ended December 31, 2015. Proceeds from sales of investment securities totaled $16.8 million for the three and nine months ended December 31, 2014. Gross realized gains on sales of investment securities totaled $158,000 for both the three and nine months ended December 31, 2014. The gross realized gain of $158,000 was recorded in other non-interest income on the consolidated statements of income. The related income tax of $54,000 related to these realized gains was recorded in the provision for income taxes on the consolidated statements of income. Investment securities available for sale with an amortized cost of $10.5 million and $4.3 million and a fair value of $10.4 million and $4.3 million at December 31, 2015 and March 31, 2015, respectively, were pledged as collateral for government public funds held by the Bank. Investment securities held to maturity with an amortized cost of $24,000 and $27,000, at December 31, 2015 and March 31, 2015, respectively, and a fair value of $24,000 and $27,000 at both December 31, 2015 and March 31, 2015, respectively were pledged as collateral for government public funds held by the Bank.

- Definition

The entire disclosure for investments in certain debt and equity securities.

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