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Investment Securities
 3 Months Ended
Jun. 30, 2016
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

 

 

 

 

 

 

 

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

1,919

 

$

-

 

$

(142

)

$

1,777

Agency securities

 

17,008

 

 

75

 

 

-

 

 

17,083

Real estate mortgage investment conduits (1)

 

44,357

 

 

908

 

 

-

 

 

45,265

Mortgage-backed securities (1)

 

80,517

 

 

1,281

 

 

(15

)

 

81,783

Other mortgage-backed securities (2)

 

17,519

 

 

287

 

 

(30

)

 

17,776

Total available for sale

$

161,320

 

$

2,551

 

$

(187

)

$

163,684

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities (3)

$

72

 

$

2

 

$

-

 

$

74

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

1,919

 

$

-

 

$

(111

)

$

1,808

Agency securities

 

19,520

 

 

63

 

 

(14

)

 

19,569

Real estate mortgage investment conduits (1)

 

43,293

 

 

632

 

 

(1

)

 

43,924

Mortgage-backed securities (1)

 

75,404

 

 

980

 

 

(31

)

 

76,353

Other mortgage-backed securities (2)

 

8,875

 

 

185

 

 

(24

)

 

9,036

Total available for sale

$

149,011

 

$

1,860

 

$

(181

)

$

150,690

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities (3)

$

75

 

$

1

 

$

-

 

$

76

 

(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 FNMA.

(3) Comprised of FHLMC and FNMA issued securities.

 

The contractual maturities of investment securities as of June 30, 2016 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

$

16,483

 

$

16,631

 

$

-

 

$

-

Due after five years through ten years

 

16,787

 

 

17,082

 

 

64

 

 

65

Due after ten years

 

128,050

 

 

129,971

 

 

8

 

 

9

Total

$

161,320

 

$

163,684

 

$

72

 

$

74

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

-

 

$

-

 

$

1,777

 

$

(142)

 

$

1,777

 

$

(142)

Mortgage-backed securities (1)

 

3,125

 

 

(4)

 

 

772

 

 

(11)

 

 

3,897

 

 

(15)

Other mortgage-backed securities (2)

 

1,868

 

 

(11)

 

 

1,164

 

 

(19)

 

 

3,032

 

 

(30)

Total available for sale

$

4,993

 

$

(15)

 

$

3,713

 

$

(172)

 

$

8,706

 

$

(187)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Comprised of FHLMC and FNMA issued securities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Comprised of SBA issued securities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred

$

-

 

$

-

 

$

1,808

 

$

(111)

 

$

1,808

 

$

(111)

Agency securities

 

5,508

 

 

(6)

 

 

4,991

 

 

(8)

 

 

10,499

 

 

(14)

Real estate mortgage investment conduits (1)

 

1,636

 

 

(1)

 

 

-

 

 

-

 

 

1,636

 

 

(1)

Mortgage-backed securities (2)

 

831

 

 

(10)

 

 

3,051

 

 

(21)

 

 

3,882

 

 

(31)

Other mortgage-backed securities (3)

 

1,891

 

 

(6)

 

 

1,229

 

 

(18)

 

 

3,120

 

 

(24)

Total available for sale

$

9,866

 

$

(23)

 

$

11,079

 

$

(158)

 

$

20,945

 

$

(181)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (1) Comprised of FHLMC securities.[ACI1] 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (2) Comprised of FHLMC and FNMA issued securities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (3) Comprised of SBA issued securities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2016, 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 (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 74% 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, 2016, 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 had no sales and realized no gains or losses on sales of investment securities for the three months ended June 30, 2016 and 2015. Investment securities available for sale with an amortized cost of $12.7 million and $10.2 million and a fair value of $12.9 million and $10.3 million at June 30, 2016 and March 31, 2016, respectively, were pledged as collateral for government public funds held by the Bank. Investment securities held to maturity with an amortized cost of $22,000 and $23,000 and a fair value of $23,000 and $24,000 at June 30, 2016 and March 31, 2016, respectively, were pledged as collateral for government public funds held by the Bank.