Investment Securities

6 Months Ended

Sep. 30, 2013

Notes

Investment Securities

5.      INVESTMENT SECURITIES

The amortized cost and 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
September 30, 2013
Trust preferred	$	2,031	$	-	$	(104	)	$	1,927
Agency securities		20,438		5		(471	)		19,972
Total	$	22,469	$	5	$	(575	)	$	21,899
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

The contractual maturities of investment securities available for sale at September 30, 2013 are as follows (in thousands):

September 30, 2013		Amortized Cost		Estimated Fair Value
Due in one year or less	$	-	$	-
Due after one year through five years		10,438		10,264
Due after five years through ten years		10,000		9,708
Due after ten years		2,031		1,927
Total	$	22,469	$	21,899

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
		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2013
Trust preferred	$	-	$	-		$	1,927	$	(104	)	$	1,927	$	(104	)
Agency securities		16,967		(471	)		-		-			16,967		(471	)
Total	$	16,967	$	(471	)	$	1,927	$	(104	)	$	18,894	$	(575	)

March 31, 2013
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	)

At September 30, 2013, the Company had a single collateralized debt obligation which is secured by trust preferred securities issued by 16 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 of trust preferred securities in this pool have defaulted (representing 50% of the remaining collateral, including excess collateral), and two other issuers are currently deferring interest payments (6% of the remaining collateral). Subsequent to September 30, 2013, one issuer repaid its outstanding debt. The Company has estimated an expected default rate of 43% 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 58% 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 six months ended September 30, 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 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 approaches 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 this table are considered temporary.

The Company realized no gains or losses on sales of investment securities for the three and six months ended September 30, 2013 and 2012. Investment securities with an amortized cost of $1.0 million at September 30, 2013 and March 31, 2013 and a fair value of $972,000 and $996,000 at September 30, 2013 and March 31, 2013, respectively, were pledged as collateral for government public funds held by the Bank.