Investment Securities

3 Months Ended

Jun. 30, 2011

Investment Securities [Abstract]

Investment Securities

Note 5 — Investment Securities

The amortized cost and fair values of investment securities are as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value
At June 30, 2011:
Available-for-sale:
U.S. government sponsored and federal agency obligations	$	4,035	$	160	$	—		$	4,195
Corporate stock and bonds		1,151		147		(1	)		1,297
Agency CMOs and REMICs		318		17		—			335
Non-agency CMOs		38,820		285		(3,835	)		35,270
Residential agency mortgage-backed securities		5,867		282		(6	)		6,143
GNMA securities		427,596		1,841		(5,906	)		423,531
	$	477,787	$	2,732	$	(9,748	)	$	470,771
Held-to-maturity:
Residential agency mortgage-backed securities	$	25	$	—	$	—		$	25
At March 31, 2011:
Available-for-sale:
U.S. government sponsored and federal agency obligations	$	4,037	$	89	$	—		$	4,126
Corporate stock and bonds		1,151		87		(19	)		1,219
Agency CMOs and REMICs		342		16		—			358
Non-agency CMOs		49,921		371		(3,655	)		46,637
Residential agency mortgage-backed securities		6,131		282		(24	)		6,389
GNMA securities		481,659		1,158		(18,257	)		464,560
	$	543,241	$	2,003	$	(21,955	)	$	523,289
Held-to-maturity:
Residential agency mortgage-backed securities	$	27	$	1	$	—		$	28

The table below shows the Corporation’s gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual investments have been in a continuous unrealized loss position at June 30, 2011 and March 31, 2011.

	At June 30, 2011
	Unrealized loss position					Unrealized loss position
	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
Description of Securities	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
						(In Thousands)
Corporate stock and other	$	86	$	(1	)	$	—	$	—		$	86	$	(1	)
Non-agency CMOs		3,545		(78	)		19,739		(3,757	)		23,284		(3,835	)
Residential mortgage-backed securities		939		(6	)		—		—			939		(6	)
GNMA securities		248,469		(5,906	)		—		—			248,469		(5,906	)
	$	253,039	$	(5,991	)	$	19,739	$	(3,757	)	$	272,778	$	(9,748	)

	At March 31, 2011
	Unrealized loss position					Unrealized loss position
	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
Description of Securities	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
						(In Thousands)
Corporate stock and other	$	—	$	—		$	68	$	(19	)	$	68	$	(19	)
Non-agency CMOs		4,020		(22	)		22,382		(3,633	)		26,402		(3,655	)
Residential mortgage-backed securities		948		(24	)		—		—			948		(24	)
GNMA securities		390,689		(18,257	)		—		—			390,689		(18,257	)
	$	395,657	$	(18,303	)	$	22,450	$	(3,652	)	$	418,107	$	(21,955	)

The tables above represent 34 investment securities at June 30, 2011 compared to 46 at March 31, 2011 that, due to the current interest rate environment and other factors, have declined in value but do not presently represent other than temporary losses. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. In estimating other-than-temporary impairment losses on investment securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions are met, the Corporation will recognize an other-than-temporary impairment in earnings equal to the difference between the security’s fair value and its adjusted cost basis. If neither condition is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the portion of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The portion of total impairment related to all other factors is included in other comprehensive income (loss).

All of the Corporation’s other-than-temporary impaired debt securities are non-agency CMOs. On a cumulative basis, for securities owned as of June 30, 2011, other-than-temporary impairments recognized in earnings by year of vintage were $1.6 million for 2007, $317,000 for 2006, $349,000 for 2005 and $25,000 prior to 2005.

The Corporation utilizes an independent pricing service to run a discounted cash flow model in the calculation of other-than-temporary impairments on non-agency CMOs. This model is also used to determine the portion of the other-than-temporary impairment that is due to credit losses, and the portion that is due to all other factors. On securities with other-than-temporary impairment, the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security is the credit loss.

To estimate fair value of non-agency CMOs, the cash flow model discounted estimated expected cash flows after credit losses at rates ranging from 4.0% to 12.0%. The rates utilized are based on the risk free rate equivalent to the remaining average life of the security, plus a spread for normal liquidity and a spread to reflect the uncertainty of the cash flow estimates. The pricing service benchmarks its fair value results to a pricing service and monitors the market for actual trades. The cash flow model includes these inputs in its derivation of the discount rates used to estimate fair value. There are no payments in kind allowed on these non-agency CMOs.

The significant inputs used for calculating the credit loss portion of securities with other-than-temporary impairment (“OTTI”) include prepayment assumptions, loss severities, original FICO scores, historical rates of delinquency, percentage of loans with limited underwriting, historical rates of default, original loan-to-value ratio, aggregate property location by metropolitan statistical area, original credit support, current credit support, and weighted-average maturity. The discount rates used to establish the net present value of expected cash flows for purposes of determining OTTI ranged from 5.0% to 7.5%. The rates used equate to the effective yield implicit in the security at the date of acquisition for the bonds for which the Corporation has not in the past incurred OTTI. For the bonds for which the Corporation has previously recorded OTTI, the discount rate used equates to the accounting yield on the security as of the valuation date. Default rates were calculated separately for each category of underlying borrower based on delinquency status (i.e. current, 30 to 59 days delinquent, 60 to 89 days delinquent, 90+ days delinquent, and foreclosure balances) of the loans as of June 1, 2011. These balances were entered into a loss migration model to calculate projected default rates, which are benchmarked against results that have recently been experienced by other major servicers on non-agency CMOs with similar attributes. The month 1 to month 24 constant default rate in the model ranged from 3.3% to 10.9%.

At June 30, 2011, the Corporation had 14 non-agency CMOs with a fair value of $35.1 million and an adjusted cost basis of $38.7 million that were other-than-temporarily impaired. At March 31, 2011, the Corporation had 21 non-agency CMOs with a fair value of $28.2 million and an adjusted cost basis of $31.8 million that were other-than-temporarily impaired. Seven non-agency CMOs with OTTI due to intent to sell and a fair value of $2.7 million as of March 31, 2011 were sold in the quarter ended June 30, 2011. The loss on these securities was recognized in earnings as of March 31, 2011. The increase in other-than-temporary impairment due to credit of $59,000 was included in earnings for the three months ended June 30, 2011.

The Corporation has $4.1 million in net unrealized losses on long-term Ginnie Mae (“GNMA”) securities as of June 30, 2011 due to increases in interest rates and factors other than credit. The Corporation has reviewed this portfolio for other-than-temporary impairment. Management has concluded that no OTTI exists and that the unrealized losses are properly classified in accumulated other comprehensive income (loss).

The following table is a rollforward of the amount of other-than-temporary impairment related to credit losses that have been recognized in earnings for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss) for the three months ended June 30, 2011 and 2010 (in thousands):

	Three Months Ended		Three Months Ended
	June 30, 2011		June 30, 2010
Beginning balance of the amount of OTTI related to credit losses	$	2,197	$	1,889
Increases to the amount related to the credit loss for which OTTI was previously recognized		59		86
Ending balance of the amount of OTTI related to credit losses	$	2,256	$	1,975

The cost of investment securities sold is determined using the specific identification method. Sales of investment securities available for sale are summarized below:

	Three Months Ended
	June 30,
	2011			2010
	(in thousands)
Proceeds from sales:	$	55,757		$	4,315
Gross gains on sales		1,141			112
Gross losses on sales		(5	)		—
Net gain (loss) on sales	$	1,136		$	112

At June 30, 2011 and March 31, 2011, investment securities available-for-sale with a fair value of approximately $411.0 million and $420.8 million, respectively, were pledged to secure deposits, borrowings and for other purposes as permitted or required by law.

The fair value of investment securities by contractual maturity at June 30, 2011 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.

			After 1		After 5
			Year		Years
	Within 1		through 5		through 10		Over Ten
	Year		Years		Years		Years		Total
			(Dollars In Thousands)
Available-for-sale, at fair value:
U.S. government sponsored and federal agency obligations	$	—	$	4,195	$	—	$	—	$	4,195
Corporate stock and other		—		—		—		1,297		1,297
Agency CMOs and REMICs		—		—		—		335		335
Non-agency CMOs		—		23		2,080		33,167		35,270
Residential mortgage-backed securities		—		404		1,469		4,270		6,143
GNMA securities		—		—		593		422,938		423,531
Total	$	—	$	4,622	$	4,142	$	462,007	$	470,771
Held-to-maturity, at fair value:
Residential mortgage-backed securities	$	—	$	2	$	23	$	—	$	25
Total	$	—	$	2	$	23	$	—	$	25
	$	—	$	4,624	$	4,165	$	462,007	$	470,796
Held-to-maturity, at cost:
Residential mortgage-backed securities	$	—	$	2	$	23	$	—	$	25