Note 2: Available for Sale Securities

12 Months Ended

Jun. 30, 2019

NOTE 2: Available-for-Sale Securities

The amortized cost, gross unrealized gains, gross unrealized losses and approximate fair value of securities available for sale consisted of the following:

	June 30, 2019
		Gross	Gross	Estimated
	Amortized	Unrealized	Unrealized	Fair
(dollars in thousands)	Cost	Gains	Losses	Value

Debt and equity securities:
U.S. government and Federal agency obligations	$ 7,284	$ 1	$ (15)	$ 7,270
Obligations of states and political subdivisions	42,123	728	(68)	42,783
Other securities	5,176	75	(198)	5,053
TOTAL DEBT AND EQUITY SECURITIES	54,583	804	(281)	55,106

Mortgage-backed securities:
FHLMC certificates	16,373	64	(65)	16,372
GNMA certificates	35	-	-	35
FNMA certificates	34,943	610	(95)	35,458
CMOs issues by government agencies	57,946	775	(157)	58,564
TOTAL MORTGAGE-BACKED SECURITIES	109,297	1,449	(317)	110,429
TOTAL	$ 163,880	$ 2,253	$ (598)	$ 165,535

	June 30, 2018
		Gross	Gross	Estimated
	Amortized	Unrealized	Unrealized	Fair
(dollars in thousands)	Cost	Gains	Losses	Value

Debt and equity securities:
U.S. government and Federal agency obligations	$ 9,513	$ -	$ (128)	$ 9,385
Obligations of states and political subdivisions	41,862	230	(480)	41,612
Other securites	5,284	61	(193)	5,152
TOTAL DEBT AND EQUITY SECURITIES	56,659	291	(801)	56,149

Mortgage-backed securities:
FHLMC certificates	16,598	1	(486)	16,113
GNMA certificates	38	-	-	38
FNMA certificates	25,800	-	(738)	25,062
CMOs issues by government agencies	50,272	-	(1,309)	48,963
TOTAL MORTGAGE-BACKED SECURITIES	92,708	1	(2,533)	90,176
TOTAL	$ 149,367	$ 292	$ (3,334)	$ 146,325

The amortized cost and fair value of available-for-sale securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	June 30, 2019
	Amortized	Estimated
(dollars in thousands)	Cost	Fair Value
Within one year	$ 6,777	$ 6,777
After one year but less than five years	10,189	10,237
After five years but less than ten years	19,658	19,930
After ten years	17,959	18,162
Total investment securities	54,583	55,106
Mortgage-backed securities	109,297	110,429
Total investments and mortgage-backed securities	$ 163,880	$ 165,535

The carrying value of investment and mortgage-backed securities pledged as collateral to secure public deposits and securities sold under agreements to repurchase amounted to $143.7 million and $124.2 million at June 30, 2019 and 2018, respectively. The securities pledged consist of marketable securities, including $5.6 million and $8.4 million of U.S. Government and Federal Agency Obligations, $47.3 million and $39.8 million of Mortgage-Backed Securities, $55.7 million and $41.5 million of Collateralized Mortgage Obligations, $34.9 million and $34.2 million of State and Political Subdivisions Obligations, and $300,000 and $300,000 of Other Securities at June 30, 2019 and 2018, respectively.

Gains of $265,450 and losses of $21,576 were recognized from sales of available-for-sale securities in 2019. Gains of $491,500 and losses of $157,105 were recognized from sales of available-for-sale securities in 2018.

The Company did not hold any securities of a single issuer, payable from and secured by the same source of revenue or taxing authority, the book value of which exceeded 10% of stockholders’ equity at June 30, 2019.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at June 30, 2019, was $51.8 million, which is approximately 31.3% of the Company’s available for sale investment portfolio, as compared to $124.9 million or approximately 85.4% of the Company’s available for sale investment portfolio at June 30, 2018. Except as discussed below, management believes the declines in fair value for these securities to be temporary.

The tables below show our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2019 and 2018.


	Less than 12 months		12 months or more		Total
		Unrealized		Unrealized		Unrealized
For the year ended June 30, 2019	Fair Value	Losses	Fair Value	Losses	Fair Value	Losses
(dollars in thousands)
U.S. government-sponsored enterprises (GSEs)	$ -	$ -	$ 6,969	$ 15	$ 6,969	$ 15
Obligations of state and political subdivisions	-	-	8,531	68	8,531	68
Other securities	-	-	985	198	985	198
Mortgage-backed securities	1,175	1	34,148	316	35,323	317
Total investments and mortgage-backed securities	$ 1,175	$ 1	$ 50,633	$ 597	$ 51,808	$ 598

	Less than 12 months		12 months or more		Total
		Unrealized		Unrealized		Unrealized
For the year ended June 30, 2018	Fair Value	Losses	Fair Value	Losses	Fair Value	Losses
(dollars in thousands)
U.S. government-sponsored enterprises (GSEs)	$ 5,957	$ 58	$ 3,427	$ 70	$ 9,384	$ 128
Obligations of state and political subdivisions	14,861	224	8,526	256	23,387	480
Other securities	982	10	1,109	183	2,091	193
Mortgage-backed securities	65,863	1,513	24,187	1,020	90,050	2,533
Total investments and mortgage-backed securities	$ 87,663	$ 1,805	$ 37,249	$ 1,529	$ 124,912	$ 3,334

The unrealized losses on the Company’s investments in U.S. government-sponsored enterprises, mortgage-backed securities, and obligations of state and political subdivisions were caused by increases in market interest rates. The contractual terms of these instruments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2019.

Other securities. At June 30, 2019, there were two pooled trust preferred securities with an estimated fair value of $779,000 and unrealized losses of $193,000 in a continuous unrealized loss position for twelve months or more. These unrealized losses were primarily due to the long-term nature of the pooled trust preferred securities and a reduced demand for these securities, and concerns regarding the financial institutions that issued the underlying trust preferred securities.

The June 30, 2019, cash flow analysis for these two securities indicated it is probable the Company will receive all contracted principal and related interest projected. The cash flow analysis used in making this determination was based on anticipated default, recovery, and prepayment rates, and the resulting cash flows were discounted based on the yield spread anticipated at the time the securities were purchased. Other inputs include the actual collateral attributes, which include credit ratings and other performance indicators of the underlying financial institutions, including profitability, capital ratios, and asset quality. Assumptions for these two securities included prepayments averaging 1.4 percent, annually, annual defaults averaging 50 basis points, and a recovery rate averaging 10 percent of gross defaults, lagged two years.

One of these two securities has continued to receive cash interest payments in full since our purchase; the other security received principal-in-kind (PIK), in lieu of cash interest, for a period of time following the recession and financial crisis which began in 2008, but resumed cash interest payments during fiscal 2014. Our cash flow analysis indicates that cash interest payments are expected to continue for the securities. Because the Company does not intend to sell these securities and it is not more-likely-than-not that the Company will be required to sell these securities prior to recovery of their amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2019.

The Company does not believe any other individual unrealized loss as of June 30, 2019, represents OTTI. However, the Company could be required to recognize OTTI losses in future periods with respect to its available for sale investment securities portfolio. The amount and timing of any required OTTI will depend on the decline in the underlying cash flows of the securities. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in the period the OTTI is identified.

Credit losses recognized on investments. During fiscal 2009, the Company adopted ASC 820, formerly FASB Staff Position 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The following table provides information about the trust preferred security for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income (loss) for the years ended June 30, 2019 and 2018.

	Accumulated Credit Losses
	Twelve-Month Period Ended
(dollars in thousands)	June 30,
	2019	2018
Credit losses on debt securities held
Beginning of period	$ -	$ 340
Additions related to OTTI losses not previously recognized	-	-
Reductions due to sales	-	(333)
Reductions due to change in intent or likelihood of sale	-	-
Additions related to increases in previously-recognized OTTI losses	-	-
Reductions due to increases in expected cash flows	-	(7)
End of period	$ -	$ -