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Note 3: Securities

9 Months Ended

Mar. 31, 2020

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

	March 31, 2020
				Gross		Gross		Estimated
		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)		Cost		Gains		Losses		Value

Investment and mortgage backed securities:
U.S. government-sponsored enterprises (GSEs)	$	2,294	$	9	$	-	$	2,303
State and political subdivisions		39,518		275		(1,210)		38,583
Other securities		5,168		38		(242)		4,964
Mortgage-backed GSE residential		131,624		3,351		(233)		134,742
Total investments and mortgage-backed securities	$	178,604	$	3,673	$	(1,685)	$	180,592

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

Investment and mortgage backed securities:
U.S. government-sponsored enterprises (GSEs)	$	7,284	$	1	$	(15)	$	7,270
State and political subdivisions		42,123		728		(68)		42,783
Other securities		5,176		75		(198)		5,053
Mortgage-backed GSE residential		109,297		1,449		(317)		110,429
Total investments and mortgage-backed securities	$	163,880	$	2,253	$	(598)	$	165,535

The amortized cost and estimated fair value of investment and mortgage-backed 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 penalties.

	March 31, 2020
	Amortized	Estimated
(dollars in thousands)	Cost	Fair Value
Within one year	$ 3,024	$ 3,020
After one year but less than five years	10,613	10,428
After five years but less than ten years	13,327	12,884
After ten years	20,106	19,518
Total investment securities	46,980	45,850
Mortgage-backed securities	131,624	134,742
Total investments and mortgage-backed securities	$ 178,604	$ 180,592

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 $130.1 million at March 31, 2020 and $143.7 million at June 30, 2019. The securities pledged consist of marketable securities, including $1.3 million and $5.6 million of U.S. Government and Federal Agency Obligations, $50.8 million and $47.3 million of Mortgage-Backed Securities, $44.7 million and $55.7 million of Collateralized Mortgage Obligations, $33.0 million and $34.9 million of State and Political Subdivisions Obligations, and $200,000 and $300,000 of Other Securities at March 31, 2020 and June 30, 2019, respectively.

The following tables reflect the Company’s 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 March 31, 2020 and June 30, 2019:

	March 31, 2020
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
(dollars in thousands)
Obligations of state and political subdivisions		26,497		1,210		-		-		26,497		1,210
Other securities		-		-		931		242		931		242
Mortgage-backed securities		15,513		227		1,375		6		16,888		233
Total investments and mortgage- backed securities	$	42,010	$	1,437	$	2,306	$	248	$	44,316	$	1,685

	June 30, 2019
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	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

Other securities. At March 31, 2020, the Company held two pooled trust preferred securities with an estimated fair value of $737,000 and unrealized losses of $237,000 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 March 31, 2020, 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 1.6 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 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. The Company’s cash flow analysis indicates that cash interest payments are expected to continue for both 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 March 31, 2020.

The Company does not believe any other individual unrealized loss as of March 31, 2020, represents other-than-temporary impairment (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.” There were no credit losses recognized in income and other losses or recorded in other comprehensive income for the three- and nine- month periods ended March 31, 2020 and 2019.