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Note 3: Securities

3 Months Ended

Sep. 30, 2020

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

	September 30, 2020
		Gross	Gross	Allowance	Estimated
	Amortized	Unrealized	Unrealized	for	Fair
(dollars in thousands)	Cost	Gains	Losses	Credit Losses	Value

Investment and mortgage backed securities:
State and political subdivisions	$ 42,880	$ 1,608	$ (1)	$ -	$ 44,487
Other securities	9,358	169	(327)	-	9,200
Mortgage-backed GSE residential	117,366	4,518	(43)	-	121,841
Total investment and mortgage-backed securities	$ 169,604	$ 6,295	$ (371)	$ -	$ 175,528

	June 30, 2020
		Gross	Gross	Estimated
	Amortized	Unrealized	Unrealized	Fair
(dollars in thousands)	Cost	Gains	Losses	Value

Investment and mortgage backed securities:
State and political subdivisions	$ 40,486	$ 1,502	$ -	$ 41,988
Other securities	7,919	48	(343)	7,624
Mortgage-backed GSE residential	122,375	4,576	(39)	126,912
Total investment and mortgage-backed securities	$ 170,780	$ 6,126	$ (382)	$ 176,524

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.

	September 30, 2020
	Amortized	Estimated
(dollars in thousands)	Cost	Fair Value
Within one year	$ 1,370	$ 1,398
After one year but less than five years	10,341	10,525
After five years but less than ten years	17,180	17,689
After ten years	23,347	24,075
Total investment securities	52,238	53,687
Mortgage-backed securities	117,366	121,841
Total investment and mortgage-backed securities	$ 169,604	$ 175,528

The carrying value of investment and mortgage-backed securities pledged as collateral to secure public deposits amounted to $146.2 million at September 30, 2020 and $156.1 million at June 30, 2020. The securities pledged consist of marketable securities, including $77.3 million and $82.0 million of Mortgage-Backed Securities, $34.9 million and $41.9 million of Collateralized Mortgage Obligations, $33.0 million and $32.0 million of State and Political Subdivisions Obligations, and $1.0 million and $200,000 of Other Securities at September 30 and June 30, 2020, respectively.

The following tables 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 for which an ACL has not been recorded at September 30 and June 30, 2020:

	September 30, 2020
	Less than 12 months		12 months or more		Total
		Unrealized		Unrealized			Unrealized
(dollars in thousands)	Fair Value	Losses	Fair Value	Losses		Fair Value	Losses

Obligations of state and political subdivisions	$ 531	$ 1	$ -	$ -		$ 531	$ 1
Other securities	-	-	839	327		839	327
Mortgage-backed securities	8,368	43	-	-		8,368	43
Total investments and mortgage-backed securities	$ 8,899	$ 44	$ 839	$ 327		$ 9,738	$ 371

	June 30, 2020
	Less than 12 months		12 months or more		Total
		Unrealized		Unrealized			Unrealized
(dollars in thousands)	Fair Value	Losses	Fair Value	Losses		Fair Value	Losses

Other securities	$ 995	$ 5	$ 643	$ 338		$ 1,638	$ 343
Mortgage-backed securities	9,037	39	-	-		9,037	39
Total investments and mortgage-backed securities	$ 10,032	$ 44	$ 643	$ 338		$ 10,675	$ 382

Mortgage-backed securities. The unrealized losses on the Company’s investments in mortgage-backed securities were caused by variations in market interest rates since purchase or acquisition. The securities are of high credit quality (AA or higher). Because the Company does not intend to sell these securities and it likely that the Company will not be required to sell these securities prior to recovery of their amortized cost basis, which may be maturity, the Company has not recorded an ACL on these securities.

Other securities. At September 30, 2020 there were two pooled trust preferred securities with an estimated fair value of $654,000 and unrealized losses of $322,000 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 September 30, 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 the Company’s 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 both securities. Because the Company does not intend to sell these securities and it is likely that the Company will not be required to sell these securities prior to recovery of their amortized cost basis, which may be maturity, the Company has not recorded an ACL on these securities.

The Company does not believe any other individual unrealized loss as of September 30, 2020, is the result of a credit loss. However, the Company could be required to recognize an ACL in future periods with respect to its available for sale investment securities portfolio.

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-month periods ended September 30, 2020 and 2019.