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Available-for-sale Securities | 12 Months Ended
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Jun. 30, 2012
Notes |
Available-for-sale Securities | 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:
Debt and equity securities: | June 30, 2012
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value
U.S. government and Federal agency obligations | $ 18,046,654 | $ 53,348 | $ (384) | $ 18,099,618
Obligations of states and political subdivisions | 34,656,284 | 1,823,625 | (98,656) | 36,381,253
Other securities | 2,646,719 | 14,310 | (1,267,772) | 1,393,257
TOTAL DEBT AND EQUITY SECURITIES | 55,349,657 | 1,891,283 | (1,366,812) | 55,874,128
Mortgage-backed securities: |  |  |  |
FHLMC certificates | 3,420,821 | 245,143 | - | 3,665,964
GNMA certificates | 79,088 | 1,489 |  | 80,577
FNMA certificates | 4,437,325 | 256,343 | - | 4,693,668
CMOs issues by government agencies | 10,757,324 | 63,045 | (7,861) | 10,812,508
TOTAL MORTGAGE-BACKED SECURITIES | 18,694,558 | 566,020 | (7,861) | 19,252,717
TOTAL | $ 74,044,215 | $ 2,457,303 | $ (1,374,673) | $ 75,126,845
Debt and equity securities: | June 30, 2011
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value
U.S. government and Federal agency obligations | $ 12,991,362 | $ 28,805 | $ (44,097) | $ 12,976,070
Obligations of states and political subdivisions | 24,232,364 | 816,966 | (67,876) | 24,981,454
Other securities | 1,785,562 | 18,717 | (970,138) | 834,141
TOTAL DEBT AND EQUITY SECURITIES | 39,009,288 | 864,488 | (1,082,111) | 38,791,665
Mortgage-backed securities: |  |  |  |
FHLMC certificates | 4,829,996 | 356,213 | - | 5,186,209
GNMA certificates | 89,126 | 1,481 | - | 90,607
FNMA certificates | 4,632,854 | 353,886 | - | 4,986,740
CMOs issues by government agencies | 13,938,320 | 333,660 | - | 14,271,980
TOTAL MORTGAGE-BACKED SECURITIES | 23,490,296 | 1,045,240 | - | 24,535,536
TOTAL | $ 62,499,584 | $ 1,909,728 | $ (1,082,111) | $ 63,327,201
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.
Available for Sale: | June 30, 2012
Amortized Cost | Estimated Fair Value
Within one year | $ 215,000 | $ 215,408
After one year but less than five years | 6,788,532 | 6,816,264
After five years but less than ten years | 19,115,999 | 19,730,412
After ten years | 29,230,126 | 29,112,044
Total debt and equity securities | 55,349,657 | 55,874,128
Mortgage-backed securities – GSE residential | 18,694,558 | 19,252,717
TOTAL | $74,044,215 | $75,126,845
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 $64.5 million and $57.1 million at June 30, 2012 and 2011, respectively. No gains or losses resulted from sales of available-for-sale securities in 2012, 2011, or 2010. With the exception of U.S. government agencies and corporations, 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, 2012. 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, 2012, was $8.8 million, which is approximately 11.6% of the Company’s available for sale investment portfolio, as compared to $10.8 million or approximately 17.0% of the Company’s available for sale investment portfolio at June 30, 2011. 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, 2012 and 2011.
| Less than 12 months | More than 12 months | Total
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses
For the year ended June 30, 2012 |  |  |  |  |  |
U.S. government-sponsored enterprises (GSEs) | $999,616 | $384 | $- | $- | $999,616 | $384
Mortgage-backed securities | 1,943,968 | 7,861 | - | - | 1,943,968 | 7,861
Other securities | - | - | 282,639 | 1,267,772 | 282,639 | 1,267,772
Obligations of state and political subdivisions | 5,525,825 | 98,656 | - | - | 5,525,825 | 98,656
Total | $8,469,409 | $106,901 | $282,639 | $1,267,772 | $8,752,048 | $1,374,673
| Less than 12 months | More than 12 months | Total
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses
For the year ended June 30, 2011 |  |  |  |  |  |
U.S. government-sponsored enterprises (GSEs) | $5,955,903 | $44,097 | $- | $- | $5,955,903 | $44,097
Other securities | - | - | 568,568 | 970,138 | 568,568 | 970,138
Obligations of state and political subdivisions | 4,233,216 | 67,876 | - | - | 4,233,216 | 67,876
Total | $10,189,119 | $111,973 | $568,568 | $970,138 | $10,757,687 | $1,082,111
Other securities. At June 30, 2012, there were four pooled trust preferred securities with an estimated fair value of $295,000 and unrealized losses of $1.3 million 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, a lack of demand or inactive market for these securities, and concerns regarding the financial institutions that have issued the underlying trust preferred securities. The June 30, 2012, cash flow analysis for three of these 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 and recovery rates, amounts of prepayments, and the resulting cash flows were discounted based on the yield 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 three securities included prepayments by June 2013 by all issuers of asset size greater than $15 billion, to account for the lack of favorable capital treatment under the Dodd-Frank regulatory reform bill; prepayments of 5% every five years thereafter, to account for isolated prepayments; no recoveries on issuers currently in default; recoveries of 25% to 32% on currently deferred issuers within the next two years; no net new deferrals for the next two years; and annual defaults of 36 basis points (with 10% recoveries, lagged two years) thereafter. One of these three securities continues to receive cash interest payments in full and our cash flow analysis indicates that these payments are likely to continue. Because 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 prior to recovery of its amortized cost basis, which may be maturity, the Company does not consider this investment to be other-than-temporarily impaired at June 30, 2012. For the other two of these three securities, the Company is receiving principal-in-kind (PIK), in lieu of cash interest. These securities all allow, under the terms of the issue, for issuers to defer interest for up to five consecutive years. After five years, if not cured, the securities are considered to be in default and the trustee may demand payment in full of principal and accrued interest. Issuers are also considered to be in default in the event of the failure of the issuer or a subsidiary. Both deferred and defaulted issuers are considered non-performing, and the trustee calculates, on a quarterly or semi-annual basis, certain coverage tests prior to the payment of cash interest to owners of the various tranches of the securities. The tests must show that performing collateral is sufficient to meet requirements for senior tranches, both in terms of cash flow and collateral value, before cash interest can be paid to subordinate tranches. If the tests are not met, available cash flow is diverted to pay down the principal balance of senior tranches until the coverage tests are met, before cash interest payments to subordinate tranches may resume. The Company is receiving PIK for these two securities due to failure of the required coverage tests described above at senior tranche levels of these securities. The risk to holders of a tranche of a security in PIK status is that the pool’s total cash flow will not be sufficient to repay all principal and accrued interest related to the investment. The impact of payment of PIK to subordinate tranches is to strengthen the position of senior tranches, by reducing the senior tranches’ principal balances relative to available collateral and cash flow, while increasing principal balances, decreasing cash flow, and increasing credit risk to the tranches receiving PIK. For our securities in receipt of PIK, the principal balance is increasing, cash flow has stopped, and, as a result, credit risk is increasing. The Company expects these securities to remain in PIK status for a period of three to seven years. Despite these facts, because the Company does not intend to sell these two securities and it is not more-likely-than-not that the Company will be required to sell these two securities prior to recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2012. At December 31, 2008, analysis of the fourth pooled trust preferred security indicated other-than-temporary impairment (OTTI) and the Company performed further analysis to determine the portion of the loss that was related to credit conditions of the underlying issuers. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. The discounted cash flow was based on anticipated default and recovery rates, and resulting projected cash flows were discounted based on the yield anticipated at the time the security was purchased. Based on this analysis, the Company recorded an impairment charge of $375,000 for the credit portion of the unrealized loss for this trust preferred security. This loss established a new, lower amortized cost basis of $125,000 for this security, and reduced non-interest income for the second quarter and the twelve months ended June 30, 2009. At June 30, 2012, cash flow analyses showed it is probable the Company will receive all of the remaining cost basis and related interest projected for the security. The cash flow analysis used in making this determination was based similar inputs and factors as those described above. Assumptions for this security included prepayments by June 2013 by all issuers of asset size greater than $15 billion, to account for the lack of favorable capital treatment under the Dodd-Frank regulatory reform bill; prepayments of 5% every five years thereafter, to account for isolated prepayments; no recoveries on issuers currently in default; recoveries of 48% on currently deferred issuers within the next two years; no net new deferrals for the next two years; and annual defaults of 36 basis points (with 10% recoveries, lagged two years) thereafter. This security is in PIK status due to similar criteria and factors as those described above, with similar impact to the Company. This security is projected to remain in PIK status for a period of two years. Because the Company does not intend to sell this security and it is not more-likely-than-not the Company will be required to sell this security before recovery of its new, lower amortized cost basis, which may be maturity, the Company does not consider the remainder of the investment in this security to be other-than-temporarily impaired at June 30, 2012. The Company does not believe any other individual unrealized loss as of June 30, 2012, represents OTTI. However, given the continued disruption in the financial markets, the Company may 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 additional 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 other-than-temporary impairment is identified. Credit Losses Recognized on Investments. As described above, some of the Company’s investments in trust preferred securities have experienced fair value deterioration due to credit losses, but are not otherwise other-than-temporarily impaired. 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, 2012 and 2011.
| Accumulated Credit Losses Period Ended June 30,
| 2012 | 2011
Credit losses on debt securities held |  |
Beginning of period | $375,000 | $375,000
Additions related to OTTI losses not previously recognized | - | -
Reductions due to sales | - | -
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 | - | -
End of period | $375,000 | $375,000

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- Definition Tabular disclosure of available-for-sale securities which includes, but is not limited to, changes in the cost basis and fair value, fair value and gross unrealized gain (loss), fair values by type of security, contractual maturity and classification, amortized cost basis, contracts to acquire securities to be accounted for as available-for-sale, debt maturities, transfers to trading, change in net unrealized holding gain (loss) net of tax, continuous unrealized loss position fair value, aggregate losses qualitative disclosures, other than temporary impairment (OTTI) losses or other disclosures related to available for sale securities. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27290-111563 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27198-111563 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 03-1 -Paragraph 21 -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6957658&loc=d3e62557-112803 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FAS115-1/124-1 -Paragraph 17 -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27337-111563 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 115 -Paragraph 19, 20, 21 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27161-111563 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6957658&loc=d3e62586-112803 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27357-111563 + Details
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