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Note 3: Securities | 3 Months Ended
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Sep. 30, 2013
Notes |
Note 3: Securities | Note 3: Securities The amortized cost, gross unrealized gains, gross unrealized losses, and approximate fair value of securities available for sale consisted of the following:
| September 30, 2013
|  | Gross | Gross | Estimated
| Amortized | Unrealized | Unrealized | Fair
| Cost | Gains | Losses | Value
Investment and mortgage backed securities: |  |  |  |
U.S. government-sponsored enterprises (GSEs) | $24,876,217 | $9,633 | $(980,014) | $23,905,836
State and political subdivisions | 38,056,534 | 972,781 | (513,991) | 38,515,324
Other securities | 3,756,247 | 38,234 | (1,106,280) | 2,688,201
Mortgage-backed: GSE residential | 16,322,617 | 302,785 | (136,569) | 16,488,833
Mortgage-backed: other U.S. government agencies | 2,253,904 | - | (1,777) | 2,252,127
Total investments and mortgage-backed securities | $85,265,519 | $1,323,433 | $(2,738,631) | $83,850,321
| June 30, 2013
|  | Gross | Gross | Estimated
| Amortized | Unrealized | Unrealized | Fair
| Cost | Gains | Losses | Value
Investment and mortgage backed securities: |  |  |  |
U.S. government-sponsored enterprises (GSEs) | $22,972,073 | $2,590 | $(566,778) | $22,407,885
State and political subdivisions | 38,135,005 | 1,432,739 | (244,437) | 39,323,307
Other securities | 2,638,303 | 37,328 | (1,116,652) | 1,558,979
Mortgage-backed GSE residential | 14,174,119 | 343,138 | (206,713) | 14,310,544
Mortgage-backed: other U.S. government agencies | 2,405,692 | - | (2,181) | 2,403,511
Total investments and mortgage-backed securities | $80,325,192 | $1,815,795 | $(2,136,761) | $80,004,226
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, 2013
|  | Estimated
| Amortized | Fair
| Cost | Value
Available for Sale: |  |
Within one year | $455,447 | $455,755
After one year but less than five years | 14,814,190 | 14,799,571
After five years but less than ten years | 27,058,345 | 26,408,817
After ten years | 24,361,016 | 23,445,218
Total investment securities | 66,688,998 | 65,109,361
Mortgage-backed securities | 18,576,521 | 18,740,960
Total investments and mortgage-backed securities | $85,265,519 | $83,850,321
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 at September 30 and June 30, 2013:
| September 30, 2013
| Less than 12 months | More than 12 months | Total
|  | Unrealized |  | Unrealized |  | Unrealized
| Fair Value | Losses | Fair Value | Losses | Fair Value | Losses
U.S. government-sponsored enterprises (GSEs) | $20,974,255 | $980,014 | $- | $- | $20,974,255 | $980,014
State and political subdivisions | 16,248,261 | 439,259 | 1,212,579 | 74,732 | 17,460,840 | 513,991
Other securities | - | - | 1,578,089 | 1,106,280 | 1,578,089 | 1,106,280
Mortgage-backed: GSE residential | 4,096,159 | 136,569 | - | - | 4,096,159 | 136,569
Mortgage-backed: other U.S. government agencies | - | - | 2,252,127 | 1,777 | 2,252,127 | 1,777
Total investments and mortgage-backed securities | $41,318,675 | $1,555,842 | $5,042,795 | $1,182,789 | $46,361,470 | $2,738,631
| June 30, 2013
| Less than 12 months | More than 12 months | Total
|  | Unrealized |  | Unrealized |  | Unrealized
| Fair Value | Losses | Fair Value | Losses | Fair Value | Losses
U.S. government-sponsored enterprises (GSEs) | $20,397,826 | $566,778 | $- | $- | $20,397,826 | $566,778
State and political subdivisions | 8,588,542 | 173,966 | 2,525,673 | 70,471 | 11,114,215 | 244,437
Other securities | - | - | 445,777 | 1,116,652 | 445,777 | 1,116,652
Mortgage-backed: GSE residential | 3,052,069 | 206,713 | - | - | 3,052,069 | 206,713
Mortgage-backed: other U.S. government agencies | - | - | 2,403,511 | 2,181 | 2,403,511 | 2,181
Total investments and mortgage-backed securities | $32,038,437 | $947,457 | $5,374,961 | $1,189,304 | $37,413,398 | $2,136,761
Other securities. At September 30, 2013, there were four pooled trust preferred securities with an estimated fair value of $465,000 and unrealized losses of $1.1 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 September 30, 2013, 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, recovery, and prepayment rates, 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 within one year by all fixed-rate issuers of asset size greater than $15 billion, and by all variable rate issuers with spreads of greater than 250 basis points, to account for the lack of favorable capital treatment under the Dodd-Frank regulatory reform bill; prepayments within one year by smaller, profitable, and well-capitalized issuers with fixed rate coupons in excess of 8%; and other prepayments of 1% every year thereafter, to account for isolated prepayments; no recoveries on issuers currently in default; recoveries of 23 to 61 percent on currently deferred issuers within the next six months; new defaults of 2% annually for the next two years; annual defaults of 36 basis points thereafter; and recoveries of 10% of new defaults. 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 September 30, 2013. 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 one 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 September 30, 2013. 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 quarter ended December 31, 2009, and the twelve months ended June 30, 2009. At September 30, 2013, 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 within one year by all fixed-rate issuers of asset size greater than $15 billion, and by all variable rate issuers with spreads of greater than 250 basis points, to account for the lack of favorable capital treatment under the Dodd-Frank regulatory reform bill; prepayments within one year by smaller, profitable, and well-capitalized issuers with fixed rate coupons in excess of 8%; and other prepayments of 1% every year thereafter, to account for isolated prepayments; no recoveries on issuers currently in default; recoveries of 77% on currently deferred issuers within the next six months; new defaults of 2% annually 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 one year. 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 September 30, 2013. The Company does not believe any other individual unrealized loss as of September 30, 2013, represents OTTI. However, given the recent 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, one of the Company’s investments in trust preferred securities has experienced fair value deterioration due to credit losses, but is 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 three-month period ended September 30, 2013 and 2012.
| Accumulated Credit Losses
| Three-Month Period Ended
| September 30,
| 2013 | 2012
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 marketable securities. This may consist of investments in certain debt and equity securities, short-term investments and other assets. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6871852&loc=d3e26610-111562 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 45 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6871852&loc=d3e26626-111562 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.9-03.4) -URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.2,12) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 5 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27232-111563 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27161-111563 + Details
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