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Note 3: Securities | 3 Months Ended
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Sep. 30, 2017
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, 2017
|  | 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) | $10,443 | $16 | $(15) | $10,444
State and political subdivisions | 52,074 | 980 | (121) | 52,933
Other securities | 5,961 | 315 | (542) | 5,734
Mortgage-backed: GSE residential | 78,349 | 495 | (275) | 78,569
Total investments and mortgage-backed securities | $146,827 | $1,806 | $(953) | $147,680
| June 30, 2017
|  | 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) | $10,433 | $17 | $(12) | $10,438
State and political subdivisions | 49,059 | 1,046 | (127) | 49,978
Other securities | 6,017 | 306 | (598) | 5,725
Mortgage-backed GSE residential | 78,088 | 490 | (303) | 78,275
Total investments and mortgage-backed securities | $143,597 | $1,859 | $(1,040) | $144,416
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, 2017
| Amortized | Estimated
(dollars in thousands) | Cost | Fair Value
Within one year | $3,994 | $4,007
After one year but less than five years | 16,851 | 16,987
After five years but less than ten years | 14,920 | 15,055
After ten years | 32,713 | 33,062
Total investment securities | 68,478 | 69,111
Mortgage-backed securities | 78,349 | 78,569
Total investments and mortgage-backed securities | $146,827 | $147,680
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 $107.8 million at September 30, 2017 and $114.1 million at June 30, 2017. The securities pledged consist of marketable securities, including $7.4 million and $6.5 million of U.S. Government and Federal Agency Obligations, $44.4 million and $50.5 million of Mortgage-Backed Securities, $17.3 million and $19.9 million of Collateralized Mortgage Obligations, $38.3 million and $36.8 million of State and Political Subdivisions Obligations, and $400,000 and $400,000 of Other Securities at September 30 and June 30, 2017, 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 at September 30 and June 30, 2017:
| September 30, 2017
| Less than 12 months | 12 months or more | Total
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized
| Value | Losses | Value | Losses | Value | Losses
(dollars in thousands) |  |  |  |  |  |
U.S. government-sponsored enterprises (GSEs) | $3,482 | $15 | $- | $- | $3,482 | $15
Obligations of state and political subdivisions | 5,103 | 48 | 6,683 | 73 | 11,786 | 121
Other securities | 56 | - | 1,206 | 542 | 1,262 | 542
Mortgage-backed securities | 19,316 | 200 | 9,899 | 75 | 29,215 | 275
Total investments and mortgage-backed securities | $27,957 | $263 | $17,788 | $690 | $45,745 | $953
| June 30, 2017
| Less than 12 months | 12 months or more | Total
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized
| Value | Losses | Value | Losses | Value | Losses
(dollars in thousands) |  |  |  |  |  |
U.S. government-sponsored enterprises (GSEs) | $6,457 | $12 | $- | $- | $6,457 | $12
Obligations of state and political subdivisions | 12,341 | 127 | 256 | - | 12,597 | 127
Other securities | - | - | 1,160 | 598 | 1,160 | 598
Mortgage-backed securities | 29,836 | 267 | 2,285 | 36 | 32,121 | 303
Total investments and mortgage-backed securities | $48,634 | $406 | $3,701 | $634 | $52,335 | $1,040
Other securities. At September 30, 2017, there were 3 pooled trust preferred securities with an estimated fair value of $874,000 and unrealized losses of $536,000 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. Rules adopted by the federal banking agencies in December 2013 to implement Section 619 of the Dodd-Frank Act (the “Volcker Rule”) generally prohibit banking entities from engaging in proprietary trading and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. All pooled trust preferred securities owned by the Company were included in a January 2014 listing of securities which the agencies considered to be grandfathered with regard to these prohibitions; as such, banking entities are permitted to retain their interest in these securities, provided the interest was acquired on or before December 10, 2013, unless acquired pursuant to a merger or acquisition. The September 30, 2017, cash flow analysis for these three 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 three securities included annualized prepayments of 1.3 to 1.9 percent; recoveries of 36 percent on currently deferred issuers within the next two years; new deferrals of 40 to 50 basis points annually; and eventual recoveries of eight to ten percent of new deferrals. One of these three securities has continued to receive cash interest payments in full since our purchase; two of the three securities 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 have since resumed cash interest payments. One of the two securities which were in PIK status resumed cash interest payments during fiscal 2014, and the second resumed cash interest payments during fiscal 2017. Our cash flow analysis indicates that cash interest payments are expected to continue for the three 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 September 30, 2017. At December 31, 2008, analysis of a fourth pooled trust preferred security indicated other-than-temporary impairment (OTTI). The loss recognized at that time reduced the amortized cost basis for the security, and as of September 30, 2017, the estimated fair value of the security exceeds the new, lower amortized cost basis. The Company does not believe any other individual unrealized loss as of September 30, 2017, 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 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 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 periods ended September 30, 2017 and 2016.
| Accumulated Credit Losses
| Three-Month Period Ended
(dollars in thousands) | September 30,
| 2017 | 2016
Credit losses on debt securities held |  |
Beginning of period | $340 | $352
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 | (3) | (3)
End of period | $337 | $349

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