|12 Months Ended|
Jun. 30, 2012
|Investments, Debt and Equity Securities [Abstract]|
|Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]||
The following table sets forth certain information regarding the amortized cost and fair value of the Corporation’s available-for-sale securities at the dates indicated.
Proceeds from sales of debt securities during 2012 and 2011 were as follows:
The amortized cost and fair values of available-for-sale securities at June 30, 2012 by expected 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. Securities not due at a single maturity date, primarily mortgage-backed securities, collateralized mortgage obligations and the trust preferred security are shown separately.
Securities with a carrying value of approximately $35,411 and $43,262 were pledged at June 30, 2012 and 2011, respectively, to secure public deposits and commitments as required or permitted by law. At June 30, 2012 and 2011, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, with an aggregate book value greater than 10% of shareholders’ equity.
The following table summarizes the securities with unrealized losses at June 30, 2012 and 2011, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position:
Management evaluates securities for other-than-temporary impairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC Topic 320, Accounting for Certain Investments in Debt and Equity Securities. However, the trust preferred security is evaluated using the model outlined in FASB ASC Topic 325, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transfer in Securitized Financial Assets.
In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
Under the ASC Topic 325 model, the present value of the remaining cash flows as estimated at the preceding evaluation date are compared to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows. The analysis of the trust preferred security falls within the scope of ASC Topic 325.
As of June 30, 2012, the Corporation’s security portfolio consisted of $105,335, of which $25,926 were in an unrealized loss position. The unrealized losses are related to the Corporation’s obligations of states and political subdivisions, residential mortgage-backed securities, collateralized mortgage obligations and the trust preferred security, as discussed below:
Mortgage-Backed Securities and Collateralized Mortgage Obligations: At June 30, 2012, all of the mortgage-backed securities and collateralized mortgage obligations held by the Corporation were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to higher than projected prepayment speeds increasing the premium amortization, and not credit quality, and because the Corporation does not have the intent to sell nor is it likely that it will be required to sell the securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired.
Obligations of States and Political Subdivisions: At June 30, 2012, approximately 90.6% of the obligations of states and political subdivisions held by the Corporation were general obligation bonds and 9.4% were revenue bonds. The $109 unrealized loss was related to 17 municipal securities that were purchased during the third quarter of fiscal year 2012. The unrealized loss was mainly attributable to the spreads for these types of securities being wider at June 30, 2012 than when these securities were purchased. Management monitors the financial data of the individual municipalities to ensure they meet minimum credit standards. Since the Corporation does not intend to sell these securities and it is not likely the Corporation will be required to sell these securities at an unrealized loss position prior to any anticipated recovery in fair value, which may be maturity, management does not believe there is any other-than-temporary impairment related to these securities at June 30, 2012.
Trust Preferred Security: The Corporation owns a trust preferred security, which represents collateralized debt obligations (CDOs) issued by other banks, bank holding companies and insurance companies. The security is part of a pool of issuers that support a more senior tranche of securities. Due to an increase in principal and/or interest deferrals by the issuers of the underlying securities, the cash interest payments for the trust preferred security are being deferred. On June 30, 2012, the lowest credit rating on this security was Fitch’s rating of C, which is defined as highly speculative. The investment security is evaluated using a model to compare the present value of expected cash flows to prior periods expected cash flows to determine if there has been an adverse change in cash flows during the period. The discount rate used to calculate the cash flows is the coupon rate of the security, based on the forward LIBOR curve. The OTTI model considers the structure and term of the CDO and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include expected future default rates and prepayments. We assume no recoveries on defaults and all interest payment deferrals are treated as defaults with an assumed recovery rate of 15% on deferrals. In addition we use the model to “stress” the CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of the Corporation’s note class. According to the June 30, 2012 analysis, the expected cash flows were above the recorded amortized cost of the trust preferred security. Therefore, no other-than-temporary impairment loss was recognized during the 2012 fiscal year. An other-than-temporary impairment loss of $370 was recognized for the fiscal year-to-date period ended June 30, 2011 and the accumulated other-than-temporary impairment loss recognized in earnings was $780 at June 30, 2012 and 2011. If there is further deterioration in the underlying collateral of this security, other-than-temporary impairments may occur in future periods. Due to the illiquidity in the market, it is unlikely the Corporation would be able to recover its investment in this security if the Corporation sold the security at this time.
The entire disclosure for investments in certain debt and equity securities.
Reference 1: http://www.xbrl.org/2003/role/presentationRef