Investment Securities

9 Months Ended

Jun. 30, 2023

INVESTMENT SECURITIES

Held to maturity and available for sale investment securities have been classified according to management’s intent and were as follows as of June 30, 2023 and September 30, 2022 (dollars in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2023
Held to maturity
U.S. Treasury and U.S. government agency securities	$	171,385	$	—	$	(9,927)	$	161,458
Mortgage-backed securities ("MBS"):
U.S. government agencies	53,347		10		(2,529)		50,828
Private label residential	48,025		258		(2,295)		45,988
Taxable municipal securities	1,796		—		(47)		1,749
Bank issued trust preferred securities	500		—		(52)		448
Total	$	275,053	$	268	$	(14,850)	$	260,471

Available for sale

MBS: U.S. government agencies	$	44,772	$	—	$	(930)	$	43,842
Total	$	44,772	$	—	$	(930)	$	43,842

September 30, 2022
Held to maturity
U.S. Treasury and U.S. government agency securities	$	170,676	$	11	$	(12,109)	$	158,578
MBS:
U.S. government agencies	43,995		4		(2,486)		41,513
Private label residential	49,335		245		(2,392)		47,188
Taxable municipal securities	2,102		—		(67)		2,035
Bank issued trust preferred securities	500		—		(31)		469
Total	$	266,608	$	260	$	(17,085)	$	249,783

Available for sale
MBS: U.S. government agencies	$	42,309	$	—	$	(894)	$	41,415

Total	$	42,309	$	—	$	(894)	$	41,415

Held to maturity and available for sale investment securities with unrealized losses were as follows as of June 30, 2023 (dollars in thousands):


	Less Than 12 Months					12 Months or Longer					Total
	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses
Held to maturity
U.S. Treasury and U.S. government agency securities	$	19,045	$	(207)	2	$	142,413	$	(9,720)	25	$	161,458	$	(9,927)
MBS:
U.S. government agencies	26,124		(474)		18	19,498		(2,055)		42	45,622		(2,529)
Private label residential	10,461		(265)		7	32,351		(2,030)		27	42,812		(2,295)
Taxable municipal securities	—		—		—	1,749		(47)		1	1,749		(47)
Bank issued trust preferred securities	—		—		—	448		(52)		1	448		(52)
Total	$	55,630	$	(946)	27	$	196,459	$	(13,904)	96	$	252,089	$	(14,850)

Available for sale
MBS: U.S. government agencies	$	22,328	$	(188)	10	$	21,213	$	(742)	21	$	43,541	$	(930)
Total	$	22,328	$	(188)	10	$	21,213	$	(742)	21	$	43,541	$	(930)

Held to maturity and available for sale investment securities with unrealized losses were as follows as of September 30, 2022 (dollars in thousands):


	Less Than 12 Months					12 Months or Longer					Total
	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses
Held to maturity
U.S. Treasury and U.S. government agency securities	$	115,504	$	(7,224)	17	$	33,638	$	(4,885)	9	$	149,142	$	(12,109)
MBS:
U.S. government agencies	35,896		(1,449)		54	5,306		(1,037)		5	41,202		(2,486)
Private label residential	35,447		(2,166)		27	8,708		(226)		6	44,155		(2,392)
Taxable municipal securities	2,035		(67)		1	—		—		—	2,035		(67)
Bank issued trust preferred securities	469		(31)		1	—		—		—	469		(31)
Total	$	189,351	$	(10,937)	100	$	47,652	$	(6,148)	20	$	237,003	$	(17,085)

Available for sale
MBS: U.S. government agencies	$	25,170	$	(292)	16	$	15,705	$	(602)	13	$	40,875	$	(894)

Total	$	25,170	$	(292)	16	$	15,705	$	(602)	13	$	40,875	$	(894)

The Company has evaluated the investment securities in the above tables and has determined that the declines in their fair value are temporary. The unrealized losses are primarily due to changes in market interest rates and spreads in the market for mortgage-related products. The fair value of these securities is expected to recover as the securities approach their maturity dates and/or as the pricing spreads narrow on mortgage-related securities. The Company has the ability and the intent to hold the investments until the fair value recovers. Further, as of June 30, 2023, management does not have the intent to sell any of the securities classified as available for sale for which the estimated fair value is below the recorded value and believes that it is more likely than not that the Company will not have to sell such securities before a recovery of cost (or recorded value if previously written down).

The Company bifurcates OTTI into (1) amounts related to credit losses which are recognized through earnings and (2) amounts related to all other factors which are recognized as a component of other comprehensive income (loss). To determine the component of the gross OTTI related to credit losses, the Company compared the amortized cost basis of the OTTI security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. The revised expected cash flow estimates for individual securities are based primarily on an analysis of default rates, prepayment speeds and third-party analytic reports. Significant judgment by management is required in this analysis that includes, but is not limited to, assumptions regarding the collectability of principal and interest, net of related expenses, on the underlying loans.

The following table presents a summary of the significant inputs utilized to measure management’s estimates of the credit loss component on OTTI securities as of June 30, 2023 and 2022:


	Range				Weighted
	Minimum		Maximum		Average
June 30, 2023
Constant prepayment rate	6.00	%	15.00	%	9.84	%
Collateral default rate	—	%	19.47	%	10.96	%
Loss severity rate	—	%	3.70	%	1.34	%

June 30, 2022
Constant prepayment rate	6.00	%	15.00	%	10.15	%
Collateral default rate	0.55	%	22.28	%	9.71	%
Loss severity rate	—	%	7.85	%	3.39	%

The following table presents a roll forward of the credit loss component of held to maturity and available for sale debt securities that have been written down for OTTI with the credit loss component recognized in earnings for the nine months ended June 30, 2023 and 2022 (dollars in thousands):


	Nine Months Ended June 30,
	2023		2022
Beginning balance of credit loss	$	836	$	853



Additions (subtractions):
Net realized gain (loss) previously recorded as credit losses	(10)		2
Recovery of prior credit loss	(7)		(13)
Ending balance of credit loss	$	819	$	842

During the nine months ended June 30, 2023, the Company recorded a $10,000 net realized loss on 14 held to maturity investment securities all of which had been recognized previously as credit loss. During the nine months ended June 30, 2022, the Company recorded a $2,000 net realized gain on 16 held to maturity investment securities all of which had been recognized previously as credit loss.

The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits, FHLB collateral and other non-profit organization deposits totaled $204.13 million and $133.82 million at June 30, 2023 and September 30, 2022, respectively.

The contractual maturities of debt securities at June 30, 2023 were as follows (dollars in thousands). Expected maturities may differ from scheduled maturities due to the prepayment of principal or call provisions.


	Held to Maturity				Available for Sale
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	86,147	$	84,077	$	—	$	—
Due after one year to five years	96,893		90,103		3,049		3,024
Due after five years to ten years	19,448		17,541		7,103		7,045
Due after ten years	72,565		68,750		34,620		33,773
Total	$	275,053	$	260,471	$	44,772	$	43,842