Investment Securities

12 Months Ended

Sep. 30, 2023

Held to maturity and available for sale investment securities were as follows as of September 30, 2023 and 2022 (dollars in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2023
Held to Maturity
U.S. Treasury and U.S. government agency securities	$	171,626	$	—	$	(10,088)	$	161,538
Mortgage-backed securities ("MBS"):
U.S. government agencies	52,294		—		(3,950)		48,344
Private label residential	44,011		295		(2,611)		41,695

Taxable municipal securities	1,787		—		(47)		1,740
Bank issued trust preferred securities	500		—		(51)		449
Total	$	270,218	$	295	$	(16,747)	$	253,766

Available for Sale
MBS: U.S. government agencies	$	43,132	$	—	$	(1,361)	$	41,771
Total	$	43,132	$	—	$	(1,361)	$	41,771

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 September 30, 2023 (dollars in thousands):


	Less Than 12 Months					12 Months or Longer					Total
	Estimated Fair Value		Gross Unrealized Losses		Qty	Estimated Fair Value		Gross Unrealized Losses		Qty	Estimated Fair Value		Gross Unrealized Losses
Held to Maturity
U.S. Treasury and U.S. government agency securities	$	9,455	$	(129)	1	$	152,082	$	(9,959)	26	$	161,537	$	(10,088)
MBS:
U.S. government agencies	16,432		(549)		13	31,703		(3,401)		51	48,135		(3,950)
Private label residential	1,288		(2)		1	38,205		(2,609)		32	39,493		(2,611)
Taxable municipal securities	—		—		—	1,740		(47)		1	1,740		(47)
Bank issued trust preferred securities	—		—		—	449		(51)		1	449		(51)
Total	$	27,175	$	(680)	15	$	224,179	$	(16,067)	111	$	251,354	$	(16,747)

Available for Sale
MBS:
U.S. government agencies	$	10,635	$	(308)	3	$	30,809	$	(1,053)	27	$	41,444	$	(1,361)
Total	$	10,635	$	(308)	3	$	30,809	$	(1,053)	27	$	41,444	$	(1,361)

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		Qty	Estimated Fair Value		Gross Unrealized Losses		Qty	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 decline in their fair value is 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 of these securities recovers.

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 September 30, 2023, 2022 and 2021:


	Range				Weighted
	Minimum		Maximum		Average
September 30, 2023
Constant prepayment rate	6.00	%	15.00	%	8.26	%
Collateral default rate	—	%	26.71	%	11.28	%
Loss severity rate	—	%	5.73	%	1.55	%

September 30, 2022
Constant prepayment rate	6.00	%	15.00	%	12.98	%
Collateral default rate	0.58	%	25.64	%	9.96	%
Loss severity rate	—	%	8.19	%	3.36	%

September 30, 2021
Constant prepayment rate	6.00	%	15.00	%	10.20	%
Collateral default rate	1.47	%	17.55	%	12.19	%
Loss severity rate	—	%	12.96	%	4.55	%

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 years ended September 30, 2023, 2022 and 2021 (dollars in thousands):


	2023		2022		2021
Balance, beginning of year	$	836	$	853	$	885

Additions:

Additional increases to the amount related to credit losses for which OTTI was previously recognized	—		—		2
Subtractions:
Net realized gain (losses) previously recorded as credit losses	(11)		1		(12)
Recovery of prior credit loss	(9)		(18)		(22)
Balance, end of year	$	816	$	836	$	853

During the year ended September 30, 2023, the Company recorded a $11,000 net realized loss on 14 held to maturity investment securities, all of which had been recognized previously as a credit loss. During the year ended September 30, 2022, the Company recorded a $1,000 net realized gain on 16 held to maturity investment securities, all of which had been recognized previously as a credit loss. During the year ended September 30, 2021, the Company recorded a $12,000 net realized loss on 19 held to maturity investment securities, all of which had been recognized previously as a credit loss.

During the year ended September 30, 2023, the Company recorded a $95,000 realized gain on sale of two available for sale investment securities. There were no realized gains or losses on available for sale investment securities for the years ended September 30, 2022 and 2021.

The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits and FHLB collateral totaled $201,817,000 and $133,824,000 at September 30, 2023 and 2022, respectively.

The contractual maturities of debt securities at September 30, 2023 are 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	$	83,614	$	82,258	$	388	$	385
Due after one year to five years	105,308		96,743		2,608		2,590
Due after five years to ten years	10,510		9,428		6,689		6,642
Due after ten years	70,786		65,337		33,447		32,154
Total	$	270,218	$	253,766	$	43,132	$	41,771