Investment Securities

9 Months Ended

Jun. 30, 2017

Investments, Debt and Equity Securities [Abstract]

2.	Investment Securities

Agency bonds and notes, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal Home Loan Bank (“FHLB”), which are U.S. government sponsored enterprises. The Company holds municipal bonds issued by municipal governments within the U.S. The Company also holds a pass through asset-backed security guaranteed by the SBA representing participating interests in pools of long term debentures issued by state and local development companies certified by the SBA. Privately issued CMO and asset-backed securities (“ABS”) are complex securities issued by non government special purpose entities that are collateralized by residential mortgage loans and residential home equity loans.

Investment securities have been classified according to management’s intent.

Trading Account Securities

The Company invests in small and medium lot, investment grade municipal bonds through a managed brokerage account. The brokerage account is managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission. At June 30, 2017 and September 30, 2016, trading account securities recorded at fair value totaled $5.8 million and $9.3 million, respectively, and were comprised of investment grade municipal bonds. During the three month periods ended June 30, 2017 and 2016, the Company reported net gains on trading account securities of $184,000 and $285,000, respectively. During the nine month periods ended June 30, 2017 and 2016, the Company reported net gains on trading account securities of $113,000 and $713,000, respectively.

Securities Available for Sale and Held to Maturity

The amortized cost of securities available for sale and held to maturity and their approximate fair values are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
June 30, 2017:
Securities available for sale:

Agency mortgage-backed	$	38,941	$	467	$	(68)	$	39,340
Agency CMO		14,259		32		(56)		14,235
Privately issued CMO		1,873		205		(19)		2,059
Privately issued ABS		2,956		813		-		3,769
SBA certificates		1,047		3		-		1,050
Municipal obligations		112,076		5,663		(173)		117,566

Total securities available for sale	$	171,152	$	7,183	$	(316)	$	178,019

Securities held to maturity:

Agency mortgage-backed	$	187	$	17	$	-	$	204
Municipal obligations		2,768		371		-		3,139

Total securities held to maturity	$	2,955	$	388	$	-	$	3,343

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
September 30, 2016:
Securities available for sale:

Agency bonds and notes	$	1,024	$	8	$	-	$	1,032
Agency mortgage-backed		46,376		1,029		-		47,405
Agency CMO		16,053		108		(66)		16,095
Privately issued CMO		2,359		293		-		2,652
Privately issued ABS		3,675		864		(7)		4,532
SBA certificates		1,220		7		-		1,227
Municipal bonds		94,567		7,002		(19)		101,550

Total securities available for sale	$	165,274	$	9,311	$	(92)	$	174,493

Securities held to maturity:

Agency mortgage-backed	$	260	$	23	$	-	$	283
Municipal bonds		2,906		465		-		3,371

Total securities held to maturity	$	3,166	$	488	$	-	$	3,654

The amortized cost and fair value of investment securities as of June 30, 2017 by contractual maturity are shown below. CMO, ABS, SBA certificates, and mortgage-backed securities which do not have a single maturity date are shown separately.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)

Due within one year	$	1,531	$	1,545	$	220	$	248
Due after one year through five years		11,528		12,046		984		1,112
Due after five years through ten years		22,513		24,131		1,055		1,207
Due after ten years		76,504		79,844		509		572
		112,076		117,566		2,768		3,139

CMO		16,132		16,294		-		-
ABS		2,956		3,769		-		-
SBA certificates		1,047		1,050		-		-
Mortgage-backed securities		38,941		39,340		187		204

	$	171,152	$	178,019	$	2,955	$	3,343

Information pertaining to investment securities with gross unrealized losses at June 30, 2017 and September 30, 2016, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

	Number				Gross
	of Investment		Fair		Unrealized
	Positions		Value		Losses
	(Dollars in thousands)
June 30, 2017:
Securities available for sale:

Continuous loss position less than twelve months:
Agency mortgage-backed		10	$	9,946	$	68
Agency CMO		7		7,389		42
Privately issued CMO		2		126		19
Municipal obligations		10		6,938		173
Total less than twelve months		29		24,399		302

Continuous loss position more than twelve months:
Agency CMO		3		3,341		14
Total more than twelve months		3		3,341		14

Total securities available for sale		32	$	27,740	$	316

September 30, 2016:
Securities available for sale:

Continuous loss position less than twelve months:
Agency CMO		3	$	3,946	$	12
Privately issued ABS		2		66		7
Municipal obligations		4		2,147		19
Total less than twelve months		9		6,159		38

Continuous loss position more than twelve months:
Agency CMO		2		4,683		54
Total more than twelve months		2		4,683		54

Total securities available for sale		11	$	10,842	$	92

At June 30, 2017 and September 30, 2016, the Company did not have any securities held to maturity with an unrealized loss.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (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, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

The total available for sale debt securities in loss positions at June 30, 2017, which consisted of U.S. government agency mortgage backed securities, agency CMOs, privately issued CMOs and municipal bonds, had a fair value as a percentage of amortized cost of 98.88%. All of the agency and municipal securities are issued by U.S. government-sponsored enterprises and municipal governments, and are generally secured by first mortgage loans and municipal project revenues.

The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately issued CMO and ABS portfolios each quarter using an independent third party analysis. At June 30, 2017, the Company held fifteen privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $1.8 million and fair value of $2.5 million that have been downgraded to a substandard regulatory classification due to the security’s credit quality rating by various nationally recognized statistical rating organizations.

At June 30, 2017, two privately-issued CMO were in loss positions and had depreciated approximately 12.92% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $126,000 and a total unrealized loss of $19,000 at June 30, 2017, and were rated below investment grade by NRSROs. Based on the independent third party analysis of the expected cash flows, management has determined that no other-than-temporary impairment is required to be recognized on the privately issued CMO and ABS portfolios. While the Company did not recognize a credit related impairment loss at June 30, 2017, additional deterioration in market and economic conditions may have an adverse impact on the credit quality in the future and therefore, require a credit related impairment charge.

The unrealized losses on U.S. government agency mortgage-backed securities and CMOs and municipal bonds relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities to maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

During the three and nine month periods ended June 30, 2017, the Company realized gross gains on sales of available for sale securities of $96,000 and gross losses of $66,0000. During the three and nine month periods ended June 30, 2016, the Company did not realize any gross gains or losses on sales of available for sale securities.

Certain available for sale debt securities were pledged under repurchase agreements and to secure FHLB borrowings at June 30, 2017 and September 30, 2016, and may be pledged to secure federal funds borrowings.