Investment Securities

3 Months Ended

Dec. 31, 2018

Investments, Debt and Equity Securities [Abstract]

U.S. agency bonds and notes, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include treasury notes issued by the U.S. government; securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency; and securities issued by 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 pass-through asset-backed securities 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

Prior to June 30, 2018, the Company invested in small and medium lot, investment grade municipal bonds through a managed brokerage account. The brokerage account was managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission. During May 2018, the Company ceased its trading activity and had no trading account securities at September 30, 2018 or December 31, 2018. During the three-month period ended December 31, 2017, the Company reported a net gain on trading account securities of $150,000.

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:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Losses		Fair Value
	(In thousands)
December 31, 2018:
Securities available for sale:

Agency mortgage-backed	$	24,533	$	76	$	416	$	24,193
Agency CMO		12,262		20		233		12,049
Privately-issued CMO		1,367		129		4		1,492
Privately-issued ABS		1,289		300		-		1,589
SBA certificates		1,277		46		5		1,318
Municipal bonds		143,239		3,053		673		145,619

Total securities available for sale	$	183,967	$	3,624	$	1,331	$	186,260

Securities held to maturity:

Agency mortgage-backed	$	128	$	7	$	-	$	135
Municipal bonds		2,442		320		-		2,762

Total securities held to maturity	$	2,570	$	327	$	-	$	2,897

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Losses		Fair Value
	(In thousands)
September 30, 2018:
Securities available for sale:

Agency mortgage-backed	$	31,686	$	90	$	646	$	31,130
Agency CMO		10,754		-		313		10,441
Privately-issued CMO		1,434		148		3		1,579
Privately-issued ABS		1,538		346		-		1,884
SBA certificates		1,305		53		7		1,351
Municipal bonds		137,144		2,189		1,345		137,988

Total securities available for sale	$	183,861	$	2,826	$	2,314	$	184,373

Securities held to maturity:

Agency mortgage-backed	$	134	$	8	$	-	$	142
Municipal bonds		2,473		281		-		2,754

Total securities held to maturity	$	2,607	$	289	$	-	$	2,896

The amortized cost and fair value of investment securities as of December 31, 2018 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 Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due within one year	$	5,625	$	5,661	$	240	$	270
Due after one year through five years		19,373		19,793		1,008		1,140
Due after five years through ten years		31,265		31,999		866		983
Due after ten years		86,976		88,166		328		369
CMO		13,629		13,541		-		-
ABS		1,289		1,589		-		-
SBA certificates		1,277		1,318		-		-
Mortgage-backed securities		24,533		24,193		128		135

	$	183,967	$	186,260	$	2,570	$	2,897

Information pertaining to investment securities with gross unrealized losses at December 31, 2018 and September 30, 2018, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

	Number of Investment Positions		Fair Value		Gross Unrealized Losses
	(Dollars in thousands)
December 31, 2018:
Securities available for sale:

Continuous loss position less than twelve months:
Agency mortgage-backed		5	$	6,097	$	46
Agency CMO		1		119		6
Municipal bonds		38		19,599		165

Total less than twelve months		44		25,815		217

Continuous loss position more than twelve months:
Agency mortgage-backed		18		12,293		370
Agency CMO		12		10,000		227
Privately-issued CMO		1		36		4
SBA certificates		1		595		5
Municipal bonds		26		14,669		508

Total more than twelve months		58		37,593		1,114

Total securities available for sale		102	$	63,408	$	1,331

September 30, 2018:
Securities available for sale:

Continuous loss position less than twelve months:
Agency mortgage-backed		15	$	14,814	$	313
Agency CMO		4		2,560		54
Municipal bonds		93		44,162		944

Total less than twelve months		112		61,536		1,311

Continuous loss position more than twelve months:
Agency mortgage-backed		11		9,283		333
Agency CMO		9		7,881		259
Privately-issued CMO		1		37		3
SBA certificates		1		617		7
Municipal bonds		8		6,106		401

Total more than twelve months		30		23,924		1,003

Total securities available for sale		142	$	85,460	$	2,314

At December 31, 2018 and September 30, 2018, 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 December 31, 2018, which consisted of U.S. government agency mortgage backed securities and CMOs, privately issued CMOs, SBA certificates and municipal bonds, had a fair value as a percentage of amortized cost of 97.94%. 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 December 31, 2018, the Company held fourteen privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $1.2 million and fair value of $1.5 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 (“NRSROs”).

At December 31, 2018, one privately-issued CMO was in a loss position and had depreciated approximately 9.45% from the Company’s carrying value and was collateralized by residential mortgage loans. This security had a total fair value of $36,000 and a total unrealized loss of $4,000 at December 31, 2018, and was 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 remaining privately issued CMO and ABS portfolios. While the Company does not anticipate additional credit-related impairment losses at December 31, 2018, 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, SBA certificates 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-month periods ended December 31, 2018 and 2017, 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 December 31, 2018 and September 30, 2018, and may be pledged to secure federal funds borrowings.