Mortgage-backed securities (“MBS”) include mortgage pass-through certificates (“PCs”) and collateralized mortgage obligations (“CMOs”). With a pass-through security, investors own an undivided interest in the pool of mortgages that collateralize the PCs. Principal and interest is passed through to the investor as it is generated by the mortgages underlying the pool. PCs and CMOs may be insured or guaranteed by Freddie Mac (“FHLMC”), Fannie Mae (“FNMA”) and the Government National Mortgage Association (“GNMA”). CMOs may also be privately issued with varying degrees of credit enhancements. A CMO reallocates mortgage pool cash flow to a series of bonds (called traunches) with varying stated maturities, estimated average lives, coupon rates and prepayment characteristics.

The Company’s CMO portfolio is comprised of two segments: CMOs backed by U.S. Government Agencies (“Agency CMOs”) and CMOs backed by single-family whole loans not guaranteed by a U.S. Government Agency (“Private-Label CMOs”).

At September 30, 2021, the Company’s Agency CMOs totaled $99.6 million as compared to $82.1 million at June 30, 2021. The Company’s Private-Label CMOs totaled $373 thousand at September 30, 2021 as compared to $400 thousand at June 30, 2021. The $17.5 million increase in the Agency CMO segment of our MBS portfolio was due to purchases on our Agency CMOs which totaled $20.8 million, partially offset by repayments totaling $12.8 million. During the three months ended September 30, 2021, the Company received principal payments totaling $29 thousand on its Private-Label CMOs. At September 30, 2021 and June 30, 2021, all of the Company’s MBS portfolio was comprised of adjustable or floating rate investments. The Company has no investment in multi-family or commercial real estate based MBS.

Due to prepayments of the underlying loans, and the prepayment characteristics of the CMO traunches, the actual maturities of the Company’s MBS are expected to be substantially less than the scheduled maturities.

The Company retains an independent third party to assist it in the determination of a fair value for its three private-label CMOs. This valuation is meant to be a “Level Three” valuation as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at which any party could purchase the securities. There is currently no active secondary market for Private-Label CMOs and there can be no assurance that any secondary market for Private-Label CMOs will develop. The Private-Label CMO portfolio had six previously recorded other-than-temporary impairments at September 30, 2021. During the three months ended September 30, 2021, the Company recorded no additional credit impairment charge on its Private-Label CMO portfolio.

The Company believes that the data and assumptions used to determine the fair values of its securities are reasonable. The fair value calculations reflect relevant facts and market conditions. Events and conditions occurring after the valuation date could have a material effect on the Private-Label CMO segment’s fair value.

The following table sets forth information with respect to the Company’s Private-Label CMO portfolio as of September 30, 2021. At the time of purchase, all of our Private-Label CMOs were rated in the highest investment category by at least two ratings agencies.

Table of Contents

		At September 30, 2021
		Rating			Book Value		Fair Value²		Life to Date Impairment Recorded in Earnings
Cusip #	Security Description	S&P	Moody’s	Fitch	(in thousands)
126694CP1	CWHL SER 21 A11	NR	WR	D	$	233	$	256	$	271
126694KF4	CWHL SER 24 A15	NR	NR	D		104		133		180
126694MP0	CWHL SER 26 1A5	NR	NR	WD		36		43		48
					$	373	$	432	$	499

The amortized cost and fair values of the Company’s mortgage-backed securities are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)
September 30, 2021
HELD TO MATURITY
Collateralized mortgage obligations:
Agency	$	99,585	$	323	$	(197	)	$	99,711
Private-label		373		59		-			432
Total	$	99,958	$	382	$	(197	)	$	100,143

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)
June 30, 2021
HELD TO MATURITY
Collateralized mortgage obligations:
Agency	$	82,059	$	283	$	(140	)	$	82,202
Private-label		400		57		-			457
Total	$	82,459	$	340	$	(140	)	$	82,659

The amortized cost and fair value of the Company’s mortgage-backed securities at September 30, 2021, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total
	(Dollars in Thousands)
HELD TO MATURITY
Amortized cost	$	-	$	42	$	-	$	99,916	$	99,958
Fair value		-		42		-		100,101		100,143

At September 30, 2021, mortgage-backed securities with amortized costs of $84.0 million and fair values of $84.0 million were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $12.7 million of fair value was excess collateral. At June 30, 2021, mortgage-backed securities with an amortized cost of $78.9 million and fair values of $79.0 million, were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $5.0 million of fair value was excess collateral. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.

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² Fair value estimate provided by the Company’s independent third-party valuation consultant.