Investment Securities

9 Months Ended

Jun. 30, 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. At September 30, 2017, trading account securities recorded at fair value totaled $7.2 million and were comprised of investment grade municipal bonds. During May 2018, the Company ceased its trading activity and had no trading account securities at June 30, 2018. During the three-month period ended June 30, 2018, the Company reported a net loss on trading account securities of $48,000. During the three-month period ended June 30, 2017, the Company reported a net gain on trading account securities of $184,000. During the nine-month period ended June 30, 2018, the Company reported a net gain on trading account securities of $43,000. During the nine-month period ended June 30, 2017, the Company reported a net gain on trading account securities of $113,000.

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)
June 30, 2018:
Securities available for sale:

Agency bonds and notes	$	9,868	$	1	$	-	$	9,869
Agency mortgage-backed		44,637		126		583		44,180
Agency CMO		11,364		7		290		11,081
Privately-issued CMO		1,470		157		51		1,576
Privately-issued ABS		1,827		390		-		2,217
SBA certificates		1,356		58		6		1,408
Municipal bonds		135,394		3,039		693		137,740

Total securities available for sale	$	205,916	$	3,778	$	1,623	$	208,071

Securities held to maturity:

Agency mortgage-backed	$	139	$	9	$	-	$	148
Municipal bonds		2,548		304		-		2,852

Total securities held to maturity	$	2,687	$	313	$	-	$	3,000

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

Agency mortgage-backed	$	36,439	$	382	$	85	$	36,736
Agency CMO		14,605		37		66		14,576
Privately-issued CMO		1,825		204		28		2,001
Privately-issued ABS		2,691		757		-		3,448
SBA certificates		913		-		1		912
Municipal bonds		115,193		5,409		176		120,426

Total securities available for sale	$	171,666	$	6,789	$	356	$	178,099

Securities held to maturity:

Agency mortgage-backed	$	179	$	16	$	-	$	195
Municipal bonds		2,699		412		-		3,111

Total securities held to maturity	$	2,878	$	428	$	-	$	3,306

The amortized cost and fair value of investment securities as of June 30, 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	$	4,020	$	4,077	$	238	$	266
Due after one year through five years		16,587		17,066		992		1,111
Due after five years through ten years		38,449		39,119		929		1,044
Due after ten years		86,206		87,347		389		431
CMO		12,834		12,657		-		-
ABS		1,827		2,217		-		-
SBA certificates		1,356		1,408		-		-
Mortgage-backed securities		44,637		44,180		139		148

	$	205,916	$	208,071	$	2,687	$	3,000

Information pertaining to investment securities with gross unrealized losses at June 30, 2018 and September 30, 2017, 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)
June 30, 2018:
Securities available for sale:

Continuous loss position less than twelve months:
Agency mortgage-backed		20	$	30,781	$	380
Agency CMO		6		5,633		119
SBA certificates		1		664		6
Municipal bonds		68		29,400		370

Total less than twelve months		95		66,478		875

Continuous loss position more than twelve months:
Agency mortgage-backed		7		6,170		203
Agency CMO		7		5,246		171
Privately-issued CMO		2		74		51
Municipal bonds		7		5,941		323

Total more than twelve months		23		17,431		748

Total securities available for sale		118	$	83,909	$	1,623

September 30, 2017:
Securities available for sale:

Continuous loss position less than twelve months:
Agency mortgage-backed		12	$	13,332	$	85
Agency CMO		9		9,062		52
Privately-issued CMO		2		113		28
Municipal bonds		9		6,522		157

Total less than twelve months		32		29,029		322

Continuous loss position more than twelve months:
Agency CMO		3		2,605		14
SBA certificates		1		912		1
Municipal bonds		1		513		19

Total more than twelve months		5		4,030		34

Total securities available for sale		37	$	33,059	$	356

At June 30, 2018 and September 30, 2017, 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, 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 98.16%. 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, 2018, the Company held fourteen privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $1.3 million and fair value of $1.7 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 June 30, 2018, two privately-issued CMO were in loss positions and had depreciated approximately 5.55% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $74,000 and a total unrealized loss of $51,000

at June 30, 2018, 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 remaining privately issued CMO and ABS portfolios. While the Company does not anticipate additional credit-related impairment losses at June 30, 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.

During the three-month period ended June 30, 2018, the Company recognized an other-than-temporary write-down charge to earnings of $95,000 representing the total amortized cost of a privately-issued CMO. The security was determined to be other-than-temporarily impaired and the Company does not anticipate recovering its investment in the security.

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- and nine-month periods ended June 30, 2018, the Company realized gross gains on sales of available for sale securities of $99,000. 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 $66,000. Securities and interest-bearing time deposits acquired in the FNBO transaction with a fair value of $35.0 million were sold within a short period of time following the merger, resulting in no gain or loss for financial reporting purposes.

Certain available for sale debt securities were pledged under repurchase agreements and to secure FHLB borrowings at June 30, 2018 and September 30, 2017, and may be pledged to secure federal funds borrowings.