INVESTMENT SECURITIES

Held to maturity and available for sale investment securities have been classified according to management’s intent and were as follows as of December 31, 2018 and September 30, 2018 (dollars in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2018
Held to maturity
Mortgage-backed securities ("MBS"):
U.S. government agencies	$	20,551	$	90	$	(25	)	$	20,616
Private label residential	424		527		(2		)	949
U.S. Treasury and U.S government agency securities	10,975		—		(68		)	10,907
Total	$	31,950	$	617	$	(95	)	$	32,472

Available for sale
MBS: U.S. government agencies	$	2,299	$	8	$	(110	)	$	2,197
Total	$	2,299	$	8	$	(110	)	$	2,197

September 30, 2018
Held to maturity
MBS:
U.S. government agencies	$	1,385	$	8	$	(21	)	$	1,372
Private label residential	460		552		(2		)	1,010
U.S. Treasury and U.S. government agency securities	10,965		—		(83		)	10,882
Total	$	12,810	$	560	$	(106	)	$	13,264

Available for sale
MBS: U.S. government agencies	$	231	$	7	$	(1	)	$	237
Total	$	231	$	7	$	(1	)	$	237

Held to maturity and available for sale investment securities with unrealized losses were as follows as of December 31, 2018 (dollars in thousands):



	Less Than 12 Months						12 Months or Longer						Total
	Estimated Fair Value		Gross Unrealized Losses			Quantity	Estimated Fair Value		Gross Unrealized Losses			Quantity	Estimated Fair Value		Gross Unrealized Losses
Held to maturity
MBS:
U.S. government agencies	$	1,443	$	(10	)	7	$	960	$	(15	)	6	$	2,403	$	(25	)
Private label residential	—		—			—	45		(2		)	7	45		(2		)
U.S. Treasury and U.S. government agency securities	4,970		(7		)	1	5,936		(61		)	2	10,906		(68		)
Total	$	6,413	$	(17	)	8	$	6,941	$	(78	)	15	$	13,354	$	(95	)

Available for sale
MBS: U.S. government agencies	$	2,004	$	(110	)	7	$	—	$	—		—	$	2,004	$	(110	)
Total	$	2,004	$	(110	)	7	$	—	$	—		—	$	2,004	$	(110	)

Held to maturity and available for sale investment securities with unrealized losses were as follows as of September 30, 2018 (dollars in thousands):



	Less Than 12 Months						12 Months or Longer						Total
	Estimated Fair Value		Gross Unrealized Losses			Quantity	Estimated Fair Value		Gross Unrealized Losses			Quantity	Estimated Fair Value		Gross Unrealized Losses
Held to maturity
MBS:
U.S. government agencies	$	954	$	(20	)	2	$	64	$	(1	)	5	$	1,018	$	(21	)
Private label residential	—		—			—	50		(2		)	8	50		(2		)
U.S. Treasury and U.S. government agency securities	7,946		(22		)	2	2,935		(61		)	1	10,881		(83		)
Total	$	8,900	$	(42	)	4	$	3,049	$	(64	)	14	$	11,949	$	(106	)

Available for sale
MBS:
U.S. government agencies	$	34	$	(1	)	1	$	—	$	—		—	$	34	$	(1	)
Total	$	34	$	(1	)	1	$	—	$	—		—	$	34	$	(1	)

The Company has evaluated the investment securities in the above tables and has determined that the decline in their 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 market value recovers. Furthermore, as of December 31, 2018, management does not have the intent to sell any of the securities classified as available for sale where the estimated fair value is below the recorded value and believes that it is more likely than not that the Company will not have to sell such securities before a recovery of cost (or recorded value if previously written down).

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 December 31, 2018 and 2017:



	Range				Weighted
	Minimum		Maximum		Average
December 31, 2018
Constant prepayment rate	6.00	%	15.00	%	13.56	%
Collateral default rate	—	%	11.94	%	5.72	%
Loss severity rate	—	%	77.00	%	46.97	%

December 31, 2017
Constant prepayment rate	6.00	%	15.00	%	9.91	%
Collateral default rate	—	%	11.08	%	4.77	%
Loss severity rate	—	%	62.00	%	37.32	%

The following table presents the OTTI recoveries (losses) for the three months ended December 31, 2018 and 2017 (dollars in thousands):




	Three Months Ended December 31, 2018				Three Months Ended December 31, 2017
	Held To Maturity		Available For Sale		Held To Maturity			Available For Sale
Total recoveries	$	11	$	—	$	27		$	—
Adjustment for portion of OTTI transferred from other comprehensive income (loss) before income taxes (1)	—		—		(5		)	—
Net recoveries recognized in earnings (2)	$	11	$	—	$	22		$	—

_________________

(1) Represents OTTI related to all other factors.

(2) Represents OTTI related to credit losses.

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 three months ended December 31, 2018 and 2017 (dollars in thousands):



	Three Months Ended December 31,
	2018			2017
Beginning balance of credit loss	$	1,153		$	1,301
Additions:
Additional increases to the amount related to credit loss for which OTTI was previously recognized	1			6
Subtractions:
Realized losses previously recorded as credit losses	(20		)	(22		)
Recovery of prior credit loss	(12		)	(26		)
Ending balance of credit loss	$	1,122		$	1,259

During the three months ended December 31, 2018, the Company recorded a $20,000 net realized loss (as a result of investment securities being deemed worthless) on 15 held to maturity investment securities, all of which had been recognized previously as a credit loss. During the three months ended December 31, 2017, the Company recorded a $22,000 net realized loss (as a result of investment securities being deemed worthless) on 12 held to maturity investment securities, all of which had been recognized previously as a credit loss.

The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits, FHLB collateral and other non-profit organization deposits totaled $14.94 million and $12.10 million at December 31, 2018 and September 30, 2018, respectively.

The contractual maturities of debt securities at December 31, 2018 were 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	$	7,978	$	7,960	$	—	$	—
Due after one year to five years	7,192		7,142		—		—
Due after five years to ten years	969		974		447		434
Due after ten years	15,811		16,396		1,852		1,763
Total	$	31,950	$	32,472	$	2,299	$	2,197