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Investment Securities | 3 Months Ended
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Dec. 31, 2023
Investments [Abstract] |
Investment Securities | 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, 2023 and September 30, 2023 (dollars in thousands):
| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Allowance for Credit Losses ("ACL")
December 31, 2023 |  |  |  |  |  |  |  |  |
Held to Maturity |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agency securities | $ | 169,869 |  |  | $ | — |  |  | $ | (7,468) |  |  | $ | 162,401 |  |  | $ | — |
Mortgage-backed securities ("MBS"): |  |  |  |  |  |  |  |  |
U.S. government agencies | 53,185 |  |  | 3 |  |  | (2,604) |  |  | 50,584 |  |  | — |
Private label residential | 40,662 |  |  | 356 |  |  | (1,934) |  |  | 39,084 |  |  | 73 |
Municipal securities | 1,878 |  |  | — |  |  | (30) |  |  | 1,848 |  |  | — |
Bank issued trust preferred securities | 491 |  |  | — |  |  | (47) |  |  | 444 |  |  | 9 |
Total held to maturity | 266,085 |  |  | $ | 359 |  |  | $ | (12,083) |  |  | $ | 254,361 |  |  | $ | 82 |
December 31, 2023 | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Available for Sale |  |  |  |  |  |  |
MBS: |  |  |  |  |  |  |
U.S. government agencies | $ | 41,492 |  |  | $ | — |  |  | $ | (1,046) |  |  | $ | 40,446 |
Total | $ | 41,492 |  |  | $ | — |  |  | $ | (1,046) |  |  | $ | 40,446 |
September 30, 2023 |  |  |  |  |  |  |
Held to Maturity |  |  |  |  |  |  |
U.S. treasury and U.S. government agency securities | $ | 171,626 |  |  | $ | — |  |  | $ | (10,088) |  |  | $ | 161,538 |
MBS: |  |  |  |  |  |  |
U.S. government agencies | 52,294 |  |  | — |  |  | (3,950) |  |  | 48,344 |
Private label residential | 44,011 |  |  | 295 |  |  | (2,611) |  |  | 41,695 |
Municipal securities | 1,787 |  |  | — |  |  | (47) |  |  | 1,740 |
Bank issues trust preferred securities | 500 |  |  | — |  |  | (51) |  |  | 449 |
Total | $ | 270,218 |  |  | $ | 295 |  |  | $ | (16,747) |  |  | $ | 253,766 |
Available for Sale |  |  |  |  |  |  |
MBS: U.S. government agencies | $ | 43,132 |  |  | $ | — |  |  | $ | (1,361) |  |  | $ | 41,771 |
| $ | 43,132 |  |  | $ | — |  |  | $ | (1,361) |  |  | $ | 41,771 |
Held to maturity and available for sale investment securities with unrealized losses were as follows as of December 31, 2023 (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 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agency securities | $ | 9,614 |  |  | $ | (12) |  |  | 1 |  |  | $ | 152,786 |  |  | $ | (7,456) |  |  | 25 |  |  | $ | 162,400 |  |  | $ | (7,468) |
MBS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agencies | 18,442 |  |  | (136) |  |  | 9 |  |  | 31,972 |  |  | (2,468) |  |  | 52 |  |  | 50,414 |  |  | (2,604) |
Private label residential | — |  |  | — |  |  | — |  |  | 35,585 |  |  | (1,934) |  |  | 30 |  |  | 35,585 |  |  | (1,934) |
Municipal securities | — |  |  | — |  |  | — |  |  | 1,748 |  |  | (30) |  |  | 1 |  |  | 1,748 |  |  | (30) |
Bank issued trust preferred securities | — |  |  | — |  |  | — |  |  | 453 |  |  | (47) |  |  | 1 |  |  | 453 |  |  | (47) |
Total | $ | 28,056 |  |  | $ | (148) |  |  | 10 |  |  | $ | 222,544 |  |  | $ | (11,935) |  |  | 109 |  |  | $ | 250,600 |  |  | $ | (12,083) |
Available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
MBS: U.S. government agencies | $ | 11,953 |  |  | $ | (134) |  |  | 4 |  |  | $ | 28,179 |  |  | $ | (912) |  |  | 26 |  |  | $ | 40,132 |  |  | $ | (1,046) |
Total | $ | 11,953 |  |  | $ | (134) |  |  | 4 |  |  | $ | 28,179 |  |  | $ | (912) |  |  | 26 |  |  | $ | 40,132 |  |  | $ | (1,046) |
Held to maturity and available for sale investment securities with unrealized losses were as follows as of September 30, 2023 (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 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agency securities | $ | 9,455 |  |  | $ | (129) |  |  | 1 |  |  | $ | 152,082 |  |  | $ | (9,959) |  |  | 26 |  |  | $ | 161,537 |  |  | $ | (10,088) |
MBS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agencies | 16,432 |  |  | (549) |  |  | 13 |  |  | 31,703 |  |  | (3,401) |  |  | 51 |  |  | 48,135 |  |  | (3,950) |
Private label residential | 1,288 |  |  | (2) |  |  | 1 |  |  | 38,205 |  |  | (2,609) |  |  | 32 |  |  | 39,493 |  |  | (2,611) |
Municipal securities | — |  |  | — |  |  | — |  |  | 1,740 |  |  | (47) |  |  | 1 |  |  | 1,740 |  |  | (47) |
Bank issued trust preferred securities | — |  |  | — |  |  | — |  |  | 449 |  |  | (51) |  |  | 1 |  |  | 449 |  |  | (51) |
Total | $ | 27,175 |  |  | $ | (680) |  |  | 15 |  |  | $ | 224,179 |  |  | $ | (16,067) |  |  | 111 |  |  | $ | 251,354 |  |  | $ | (16,747) |
Available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
MBS: U.S. government agencies | $ | 10,635 |  |  | $ | (308) |  |  | 3 |  |  | $ | 30,809 |  |  | $ | (1,053) |  |  | 27 |  |  | $ | 41,444 |  |  | $ | (1,361) |
Total | $ | 10,635 |  |  | $ | (308) |  |  | 3 |  |  | $ | 30,809 |  |  | $ | (1,053) |  |  | 27 |  |  | $ | 41,444 |  |  | $ | (1,361) |
During the three months ended December 31, 2023, the Company recorded a $1,000 net realized loss on 13 held to maturity investment securities all of which had been recognized previously as credit loss. During the three months ended December 31, 2022, the Company recorded a $7,000 net realized loss on 14 held to maturity investment securities all of which had been recognized previously as 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 $204.13 million and $201.82 million at December 31, 2023 and September 30, 2023, respectively. The contractual maturities of debt securities at December 31, 2023 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 | $ | 94,888 |  |  | $ | 93,677 |  |  | $ | 387 |  |  | $ | 385 |
Due after one year to five years | 91,471 |  |  | 85,469 |  |  | 2,568 |  |  | 2,553 |
Due after five years to ten years | 8,932 |  |  | 8,140 |  |  | 5,793 |  |  | 5,758 |
Due after ten years | 70,794 |  |  | 67,075 |  |  | 32,744 |  |  | 31,750 |
Total | $ | 266,085 |  |  | $ | 254,361 |  |  | $ | 41,492 |  |  | $ | 40,446 |
Credit Quality Indicators and Allowance for Credit Losses Available for Sale Investment Securities The Company assesses each available for sale investment security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis results from a credit loss or other factors. The Company did not record an ACL on any available for sale debt securities at December 31, 2023 or upon adoption of ASU 2016-13 on October 1, 2023. As of both dates, the Company considered the unrealized losses across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value. The Company expects the fair value of these securities to recover as the securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that these securities are other than temporarily impaired because of their credit quality or related to any issuer or industry specific event. The Company has the ability and intent to hold the investments until the fair value recovers. Held to Maturity Investment Securities The Company measures expected credit losses on held to maturity investment securities, which are comprised of U.S. government agency and U.S. government mortgage-backed securities, private label mortgage-backed securities, municipal, and other bonds. The Company’s agency and mortgage-backed securities that are issued by U.S. government entities and agencies are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no ACL has been established for these securities. The ACL on the private label mortgage-backed securities, municipal, and other bonds within the held to maturity securities portfolio is calculated using the probability of default/loss given default ("PD/LGD") method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source. At December 31, 2023, the allowance for credit losses on the held to maturity securities portfolio totaled $82,000. The following table sets forth information for the three months ended December 31, 2023 regarding activity in the ACL by portfolio segment (dollars in thousands):
|  | Three Months Ended December 31, 2023
Held to Maturity |  | Beginning Allowance |  | Impact of Adopting CECL (ASU 2016-13) |  | Provision for (Recapture of) Credit Losses |  | Ending Allowance
MBS: |  |  |  |  |  |  |  |
Private label residential |  | $ | — |  |  | $ | 82 |  |  | $ | (9) |  |  | $ | 73 |
Bank issued trust preferred securities |  | — |  |  | 10 |  |  | (1) |  |  | 9 |
Total |  | $ | — |  |  | $ | 92 |  |  | $ | (10) |  |  | $ | 82 |
The ACL on held to maturity investment securities is included within investment securities held to maturity on the consolidated balance sheets. Changes in the ACL are recorded within provision for (recapture of) credit losses on the consolidated income statement. Accrued interest receivable on held to maturity investment securities totaled $908,000 at December 31, 2023 and is included within accrued interest income receivable on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Held to maturity debt securities are typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held to maturity debt securities are placed on non-accrual status, unpaid interest credited to income is reversed. The Company had $85,000 of private label mortgage-backed held to maturity investment securities in non-accrual status at December 31, 2023. The Company monitors the credit quality of debt securities held to maturity through the use of credit ratings from Moody's, S&P and Fitch. The Company monitors the credit ratings on a quarterly basis. The following table sets forth the Company's held to maturity investment securities at December 31, 2023 by credit quality indicator:
|  | Credit Ratings
As of December 31, 2023 |  | AAA/AA/A |  | BBB/BB/B |  | Unrated |  | Total
Held to Maturity |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agency securities |  | $ | 169,869 |  |  | $ | — |  |  | $ | — |  |  | $ | 169,869 |
Mortgage-backed securities ("MBS"): |  |  |  |  |  |  |  |
U.S. government agencies |  | 53,185 |  |  | — |  |  | — |  |  | 53,185 |
Private label residential |  | 19,324 |  |  | — |  |  | 21,338 |  |  | 40,662 |
Municipal securities |  | 1,778 |  |  | — |  |  | 100 |  |  | 1,878 |
Bank issued trust preferred securities |  | — |  |  | — |  |  | 491 |  |  | 491 |
Total held to maturity |  | $ | 244,156 |  |  | $ | — |  |  | $ | 21,929 |  |  | $ | 266,085 |
Prior to adopting ASU 2016-13, the Company bifurcated 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 was required in this analysis that included, but not limited to, assumptions regarding the collectability of principal and interest, net of related expenses, on the underlying loans. The amounts written off due to credit loss remain and continue to be recovered on a cash basis. The following table presents a roll forward of the credit loss component of held to maturity debt securities that have been written down for OTTI with the credit loss component recognized in earnings for the three months ended December 31, 2023 and 2022 (dollars in thousands):
| Three Months Ended December 31,
| 2023 |  | 2022
Beginning balance of credit loss | $ | 816 |  |  | $ | 836 |
Subtractions: |  |  |
Net realized loss previously recorded as credit losses | (1) |  |  | (7) |
Recapture of prior credit loss | (4) |  |  | (3) |
Ending balance of credit loss | $ | 811 |  |  | $ | 826 |

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