4. Loans

Residential loans are subject to a blanket lien securing FHLB advances. See Note 7 of these consolidated financial statements.

Included in total loans are loans due from directors and other related parties of $1.9 million and $2.0 million at June 30, 2025 and 2024, respectively. All loans made to directors have substantially the same terms and interest rates as other Bank borrowers at their origination date. The Board of Directors confirms that collateral requirements, terms, and rates are comparable to other borrowers and are in compliance with underwriting policies prior to approving loans to individual directors. The following presents the activity in amount due from directors and other related parties for the years ended June 30, 2025 and 2024:

Effect of New Financial Accounting Standards

On July 1, 2023, the Company adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments", as amended, which requires that the recognition of the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and securities held to maturity. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326, Financial Instruments - Credit Losses, made changes to the accounting for securities available for sale. One such change is to require credit

losses be presented as an allowance rather than as a write-down on securities available for sale that are determined to have impairment related to credit losses.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning July 1, 2023 are presented under ASC 326 while prior amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $223,000 as of July 1, 2023 for the cumulative effect of adopting ASC 326, which includes a net deferred tax liability of $88,000.

At June 30, 2025 and 2024 there were no past due loans or loans on non-accrual status and there were no loans past due ninety days or more and still accruing.

At June 30, 2025 and 2024 we had four loans with one borrower classified as substandard. At June 30, 2025 and 2024 there were no loans classified as doubtful or loss.

Modified Loans

Occasionally, the Company will modify the contractual terms of loans to a borrower experiencing financial difficulties as a way to mitigate loss, proactively work with borrowers in financial difficulty, or to comply with regulations regarding the treatment of certain bankruptcy filing and discharge situations. Loans are designated as modified when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Company grants the borrower a concession on the terms that would not otherwise be considered. Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, extension of additional credit based on receipt of adequate collateral, or a deferment or reduction of payments (principal or interest) which materially alters the Company's position or significantly extends the note's maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan's origination. When principal forgiveness is provided, the amount forgiven is charged-off against the allowance for credit losses on loans.

During the years ended June 30, 2025 and 2024, there were no modifications of loans to borrowers experiencing financial difficulties ("BEFD"). During the years ended June 30, 2025 and 2024, there were no modifications of loans to BEFD that defaulted in the first twelve months after restructuring. There were no charge-offs on modified or BEFD loans during the years ended June 30, 2025 and 2024, respectively.

Credit Quality Information

The Company utilizes an internal loan rating system for residential real estate, commercial real estate, and construction loans as follows:

Pass: Loans in this category are considered to pose low to average risk. Passed assets are generally protected by the current net worth and paying capacity of the obligor or by the value of collateral pledged.

Special Mention: Loans in this category possess credit deficiencies or potential weaknesses deserving management’s close attention. If uncorrected, such deficiencies or weaknesses may expose the Company to an increased risk of loss.

Substandard: Loans in this category are considered to be inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. These assets have a well-defined weakness and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans in this category have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loss: Loans in this category are considered uncollectible and continuance as a bankable asset is not warranted. Loans in this category are generally charged-off.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate and construction loans. On a monthly basis, the Company reviews the residential and other loan portfolios for credit quality primarily through the use of delinquency reports.