NOTE 6: LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

The components of loans receivable, net, at June 30, 2026 (unaudited) and September 30, 2025 are as shown in the table below:

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The outstanding principal balance and the related carrying amount of the Company’s loans acquired in the 2022 Citizens Bank of Cape Vincent acquisition were as shown in the table below at June 30, 2026 (unaudited) and September 30, 2025:

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The Company did not hold any purchased loans with deteriorated credit quality as of June 30, 2026 or September 30, 2025. The Company did acquire a commercial secured performing loan which was subsequently classified as Substandard to ensure proper oversight and monitoring of the loan. The loan has performed in accordance with its modified loan terms for over four years. This loan was restructured in September 2023. Proceeds from the restructuring paid off current principal and interest due in the amount of $505,000. The borrower retained the same interest rate of 6.00% and received a 5-year callable note with 25-year amortization in exchange for extra real estate collateral. A $108,000 second position commercial mortgage was placed on the guarantor’s primary residence behind the Bank’s first position residential mortgage. The restructuring enhanced the Bank’s loan-to-value position while providing the borrower with a lower payment than the original contractual terms. The capitalization of interest, interest rate below market terms, and extension of the maturity date were concessions made to the borrower in exchange for additional collateral. The loan was removed

from non-accrual status during the third quarter of fiscal year 2024. This loan has a negative fair value adjustment as a result of purchase price accounting of $22,000 and $42,000 at June 30, 2026 and September 30, 2025, respectively.

The Company sells first mortgage loans to third parties in the ordinary course of business, principally to the FHLB, a large purchaser of loans. These serviced loans are not included in the balances on the accompanying statements of financial condition, but the Company continues to collect the principal and interest payments on behalf of FHLB for a servicing fee. At June 30, 2026 and September 30, 2025, the total outstanding principal balance on these serviced loans was $10.8 million and $11.2 million, respectively.

The tables below present, by portfolio segment, the changes in the allowance for credit losses and the recorded investment in loans for the three and nine-months ended June 30, 2026 and 2025 (unaudited), and the year ended September 30, 2025.

Allowance for credit losses and recorded investment in loans as of and for the three months ended June 30, 2026 was as follows:

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Allowance for credit losses and recorded investment in loans as of and for the nine months ended June 30, 2026 was as follows:

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Allowance for credit losses and recorded investment in loans as of and for the three months ended June 30, 2025 was as follows:

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Allowance for credit losses and recorded investment in loans as of and for the nine months ended June 30, 2025 was follows:

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Allowance for credit losses and recorded investment in loans as of September 30, 2025 was as follows:

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The following table presents performing and nonperforming real estate loans based on payment activity as of June 30, 2026 and September 30, 2025. Real estate loans include residential and commercial mortgages, construction loans and home equity loans. Payment activity is reviewed by management on a quarterly basis to determine how loans are performing. Loans are considered to be nonperforming when the number of days delinquent exceeds 89 days or the loan terms are modified with a borrower experiencing financial difficulty. The loan may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six consecutive months of current payments with no past due occurrences.

Performing and nonperforming real estate loans as of June 30, 2026 and September 30, 2025 were as follows:

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Credit quality indicators as of June 30, 2026 and September 30, 2025 are as follows:

Internally assigned grade as a subsection of the “Pass” (ratings 1 – 4) credit risk profile:

1 — Good

Loans in this category are to an individual or a well-established business in excellent financial condition with strong liquidity and a history of consistently high levels of earnings and cash flow and debt service capacity. Supported by high quality financial statements (including recent statements and sufficient historical fiscal statements), borrower has excellent repayment history and possesses a documented source of repayment. Industry conditions are favorable and borrower’s business management is well qualified with sufficient debt.  Borrower and/or key personnel exhibit unquestionable character. Good loans may be characterized by high quality liquid collateral and very strong personal guarantors.

2 — Satisfactory

Loans in this category are to borrowers with many of the same qualities as a Good loan, however, certain characteristics are not as strong (i.e. cyclical nature of earnings, lower quality financial statements, less liquid collateral, less favorable industry trends, etc.). Borrower still has good credit, will exhibit financial strength, excellent repayment history, and good present and future earnings potential. The primary source of repayment is readily apparent with strong secondary sources of repayment available. Management is capable, with sufficient depth, and character of borrower is well established.

3 — Acceptable

Loans in this category are to borrowers of average strength with acceptable financial condition (businesses fall within acceptable tolerances of other similar companies represented in the RMA annual statement studies), with satisfactory record of earnings and sufficient historical and projected cash flow to service the debt. Business borrower’s management is capable and reliable. Borrower has satisfactory repayment history, and primary and secondary sources of repayment can be clearly identified. Acceptable loans may exhibit some deficiency or vulnerability to changing economic or industry conditions.

4 — Watch

Loans in this category have a chance of resulting in a loss. Characteristics of this level of assets include, but are not limited to: the borrower has only a fair credit rating with minimal recent credit problems, cash flow is currently adequate to meet the required debt repayments, but will not be sufficient in the event of significant adverse developments, borrower has limited access to alternative sources of financing, possibly at unfavorable terms, some management weaknesses exist,

collateral, generally required, is sufficient to make likely the recovery of the value of the loan in the event of default, but liquidating the collateral may be difficult or expensive. In addition, the guarantor would achieve this credit rating if it borrowed individually from the Bank.

5 — Special Mention

Loans in this category are usually made to well-established businesses with local operations. Special Mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The Special Mention category is not to be used as a means of avoiding a clear decision to classify a loan or pass it without criticism. Neither should it include loans listed merely “for the record” when uncertainties and complexities, perhaps coupled with large size, create some reservations about the loan. If weaknesses or evidence of imprudent handling cannot be identified, inclusion of such loans in Special Mention is not justified. Special Mention loans have characteristics which corrective management action would remedy. Loans in this category should remain for a relatively short period of time.

6 — Substandard

Loans classified as Substandard are inadequately protected by the current sound net worth or paying capacity of the borrower or the collateral pledged, if any. Loans in this category have well-defined weaknesses that jeopardize the repayment. Loans which might be included in the category have potential for problems due to weakening economic or market conditions. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans may include loans which are likely to require liquidation of collateral to effect repayment, and other loans where the character or ability to repay has become suspect. Loss potential, while existing in the aggregate amount of the substandard assets, does not have to exist in individual assets classified as Substandard.

7 — Doubtful

Loans classified as Doubtful have all the weaknesses in those classified as Substandard with the added characteristics that the weaknesses make collection or liquidation in full on the basis of current existing facts, conditions, and value highly questionable and improbable. Although possibility of loss is extremely high, classification of these loans as loss has been deferred to specific pending factors or events, which may strengthen the loan value (i.e., possibility of additional collateral, injection of capital, collateral liquidation, debt structure, economic recovery, etc.).

8 — Loss

Loans classified as Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

The information for each of the credit quality indicators is updated on a quarterly basis in conjunction with the determination of the adequacy of the allowance for credit losses.

Credit risk profile for loans receivable held in portfolio by internally assigned grade as of June 30, 2026:

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Credit risk profile for loans receivable held in portfolio by internally assigned grade as of September 30, 2025:

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Aging Analysis of Past Due Financing Receivables by Class

Following are tables which include an aging analysis of the recorded investment of past due financing receivables as of June 30, 2026 and September 30, 2025. Any loans that are greater than 89 days past due as to interest and principal and still accruing interest are (1) well secured and in the process of collection or (2) real estate loans or loans exempt under regulatory rules from being classified as nonaccruals.

An aged analysis of past due financing receivables by class of financing receivable for loans held in portfolio as of June 30, 2026 are as follows:

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An aged analysis of past due financing receivables by class of financing receivable for loans held in portfolio as of September 30, 2025, are as follows:

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Loan Modifications Made to Borrowers Experiencing Financial Difficulty

The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from loan modifications of receivables made to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made at the time of a loan modification. Because the effect of most loan modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification, unless the loan is determined to be outside of the collectively evaluated pool.

There were no modified loans made to borrowers experiencing financial difficulty during the nine months ended June 30, 2026 or 2025.

Collateral Dependent Loans

Collateral dependent loans are individually evaluated loans upon which repayment is dependent on the operation or sale of the underlying collateral. For collateral dependent loans, the amortized cost of the loan is adjusted to fair value of the collateral, which is reassessed on a periodic basis. The Company uses the fair value of underlying collateral, less the selling, administrative costs, and other expenses necessary to liquidate the collateral in order to estimate the allowance for credit losses for individually evaluated collateral dependent loans.

As of June 30, 2026, the Company’s previously disclosed collateral dependent loan within the residential real estate loan segment, with an outstanding principal balance of $48,000 at December 31, 2025, was transferred to foreclosed real estate during the quarter ended March 31, 2026. The transfer was based on the Company obtaining physical possession of the collateral and the Company is seeking all steps to list and ultimately sell the property. The most recent estimated fair value of the collateral of $40,000 was based on a drive-by appraisal. Due to the limited nature of this valuation and the expectation that a full appraisal may support a higher value, no write-down was recorded upon transfer to foreclosed real estate. Accordingly, the specific allowance for credit losses of $11,200 associated with this loan remains appropriate as of June 30, 2026 based on the most recent full appraisal available to the Company. As of September 30, 2025, the Company held the same collateral dependent loan with an outstanding principal balance of $45,000.  

Vintage Analysis

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of June 30, 2026:

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