Residential loans are subject to a blanket lien securing Federal Home Loan Bank (“FHLB”) advances. See Note 7 of these unaudited consolidated financial statements.

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 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.

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.

The allowance for credit losses (“ACL”) is an estimate of current expected losses within the Company's loan portfolio. The ACL, as reported on our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by loan charge-offs, net of recoveries. Accrued interest receivable on loans was $509,000 at September 30, 2024 and $520,000 at June 30, 2024, and is excluded from the estimate of credit losses.

The loan loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which are disaggregated by call code. For each of these pools, the Company collects historical loss data, dating back to March 2008, from a selection of peer banks and applies the annual historical loss rate over the estimated remaining average life of the loan portfolio segment. The use of peer banks' historical loss rates is due to the lack of loss history experienced by the Bank. The average remaining life of a loan portfolio segment is adjusted for estimated prepayment and curtailment expectations. The modeling for estimated prepayment speeds and curtailment rates is based on a combination of historical internal estimates and market estimates. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a Weighted Average Remaining Maturity (“WARM”) method, incorporating historical loss data based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributable to existing loan balances, and considers historical experience, current conditions, and future expectations for segments of loans over a reasonable and supportable forecast period. The historical information is collected from a selection of peer banks and is derived from a combination of recessionary and non-recessionary performance periods for which data is available.

Residential one- to four-family: This segment consists of one- to four-family, owner-occupied, residential mortgage loans, virtually all of which are secured by properties in our market area. Generally, mortgages with loan-to-value ratios greater than 80% require private mortgage insurance, with limited exceptions. Underwriting approval is dependent on review of the borrower's ability to repay and credit history in accordance with the Company's policy. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality of this segment.

Multi-family: This segment consists of real estate loans secured by properties of five or more rental units within our market area. We consider a number of factors in originating multi-family loans. We evaluate the qualifications, income level and financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn would have an effect on the credit quality of this segment. Management obtains financial information annually and monitors the cash flows of these loans.

Second mortgages and home equity lines of credit: Second mortgage loans and home equity lines of credit are multi-purpose loans used to finance various home or personal needs for which a one- to four-family primary or secondary residence serves as collateral. We generally originate home equity lines of credit with a maximum loan-to-value ratio of 80% (including the value of the underlying mortgage loan) and with terms of up to 20 years. We originate second mortgage loans on owner-occupied properties with fixed rates of interest. We generally originate these loans with a maximum loan-to-value ratio of 80% (including the value of the underlying mortgage loan) and with terms of up to 15 years. Underwriting approval is dependent on review of the borrower's ability to repay and credit history in accordance with the Company's policy. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality of this segment.

Commercial real estate: This segment consists of real estate loans generally secured by office buildings, small retail facilities, mixed-use facilities, and warehouses within our market area. We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications, income level and financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy due to diminished cash flows, which in turn, would have an effect on the credit quality of this segment. Management obtains financial information annually and monitors the cash flows of these loans.

Consumer and home improvement: We offer a variety of consumer loans to individuals, including home improvement loans and new and used automobile loans. The overall health of the economy, including unemployment rates, will have an effect on the credit quality of this segment.

In estimating the component of the ACL for loans that share similar credit characteristics with other loans, such loans are segregated into loan segments. Loans are designated into loan segments based on call code, for ease of use of historical peer bank data. In determining the ACL, we derive an estimated credit loss assumption from a model that categorizes loans to their call codes. The model calculates an expected loss percentage for each loan call code segment by considering the related historical annual net charge-off rate for that segment, based on historical averages from a select group of peer banks dating back to March 2008, and the average remaining life of the loan segment, based on estimated prepayment and curtailment rates. The historical loss rates over the remaining life of the loan segment are adjusted for differences between the historical net charge-off rates and the expected conditions over the remaining lives of the loans related to: (1) national, regional and local economic and business conditions and developments that effect the collectability of the portfolio; (2) changes in the volume of past due loans and adversely classified or graded loans, the volume of nonaccrual loans and trends in charge-offs and recoveries; (3) changes in the size and composition of the portfolio and the terms of loans; (4) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; (5) changes in the experience, ability and depth of lending management and other relevant staff; (6) changes in the quality of the institution's review system; (7) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio; and (8) the existence of any concentrations of credit, and changes in the level of such concentrations. Such factors are used to adjust the historical net charge-off rates so that they reflect management expectations of future conditions based on a reasonable and supportable forecast. The Company uses regression analysis of historical peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime net charge-off rates. This analysis also determines how net charge-off rates will react to forecasted levels of the economic variables.

For all WARM models, management has determined that eight quarters represents a reasonable and supportable forecast period and reverts back to the historical net charge-off rates thereafter. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

For a loan that does not share risk characteristics with other loans, expected credit loss is measured on a net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan costs and fees), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit losses is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than on the operation) of the collateral.

Allowance for credit losses on off-balance sheet credit exposures, including unfunded loan commitments

The Company maintains a separate allowance for credit losses for off-balance sheet credit exposures, including unfunded loan commitments, which is included in accrued expenses and other liabilities on the balance sheet. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancelable by the Company and applying the loss factors used in the ACL methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. No estimate for credit losses is reported for off-balance sheet exposures that are unconditionally cancelable by the Company, such as undrawn amounts under such arrangements that may be drawn prior to the cancellation of the agreement. The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. Categories of off-balance sheet credit exposures correspond to the loan portfolio segment described above. Management evaluates the need for a reserve on unfunded loan commitments in a manner consistent with loans.

The following table presents activity in the allowance for credit losses by loan segment for the three months ended September 30, 2024 and 2023 is as follows:


(In thousands)	Residential 1-4 Family			Multifamily			Second Mortgages and Home Equity Lines of Credit			Commercial Real Estate			Consumer			Home Improvement			Unallocated			Total
Allowance for credit losses for loans
Balance at June 30, 2024	$	1,043		$	191		$	18		$	240		$	1		$	60		$	-		$	1,553
Provision (benefit) for credit losses		(39	)		1			(1	)		(9	)		1			(1	)		-			(48	)
Loans charged-off		-			-			-			-			(1	)		-			-			(1	)
Recoveries		-			-			-			-			-			-			-			-
Balance at September 30, 2024	$	1,004		$	192		$	17		$	231		$	1		$	59		$	-		$	1,504

Allowance for credit losses for off-balance sheet exposures
Balance at June 30, 2024	$	5		$	26		$	-		$	-		$	-		$	-		$	-		$	31
Provision (benefit) for credit losses		-			(8	)		-			-			-			-			-			(8	)
Balance at September 30, 2024	$	5		$	18		$	-		$	-		$	-		$	-		$	-		$	23

Allowance for credit losses for loans
Balance at June 30, 2023	$	974		$	190		$	29		$	346		$	-		$	64		$	144		$	1,747
Adoption of ASU 2016-13(1)		139			2			23			(19	)		2			9			(144	)		12
Adjusted beginning balance	$	1,113		$	192		$	52		$	327		$	2		$	73		$	-		$	1,759
Provision (benefit) for credit losses		(42	)		(11	)		(9	)		(36	)		-			(12	)		-			(110	)
Loans charged-off		-			-			-			-			-			-			-			-
Recoveries		-			-			-			-			-			-			-			-
Balance at September 30, 2023	$	1,071		$	181		$	43		$	291		$	2		$	61		$	-		$	1,649

Allowance for credit losses for off-balance sheet exposures
Balance at June 30, 2023	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Adoption of ASU 2016-13(1)		5			7			-			7			4			-			-			23
Adjusted beginning balance	$	5		$	7		$	-		$	7		$	4		$	-		$	-		$	23
Provision (benefit) for credit losses		(1	)		(1	)		-			(7	)		(4	)		-			-			(13	)
Balance at September 30, 2023	$	4		$	6		$	-		$	-		$	-		$	-		$	-		$	10

(1) Represents the net adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of ASU 2016-13 (i.e., the cumulative effect adjustment related to the adoption of ASU 2016-13 as of July 1, 2023).

The $48,000 reversal for credit losses for loans was primarily due to changes in economic factors, lower loan balances and continued strong asset quality for the three months ended September 30, 2024. The $8,000 reversal for credit losses for off-balance sheet exposures was primarily due to a decrease of $842,000 in unfunded commitments for the three months ended September 30, 2024.

In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. A loan is considered individually evaluated when, based on current information and events, the loan is rated special mention or worse. At September 30, 2024, the Company had $1.4 million in individually evaluated residential one- to four-family loans. These consisted of four loans, to one borrower, rated substandard and individually evaluated due to the borrowers' inability to show sufficient rent receipts to support the debt coverage. These loans are current.

The following tables present the allocation of the allowance for credit losses on loans to each category is presented as of September 30, 2024.


(In thousands)	Residential 1-4 Family		Multifamily		Second Mortgages and Home Equity Lines of Credit		Commercial Real Estate		Consumer		Home Improvement		Total

September 30, 2024
Allowance for credit losses on loans:
Individually evaluated for credit losses	$	10	$	-	$	-	$	-	$	-	$	-	$	10
Collectively evaluated for credit losses		994		192		17		231		1		59		1,494
Total	$	1,004	$	192	$	17	$	231	$	1	$	59	$	1,504
Loans
Individually evaluated for credit losses	$	1,381	$	-	$	-	$	-	$	-	$	-	$	1,381
Collectively evaluated for credit losses		134,453		11,961		3,232		16,829		71		1,981		168,527
	$	135,834	$	11,961	$	3,232	$	16,829	$	71	$	1,981	$	169,908


(In thousands)	Residential 1-4 Family		Multifamily		Second Mortgages and Home Equity Lines of Credit		Commercial Real Estate		Consumer		Home Improvement		Total
June 30, 2024
Allowance for credit losses on loans:
Individually evaluated for credit losses	$	10	$	-	$	-	$	-	$	-	$	-	$	10
Collectively evaluated for credit losses		1,033		191		18		240		1		60		1,543
Total allowance for credit losses on loan	$	1,043	$	191	$	18	$	240	$	1	$	60	$	1,553

Loans
Individually evaluated for credit losses	$	1,390	$	-	$	-	$	-	$	-	$	-	$	1,390
Collectively evaluated for credit losses		136,615		12,066		3,372		16,833		65		2,037		170,988
Total loans	$	138,005	$	12,066	$	3,372	$	16,833	$	65	$	2,037	$	172,378

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

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.

There were no loan modifications during the three months ended September 30, 2024 and 2023. During the three months ended September 30, 2024 and 2023, no modified loans defaulted (defined as 30 days or more past due) within twelve months of restructuring. There were no charge-offs on modified loans during the three months ended September 30, 2024 and 2023.

The Bank 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 Bank 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 Bank 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 Bank formally reviews the ratings on all commercial real estate and construction loans. On a monthly basis, the Bank reviews the residential and other loan portfolios for credit quality primarily through the use of delinquency reports.

The following tables detail the amortized cost balances of the Company's loan portfolio presented by risk rating and origination year as of the periods presented:


															Revolving Loans
	Term Loans at Amortized Cost by Fiscal Origination Year												Revolving Loans		Converted to
(In thousands)	2025		2024		2023		2022		2021		Prior		Amortized Cost		Term Loans		Total
September 30, 2024
Residential 1-4 family:
Pass	$	975	$	10,007	$	10,640	$	28,740	$	16,314	$	67,490	$	298	$	-	$	134,464
Substandard		-		-		-		-		-		1,381		-		-		1,381
Total residential 1-4 family		975		10,007		10,640		28,740		16,314		68,871		298		-		135,845

Multifamily:
Pass		-		697		-		3,772		2,243		4,909		340		-		11,961
Total multifamily		-		697		-		3,772		2,243		4,909		340		-		11,961

Second mortgages and home equity lines of credit:
Pass		-		1,074		732		53		209		390		743		31		3,232
Total second mortgages and home equity lines of credit		-		1,074		732		53		209		390		743		31		3,232

Commercial:
Pass		-		496		8,606		1,051		903		5,146		627		-		16,829
Total commercial		-		496		8,606		1,051		903		5,146		627		-		16,829

Consumer:
Pass		14		26		-		-		-		31		-		-		71
Total consumer		14		26		-		-		-		31		-		-		71

Home improvement:
Pass		85		294		363		332		323		192		-		-		1,589
Total home improvement		85		294		363		332		323		192		-		-		1,589

Total loans
Pass		1,074		12,594		20,341		33,948		19,992		78,158		2,008		31		168,146
Substandard		-		-		-		-		-		1,381		-		-		1,381
Net deferred fees		6		103		98		39		53		82		-		-		381
Total loans	$	1,080	$	12,697	$	20,439	$	33,987	$	20,045	$	79,621	$	2,008	$	31	$	169,908


															Revolving Loans
	Term Loans at Amortized Cost by Fiscal Origination Year												Revolving Loans		Converted to
(In thousands)	2024		2023		2022		2021		2020		Prior		Amortized Cost		Term Loans		Total
June 30, 2024
Residential 1-4 family:
Pass	$	10,045	$	10,709	$	28,969	$	16,833	$	17,533	$	52,153	$	383	$	-	$	136,625
Substandard		-		-		-		-		355		1,035		-		-		1,390
Total residential 1-4 family		10,045		10,709		28,969		16,833		17,888		53,188		383		-		138,015

Multifamily:
Pass		699		-		3,799		2,259		1,123		3,840		346		-		12,066
Total multifamily		699		-		3,799		2,259		1,123		3,840		346		-		12,066

Second mortgages and home equity lines of credit:
Pass		1,085		765		126		212		57		336		791		-		3,372
Total second mortgages and home equity lines of credit		1,085		765		126		212		57		336		791		-		3,372

Commercial:
Pass		498		8,654		1,059		910		836		4,805		71		-		16,833
Total commercial		498		8,654		1,059		910		836		4,805		71		-		16,833

Consumer:
Pass		32		-		-		-		13		20		-		-		65
Total consumer		32		-		-		-		13		20		-		-		65

Home improvement:
Pass		323		382		352		350		149		84		-		-		1,640
Total home improvement		323		382		352		350		149		84		-		-		1,640

Total loans
Pass		12,682		20,510		34,305		20,564		19,711		61,238		1,591		-		170,601
Substandard		-		-		-		-		355		1,035		-		-		1,390
Net deferred fees		92		104		42		58		23		68		-		-		387
Total loans	$	12,774	$	20,614	$	34,347	$	20,622	$	20,089	$	62,341	$	1,591	$	-	$	172,378

At September 30, 2024, and June 30, 2024 there were $1.4 million of loans rated substandard with a provision for credit loss of $10,000. There were no loans rated special mention, doubtful or loss at September 30, 2024 and June 30, 2024.