In the normal course of business, the Company offers financial instruments with off-balance sheet risk to meet the financing needs of its customers. These transactions include commitments to extend credit, standby letters of credit, and lines of credit, which involve, to varying degrees, elements of credit risk, which are not reflected in the accompanying consolidated financial statements.

The Company enters into contractual commitments to extend credit to its customers in the form of loan commitments and lines of credit, generally with fixed expiration dates and other termination clauses, and may require payment of a fee. Substantially all of the Company’s commitments to extend credit are contingent upon its customers maintaining specific credit standards at the time of loan funding, and are often secured by real estate collateral. Since the majority of the Company’s commitments typically expire without being funded, the total contractual amount does not necessarily represent the Company’s future payment requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral, if any, required upon an extension of credit is based on management’s evaluation of customer credit. Commitments to extend mortgage credit are primarily collateralized by first liens on real estate. Collateral on extensions of commercial lines of credit vary but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial property.

The Company estimates expected credit losses over the contractual period in which the Company has exposure to a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments exposure is recognized in other liabilities and is adjusted through a provision expense in other noninterest expense. At June 30, 2025, the allowance for credit losses on unfunded commitments totaled $1.8 million as compared to $1.3 million at June 30, 2024, an increase of $522,000, or 0.2%. Provision for credit losses on unfunded commitments amounted to a charge of $522,000 and a benefit of $274,000 for the years ended June 30, 2025 and 2024, respectively. The provision for the year ended June 30, 2025, was primarily attributable to growth in commercial real estate loan commitments and an increase in the unfunded balance of commercial construction loans and home equity lines of credits.

The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. The Company believes that it is not a party to any pending legal, arbitration, or regulatory proceedings that would have a material adverse impact on the business, consolidated financial condition, results of operations or cash flows of the Company or any of its subsidiaries.