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.

At June 30, 2026, the allowance for credit losses on unfunded commitments totaled $1.4 million as compared to $1.8 million at June 30, 2025, a decrease of $342,000, or 19.3%. Provision for credit losses on unfunded commitments amounted to a benefit of $342,000 and a charge of $522,000 for the years ended June 30, 2026 and 2025, respectively. The provision for the year ended June 30, 2026, was primarily attributable to a decrease in the unfunded balance of commercial real estate loans, 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 ordinary course of business. Legal contingencies are evaluated based on information currently available and management reviews the status of such matters on an ongoing basis and records accruals for loss contingencies when losses are considered probable and the amount can be reasonably estimated. Legal contingencies are subject to inherent uncertainties and unfavorable rulings that may cause the Company to adjust its accrual or incur losses which may have a material impact on the Company’s financial condition or operating results.