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NOTE H: COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

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The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. These commitments consist principally of unused commercial and consumer credit lines. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to the Company’s normal credit policies. The Company’s liability for off-balance sheet credit exposures related to commitments to extend credit is included in accrued interest and other liabilities on the consolidated statements of condition and detailed in Note E. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness. The fair value of the standby letters of credit is immaterial for disclosure.

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The contract amounts of these commitments and contingencies are as follows:

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The Company entered into agreements to invest a total of $10.0 million and $8.5 million in investment tax credits generated by a solar energy producing company during the second quarter of 2026 and 2025, respectively. The Company has elected to account for the investments using the proportional amortization method. At June 30, 2026, the balance of the Company’s investment in these tax credits was $11.8 million and the unfunded commitment related to the solar energy tax credit investments was $10.0 million. At December 31, 2025, the balance of the Company’s investment in these tax credits was $3.4 million and the unfunded commitment related to the solar energy tax credit investments was $1.5 million. These amounts are reflected in other assets and accrued interest and other liabilities, respectively, in the consolidated statements of condition. The Company funded the outstanding commitment at December 31, 2025 during the second quarter of 2026 and anticipates funding the outstanding commitment at June 30, 2026 by the end of 2026. During the three months ended June 30, 2026 and 2025, the Company recognized $0.5 million and $2.5 million respectively, of federal tax credits and $0.7 million and $2.7 million, respectively, of amortization of income tax credit investments in income taxes in the consolidated statements of income related to solar energy tax credits. During the six months ended June 30, 2026 and 2025, the Company recognized $0.9 million and $2.5 million, respectively, of federal tax credits and $1.6 million and $2.8 million, respectively, of amortization of income tax credit investments in income taxes in the consolidated statements of income related to solar energy tax credits.

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Legal Contingencies

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On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with pending or threatened legal proceedings or other matters in which claims for monetary damages are asserted. For those matters where it is probable that the Company will incur losses and the amounts of the losses are reasonably estimable, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent such matters could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of losses that are reasonably possible for matters where an exposure is not currently estimable or considered probable is not believed to be material in the aggregate. This is based on information currently available to the Company and involves elements of judgment and significant uncertainties.

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On June 25, 2026, the United States Department of Labor (“DOL”) filed a complaint in the U.S. District Court for the Southern District of Texas against the Company’s subsidiary, Hand Benefits & Trust Company (“HB&T”), Hand Composite Employee Benefit Trust (the “Trust”), and certain current and former HB&T officers and directors, captioned Sonderling v. Hand Benefits & Tr. Co., et al., Case No. 4:26-cv-05025 (S.D. Tex). The complaint alleges, among other things, that HB&T and the individual defendants breached their fiduciary duties under ERISA in connection with the selection and monitoring of certain collective investment funds (“CIFs”) and their subadvisors, and by causing certain CIFs to enter into short-term loans in connection with participant withdrawals, resulting in alleged losses to the Trust and its participating trusts. The Company and the named defendants dispute these allegations and intend to vigorously defend themselves. Based on the preliminary stage of the proceeding, the nature of the claims asserted, and the current status of discovery and related proceedings, the Company believes that a loss is reasonably possible but not probable. Accordingly, no accrual has been recorded. At this time, the Company is unable to reasonably estimate a possible loss or range of loss, if any. The outcome of litigation is inherently uncertain, and adverse developments could materially affect the Company’s results of operations or financial condition in future periods.