In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk to meet the financing needs of its clients. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recorded in the consolidated balance sheets.

Commitments to extend credit are legally binding agreements to lend to a client, so long as there is no violation of any condition established in the commitment contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The credit risk involved in issuing letters of credit is essentially the same as the credit risk involved in extending loan facilities to clients. The Company’s policy for obtaining collateral, and determining the nature of such collateral, is essentially the same as in the Company’s policies for making commitments to extend credit. The methodology for estimating the liability for unfunded loan commitments is consistent with the allowance for credit losses on loans.

The following table represents the commitments to extend credit and standby letters of credit as of June 30, 2026 and December 31, 2025, respectively:


	June 30, 2026		December 31, 2025
Commitments to extend credit	$	1,058,286	$	1,124,850
Standby letters of credit	18,762		22,274
Total	$	1,077,048	$	1,147,124

On June 24, 2026, a jury returned a civil verdict against the Company's subsidiary, Horizon Bank (the "Bank"), in a lawsuit stemming related to the repossession and credit reporting of a single vehicle financed through the Company's former indirect automobile lending business. The jury awarded total damages approaching $3.0 million, including punitive damages.

During the second quarter of 2026, the Company recorded a pre-tax litigation expense and corresponding litigation accrual of $3.1 million related to this matter. The Company strongly disagrees with the verdict and intends to challenge the decision via an appeal process. The accrual will be maintained pending the resolution of the appeal process. The Company does not anticipate any broader exposure related to this matter.

The Company discontinued originating indirect auto finance loans in 2023 and exited a significant majority of its remaining credit exposure in 2024. The Company does not view this event as a disruption to its core community bank model.