BSRR US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion presents Management’s analysis of the Company’s financial condition as of December 31, 2025, and 2024, and the results of operations for each year in the three-year period ended December 31, 2025. The discussion is best read in conjunction with the Company’s consolidated financial statements and the notes related thereto presented elsewhere in this Form 10-K Annual Report (see Item 8 below).

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATMENTS

Statements contained in this report or incorporated by reference that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, including the Company’s expectations, intentions, beliefs, or strategies regarding the future. These forward-looking statements include, but are not limited to, statements about the Company’s plans, objectives, expectations, and intentions that are not historical facts, and other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “should,” “projects,” “seeks,” “estimates,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. All forward-looking statements concerning economic conditions, growth rates, income, expenses, or other values which are included in this document are based on information available to the Company on the date noted, and the Company assumes no obligation to correct, revise, or update any such forward-looking statements. It is important to note that the Company’s actual results could materially differ from those in such forward-looking statements, and you should not place undue reliance on these forward-looking statements. Risk factors and the Company’s ability to manage that risk could cause actual results to differ materially from those in forward-looking statements but are not limited to those outlined previously in Item 1A.

Critical Accounting Estimates

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States and prevailing practices within the banking industry. All significant intercompany balances and transactions have been eliminated. Certain reclassifications may have been made to prior year’s balances to conform to classifications used in 2025. Actual results may differ from those estimates under divergent conditions.

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Critical accounting estimates are those that involve the most complex and subjective decisions and assessments and have the greatest potential impact on the Company’s stated results of operations. In Management’s opinion, the Company’s critical accounting estimates deal primarily with the establishment of an allowance for credit losses on loans, as explained in detail in Note 2 to the consolidated financial statements and in the “Credit Losses Expense on Loans” and “Allowance for Credit Losses on Loans” sections of this discussion and analysis. Critical accounting areas are evaluated on an ongoing basis to ensure that the Company’s financial statements incorporate the most recent expectations with regard to those areas.

The following table presents selected historical financial information concerning the Company, which should be read in conjunction with our audited consolidated financial statements, including the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Selected Financial Data ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of and for the years ended December 31,

Selected Balance Sheet Summary ​ ​ ​ ​ ​ ​ ​ ​ ​

Per Share Data ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income per basic share ​ $ 3.14 ​ $ 2.84 ​ $ 2.37

Net income per diluted share ​ $ 3.11 ​ $ 2.82 ​ $ 2.36

Cash dividends per share ​ $ 1.00 ​ $ 0.94 ​ $ 0.92

Key Operating Ratios: ​ ​ ​ ​ ​ ​ ​ ​ ​

Performance Ratios: (1) ​ ​ ​ ​ ​ ​ ​ ​ ​

Return on average assets ​ ​ 1.15% ​ ​ 1.12% ​ ​ 0.94%

Average equity to average assets ratio ​ ​ 9.70% ​ ​ 9.61% ​ ​ 8.31%

Net interest margin (tax-equivalent) ​ ​ 3.75% ​ ​ 3.66% ​ ​ 3.37%

Efficiency ratio (tax-equivalent) (3) ​ ​ 58.91% ​ ​ 60.76% ​ ​ 63.90%

Asset Quality Ratios: (1) ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-performing loans to total loans ​ ​ 0.52% ​ ​ 0.84% ​ ​ 0.38%

Net charge-offs to average loans ​ ​ 0.39% ​ ​ 0.15% ​ ​ 0.18%

Regulatory Capital Ratio: (2) ​ ​ ​ ​ ​ ​ ​ ​ ​

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Overview of the Results of Operations and Financial Condition

Results of Operations Summary

The Company recognized net income of $42.3 million in 2025 relative to $40.6 million in 2024 and $34.8 million in 2023. Net income per diluted share was $3.11 in 2025, as compared to $2.82 in 2024 and $2.36 for 2023. The Company’s return on average assets and return on average equity were 1.15% and 11.88%, respectively, in 2025, as compared to 1.12% and 11.62%, respectively, in 2024, and 0.94% and 11.30%, respectively, for 2023. The following is a summary of the major factors that impacted the Company’s results of operations for the years presented in the consolidated financial statements.

The decrease in average earning assets in 2024 over 2023 was due primarily to the strategic restructuring of our lower-yielding bond portfolio in the first quarter of 2024, partially offset by increases in loan balances. The average balance of investment securities decreased $285.1 million while average gross loan balances increased $161.5 million. We experienced an increase of $176.5 million in mortgage warehouse line utilization, and a $39.6 million increase in farmland loans. Higher cost average borrowed funds declined $153.6 million, enabled by the sale of lower-yielding bonds. The net interest margin in 2024 was 29 basis points higher than in 2023, as a result of the balance sheet restructuring.

The year over year increase in 2024 was mostly due to $1.1 million increase in service charges and a $0.9 million increase in bank-owned life insurance income. These two favorable improvements were partially offset by a $0.8 million decline in other noninterest income items.

While operational efficiencies gained in 2024 from strategic decisions made by the Company in personnel expenses, and other noninterest expenses, helped contain noninterest expense, these positive variances were

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offset by increased occupancy costs as a result of the sale/leaseback transactions in the fourth quarter of 2023 and the first quarter of 2024 resulting in a slight increase in noninterest expense in 2024 compared to 2023.

Financial Condition Summary

The Company’s assets totaled $3.8 billion at December 31, 2025, as compared to $3.6 billion at December 31, 2024. Total liabilities were $3.5 billion at December 31, 2025, as compared to $3.3 billion at the end of 2024, and shareholders’ equity totaled $364.9 million at December 31, 2025, as compared to $357.3 million at December 31, 2024. The following is a summary of key balance sheet changes during 2025.

Results of Operations

The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on deposits and other borrowed money. The second is noninterest income, which primarily consists of customer service charges and fees but also includes non-customer sources such as BOLI and investment gains. The majority of the Company’s noninterest expense is comprised of operating costs that facilitate offering a full range of banking services to our customers.

Net Interest Income and Net Interest Margin

Net interest income was $124.7 million in 2025, as compared to $120.0 million in 2024, and $112.4 million in 2023. This equates to increases of 4% in 2025, and 7% in 2024. The level of net interest income we recognize in any given period depends on a combination of factors including the average volume and yield of interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. Net interest income is also impacted by the acceleration of net deferred loan fees and

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costs for loans paid off early, reversal of interest for loans placed on non-accrual status, and the recovery of interest on loans that had been on non-accrual and were paid off, sold, or returned to accrual status.

The following table shows average balances for significant balance sheet categories and the amount of interest income or interest expense associated with each category for each of the past three years. The table also displays calculated yields on each major component of the Company’s investment and loan portfolios, average rates paid on each key segment of the Company’s interest-bearing liabilities, and our net interest margin for the noted periods.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

AVERAGE BALANCES AND RATES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Loans: (3) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other liabilities ​ ​ 88,335 ​ ​ ​ ​ ​ ​ ​ 90,142 ​ ​ ​ ​ ​ ​ ​ 59,317 ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

(2) Yields and net interest margin have been computed on a tax equivalent basis.

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The Volume and Rate Variances table below sets forth the dollar difference for the comparative periods in interest earned or paid for each major category of interest-earning assets and interest-bearing liabilities, and the amount of such change attributable to fluctuations in average balances (volume) or differences in average interest rates. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates, and rate variances are equal to the change in rates multiplied by prior period average balances. Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the mix variance.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Volume and Rate Variances ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years Ended December 31,

​ ​ Increase(decrease) due to ​ Increase(decrease) due to

Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Consumer ​ ​ (55) ​ ​ — ​ ​ — ​ ​ (55) ​ ​ (49) ​ ​ 31 ​ ​ (4) ​ ​ (22)

Other ​ ​ (1) ​ ​ — ​ ​ — ​ ​ (1) ​ ​ — ​ ​ (9) ​ ​ — ​ ​ (9)

Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Savings accounts ​ ​ (9) ​ ​ 76 ​ ​ (2) ​ ​ 65 ​ ​ (35) ​ ​ 117 ​ ​ (15) ​ ​ 67

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Long-term FHLB Advances ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 843 ​ ​ 1 ​ ​ — ​ ​ 844

Long term debt ​ ​ 3 ​ ​ (6) ​ ​ — ​ ​ (3) ​ ​ 3 ​ ​ 3 ​ ​ — ​ ​ 6

​

Net interest income increased in 2025 primarily due to a favorable volume variance of $4.5 million, as higher loan and interest-bearing deposit volumes more than offset lower volumes in the investment portfolio and borrowed funds. The decline in investment volume was mainly caused by runoff and early calls on CLOs. The favorable loan volume variance reflected loan growth during the year, led by higher balances in mortgage warehouse, commercial real estate, and commercial loans.

​

The unfavorable rate variance of $0.4 million for 2025 was driven largely by an $7.5 million unfavorable rate impact on investment securities, primarily related to variable-rate CLOs affected by 75 basis points of Federal Reserve rate cuts between September and December 2025. This unfavorable impact was partially offset by a favorable rate variance on total loans. The negative rate variance on earning assets was mostly offset by favorable rate variances of $5.2 million on interest-bearing deposits and $0.5 million on borrowed funds, as the yields on these interest bearing liabilities also fell as a result of the Federal Reserve rate cuts.

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The positive mix variance of approximately $0.6 million was attributable primarily to the deployment of new borrowed funds at lower interest rates, including increased use of federal funds purchased.

The 2024 favorable volume variance of $8.5 million, as compared to 2023, is due to the favorable loan volume variance and favorable borrowed fund volume variance exceeding the unfavorable volume variances related to investments and deposits. The decline in investment volume and favorable reduction in borrowed funds was facilitated by the balance sheet restructuring strategy in late 2023. The favorable loan volume variance was due to loan growth in 2024, primarily from mortgage warehouse.

The 2024 favorable rate variance of $0.2 million, as compared to 2023, is comprised mostly of favorable rate variances related to earning assets being mostly offset by unfavorable deposit and borrowed fund costs due to overall higher rates on assets being offset by higher funding rates. The 2024 unfavorable mix variance of $1.1 million is driven by lower investment balances, and higher loan balances, compounded by higher rates paid on interest-bearing deposits. Some of this unfavorable mix was mitigated by the decrease in borrowed funds.

The Company’s net interest margin, which is tax-equivalent net interest income as a percentage of average interest-earning assets, increased by 9 basis points to 3.75% in 2025 and increased by 29 basis points to 3.66% in 2024 as compared to 2023.

The expansion of net interest margin in 2025, as compared to 2024, was driven primarily by a shift in the mix of interest-earning assets and lower funding costs. Higher-yielding loan balances, particularly mortgage warehouse, commercial real estate, and commercial loans, replaced lower-yielding investment securities that declined due to runoff and early calls on CLOs. Additionally, the Company strategically reduced both balances and the cost of time deposits, shifting funding toward lower-cost transaction accounts and federal funds purchased.

Rates paid on non-maturity deposits remained relatively stable in 2025, as compared to 2024, though interest-bearing demand balances continued to reflect rate sensitivity from customers. Short-term borrowings, including federal funds purchased, carried lower rates in 2025 compared to 2024 as market rates declined, contributing to a more favorable overall funding mix. Reduced average balances of higher-cost brokered deposits also contributed to overall improvement in funding costs, supporting margin expansion. These benefits more than offset the reduction in yields on variable-rate CLOs resulting from the 75 basis-point decline in the federal funds rate in the second half of 2025.

The improvement in net interest margin during 2024, as compared to 2023, was largely attributable to the Company’s balance sheet restructuring executed in late 2023 and early 2024. The sale of lower-yielding securities and the paydown of higher-cost borrowed funds resulted in a more favorable earning-asset mix, with loan growth, particularly in mortgage warehouse balances, further contributing to higher yields.

Deposit costs, however, increased meaningfully during 2024 due to sustained competitive pressures. Rates paid on non-maturity deposits increased 41 basis points in 2024 compared to 2023, reflecting heightened customer rate sensitivity. Interest-bearing demand deposits increased 146 basis points, and money market rates rose 96 basis points during the same period. While customer time deposit rates decreased 23 basis points in 2024 due to product repricing, particularly those tied to prime, this decrease was offset by higher non-maturity deposit costs. The overall weighted-average cost of interest-bearing liabilities increased 16 basis points in 2024.

Adjustments to interest income generally occur due to the following adjustments: interest income recovered upon the resolution of nonperforming loans, the reversal of interest income when a loan is placed on non-accrual status, and accelerated fees or prepayment penalties recognized for early payoffs of loans. Such adjustments totaled $0.7 million, $0.5 million, and $0.9 million of additional interest income in 2025, 2024, and 2023, respectively.

Credit Loss Expense and Provision for Loan Losses

Credit risk is inherent in the business of making loans. The Company sets aside an allowance for credit losses on loans, a contra-asset account, through periodic charges to earnings which are reflected in the income statement as the provision for credit losses on loans. The Company recorded credit loss expense on loans of $6.1 million in 2025, $4.6 million in 2024, and $4.1 million in 2023. The higher credit loss expense in 2025 compared to 2024 was due mostly to increased provision related to a single agricultural lending relationship with total charge-offs of $7.5 million. The Company’s $0.5 million

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increase in credit loss expense for the year ending 2024 over 2023, was due to an unfavorable increase in the allowance for credit losses on loans individually evaluated, partially offset by the impact of lower net loan charge-offs and a favorable improvement in underlying economic forecasts used as part of our allowance for credit losses model.

With the credit loss expense on loans recorded in 2025, we were able to maintain our allowance for credit losses on loans at a level that, in Management’s judgment, is adequate to absorb expected credit losses over the remaining contractual life on both individually and collectively evaluated loans. Specifically identifiable and quantifiable credit losses on loans are immediately charged off against the allowance. The Company experienced net loan charge-offs of $9.4 million in 2025, $3.3 million in 2024, and $3.6 million in 2023.

The Company’s policies for monitoring the adequacy of the allowance and determining loan amounts that should be charged off, and other detailed information with regard to changes in the credit allowance, are discussed in Note 2 to the consolidated financial statements and below under “Allowance for Credit Losses on Loans.” The process utilized to establish an appropriate allowance for credit losses on loans can result in a high degree of variability in the Company’s provision for credit losses on loans, and consequently in our net earnings.

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Noninterest Revenue and Operating Expense

The table below sets forth the major components of the Company’s noninterest revenue and operating expense for the years indicated, along with relevant ratios:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-Interest Income/Expense ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

NONINTEREST INCOME: ​ ​ ​ ​ ​ ​ ​ ​ ​

Service charges on deposit accounts ​ ​ ​ ​ ​ ​ ​ ​ ​

Interchange income on debit cards ​ $ 8,067 ​ $ 8,134 ​ $ 8,052

Gain (loss) on sale of securities ​ ​ 120 ​ ​ (2,615) ​ ​ (14,104)

(Loss) gain on sale of fixed assets ​ ​ (52) ​ ​ 3,783 ​ ​ 15,270

Increase in cash surrender value of life insurance ​ ​ 1,402 ​ ​ 979 ​ ​ 864

Earnings on separate account life insurance ​ ​ 1,206 ​ ​ 1,671 ​ ​ 903

As a % of average interest-earning assets ​ ​ 0.91% ​ ​ 0.95% ​ ​ 0.89%

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

NONINTEREST EXPENSES: ​ ​ ​ ​ ​ ​ ​ ​ ​

Salaries and employee benefits ​ ​ ​ ​ ​ ​ ​ ​ ​

Advertising and marketing costs ​ ​ 1,526 ​ ​ 1,422 ​ ​ 2,215

Loan services costs ​ ​ ​ ​ ​ ​ ​ ​ ​

Foreclosed assets ​ ​ 7 ​ ​ — ​ ​ 665

Professional services costs ​ ​ ​ ​ ​ ​ ​ ​ ​

Other professional services costs ​ ​ 2,952 ​ ​ 2,883 ​ ​ 2,760

Stationery and supply costs ​ ​ 433 ​ ​ 483 ​ ​ 531

As a % of average interest-earning assets ​ ​ 2.75% ​ ​ 2.79% ​ ​ 2.71%

(1) Tax Equivalent

Noninterest income decreased $0.9 million, or 3%, in 2025 over 2024, following an increase of $1.1 million, or 4%, in 2024 compared to 2023. Noninterest income represented 0.91% of average interest-earning assets in 2025 down from 0.95% in 2024. The ratio decline in 2025 was primarily attributable to lower net non-recurring gains along with an increase in interest-earning assets.

The principal component of the Company’s noninterest income, service charges on deposit accounts decreased 3%, or $0.7 million in 2025 compared to 2024. The decrease was driven primarily by lower overdraft fee income and lower business analysis fees. In 2024, service charges increased $1.1 million, or 5%, compared to 2023, reflecting higher business analysis fees and other service charges, as well as growth in overdraft income. A significant portion of the business analysis fees are charges to money service business customers related to cash handling fees. As a percentage of average transaction

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account balances, service charge income was 1.4% in 2025, 1.6% in 2024, and 1.4% in 2023. Overdraft income on both consumer and corporate accounts totaled $5.2 million in 2025, $5.5 million in 2024, and $5.3 million in 2023.

Interchange income from debit cards (included in service charges on deposit accounts) was $8.1 million in 2025, consistent with 2024 and 2023.

BOLI income consists of two components. The first component is a relatively stable investment in “general account” BOLI that receives a standard crediting rate from the carrier which remains relatively stable year over year. The Company’s books reflect a net cash surrender value for general account BOLI of $56.1 million and $41.3 million, respectively as of December 31, 2025 and 2024. General account BOLI produces income that is used to help offset expenses associated with overall employee benefits. Interest credit rates on general account BOLI do not change frequently so the income has typically been fairly consistent with $1.4 million of general account BOLI income recorded for the year ending December 31, 2025, $1.0 million recorded for the year ending December 31, 2024, and $0.9 million recorded for the year ending December 31, 2023. The increase in 2025 was due to the purchase of $15 million in new BOLI polices in April 2025 on senior and executive officers of the Company.

The second component of BOLI is “separate account” which consists of specific directed investments in underlying assets (generally equity and bond funds) that closely mirror investment choices of deferred compensation participants. Deferred compensation participants can make investment choices similar to a traditional 401k plan; as the deferred compensation plan is a nonqualified plan, the liability is a corporate liability. To offset this deferred compensation plan, the Company has chosen to use separate account BOLI designed to be an economic hedge against deferred compensation. Therefore, the income on BOLI generally offsets the deferred compensation expense each year. Separate account BOLI income declined $0.5 million in 2025 which closely matched the $0.6 million decline in deferred compensation expense (including deferred directors fees) for 2025. Similarly, the $0.8 million increase in separate account BOLI income in 2024 closely matched the $0.9 million increase in deferred compensation expense (including deferred directors fees) for 2024. The separate account BOLI earnings are decreased by the underlying cost of life insurance, however, the earnings on separate account BOLI income are tax-free, whereas the related deferred compensation expense is tax deductible. The Company had $13.2 million invested in separate account BOLI at December 31, 2025, which offset approximately $13.7 million of deferred compensation liability.

Net gains (losses) on sale of securities were a $0.1 million gain in 2025, as compared to a $2.6 million loss in 2024 and a $14.1 million loss in 2023. The losses in 2024 and 2023 were primarily attributable to strategic securities sales executed as part of balance sheet repositioning initiatives.

(Loss) gain on sale of fixed assets was $(0.1) million in 2025, as compared to gains of $3.8 million in 2024 and $15.3 million in 2023. The gains in 2024 and 2023 were due primarily to the sale and leaseback of bank-owned branch buildings; no comparable transactions occurred in 2025.

Noninterest income also includes one general category of “other income” of which the following are major components (dollars in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Included in other income: ​ ​ ​ ​ ​ ​ ​ ​ ​

Dividends on equity investments ​ $ 1,335 ​ $ 1,337 ​ $ 1,076

Unrealized losses recognized on equity investments ​ ​ — ​ ​ (311) ​ ​ (291)

Credit card and other loan fees ​ ​ 808 ​ ​ 712 ​ ​ 776

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The “other” category in other noninterest income increased $0.7 million in 2025 compared to 2024 and decreased $0.8 million in 2024 compared to 2023. The fluctuation over the three-year period was driven largely by life insurance proceeds, which contributed to higher income in both 2025 and 2023.

Total operating expense, or noninterest expense, decreased $0.1 million, or 0.1%, in 2025 as compared to 2024, and increased $0.2 million, or 0.2%, in 2024 compared to 2023. Noninterest expense was 2.75% of average interest-earning assets in 2025, compared to 2.79% in 2024 and 2.71% in 2023.

The largest component of noninterest expense, salaries and employee benefits, increased $0.7 million, or 1%, in 2025 compared to 2024, and decreased $0.6 million, or 1%, in 2024 compared to 2023. The increase in 2025 was driven primarily by higher employee benefit costs, partially offset by lower deferred compensation expense. Salaries, identified as loan origination costs, that were deferred from current expense for recognition over the life of related loans totaled $3.0 million in 2025, $3.0 million in 2024, and $2.7 million in 2023.

Salaries and benefits were 55% of total operating expense in 2025 and 2023, and 54% in 2024. The number of full-time equivalent staff employed by the Company totaled 465 at the end of 2025, as compared to 485 at December 31, 2024, and 489 at December 31, 2023. The decrease in full-time equivalent staff for the three-years ending December 31, 2025 was due to ongoing efficiency initiatives across the Bank.

Total rent and occupancy expense, including furniture and equipment costs, increased $0.2 million in 2025 compared to 2024, and increased $2.2 million in 2024 compared to 2023. The increase in 2024 was primarily due to higher rent expense associated with the sale/leaseback transactions completed in late 2023 and early 2024.

Advertising and marketing costs increased $0.1 million in 2025 compared to 2024 and decreased $0.8 million in 2024 compared to 2023. The decrease in 2024 was a result of a change in the Company’s marketing strategy, while the inconsequential increase in 2025 reflected stability in that strategy.

Data processing costs declined slightly in 2025, decreasing $0.1 million from 2024, reflecting management’s disciplined approach to controlling operating expenses. In contrast, costs increased $0.4 million in 2024 relative to 2023, primarily due to the rollout of new loan-origination technology to support customer experience and operational efficiency initiatives, along with increased expenditures related to data-storage capacity.

Deposit services costs decreased $0.1 million in 2025 compared to 2024 and decreased $0.4 million in 2024 compared to 2023. The decrease in 2025 reflects the Company’s continued focus on expense management, as ongoing reductions in debit card processing costs, primarily attributable to the prior conversion from Mastercard to VISA, lower ATM servicing costs, and reduced amortization of core deposit intangibles more than offset increases in armored car and internet banking costs. The decrease in 2024, as compared to 2023, was due to favorable variances in debit card processing and ATM networks costs, from the branding change to VISA from Mastercard in 2023.

Loan services costs are comprised of loan processing costs, and net costs associated with foreclosed assets. Loan processing costs, which include expenses for property appraisals and inspections, loan collections, demand and foreclosure activities, loan servicing, loan sales, and other miscellaneous lending costs, experienced modest declines in both 2025 relative to 2024 and in 2024 relative to 2023. The decrease in 2025 over 2024 was due to declines in appraisal costs and credit reporting costs while the 2024 decline over 2023 was mainly related to reduced appraisal costs. Foreclosed assets costs are comprised of write-downs taken subsequent to reappraisals, OREO operating expense (including property taxes), and losses on the sale of foreclosed assets, net of rental income on OREO properties and gains on the sale of foreclosed assets. Foreclosed asset expenses were inconsequential in 2025 and 2024, and $0.7 million in 2023. These costs fluctuate based on market conditions of OREO relative to our holding value, the nature of the underlying properties and the volume of OREO properties in inventory. At the end of 2025, the Company had one OREO property remaining in inventory at a fair value of $1.6 million. The property is currently in the process of sale with no additional expected losses on the sale.

The “other operating costs” category includes telecommunications expense, postage, and other miscellaneous costs. Other operating costs remained flat in 2025 as compared to a decrease of $0.5 million, or 13%, in 2024. The decrease in 2024

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was due to payments in 2023 that did not reoccur in 2024, mainly restitution payments made in 2023 to analysis customers, and hiring and recruiting costs.

Total Professional Services costs, which consist of legal and accounting, acquisition, directors’ fees, and other professional services costs, decreased $0.6 million in 2025 compared to 2024, and increased $0.9 million in 2024 compared to 2023. The decrease in 2025 was driven primarily by lower deferred directors’ fees and lower directors’ costs, partially offset by higher other professional services costs. The increase in 2024, as compared to 2023, was primarily due to an unfavorable variance in directors’ deferred compensation. Other professional services costs include FDIC assessments and other regulatory expenses, and certain insurance costs.

Stationery and supply costs have trended downward over the three-year period ending in 2025, consistent with the Company’s ongoing strategic emphasis on disciplined expense management.

Debit card and fraud losses totaled $0.9 million in 2025, $1.2 million in 2024, and $1.3 million in 2023. The year-over-year reductions are attributable in part to the Company’s hiring of a full-time fraud manager focused on addressing fraud losses, including debit card fraud.

The Company’s tax-equivalent overhead efficiency ratio improved to 58.9% in 2025, from 60.8% in 2024, and 63.9% in 2023. The efficiency ratio is a calculation of noninterest expense as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from debt securities and bank owned life insurance income. The Company is strategically focused on strengthening discipline around expenses, as well as increasing income which is the denominator of the equation. The improvement in 2025 primarily reflected higher core revenue generation and continued expense management. Tax-equivalent net interest income increased in 2025, while total noninterest expense remained essentially flat year over year, resulting in a more favorable expense-to-revenue relationship. The improvement in 2024, as compared to 2023, was driven primarily by meaningful growth in core pre-provision revenue, particularly through higher net interest income following balance sheet actions executed in late 2023 and early 2024, combined with a relatively stable operating expense base. Although certain expense categories increased in 2024 (including occupancy and other operating costs), the overall revenue improvement more than offset these changes, resulting in a lower efficiency ratio compared to 2023.

Income Taxes

Income tax provision was $14.0 million in 2025, $13.3 million in 2024, and $11.6 million in 2023 resulting in effective tax rates of 24.9%, 24.7%, and 25.0% respectively. The effective tax rate increased modestly by approximately 18 basis points in 2025 compared to 2024. The increase primarily reflected a lower benefit from tax-exempt municipal income in 2025, partially offset by a higher level of affordable housing tax credits and lower nondeductible interest expense. The tax accrual rate was lower in 2024 due to an increase in the net benefit from tax credits but was higher in 2023 due to a lower proportion of non-taxable income to taxable income.

The Company records income tax expense throughout the year based on an estimated effective tax rate (“ETR”). The estimated ETR reflects management’s current expectation of the full-year tax rate, considering the mix of taxable and tax-exempt income, permanent differences, tax credits, and other items impacting the overall tax rate. Income tax expense is recognized by applying the estimated ETR to pre-tax income, with adjustments recorded as needed to reflect changes in the estimated annual ETR and any discrete tax items identified during the period. Permanent differences include but are not limited to tax-exempt interest income, BOLI income or loss, and certain book expenses that are not allowed as tax deductions. The Company’s investments in state, county, and municipal bonds provided $6.4 million of federal tax-exempt income in 2025, $6.7 million in 2024, and $10.9 million in 2023. Moreover, in addition to life insurance proceeds of $0.9 million in 2025, $0.2 million in 2024 and $0.9 million in 2023, net increases in the cash surrender value of bank-owned life insurance added $2.6 million to tax-exempt income in 2025, $2.7 million in 2024, and $1.8 million in 2023.

Our tax credits consist primarily of those generated by investments in low-income housing tax credit funds. We had a total of $22.6 million invested in low-income housing tax credit funds as of December 31, 2025, and $25.4 million as of December 31, 2024, which are included in other assets rather than in our investment portfolio. Those investments have generated substantial tax credits over the past few years, with about $2.9 million, $1.7 million, and $0.6 million in credits available for the tax years 2025, 2024, and 2023, respectively. The credits are dependent upon the occupancy level of the

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housing projects and income of the tenants and cannot be projected with certainty. Furthermore, our capacity to utilize them will continue to depend on our ability to generate sufficient pre-tax income. We plan to invest in additional tax credit funds in the future, but if the economics of such transactions do not justify continued investments, then the level of low-income housing tax credits will taper off in future years until they are substantially utilized by the end of 2036. That means that even if taxable income stayed at the same level through 2036, our ETR would gradually increase.

Financial Condition

Assets totaled $3.8 billion at December 31, 2025, an increase of $215.0 million, or 6%, from December 31, 2024. The 2025 increase in assets was driven primarily by growth in loans, partially offset by a reduction in investment securities. Assets totaled $3.6 billion at December 31, 2024, a decrease of $115.5 million, or 3%, from December 31, 2023. The 2024 decline in assets was primarily attributable to the Company’s strategic balance sheet restructuring, which included a reduction in investment securities, partially offset by loan growth.

Deposits totaled $2.9 billion at December 31, 2025, decreasing $15.2 million, or 0.5%, from December 31, 2024, due primarily to a shift in mix away from higher-cost time deposits. Deposits increased $130.4 million, or 5%, in 2024 compared to 2023, driven primarily by brokered deposits used to incrementally fund mortgage warehouse lending.

Total shareholders’ equity was $364.9 million at December 31, 2025, up from $357.3 million at December 31, 2024. The 2025 increase reflected net income and an improvement in accumulated other comprehensive income, partially offset by dividends paid and share repurchases. Total shareholders’ equity increased to $357.3 million at December 31, 2024, from $338.1 million at December 31, 2023.

Loan Portfolio

The Company’s loan portfolio represents the single largest portion of invested assets, substantially larger than the investment portfolio or any other asset category, and the quality and diversification of the loan portfolio are important considerations when reviewing the Company’s financial condition.

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The Loan Distribution table that follows sets forth by loan type the Company’s gross loans outstanding at amortized cost and the percentage distribution in each category at the dates indicated. The balances for each loan type include nonperforming loans, if any. Although not reflected in the loan totals below and not currently comprising a material part of our lending activities, the Company also occasionally originates and sells, or participates out portions of loans to non-affiliated investors.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Loan Distribution ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Percentage of Total loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

The Company’s gross loan balances at amortized cost increased $215.4 million, or 9%, in 2025. The increase was primarily a result of a $191.9 million increase in mortgage warehouse utilization and continued organic growth of $33.1 million in commercial real estate loans, $14.2 million in other commercial loans, and $8.9 million in other construction/land loans. This growth was partially offset by declines of $23.0 million in residential real estate loans, $9.2 million in farmland loans, and $0.5 million in consumer loans.

Gross loans increased $241.0 million, or 12%, in 2024 compared to 2023. The increase was driven primarily by higher mortgage warehouse utilization and growth in select commercial categories, partially offset by declines in residential real estate. No assurance can be provided with regard to future net growth in aggregate loan balances given occasional surges in prepayments, fluctuations in mortgage warehouse lending and maintaining concentrations in certain sectors within our risk management parameters.

As a part of their regulatory oversight, the federal regulators have issued guidelines on sound risk management practices with respect to a financial institution’s concentrations in commercial real estate (“CRE”) lending activities. These guidelines were issued in response to the agencies’ concerns that rising CRE concentrations might expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the commercial real estate market. The guidelines identify certain concentration levels that, if exceeded, will expose the institution to additional supervisory analysis regarding the institution’s CRE concentration risk. The guidelines, as amended, are designed to promote appropriate levels of capital and sound loan and risk management practices for institutions with a concentration of CRE loans. In general, the guidelines, as amended, establish the following supervisory criteria as preliminary indications of possible CRE concentration risk: (1) the institution’s total construction, land development and other land loans represent 100% or more of Tier 1 risk-based capital plus allowance for credit losses loans; or (2) total CRE loans as defined in the regulatory guidelines represent 300% or more of Tier 1 risk-based capital plus allowance for credit losses on loans, and the institution’s CRE loan portfolio has increased by 50% or more during the prior 36 month period. This ratio was 236% at December 31, 2024, and increased to 242% at December 31, 2025. At December 31, 2025, the Bank’s total construction,

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land development, and other land loans represented 3% of Tier 1 risk-based capital plus allowance for credit losses on loans. The Bank believes that it does not have a concentration in CRE loans at December 31, 2025, above the prudential regulatory guidelines noted above. The Bank and its board of directors have discussed the guidelines and believe that the Bank’s underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are sufficient to address the risk management of CRE under the guidelines.

The following table presents future loan maturities as of December 31, 2025:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Loan Maturities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Mortgage warehouse lines ​ ​ 518,333 ​ ​ — ​ ​ — ​ ​ — ​ ​ 518,333 ​ ​ — ​ ​ —

​

Rates on nonresidential loans longer than five years typically adjust at or before ten years from origination and each five years thereafter. Included in the $576.5 million of loans due after 5 years through fifteen years are $375.6 million of adjustable-rate loans subject to periodic rate adjustments. Similarly, included in the $1.0 billion of loans that do not mature for more than fifteen years are $714.5 million of adjustable-rate loans subject to periodic rate adjustments. Generally, the Company’s contractual life of loans matches the loan’s amortization period. For a comprehensive discussion of the Company’s liquidity position, balance sheet repricing characteristics, and sensitivity to interest rates changes, refer to the “Liquidity and Market Risk” section of this discussion and analysis.

Off-Balance Sheet Arrangements

The Company maintains commitments to extend credit in the normal course of business, as long as there are no violations of conditions established in the outstanding contractual arrangements.

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A summary of the Company’s unfunded commitments and utilization is presented below:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Unused Loan Commitments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(1) Excludes mortgage warehouse lines and overdraft lines.

Off-balance sheet obligations pose potential credit risk to the Company, and a $0.7 million reserve for unfunded commitments is reflected as a liability in our consolidated balance sheet at both December 31, 2025 and 2024. The unused commitments related to mortgage warehouse are unconditionally cancellable at any time. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-K outlines resources available to draw upon should we be required to fund a significant portion of unused commitments.

In addition to unused commitments to provide credit, the Company holds two letters of credit with the Federal Home Loan Bank of San Francisco totaling $127.9 million as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers. That letter of credit is backed by loans which are pledged to the FHLB by the Company. For more information regarding the Company’s off-balance sheet arrangements, see Note 14 to the consolidated financial statements in Item 8 herein.

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Contractual Obligations

At December 31, 2025, the Company had contractual obligations for the following payments, by type and period due:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Contractual Obligations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Payments Due by Period

​ ​ ​ ​ ​ Less Than ​ ​ ​ ​ ​ ​ ​ More Than

​ ​ ​ ​ Total ​ ​ ​ 1 Year ​ ​ ​ 2-3 Years ​ ​ ​ 4-5 Years ​ ​ ​ 5 Years

Subordinated debentures ​ $ 36,017 ​ $ — ​ $ — ​ $ — ​ $ 36,017

Long term debt, net ​ ​ 49,483 ​ ​ — ​ ​ — ​ ​ — ​ ​ 49,483

​

Nonperforming Assets

Nonperforming assets (“NPAs”) are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets which primarily consists of OREO.

The following table presents comparative data for the Company’s NPAs as of the dates noted:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Nonperforming Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Commercial real estate ​ ​ — ​ ​ — ​ ​ 7,457 ​ ​ — ​ ​ 1,234

Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ —

Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ 7 ​ ​ 22

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Foreclosed assets ​ ​ 1,565 ​ ​ — ​ ​ — ​ ​ — ​ ​ 93

Loans deferred under CARES Act (1) ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 10,411

NPAs totaled $14.8 million, or 0.6% of gross loans plus foreclosed assets at the end of 2025, as compared to $19.7 million, or 0.8% of gross loans plus foreclosed assets at the end of 2024. At December 31, 2025, NPAs were comprised primarily of two agricultural relationships totaling $13.0 million and a single other real estate owned property of $1.6 million. NPAs increased $11.7 million in 2024 over 2023 due mostly to the same two agricultural relationships.

Nonperforming loans secured by real estate comprised $1.9 million of total nonperforming loans at December 31, 2025, a decrease of $3.2 million, since December 31, 2024. Nonperforming loans secured by real estate at December 31, 2025, are

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primarily composed of one real estate loan secured by farmland with a book balance of $1.7 million and two smaller residential real estate loans with a combined book balance of $0.2 million.

The balance of foreclosed assets had a carrying value of $1.6 million at December 31, 2025, comprised of one property classified as OREO. The Company had no foreclosed assets at December 31, 2024. All foreclosed assets are periodically evaluated and written down to their fair value, less expected disposition costs, if lower than the then-current carrying value.

Allowance for Credit Losses/Allowance for Loan Losses

The allowance for credit losses on loans, a contra-asset, is established through a provision for credit losses on loans. The allowance for credit losses on loans is estimated at a level that, in Management’s judgment, is adequate to absorb expected credit losses on loans both individually and collectively evaluated for reserves. Specifically identifiable and quantifiable losses are immediately charged off against the allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge off. Note 2 to the consolidated financial statements provides a more comprehensive discussion of the accounting guidance we apply and the methodology we use to determine an appropriate allowance for credit losses on loans.

The Company's allowance for credit losses on loans was $21.5 million at December 31, 2025, as compared to a balance of $24.8 million at December 31, 2024. The decline in the Company’s allowance in total dollar amount and as a percentage of total loans was primarily the result of the workout of the single, large agricultural loan relationship resulting in $7.5 million in charge-offs during 2025. At December 31, 2024, the Company’s specific reserves were primarily comprised of a $3.0 million specific reserve on this same loan relationship. At December 31, 2025, there was an inconsequential specific reserve on this loan relationship. The allowance was 0.84% of total loans at December 31, 2025, and 1.07% of total loans at December 31, 2024. The Company experienced higher net charge offs during the year, offset by the release of $1.6 million in specific reserves on three separate other commercial loans in the fourth quarter of 2025.

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The following tables highlight the coverage ratios by loan category at December 31, 2025, 2024, and 2023:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Balance ​ ​ Total Allowance ​ Percent of Portfolio ​ Coverage Ratio (1)

Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Consumer loans (including overdrafts) ​ ​ 2,810 ​ ​ 112 ​ 0.11% ​ 3.99%

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Balance ​ ​ Total Allowance ​ Percent of Portfolio ​ Coverage Ratio (1)

Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Consumer loans (including overdrafts) ​ ​ 3,344 ​ ​ 372 ​ 0.14% ​ 11.12%

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Balance ​ ​ Total Allowance ​ Percent of Portfolio ​ Coverage Ratio (1)

Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Consumer loans (including overdrafts) ​ ​ 4,090 ​ ​ 309 ​ 0.20% ​ 7.56%

(2) Does not include residential real estate.

(3) Does not include mortgage warehouse lines.

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At December 31, 2025, nonaccrual loans totaled $13.2 million compared to $19.7 million at December 31, 2024. All of the Company’s nonperforming assets are periodically reviewed and are either well-reserved based on current loss expectations or are carried at the fair value of the underlying collateral, net of expected disposition costs. The ratio of the allowance to nonperforming loans was 162% at December 31, 2025, relative to 126% at December 31, 2024, and 294% at December 31, 2023. As described above, a separate allowance of $0.7 million for potential losses on unused commitments is included in other liabilities at both December 31, 2025 and 2024.

The Company recorded a provision for credit losses on loans of $6.1 million in 2025 as compared to $4.6 million in 2024, and $4.1 million in 2023. Our credit allowance for expected losses on individually evaluated loans decreased $3.3 million, or 97%, during 2025, and increased $1.4 million, or 73%, during 2024. The allowance for expected losses on collectively evaluated loans increased by an inconsequential amount.

​

The following table sets forth the Company’s net charge-offs as a percentage to the average loan balances in each loan category, as well as other credit-related ratios at or for the periods indicated:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Credit Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of and for the years ended December 31,

Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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Provided below is a summary of the allocation of the allowance for credit losses on loans for specific loan categories at the dates indicated. The allocation presented should not be viewed as an indication that charges to the allowance will be incurred in these amounts or proportions, or that the portion of the allowance allocated to a particular loan category represents the total amount available for charge-offs that may occur within that category.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Allocation of Allowance for Credit Losses on Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

Unallocated ​ ​ 5 ​ — ​ ​ 69 ​ — ​ ​ — ​ — ​ ​ 4 ​ — ​ ​ 137 ​ —

​

(1) Includes mortgage warehouse lines

The Company’s allowance for credit losses on loans at December 31, 2025, represents Management’s best estimate of expected losses over the remaining contractual life of loans in the loan portfolio as of that date, but no assurance can be given that the Company will not experience substantial losses relative to the size of the allowance. Furthermore, fluctuations in credit quality, changes in economic conditions, updated accounting, or regulatory requirements, and/or other factors could require us to augment or reduce the allowance.

Investments

The Company’s investments may at any given time consist of debt securities and marketable equity securities (together, the “investment portfolio”), investments in the time deposits of other banks, surplus interest-earning balances in our Federal Reserve Bank of San Francisco (“FRBSF”) account, and overnight fed funds sold. Surplus FRBSF balances and fed funds sold to correspondent banks typically represent the temporary investment of excess liquidity. The Company’s investments serve several purposes: 1) they provide liquidity to even out cash flows from the loan and deposit activities of customers; 2) they provide a source of pledged assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they can be used for interest rate risk management as they constitute a large base of assets with maturity and interest rate characteristics that can be changed more readily than the loan portfolio, to better match changes in the deposit base and other funding sources of the Company; 4) they provide a source of investments that provide credit for Community Reinvestment Act purposes and 5) they provide an important source of earnings, some of which is tax exempt. Aggregate securities totaled $916.1 million, or approximately 24% of total assets, at December 31, 2025, as compared to $961.5 million, or 27%, at December 31, 2024. Approximately $197 million in investments, with an unrealized loss of $14.5 million, were identified with an intent to sell at December 31, 2023, and were sold in January 2024 as part of the balance sheet restructuring discussed above.

We had no federal funds sold at the end of the reporting periods, and interest-bearing balances held primarily in our FRBSF account totaled $62.3 million at December 31, 2025, as compared to $19.8 million at December 31, 2024. The average yield on the interest-bearing and due from bank balances was 4.37% for 2025.

The Company carries “available for sale” investments at their fair market values and “held to maturity” investments at amortized cost. We currently have the intent and ability to hold our investment securities to maturity, but the securities are all marketable. The expected effective duration was 2.81 years for available-for-sale investments and 5.57 years for held-to-maturity investments at December 31, 2025, as compared to 1.47 years for available-for-sale investments and 5.98 years for held-to-maturity investments at December 31, 2024.

The Company’s investment portfolio continued to shift away from CLOs, with CLO balances decreasing to $199.3 million at December 31, 2025, from $412.9 million at December 31, 2024, and $570.7 million at December 31, 2023. Due to

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compression of credit spreads, resulting from increased investor demand, many issuers called higher yielding CLOs in order to reissue at lower rates. Due to the spread compression, combined with growth in variable rate mortgage warehouse lending, Management allowed the CLO portfolio to run-off with limited reinvestment. Mortgage-backed securities increased to $259.8 million (AFS) at December 31, 2025, from $93.5 million at December 31, 2024, due in part to the reinvestment of funding from CLO calls into instruments expected to perform better in a falling rate environment and move the Company closer to asset neutrality.

In early 2024, the Company initiated a strategic securities transaction by selling $196.7 million of bonds. As, these securities were intended for sale at December 31, 2023, the related $14.5 million loss on sale was realized in the fourth quarter of 2023. The average yield on these bonds was 2.61% and the proceeds were used to paydown short-term borrowings at an average rate of 5.52%. In the first quarter of 2024, the Company sold an additional $53.8 million in bonds, at a loss of $2.9 million. Both transactions were part of our strategic balance sheet restructuring and increased our earnings stream in 2024 by increasing net interest income as interest expense on borrowed funds was reduced by more than the reduction in interest income on the securities sold.

The following Investment Portfolio table reflects the carrying amount for each primary category of investment securities for the past three years:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Investment Portfolio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

Available for sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Held to maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Based on an analysis of its available for sale securities with unrealized losses as of December 31, 2025, and December 31, 2024, the Company determined their decline in value was unrelated to credit loss and was primarily the result of interest rate changes and market spreads subsequent to acquisition. The fair value of debt securities is expected to recover as payments are received and the debt securities approach maturity.

The following points outline additional support for management’s conclusion that no portion of the unrealized loss of the securities in an unrealized loss position as of December 31, 2025, and December 31, 2024, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses.

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Investment securities that were pledged as collateral for Federal Home Loan Bank borrowings, repurchase agreements, public deposits and other purposes as required or permitted by law totaled $367.5 million at December 31, 2025, and $403.4 million at December 31, 2024, leaving $548.6 million in unpledged debt securities at December 31, 2025, and $558.1 million in unpledged debt securities at December 31, 2024. Securities that were pledged in excess of actual pledging needs and were thus available for liquidity purposes, if needed, totaled $192.3 million at December 31, 2025, and $242.5 million at December 31, 2024.

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The table below groups the Company’s held-to-maturity investment securities by their remaining time to maturity as of December 31, 2025, and provides weighted average yields for each segment.

Maturity and Yield of Held-to-Maturity Investment Portfolio

(dollars in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Held to maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Cash and Due from Banks

Interest-earning cash balances were discussed above in the “Investments” section, but the Company also maintains a certain level of cash on hand in the normal course of business as well as non-earning deposits at other financial institutions. Our balance of cash and due from banks depends on the timing of collection of outstanding cash items (checks), the amount of cash held at our branches and our reserve requirement, among other things, and is subject to significant fluctuations in the normal course of business. While cash flows are normally predictable within limits, those limits are fairly broad and the Company manages its short-term cash position through the utilization of overnight loans to, and borrowings from, correspondent banks, including the FRBSF and the Federal Home Loan Bank. Should a large “short” overnight position persist for any length of time, the Company typically raises money by adding brokered deposits. If a “long” position is prevalent, we will let brokered deposits or other wholesale borrowings roll off as they mature, or we might invest excess liquidity into longer-term, higher-yielding bonds or wait to see if the excess funding will be absorbed by an increase in mortgage warehouse balances. The Company’s balance of noninterest earning cash and balances due from correspondent banks totaled $71.4 million, or 2% of total assets at December 31, 2025, and $79.6 million, or 2% of total assets at December 31, 2024. The average balance of non-earning cash and due from banks, which can be used to determine trends, was $76.6 million for 2025, $79.1 million for 2024, and $80.8 million for 2023.

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Premises and Equipment

Premises and equipment are stated on our books at cost, less accumulated depreciation, and amortization. The cost of furniture and equipment is expensed as depreciation over the estimated useful life of the related assets, and leasehold improvements are amortized over the term of the related lease or the estimated useful life of the improvements, whichever is shorter.

The following Premises and Equipment table reflects the original cost, accumulated depreciation and amortization, and net book value of fixed assets by major category, for the years noted:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Premises and Equipment ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​

​ ​ ​ ​ ​ and ​ Net Book ​ ​ ​ ​ and ​ Net Book ​ ​ ​ ​ and ​ Net Book

​

The net book value of the Company’s premises and equipment was 0.4% of total assets at both December 31, 2025 and 2024. Depreciation and amortization included in occupancy and equipment expense totaled $1.9 million in 2025 and 2024, and $2.2 million in 2023.

In January 2024, the Company sold two Bank owned buildings with a book value of $0.7 million, for a gain of $3.8 million and in December 2023, the Company sold 11 Bank owned branch buildings with a book value of $5.6 million, for a gain on sale of $15.3 million. These branch buildings were subsequently leased back to the Company and are reflected in footnote 6 of the Financial Statements.

Other Assets

Goodwill totaled $27.4 million at December 31, 2025, unchanged for the year and other intangible assets were $0.1 million, a decrease of $0.6 million, or 92%, as a result of amortization expense recorded on core deposit intangibles. The Company’s goodwill and other intangible assets are evaluated annually for potential impairment following FASB guidelines and based on those analytics Management has determined that no impairment exists as of December 31, 2025.

The net cash surrender value of bank-owned life insurance policies increased to $69.3 million at December 31, 2025, from $53.2 million at December 31, 2024, due to the favorable fluctuation in the underlying values of assets in the separate account BOLI policy, and the purchase of $15.0 million in new life insurance policies and senior and executive officers. Refer to the “Noninterest Revenue and Operating Expense” section above for a more detailed discussion of BOLI and the income/expense it generates.

The remainder of other assets consists primarily of right-of-use assets tied to operating leases, accrued interest receivable, deferred taxes, investments in bank stocks, prepaid assets, investments in low-income housing credits, investments in SBA loan funds, and other miscellaneous assets. The total operating lease right-of-use asset recorded on the books was $34.7 million less accumulated amortization of $8.2 million as of December 31, 2025. The bank stocks include Pacific Coast Bankers Bank (PCBB) stock (marked to market value annually) and restricted stock related to the Federal Home Loan Bank of San Francisco (FHLB SF) stock held in conjunction with our FHLB borrowings. Both the PCBB and FHLB SF stock are not deemed to be marketable or liquid. Our net deferred tax asset is evaluated as of every reporting date pursuant to FASB guidance, and we have determined that no impairment exists.

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Deposits

Deposits represent another key balance sheet category impacting the Company’s net interest margin and profitability metrics. Deposits provide liquidity to fund growth in earning assets, and the Company’s net interest margin is improved to the extent that growth in deposits is concentrated in less volatile and typically less costly non-maturity deposits such as demand deposit accounts, NOW accounts, savings accounts, and money market demand accounts. Information concerning average balances and rates paid by deposit type for the past three fiscal years is contained in the Distribution, Rate, and Yield table located in the previous section under “Results of Operations–Net Interest Income and Net Interest Margin.” A distribution of the Company’s deposits showing the period-end balance and percentage of total deposits by type is presented as of the dates noted in the following table:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Deposit Distribution ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Percentage of Total Deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Deposits totaled $2.9 billion at December 31, 2025, decreasing $15.2 million, or 0.5%, from December 31, 2024. The decline in 2025 was driven primarily by a $71.4 million decrease in customer time deposits, reflecting the Company’s strategic focus on lowering higher-cost time deposit balances, partially offset by a $45.1 million increase in brokered deposits and modest changes in customer transaction accounts.

Deposit balances reflected an increase of $130.4 million, or 5%, in 2024, mostly from brokered deposits as the Company primarily relies on brokered deposits to incrementally fund mortgage warehouse lending.

In 2025, noninterest bearing demand deposit balances declined $11.6 million, or 1%, and overall non-maturity deposits increased by $11.1 million, or 1%, to $2.1 billion at December 31, 2025.

Management is of the opinion that a relatively high level of core customer deposits is one of the Company’s key strengths, and we continue to strive for core deposit retention and growth, with a focus on small business and consumer deposits.

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The following table presents the estimated deposits exceeding the FDIC insurance limit:

​ ​ ​ ​ ​ ​ ​

Estimated Uninsured Deposits ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

​

Included in the above, the estimated aggregate amount of time deposits in excess of the FDIC insurance limit at December 31, 2025 was $124.2 million. The following table presents the maturity distribution of the estimated uninsured time deposits:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

See Liquidity and Market Risk Management below in this 10-K for a discussion on sources of liquidity the Company maintains to meet liquidity needs under unusual conditions such as uncommon deposit outflows of uninsured deposits.

​

Other Borrowings

The Company’s other borrowings may, at any given time, include fed funds purchased from correspondent banks, borrowings from the Federal Home Loan Bank, advances from the FRB, and securities sold under agreements to repurchase. In addition, the Company has long-term debt and junior subordinated debentures. The Company uses short-term FHLB advances and fed funds purchased on uncommitted lines to support liquidity needs created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand, and for other short-term purposes. The FHLB line is committed, but the amount of available credit depends on the level of pledged collateral.

Other borrowings increased $222.7 million in 2025, due primarily to an increase in short-term borrowings, reflecting increased use of federal funds purchased to support loan growth. At December 31, 2025, federal funds purchased totaled $210.0 million, while short-term FHLB advances were $12.7 million. In early 2024, the Company sold approximately $233.2 million in bonds and used the proceeds to pay down overnight and short-term advances. At December 31, 2024,the Company had no overnight fed funds purchased or short-term FHLB advances. Long-term FHLB borrowings were $80 million at both December 31, 2025, and December 31, 2024.

Repurchase agreements totaled $130.9 million at year-end 2025 relative to a balance of $108.9 million at year-end 2024. Repurchase agreements represent “sweep accounts,” where commercial deposit balances above a specified threshold are transferred at the close of each business day into non-deposit accounts secured by investment securities. The Company had junior subordinated debentures totaling $36.0 million at December 31, 2025, and $35.8 million at December 31, 2024, in the form of long-term borrowings from trust subsidiaries formed specifically to issue trust preferred securities. The small increase resulted from the amortization of discount on junior subordinated debentures that were part of our acquisition of Coast Bancorp in 2016. Long term subordinated debt was $49.5 million at December 31, 2025, as compared to $49.4 million for the year ended December 31, 2024. The small increase resulted from the amortization of debt issuance costs.

​

​

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The details of the Company’s short-term borrowings are presented in the table below, for the years noted:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Short-term Borrowings ​ ​ ​ ​ ​ ​ ​ ​ ​

(dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Repurchase Agreements ​ ​ ​ ​ ​ ​ ​ ​ ​

Average interest rate for the year ​ ​ 0.21% ​ ​ 0.17% ​ ​ 0.27%

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Fed funds purchased ​ ​ ​ ​ ​ ​ ​ ​ ​

Maximum amount outstanding at any month end ​ $ 218,000 ​ $ — ​ $ 165,000

Average interest rate for the year ​ ​ 4.19% ​ ​ 6.56% ​ ​ 5.25%

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

FHLB advances ​ ​ ​ ​ ​ ​ ​ ​ ​

Average interest rate for the year ​ ​ 4.50% ​ ​ 5.46% ​ ​ 5.40%

​

Other Noninterest Bearing Liabilities

Other liabilities are principally comprised of accrued interest payable, other accrued but unpaid expenses, and certain clearing amounts. The Company’s balance of other liabilities decreased by $22.3 million, or 25%, during 2025. The primary reason for this decrease was due to a decrease in accrued interest payable and principal contributions on various Low Income Housing Tax Credit (LIHTC) funds.

Capital Resources

The Company had total shareholders’ equity of $364.9 million at December 31, 2025, as compared to $357.3 million at December 31, 2024. The increase in 2025 of $7.6 million, or 2%, is due to $42.3 million in net income and an $8.1 million favorable swing in accumulated other comprehensive income (loss) partially offset by $13.7 million in dividends paid, and $30.8 million in share repurchases totaling 1,024,792 shares during 2025. The remaining difference was related to stock options exercised and restricted stock activity during the year.

The Company uses a variety of measures to evaluate its capital adequacy, including the community bank leverage ratio, which are calculated separately for the Company and the Bank. Management reviews these capital measurements on a quarterly basis and takes appropriate action to help ensure that they meet or surpass established internal and external guidelines. As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” institutions, the Company has elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital.

​

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The following table sets forth the Company’s and the Bank’s regulatory capital ratios at the dates indicated:

​ ​ ​ ​ ​

Tier 1 (Core) Capital to average total assets ​ ​ ​ ​

Sierra Bancorp and subsidiary ​ 10.80% ​ 9.00%

​ ​ ​ ​ ​

Tier 1 (Core) Capital to average total assets ​ ​ ​ ​

Sierra Bancorp and subsidiary ​ 10.93% ​ 9.00%

​

At December 31, 2025, as our Community Bank Leverage Ratio exceeded 9.0%, the Company and the Bank were both classified as “well capitalized,” the highest rating of the categories defined under the Bank Holding Company Act and the Federal Deposit Insurance Corporation Improvement Act of 1991, and our regulatory capital ratios remained above the median for peer financial institutions. We do not foresee any circumstances that would cause the Company or the Bank to be less than “well capitalized,” although no assurance can be given that this will not occur. A more detailed table of regulatory capital ratios, which includes the capital amounts and ratios required to qualify as “well capitalized” as well as minimum capital ratios, appears in Note 16 to the Consolidated Financial Statements in Item 8 herein. For additional details on risk-based and leverage capital guidelines, requirements, and calculations and for a summary of changes to risk-based capital calculations which were recently approved by federal banking regulators, see “Item 1, Business – Supervision and Regulation – Capital Adequacy Requirements” and “Item 1, Business – Supervision and Regulation – Prompt Corrective Action Provisions” herein.

The Company also looks at the double leverage ratio, which is a measure of the reliance on the holding company’s borrowings that are injected into the subsidiary Bank as capital. As holding company borrowings are primarily serviced by the receipt of dividends from the subsidiary Bank, this ratio is monitored as well as cash at the holding company for purposes of servicing the cash needs at the holding company level. This ratio is calculated by dividing subsidiary Bank capital by the holding company/consolidated capital. The Company generally maintains a double leverage ratio of under 125%. The double leverage ratio was 121.2% at December 31, 2025, as compared to 118.8% at December 31, 2024.

Liquidity and Market Risk Management

Liquidity

Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by Management on a quarterly basis, with various stress scenarios applied to assess our ability to meet liquidity needs under unusual or adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored, and we are committed to maintaining adequate liquidity resources to draw upon should unexpected needs arise.

The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases, or borrowing repayments. To meet short-term needs, we can borrow overnight funds from other financial institutions, draw advances via Federal Home Loan Bank lines of credit, or solicit brokered deposits if customer deposits are not immediately obtainable from local sources. Availability on lines of credit from correspondent banks and the FHLB totaled $905.3 million at December 31, 2025. The Company was also eligible to borrow approximately $254.9 million at the Federal Reserve Discount Window based on pledged assets at December 31, 2025. Furthermore, funds can be obtained by drawing down excess cash that might be available in the Company’s correspondent bank deposit accounts, or by liquidating unpledged investments or other readily saleable assets. In addition, the Company can raise immediate cash for temporary needs by selling under agreement to repurchase those investments in its portfolio which are not pledged as collateral. As

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of December 31, 2025, unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $743.7 million of the Company’s investment balances, as compared to $794.6 million at December 31, 2024. Other sources of potential liquidity include but are not necessarily limited to any outstanding fed funds sold and vault cash. The Company has a higher level of actual balance sheet liquidity than might otherwise be the case since we utilize a letter of credit from the FHLB rather than investment securities for certain pledging requirements. That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $127.9 million at December 31, 2025. Management is of the opinion that available investments and other potentially liquid assets, along with standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs.

The company’s use of wholesale funding is largely due to its mortgage warehouse lending. In order to match the relatively short-term nature of underlying mortgage warehouse loans, the Company uses short-term wholesale funding including brokered deposits, federal funds purchased, and overnight borrowings. As mortgage warehouse lending can have seasonal or cyclical volatility, utilizing wholesale funding with durations that closely match those of the underlying mortgage warehouse loans enables management to limit interest rate risk of variable rate mortgage warehouse lending.

At December 31, 2025, and December 31, 2024, the Company had the following sources of primary and secondary liquidity (dollars in thousands):

​ ​ ​ ​ ​ ​ ​

Funds available through fed discount window ​ ​ 254,908 ​ ​ 298,296

​

The decrease in the availability of unsecure lines of credit in the table above is due to the utilization of those lines as of December 31, 2025, compared to no utilization as of December 31, 2024. The Company’s primary liquidity ratio and net loans to deposits ratio was 19% and 89%, respectively, at December 31, 2025, as compared to internal policy guidelines of “greater than 15%” and “less than 90%.” Other liquidity ratios reviewed periodically by Management and the Board include the Community Bank leverage ratio, net change in overnight position and wholesale funding to total assets (including ratios and sub-limits for the various components comprising wholesale funding). All ratios, with the exception of the non-core funding dependence ratio, were within policy guidelines at December 31, 2025. The non-core funding dependence ratio slightly exceeded the policy guideline at December 31, 2025, due to the large increase in mortgage warehouse utilization at the end of the year. This ratio is carefully monitored given that the Company utilized wholesale funding to fund mortgage warehouse lines as described further above. Management closely monitors all Company liquidity metrics and will take appropriate action if deemed necessary.

The holding company’s primary uses of funds include operating expenses incurred in the normal course of business, debt servicing, shareholder dividends, and stock repurchases. Its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. At December 31, 2025, the holding company maintained a cash balance of $6.9 million. Management anticipates the Bank will have sufficient earnings to provide dividends to the holding company to meet its funding requirements for the foreseeable future and the Bank is not subject to any regulatory restrictions for paying dividends to the holding company, other than the legal and regulatory limitations on dividend payments, as outlined in Item 5(c) Dividends in this Form 10-K.

Interest Rate Risk Management

Market risk arises from changes in interest rates, exchange rates, commodity prices, and equity prices. The Company does not engage in the trading of financial instruments, nor does it have exposure to foreign currency exchange rates. Our market risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit our earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk

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management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward balance for earnings and capital under a variety of interest rate scenarios.

To identify areas of potential exposure to interest rate changes, we utilize commercially available modeling software to perform monthly earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate scenarios. The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Various rate scenarios consisting of key rate and yield curve projections are then applied to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models), or stable (unchanged from current actual levels).

In addition to a stable rate scenario, which presumes that there are no changes in interest rates, we typically use at least eight other interest rate scenarios in conducting our rolling 12-month net interest income simulations: upward shocks of 100, 200, 300, and 400 basis points, and downward shocks of 100, 200, 300, and 400 basis points. Those scenarios may be supplemented, reduced in number, or otherwise adjusted as determined by Management to provide the most meaningful simulations in light of economic conditions and expectations at the time. Pursuant to policy guidelines, we generally attempt to limit the projected decline in net interest income relative to the stable rate scenario to no more than 10% for a 100 basis point (bp) interest rate shock, 15% for a 200 bp shock, 20% for a 300 bp shock, and 25% for a 400 bp shock.

The Company had the following estimated net interest income sensitivity profiles over one year, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration (dollars in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Base ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

The interest rate sensitivity results indicate the Company remained generally asset sensitive to a parallel rate shock as of December 31, 2025; however, the balance sheet’s sensitivity to rising rates was substantially reduced compared to December 31, 2024, and was near neutral across moderate upward rate shocks. The reduced sensitivity to parallel rate shock compared to December 31, 2024, was driven primarily by changes in funding composition and deposit pricing dynamics. In particular, the increased use of short-term wholesale funding, including federal funds purchased, resulted in a larger portion of liabilities repricing immediately with market rate changes. In addition, the Company’s strategic actions to reposition its deposit mix and reduce time deposit balances shifted a greater portion of the interest-bearing deposit base toward products with higher sensitivity to market rates. Collectively, these factors caused liability costs to reprice more quickly than earning asset yields over the simulation horizon, reducing the Company’s net interest income benefit in rising-rate scenarios and contributing to reduced net interest income pressure in declining-rate scenarios. In addition, adding to our asset sensitivity, utilization on variable rate mortgage warehouse lines increased $191.9 million during 2025 and the Company had approximately $247.6 million of unfunded mortgage warehouse lines at December 31, 2025. If rates decrease, it would be expected that a significant portion of the unfunded mortgage warehouse lines would become funded and thereby mitigate the impact of lower rates on the balance sheet through higher utilization.

The instantaneous rate shock simulation for the period ending December 31, 2024, indicates that the Company is asset sensitive, with net interest income increasing in rising rate scenarios and declining in decreasing rate scenarios, with a

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continued drop in interest rates having the most substantial negative impact. The change in the magnitude of the Company’s asset sensitivity based on its interest rate risk model at December 31, 2024, as compared to December 31, 2023, is due mostly to the decrease in the level of overnight borrowings both in Fed Funds purchased and overnight FHLB borrowings, which had an average rate of 5.52%. The decrease in these borrowings was facilitated by the sale of bonds in late 2023 and early 2024 having an average book yield of 2.61%. In addition, adding to our asset sensitivity, utilization on variable rate mortgage warehouse lines increased, $210.4 million, at December 31, 2024. The Company had approximately $311.6 million of unfunded mortgage warehouse lines at December 31, 2024. If rates decrease, it would be expected that a significant portion of the unfunded mortgage warehouse lines would become funded and thereby mitigate the impact of lower rates on the balance sheet through higher utilization.

In addition to the instantaneous simulations shown above, we run stress scenarios for the unconsolidated Bank modeling the possibility of no balance sheet growth, the potential runoff of “surge” core deposits which flowed into the Bank in the most recent economic cycle, and unfavorable movement in deposit rates relative to yields on earning assets (i.e., higher deposit betas). These stress tests are run primarily to determine what factors create the most risk to net interest income. When no balance sheet growth is incorporated and a stable interest rate environment is assumed, projected annual net interest income is about $3.8 million lower, or 2.7% than in our standard simulation. However, the stressed simulations reveal that the Company’s greatest potential pressure on net interest income would result from a deposit migration where noninterest bearing deposits decline by 15% and interest-bearing deposits decline by 10% over a six-month period. In such a scenario, our net income would decline $7.1 million, or 5.3%.

​

In addition to the stress tests, management also models scenario testing where rates are shocked gradually (i.e., a rate ramp) as well as three scenarios with the short-term and long-term rate curves moving in a non-parallel manner. These non-parallel scenarios include a bear flattener forecast with overnight rates moving up faster than the 10-Year Treasury, a bull steepener where the overnight rates fall and long-term rates stay relatively level, and a generally accepted economic forecast where overnight and 10-year rates change based on current economic forecasts. The rate ramp shows the Company as being less asset sensitive with a 0.3% decline in an up 100 bp rate environment and about a 1.3% decline in a falling rate environment. For the non-parallel scenarios, net interest income remains close to but below the base case scenario which assumes no rate changes. In other words, based on current economic forecasts, there would not be a significant change in net interest income as compared to our base case scenario.

​

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information concerning quantitative and qualitative disclosures of market risk called for by Item 305 of Regulation S-K is included as part of Item 7 above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Market Risk Management.”

​

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and independent auditors’ report listed below are included herein:

​ ​ ​ ​ ​ Page

​ ​ ​ ​

​ ​ ​ ​

III. Consolidated Balance Sheets – December 31, 2025 and 2024 ​ 70

​ ​ ​ ​

​ ​ ​ ​

​ ​ ​ ​

​ ​ ​ ​

​ ​ ​ ​

VIII. Notes to Consolidated Financial Statements ​ 76

​

​

​

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

Sierra Bancorp and Subsidiary

​

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheet of Sierra Bancorp and its wholly owned subsidiary (the “Company”) as of December 31, 2025, the related consolidated statements of income, comprehensive (loss) income, changes in shareholders’ equity, and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and itscash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinion

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

​

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Definitions and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Loans

As of December 31, 2025, the Company’s allowance for credit losses (“ACL”) totaled $21.5 million. The Company calculates its ACL in accordance with Topic 326, Financial Instruments – Credit Losses. As described in Notes 2 and 4 to the consolidated financial statements, the ACL for loans is separated between a collective reserve evaluation, for loans where similar risk characteristics exist, and an individual reserve evaluation for loans without similar risk characteristics. The collective quantitative ACL for loans is estimated using the remaining life or discounted cash flow (“DCF”) methodology based on the loan portfolio segment. In addition, for the collective reserve, management utilizes qualitative factors to adjust for current and expected conditions not captured within the quantitative loss estimates.

The qualitative reserve is calculated using a combination of numeric frameworks and management judgement to determine risk categorizations in each of the qualitative factors. The amount of qualitative reserves is also contingent upon the historical peer, life-of-loan equivalent, loss rate ranges and the relative weighting of qualitative factors.

We identified the Company’s estimate of the ACL, and more specifically the qualitative factor adjustments applied in the ACL, as a critical audit matter. The principal consideration for our determination is the subjectivity and judgment involved in management’s determination of credit loss estimates and assumptions (segment risk rating assigned), specifically for management’s determination of the changes in value of underlying collateral qualitative factor adjustment, management’s determination of the loan category and concentrations qualitative factor adjustment, and management’s determination of the use of peer loss/default levels in the DCF regression analysis qualitative factor assigned to each loan segment. Auditing these assumptions required increased auditor effort and a high degree of auditor subjectivity and judgment.

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The primary procedures we performed to address this critical audit matter included:

​

/s/ Forvis Mazars, LLP

We have served as the Company’s auditor since 2025.

Denver, Colorado

February 27, 2026

​

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Report of Independent Registered Public Accounting Firm

​

To the Shareholders and Board of Directors of Sierra Bancorp and Subsidiary

​

Opinion on the Financial Statements

​

We have audited the accompanying consolidated balance sheet of Sierra Bancorp and its subsidiary (the Company) as of December 31, 2024, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.

​

Basis for Opinion

​

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

​

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

​

​

/s/ RSM US LLP

​

​

We served as the Company’s auditor from 2023 to 2024.

​

Las Vegas, Nevada

March 3, 2025

​

​

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SIERRA BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31, 2025 and 2024

(dollars in thousands)

​ ​ ​ ​ ​ ​ ​

ASSETS ​ ​ ​ ​ ​ ​

Interest-bearing deposits in banks ​ ​ 64,214 ​ ​ 21,048

Investment securities ​ ​ ​ ​ ​ ​

Loans: ​ ​ ​ ​ ​ ​

Deferred loan (fees) costs, net ​ ​ (35) ​ ​ 93

Allowance for credit losses on loans ​ ​ (21,480) ​ ​ (24,830)

Foreclosed assets ​ ​ 1,565 ​ ​ —

Other intangible assets, net ​ ​ 52 ​ ​ 618

LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​

Deposits: ​ ​ ​ ​ ​ ​

Allowance for credit losses on unfunded loan commitments ​ ​ 710 ​ ​ 710

Commitments and contingent liabilities (Note 14) ​ ​ ​ ​ ​ ​

Shareholders' equity ​ ​ ​ ​ ​ ​

Additional paid-in capital ​ ​ 4,642 ​ ​ 4,509

Accumulated other comprehensive loss ​ ​ (23,174) ​ ​ (31,257)

​

The accompanying notes are an integral part of these consolidated financial statements.

​

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SIERRA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2025, 2024 and 2023

(dollars in thousands, except per share data)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest and dividend income ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ​

Federal funds purchased and repurchase agreements ​ ​ 2,275 ​ ​ 462 ​ ​ 5,219

Federal Home Loan Bank advances ​ ​ 3,611 ​ ​ 3,812 ​ ​ 9,342

Credit loss expense (benefit) - unfunded commitments ​ ​ — ​ ​ 200 ​ ​ (330)

Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​

Service charges and fees on deposit accounts ​ ​ 23,488 ​ ​ 24,173 ​ ​ 23,103

Net (loss) gain on sale of fixed assets ​ ​ (52) ​ ​ 3,783 ​ ​ 15,270

Increase in cash surrender value of life insurance ​ ​ 2,608 ​ ​ 2,650 ​ ​ 1,767

Realized gain (loss) on available-for-sale securities ​ ​ — ​ ​ 66 ​ ​ (14,500)

Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​

Earnings per share ​ ​ ​ ​ ​ ​ ​ ​ ​

​

The accompanying notes are an integral part of these consolidated financial statements.

​

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SIERRA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Years Ended December 31, 2025, 2024 and 2023

(dollars in thousands, except footnotes)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other comprehensive gain: ​ ​ ​ ​ ​ ​ ​ ​ ​

Unrealized gain on debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Total other comprehensive gain, net of tax ​ ​ 8,083 ​ ​ 4,723 ​ ​ 20,596

The accompanying notes are an integral part of these consolidated financial statements.