HILLS BANCORPORATION 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation The following discussion by management is presented regarding the financial results for the Company for the dates and periods indicated. The discussion should be read in conjunction with the consolidated financial statements and the accompanying notes thereto included or incorporated by reference elsewhere in this document. For a discussion on the comparison of results of operations for the years ended December 31, 2024 and 2023, refer to Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Form 10-K filed with the SEC on March 14, 2025. An overview of the year 2025 is presented following the section discussing a special note regarding forward looking statements. Special Note Regarding Forward Looking Statements This report contains, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of such term in the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Actual results may differ materially from those included in the forward-looking statements. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, the following: • The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets. This includes current concerns related to higher inflation, rising energy prices, geopolitical conflicts, and supply chain imbalances, including tariffs. • The effects of financial market disruptions and/or an economic recession, and monetary and other governmental actions designed to address such disruptions, recession, or pandemics. • The financial strength of the counterparties with which the Company or the Company’s customers do business and to which the Company has investment or financial exposure. • The credit quality and credit agency ratings of the securities in the Company’s investment securities portfolio, a deterioration or downgrade of which could lead to change in the market value, the recognition of an allowance for credit losses on the affected securities and the recognition of a credit loss. • The effects of, and changes in, laws, regulations and policies affecting banking, securities and monetary and financial matters as well as any laws otherwise affecting the Company, including, but not limited to, changes in U.S. tax laws and regulations. • The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System. • The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector. • The ability of the Company to obtain new customers and to retain existing customers. • The timely development and acceptance of products and services, including products and services offered through alternative electronic delivery channels. • Technological changes implemented by the Company and by other parties, including third-party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers. • The ability of the Company to develop and maintain secure and reliable technology systems, including to detect and prevent the occurrence of fraudulent activity, breaches, or failures of our information security controls or cyber-security related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools. Page 29 T able of Content s • The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner. • Consumer spending and saving habits which may change in a manner that affects the Company’s business adversely. • The economic impact of natural disasters, diseases and/or pandemics, and terrorist attacks and military actions. • Business combinations and the integration of acquired businesses and assets which may be more difficult or expensive than expected. • The costs, effects and outcomes of existing or future litigation. • Changes in accounting policies and practices that may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board. • The ability of the Company to manage the risks associated with the foregoing as well as anticipated. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission. Economic Environment Through the end of 2025, incoming economic data per the Beige Book for the Company's region was little changed over the reporting period with an expected slight decline in activity over the next year. Consumer spending, construction and real estate demand rose slightly; employment was flat; business spending fell slightly; and manufacturing activity declined modestly. Prices rose moderately, wages were up modestly, and financial conditions loosened modestly. Net farm income in 2025 was similar to 2024. Higher borrowing costs continue to present a risk to the economy, with consumer and business budgets accounting for higher interest costs. Interest rate levels and energy prices, in combination with global economic conditions, fiscal and monetary policy and the level of regulatory and government scrutiny of financial institutions will likely continue to impact our results in 2026 and beyond. Our credit administration continues to closely monitor and analyze the higher risk segments within the loan portfolio, tracking loan payment deferrals, customer liquidity and providing timely reports to senior management and the board of directors. Based on the Company’s capital levels, prudent underwriting policies, loan concentration diversification and our geographic footprint, senior management is cautiously optimistic that the Company is positioned to continue managing the impact of the varied set of risks and uncertainties currently impacting the economy and remain adequately capitalized. However, the Company may be required to make additional credit loss provisions as warranted by economic conditions and continued migration in the loan portfolio towards the special mention risk rating category. Overview The Company is a bank holding company engaged, through its wholly-owned subsidiary bank, in the business of commercial banking. The Company’s subsidiary is Hills Bank and Trust Company, Hills, Iowa. The Bank was formed in Hills, Iowa in 1904. The Bank is a full-service commercial bank extending its services to individuals, businesses, governmental units and institutional customers primarily in the communities of Hills, Iowa City, Coralville, North Liberty, Lisbon, Mount Vernon, Kalona, Wellman, Cedar Rapids, Marion, Washington, and Williamsburg, Iowa. Highlights with respect to items on the Company’s statement of income for the period ended December 31, 2025 included the following: • The Company’s net income for 2025 was $60.50 million compared to $47.60 million in 2024 and $38.18 million in 2023. • Diluted earnings per share were $6.81, $5.26, and $4.16 for the years ended December 31, 2025, 2024 and 2023, respectively. • For the years ended December 31, 2025 and 2024, the Company achieved a net interest margin of 3.45% and 2.78%, respectively. • For the year ended December 31, 2025, net interest income on a tax equivalent basis increased by $34.53 million. • In 2025, interest income on a tax equivalent basis increased $30.50 million due to growth of $180.08 million in the Company's average earning assets and increased $19.49 million due to higher interest rates. Page 30 T able of Content s • Interest expense decreased $4.02 million primarily due to decrease in interest rates. Highlights with respect to items on the Company’s balance sheet as of December 31, 2025 included the following: • Total assets were $4.648 billion, an increase of $59.63 million since December 31, 2024, primarily due to items below. • Cash and cash equivalents were $42.11 million, a decrease of $81.29 million since December 31, 2024. • Investment securities available for sale were $955.58 million, an increase of $11.45 million since December 31, 2024. • Loans, net of allowance for credit losses and unamortized fees and costs, totaling $3.507 billion, an increase of $119.30 million since December 31, 2024. The increase is primarily attributable to increases of $87.79 million in 1 to 4 family first mortgages, $1.77 million in junior mortgages, $1.52 million in multi-family mortgages, $1.02 million in farmland mortgages and $67.10 million in commercial mortgages offset by decreases of $20.94 million in construction loans, and $3.30 million in commercial and financial loans. Loans held for sale increased $4.08 million since December 31, 2024. • Deferred income tax assets were $18.47 million, a decrease of $2.67 million since December 31, 2024. • Deposits increased $21.70 million in 2025 to $3.368 billion primarily due to an increase in noninterest-bearing deposits of $15.19 million and savings accounts of $114.26 million offset by a decrease of $10.36 million in NOW and other demand and $97.38 million in time deposits. • Short-term borrowings increased $40.25 million as of December 31, 2025, primarily due to the increase in FHLB daily reset advances of $149.25 million offset by $109.00 million due to borrowings with the Bank Term Funding Program being paid off. FHLB borrowings decreased $62.72 million. • Stockholders’ equity increased $55.55 million to $548.23 million in 2025, with dividends having been paid in 2025 of $10.32 million. Reference is made to Note 14 of the Company’s consolidated financial statements for a discussion of fair value measurements which relate to methods used by the Company in recording certain assets and liabilities on its consolidated financial statements. The return on average equity was 11.84% in 2025 compared to 10.00% in 2024. The Company remains well-capitalized as of December 31, 2025 with a CBLR of 12.94%. The minimum regulatory guideline is 9.00%. The Company paid a dividend per share of $1.15 in 2025, $1.10 per share in 2024 and $1.05 in 2023. A detailed discussion of the financial position and results of operations follows this overview. Page 31 T able of Content s Critical Accounting Policies The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained within these financial statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified its most critical accounting policies to be those which are related to the allowance for credit losses. The preparation of financial statements in accordance with the accounting principles generally accepted in the United States ("U.S. GAAP") requires management to make a number of judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense in the financial statements. Various elements of our accounting policies, by their nature, involve the application of highly sensitive and judgmental estimates and assumptions. Some of these policies and estimates relate to matters that are highly complex and contain substantial inherent uncertainties. Management has made significant estimates in several areas, including the allowance for credit losses (see Note 3 - Loans and Note 2 - Securities) and the fair value of debt securities (see Note 2 - Securities). We have identified the following accounting policies and estimates that, due to the inherent judgments and assumptions and the potential sensitivity of the financial statements to those judgments and assumptions, are critical to an understanding of our financial statements. We believe that the judgments, estimates and assumptions used in the preparation of the Company's financial statements are appropriate. For a further description of our accounting policies, see Note 1 - Summary of Significant Accounting Policies in the financial statements included in this Form 10-K. Allowance for Credit Losses The allowance for credit losses for loans represents management's estimate of all expected credit losses over the expected contractual life of our existing loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. We employ a disciplined process and methodology to establish our allowance for credit losses that has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. Based upon this methodology, management establishes an asset-specific allowance for loans that do not share risk characteristics with other loans based on the amount of expected credit losses calculated on those loans and charges off amounts determined to be uncollectible. Factors we consider in determining if loans share similar risk characteristics include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due. When a loan does not share risk characteristics with other loans, we measure expected credit loss as the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at the loan's effective interest rate except that, for collateral-dependent loans, credit loss is measured as the difference between the amortized cost basis in the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. In accordance with our appraisal policy, the fair value of collateral-dependent loans is based upon independent third-party appraisals or on collateral valuations prepared by in-house evaluations. Once a third-party appraisal is greater than one year old, or if its determined that market conditions, changes to the property, changes in intended use of the property or other factors indicate that an appraisal is no longer reliable, we perform an internal collateral valuation to assess whether a change in collateral value requires an additional adjustment to carrying value. When we receive an updated appraisal or collateral valuation, management reassesses the need for adjustments to the loan's expected credit loss measurements and, where appropriate, records an adjustment. If the calculated expected credit loss is determined to be permanent, fixed or nonrecoverable, the credit loss portion of the loan will be charged off against the allowance for credit losses. Loans designated having significantly increased credit risk are generally placed on nonaccrual and remain in that status until all principal and interest payments are current and the prospects for future payments in accordance with the loan agreement are reasonably assured, at which point the loan is returned to accrual status. Page 32 T able of Content s In estimating the component of the allowance for credit losses for loans that share common risk characteristics, loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and similar risk characteristics or areas of risk concentration. Credit loss assumptions are estimated using a model that categorizes loan pools based on loan type and purpose. This model calculates an expected life-of-loan loss percentage for each loan category by considering the probability of default using historical life-of-loan analysis periods for agricultural, 1 to 4 family first and junior liens, commercial and consumer segments, and the severity of loss, based on the aggregate net lifetime losses incurred per loan class. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made which management has determined to be four quarters, the bank reduces, on a straight-line basis over the remaining life of the loans, the adjustments so that model reverts back to the historical rates of default and severity of loss. The component of the allowance for credit losses for loans that share common risk characteristics also considers factors for each loan class to adjust for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio. Such factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management expectation of future conditions based on a reasonable and supportable forecast. Management utilizes a qualitative factor framework to provide a qualitative estimate of the expected credit losses inherent in the loan portfolio in relation to potential limitations of the quantitative model. The framework considers the following factors: • Lending policies and procedures; • International, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the condition of various markets; • The nature of the loan portfolio, including the terms of the loans; • The experience, ability and depth of the lending management and other relevant staff; • The volume and severity of past due and adversely classified or graded loans and the volume of nonaccrual loans; • The quality of our loan review and process; • The value of underlying collateral for collateral-dependent loans; • The existence and effect of any concentrations of credit and changes in the level of such concentrations; and • The effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. The framework provides for a level of risk approach to measure risk in each loan segment that may not be captured in the quantitative methodology, including improved risk environment, no additional risk, minimal additional risk, moderate risk and major or significant additional risk. The framework also includes a weighting component for management to consider which qualitative factors would have the highest impact on potential loan losses within each loan segment. Management uses the qualitative factor framework within the allowance for credit losses calculation to assess the risk level environment for each qualitative factor and weightings for each loan segment which is supported by various information including publicly available information, internal information specifically developed by management, or other relevant and reliable information. The credit loss expense recorded through earnings is the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit losses for loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors. The allowance for credit losses for loans, as reported in our consolidated balance sheet, is adjusted by a credit loss expense, which is recognized in earnings, and reduced by the charge-off of loan amounts, net of recoveries. For further information on the allowance for credit losses for loans, see Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans in the notes to the financial statements of this Form 10-K. This discussion of the Company’s critical accounting policies should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes presented elsewhere herein, as well as other relevant portions of Management’s Discussion and Analysis of Financial Condition and Results of Operations. Page 33 T able of Content s Financial Position The following table presents select lines from the consolidated balance sheets in Item 5, with the addition of the periods ended December 31, 2023, 2022, and 2021. Year End Amounts 2025 2024 2023 2022 2021 (Amounts In Thousands) Total assets $ 4,647,870 $ 4,588,242 $ 4,341,667 $ 3,980,481 $ 4,044,562 Investment securities (1) 987,647 972,160 795,167 782,565 555,900 Loans held for sale 8,047 3,971 2,023 1,663 5,716 Loans, net of allowance for credit losses 3,506,819 3,387,521 3,389,372 3,066,981 2,625,062 Deposits 3,367,835 3,346,133 3,282,780 3,357,367 3,533,994 Other short-term borrowings 586,882 546,636 219,000 82,061 249 Federal Home Loan Bank borrowings 64,333 127,050 296,648 40,000 — Redeemable common stock 54,475 48,257 44,853 51,011 50,013 Stockholders' equity 548,234 492,687 470,286 428,260 438,450 (1) Investment securities includes stock of FHLB. Total assets at December 31, 2025 increased $59.63 million, or 1.30%, from the prior year-end. This was primarily due to net loans which increased $119.30 million for the year ended December 31, 2025 compared to the prior year. Loans held for sale to the secondary market increased $4.08 million for the year ended December 31, 2025. Loans held for investment represent the largest component of the Bank’s earning assets. Loans held for investment were $3.565 billion and $3.438 billion at December 31, 2025 and 2024, respectively. Loans held for investment increased in 2025 compared to 2024. This was primarily due to increases of $87.79 million in 1 to 4 family first mortgages, $1.77 million in junior mortgages, $1.52 million in multi-family mortgages, $1.02 million in farmland mortgages and $67.10 million in commercial mortgages offset by declines of $20.94 million in construction loans, $3.30 million in commercial and financial loans. Increases in commercial mortgages and commercial real estate were primarily due to the completion of large construction projects that were put on permanent financing during 2025. Given the current economic environment and the potential for lower interest rates, the increase in net loans in 2025 may continue into 2026. On a net basis, the Company originated $130.48 million in loans to customers for the year ended December 31, 2025 compared to loans originated of $3.66 million for the year ended December 31, 2024. The Company has not historically engaged in significant participation activity and does not purchase participations from outside its established trade area. The Company’s policy allows for the purchase or sale of participations related to existing customers or to participate in community development activity. The Company held participations purchased of $15.58 million, $16.52 million and $17.04 million as of December 31, 2025, 2024 and 2023, respectively. The participations purchased were less than one percent of loans held for investment for each of the three years. The loan composition in 2025 remained relatively the same compared to 2024 as follows. Residential real estate loans, including first and junior liens, were $1.405 billion and $1.316 billion as of December 31, 2025 and 2024, respectively. Residential real estate loans increased 6.81% in 2025 and decreased 3.60% in 2024. Residential real estate loans were 39.42% of the loan portfolio at December 31, 2025 and 38.27% at December 31, 2024. Agricultural loans, including production and mortgages, were $395.71 million and $394.45 million as of December 31, 2025 and 2024, respectively, an increase of 0.32% in 2025 compared to 2024. Agricultural loans represented 11.10% and 11.47% of the Company's loan portfolio as of December 31, 2025 and 2024, respectively. Construction loans were $338.10 million and $359.04 million as of December 31, 2025 and 2024, respectively, a decrease of 5.83% in 2025 compared to 2024. Construction loans represented 9.48% and 10.44% of the Company's loan portfolio as of December 31, 2025 and 2024, respectively. Commercial and financial loans were $295.62 million and $298.92 million as of December 31, 2025 and 2024, respectively, a decrease of 1.10% in 2025 compared to 2024. Commercial and financial loans represented 8.29% and 8.69% of the Company's loan portfolio as of December 31, 2025 and 2024, respectively. Multi-family real estate loans were $494.28 million and $492.76 million as of December 31, 2025 and 2024, respectively, an increase of 0.31% in 2025 compared to 2024. Multi-family real estate loans represented 13.87% and 14.33% of the Company's loan portfolio as of December 31, 2025 and 2024, respectively. Commercial real estate loans totaled $565.18 million at December 31, 2025, a 13.47% increase over the December 31, 2024 total of $498.08 million. Commercial real estate loans represented 15.85% and 14.49% of the Company’s loan portfolio as of December 31, 2025 and 2024, respectively. The Page 34 T able of Content s Company monitors its commercial real estate level so that it does not have a concentration in that category that exceeds 300% of its capital. Commercial real estate loan concentration was 171.72% of risk based capital as of December 31, 2025. The following table shows the composition of loans (before deducting the allowance for credit losses) as of December 31 for each of the last five years. The table does not include loans held for sale to the secondary market. 2025 2024 2023 2022 2021 Agricultural $ 118,924 $ 118,678 $ 115,786 $ 112,705 $ 106,933 Commercial and financial 295,618 298,917 307,190 269,568 222,002 Real estate: Construction, 1 to 4 family residential 89,807 79,451 80,255 92,408 80,486 Construction, land development and commercial 248,292 279,589 313,878 196,240 127,021 Mortgage, farmland 276,790 275,768 281,164 256,570 232,744 Mortgage, 1 to 4 family first liens 1,261,877 1,174,083 1,221,296 1,130,989 909,564 Mortgage, 1 to 4 family junior liens 143,317 141,550 144,524 124,951 114,342 Mortgage, multi-family 494,282 492,762 471,009 436,952 382,792 Mortgage, commercial 565,177 498,078 416,670 402,842 401,377 Loans to individuals 28,763 35,301 40,205 36,675 32,687 Obligations of state and political subdivisions 41,885 43,994 46,446 48,213 50,285 $ 3,564,732 $ 3,438,171 $ 3,438,423 $ 3,108,113 $ 2,660,233 Net unamortized fees and costs 291 290 359 308 299 $ 3,565,023 $ 3,438,461 $ 3,438,782 $ 3,108,421 $ 2,660,532 Less allowance for credit losses 58,204 50,940 49,410 41,440 35,470 $ 3,506,819 $ 3,387,521 $ 3,389,372 $ 3,066,981 $ 2,625,062 There were no foreign loans outstanding for any of the years presented. The following table shows the remaining maturity of loans as of December 31, 2025. Maturities are based upon contractual dates. Amount Of Loans One Year Or Less (1) One To Five Years Five To Fifteen Years Over Fifteen Years (Amounts In Thousands) Commercial and Agricultural $ 2,088,890 $ 625,393 $ 1,095,860 $ 248,423 $ 119,214 Real Estate (2) 1,405,194 54,961 332,702 68,571 948,960 Other 70,648 14,356 18,561 14,867 22,864 Totals $ 3,564,732 $ 694,710 $ 1,447,123 $ 331,861 $ 1,091,038 The types of interest rates applicable to these maturities are shown below: Fixed rate $ 2,177,252 $ 479,789 $ 1,395,342 $ 243,602 $ 58,519 Variable rate (3) 1,387,480 214,921 51,781 88,259 1,032,519 $ 3,564,732 $ 694,710 $ 1,447,123 $ 331,861 $ 1,091,038 (1) A significant portion of the commercial loans are due in one year or less. A significant percentage of the loans will be re-evaluated prior to their maturity and are likely to be extended. (2) Commercial, multi-family, construction 1 to 4 family residential, construction land development and commercial, and agricultural real estate loans are reflected in the Commercial and Agricultural total. Page 35 T able of Content s (3) Certain adjustable‑rate mortgage loans (“ARMs”) are included in the variable‑rate category in later maturity periods because these loans contractually reprice from fixed to variable interest rates following their initial fixed‑rate periods (generally 3, 5, 7, or 10 years). Prior to repricing, these loans bear fixed interest rates. The table reflects interest rate characteristics based on contractual terms over the remaining maturities rather than interest rates in effect as of the balance‑sheet date. The overall economy in the Company’s trade area, Johnson, Linn, Washington, and Iowa Counties, remains in stable condition with levels of unemployment below national and state levels. The following table shows unemployment and estimated median income information as of December 31, 2025, 2024 and 2023. Unemployment Rate % Median Income 2025 2024 2023 2025 2024 2023 United States 4.4 % 4.1 % 3.7 % $ 83,730 $ 80,610 $ 74,580 State of Iowa 3.5 % 3.2 % 3.2 % 79,596 73,122 70,616 Johnson County 2.4 % 2.2 % 2.0 % 77,533 74,797 71,385 Linn County 3.4 % 3.2 % 3.0 % 78,217 72,336 68,705 Washington County 2.5 % 2.3 % 2.1 % 78,473 77,414 68,296 Iowa County 3.2 % 2.5 % n/a 77,841 77,292 n/a Competition for quality loans and deposits may continue to be a challenge. The increased competition for both loans and deposits could result in a lower interest rate margin that could result in lower net interest income if the volume of loans and deposits does not increase to offset any such reduction in the interest margin. Total deposits increased by $21.70 million in 2025 compared to an increase of $63.35 million in 2024. As of June 30, 2025 (latest data available from the FDIC), Johnson County total deposits for all financial institutions were $13.408 billion and the Company’s deposits were $2.271 billion, which represent a 16.94% market share. At June 30, 2024, the Company’s deposits were $2.196 billion or a 16.21% market share. The Company had nine office locations in Johnson County as of June 30, 2025. The total number of banking locations in Johnson County were 47 as of June 30, 2025. Linn County total deposits for all financial institutions were $8.790 billion as of June 30, 2025 and there were 97 total banking locations in the county. The seven Linn County offices of the Company had deposits of $714.92 million or a 8.13% share of the market. The Company’s Linn County deposits at June 30, 2024 were $703.72 million and represented a 8.18% market share. As of June 30, 2025, the Company’s three Washington County offices had deposits of $336.77 million which was 34.04% of the county’s total deposits of $989.42 million. Washington County had a total of 13 banking locations as of June 30, 2025. In 2024, the Company’s Washington County deposits were $335.02 million or a 34.25% market share. The company's one location in Iowa County had deposits of $14.03 million which was 3.22% of the county's total deposits of $435.74 million. Iowa County had a total of 10 banking locations as of June 30, 2025. This branch was opened in November 2024. The following tables show the amounts of the Company's average deposits and average rates paid on such deposits for the years ended December 31, 2025, 2024 and 2023 and the composition of the certificates of deposit issued in denominations in excess of $250,000 as of December 31, 2025, 2024 and 2023: December 31, 2025 Rate 2024 Rate 2023 Rate (Amounts In Thousands) Average noninterest-bearing deposits $ 577,556 — $ 564,740 — $ 607,510 — Average interest-bearing demand deposits 901,166 1.32 % 918,535 1.49 % 962,148 1.05 % Average savings deposits 992,139 1.35 893,062 1.08 990,168 0.78 Average time deposits 870,334 3.39 916,590 4.09 742,855 3.03 $ 3,341,195 $ 3,292,927 $ 3,302,681 Uninsured deposits $ 733,968 $ 719,615 $ 693,827 Page 36 T able of Content s Time certificates issued in amounts of $250,000 or more with maturity in: 2025 Rate (Amounts In Thousands) 3 months or less $ 81,865 3.50 % 3 through 6 months 74,314 3.29 6 through 12 months 38,544 3.57 Over 12 months 8,329 3.77 $ 203,052 Portion uninsured $ 90,190 Investment securities increased $15.49 million in 2025 compared to an increase of $176.99 million in 2024. The investment portfolio consists of $955.58 million of securities that are stated at fair value, with any unrealized gain or loss, net of income taxes, reported as a separate component of stockholders’ equity. The securities portfolio is used for liquidity and pledging purposes and to provide a rate of return that is acceptable to management. The Company completed a balance sheet repositioning related to its investment securities portfolio at the end of 2025. This consisted of multiple sales of lower-yielding AFS debt securities in 2025, resulting in a pre-tax realized loss on the sales of $9.63 million in total. The sale of these securities was done for the sole purpose of an investment portfolio repositioning. The following tables show the carrying value of the investment securities held by the Bank, including stock of the Federal Home Loan Bank, as of December 31, 2025, 2024 and 2023 and the maturities and weighted average yields of the investment securities, computed using amortized cost on a tax-equivalent basis using a federal tax rate of 21%, as of December 31, 2025: December 31, 2025 2024 2023 (Amounts In Thousands) Carrying value: U.S. Treasury $ 255,527 $ 288,462 $ 422,490 U.S. Government Agency and GSE securities 4,658 14,848 33,049 Stock of the Federal Home Loan Bank 32,063 28,024 15,746 Mortgage-backed securities and collateralized mortgage obligations 312,754 278,090 60,929 State and political subdivisions 382,645 362,736 262,953 $ 987,647 $ 972,160 $ 795,167 Page 37 T able of Content s December 31, 2025 Carrying Value Weighted Average Yield (Amounts In Thousands) U.S. Treasury, maturities: Within 1 year $ 49,383 1.48 % From 1 to 5 years 206,144 4.00 From 5 to 10 years — — $ 255,527 U.S. Government Agency and GSE securities, maturities: Over 10 years $ 4,658 4.18 % Stock of the Federal Home Loan Bank $ 32,063 9.44 % State and political subdivisions, maturities: Within 1 year $ 35,748 3.74 % From 1 to 5 years 60,328 3.41 From 5 to 10 years 79,833 3.08 Over 10 years 206,736 5.16 $ 382,645 Mortgage Backed Securities and Collateralized Mortgage Obligations, maturities: Within 1 year $ 1,620 5.60 % From 1 to 5 years 180,774 4.82 From 5 to 10 years 130,360 4.65 $ 312,754 Total $ 987,647 As of December 31, 2025, the Company held no investment securities exceeding 10% of stockholders’ equity, other than securities of the U.S. Government agencies and corporations. The Company does not hold any investments in FNMA preferred stock, any pooled trust preferred stocks or other preferred stock type investments. See Note 2 to the Company’s Consolidated Financial Statements. During 2025 and 2024, the major funding source for loans and other assets, aside from deposits within the Company's trade area, were from short-term borrowings, primarily FHLB daily reset advances, in addition to FHLB borrowings. Brokered deposits totaled $35.17 million and $34.75 million as of December 31, 2025 and 2024, respectively. Total advances from the FHLB were $64.33 million at December 31, 2025 and $127.05 million in 2024. Total FHLB daily reset advances were $586.88 million as of December 31, 2025 and $437.64 million as of December 31, 2024. There was $109.00 million in funds borrowed from the Bank Term Funding Program as December 31, 2024 and was paid off during 2025. Federal funds purchased and FHLB funding sources are considered when loan growth exceeds core deposit increases and the interest rates on funds borrowed from the FHLB or other sources are favorable compared to other funding alternatives. Stockholders’ equity was $548.23 million at December 31, 2025 compared to $492.69 million at December 31, 2024. The Company’s capital resources are discussed in detail in the Liquidity and Capital Resources section. Over the last five years, the Company has realized cumulative earnings of $242.12 million and paid shareholders dividends of $48.13 million, or 19.88% of earnings, while maintaining capital ratios in excess of regulatory requirements. The following table presents the return on average assets, return on average stockholders' equity, the dividend payout ratio and average stockholders’ equity to average assets ratio for the years ended December 31, 2025, 2024 and 2023: Page 38 T able of Content s 2025 2024 2023 Return on average assets 1.32 % 1.09 % 0.92 % Return on average stockholders' equity 11.84 10.00 8.63 Dividend payout ratio 17.05 21.11 25.38 Average stockholders' equity to average assets ratio 11.14 10.88 10.72 Net Income Overview Net income and diluted earnings per share for the last three years are as presented below: Year Net Income % (Decrease) Increase Earnings Per Share - Diluted (In Thousands) 2025 $ 60,502 27.09 % $ 6.81 2024 47,604 24.70 5.26 2023 38,176 (20.06) 4.16 Net income for 2025 increased by $12.90 million or 27.09% and diluted earnings per share increased by 29.47%. In 2025, net interest income, before credit loss expense, increased by $34.36 million due to the increase in interest income of $30.33 million primarily due to higher loan and investment balances and higher interest rates. Noninterest income, excluding loss on sale of investment securities, increased by $1.94 million primarily due to increased trust fees and other noninterest income. The credit loss expense increased by $10.12 million and total noninterest expenses increased by $6.28 million primarily due to an increase in outside services, loss on disposal of property and equipment, and salaries and employee benefits. Annual fluctuations in the Company's net income are driven primarily by four factors. The first factor is credit loss expense. The majority of the Company's interest earning assets are in loans outstanding, which were $3.565 billion at December 31, 2025. Credit loss expense was $12.33 million in 2025 compared to $2.21 million in 2024. Because the majority of the Company’s interest‑earning assets are comprised of loans, the level of credit loss expense can vary from year to year based on changes in the loan portfolio and the credit environment. In 2025, credit loss expense increased compared to the prior year largely due to updated economic expectations, growth in outstanding loan balances, and movements in model‑driven assumptions. These included shifts in economic outlook, changes in borrower payment behaviors, and adjustments to qualitative considerations reflecting portfolio trends and overall credit conditions. In addition, net charge‑off activity contributed to higher estimated loss rates for the year. The Company expects that future credit loss expense will continue to be influenced by loan growth, changes in economic conditions within its markets, and trends in asset quality. The second factor affecting the Company’s net income is the interaction between changes in net interest margin and changes in average volumes of the Company's earnings assets. Net interest income of $150.18 million for 2025 was derived from the Company’s $4.461 billion of average earning assets and its tax-equivalent net interest margin of 3.45%. Average earning assets in 2024 were $4.281 billion and the tax-equivalent net interest margin was 2.78%. Net interest income for the Company increased primarily as a result of interest income on higher loan and investment balances and rates. Interest expense decreased from decreased interest rates on borrowings, certificates of deposit, and interest-bearing deposits. The Company believes growth in net interest income will be contingent on the growth of the Company’s earning assets, increasing yield on loans and the ongoing interest rate stance of the Federal Reserve Board. The third factor affecting the Company’s net income is noninterest income, primarily the increase in trust fees. Trust fees were $17.14 million and $15.26 million for the years ended December 31, 2025 and 2024, respectively, an increase of 12.32%. This is primarily driven by the increase in assets under management of $400.74 million from $2.912 billion as of December 31, 2024 to $3.313 billion as of December 31, 2025, an increase of 13.77%. See the Noninterest Income section later in Item 7. The fourth factor affecting the Company’s net income is noninterest expenses, primarily the increase in other noninterest expenses. See the Noninterest Expenses section later in Item 7. For the overview discussion of the comparison of the Company’s results of operations for the fiscal year ended December 31, 2024 to the year ended December 31, 2023, please refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 14, 2025. Page 39 T able of Content s Net Interest Income Net interest income is the excess of the interest and fees received on interest-earning assets over the interest paid on the interest-bearing liabilities. The factors that have the greatest impact on net interest income are the volume of average earning assets and interest-bearing liabilities and the net interest margin. The volume of average earning assets has continued to grow each year, primarily due to higher loan and investment balances in 2025. The volume of interest-bearing liabilities increased in 2025 primarily due to an increase in deposits. Interest expense on interest-bearing deposits, certificates of deposit and borrowings decreased from 2024. The net interest margin was 3.45% in 2025, 2.78% in 2024 and 2.86% in 2023. Management believes the increase in net interest income and margin in 2025 reflects a combination of balance-sheet repositioning, changes in funding mix, and interest-rate dynamics that may not recur to the same extent in future periods, and future net interest income will depend primarily on loan and deposit growth and pricing, and the direction of market interest rates. The measure is shown on a tax-equivalent basis using a rate of 21% for 2025, 2024 and 2023 to make the interest earned on taxable and nontaxable assets more comparable. Interest income and expense for 2025, 2024 and 2023 are indicated on the following table: Years Ended December 31, 2025 2024 2023 (Amounts In Thousands) Income: Loans (1) $ 196,142 $ 179,600 $ 155,076 Taxable securities 26,327 14,780 10,674 Nontaxable securities (1) 14,340 11,039 6,534 Interest-bearing cash and cash equivalents 468 1,355 829 Total interest income $ 237,277 $ 206,774 $ 173,113 Expense: Interest-bearing demand deposits 11,888 13,692 10,134 Savings deposits 13,382 9,614 7,721 Time deposits 29,543 37,598 22,539 Other short-term borrowings, including Bank Term Funding Program and FHLB daily reset advances 13,222 16,556 11,330 FHLB borrowings 15,559 10,157 5,309 Total interest expense $ 83,594 $ 87,617 $ 57,033 Net interest income $ 153,683 $ 119,157 $ 116,080 (1) Presented on a tax equivalent basis using a rate of 21% for 2025, 2024 and 2023. Interest income includes certain loan origination and document preparation fees, which comprise approximately 1.25% of the amounts indicated. Page 40 T able of Content s Net interest income on a tax-equivalent basis changed in 2025 as follows: Change In Change In Increase (Decrease) Average Balance Average Rate Volume Changes Rate Changes Net Change (Amounts In Thousands) Interest income: Loans, net $ 72,915 0.36 % $ 3,767 $ 12,232 $ 15,999 Taxable securities 41,969 1.69 5,382 5,971 11,353 Nontaxable securities 77,493 0.37 2,594 1,432 4,026 Interest-bearing cash and cash equivalents (12,294) (1.57) (726) (149) (875) $ 180,083 $ 11,017 $ 19,486 $ 30,503 Interest expense: Interest-bearing demand deposits $ (17,369) (0.17) % $ (296) $ (1,508) $ (1,804) Savings deposits 99,077 0.27 2,985 783 3,768 Time deposits (46,255) (0.70) (1,995) (6,060) (8,055) Other short-term borrowings, including Bank Term Funding Program and FHLB daily reset advances (35,119) (0.53) (767) (2,567) (3,334) FHLB borrowings 153,604 (0.71) 8,103 (2,701) 5,402 $ 153,938 $ 8,030 $ (12,053) $ (4,023) Change in net interest income $ 2,987 $ 31,539 $ 34,526 Rate/volume variances are allocated on a consistent basis using the absolute values of changes in volume compared to the absolute values of the changes in rates. Loan fees included in interest income are not material. Interest on nontaxable securities and loans is shown at tax equivalent amounts. Net interest income on a tax equivalent basis changed in 2024 as follows: Change In Average Balance Change In Average Rate Increase (Decrease) Volume Changes Rate Changes Net Change (Amounts In Thousands) Interest income: Loans, net $ 148,989 0.51 % $ 8,124 $ 16,784 $ 24,908 Taxable securities (2,011) 0.68 337 3,769 4,106 Nontaxable securities 70,496 0.83 1,863 2,258 4,121 Interest-bearing cash and cash equivalents 7,625 0.53 399 127 526 $ 225,099 $ 10,723 $ 22,938 $ 33,661 Interest expense: Interest-bearing demand deposits $ (43,613) 0.43 % $ 433 $ (3,990) $ (3,557) Savings deposits (97,106) 0.30 23 (1,917) (1,894) Time deposits 173,735 1.06 (5,347) (9,712) (15,059) Other short-term borrowings, including Bank Term Funding Program and FHLB daily reset advances 118,583 (0.31) (5,048) (178) (5,226) FHLB borrowings 96,973 (0.33) (5,485) 637 (4,848) $ 248,572 $ (15,424) $ (15,160) $ (30,584) Change in net interest income $ (4,701) $ 7,778 $ 3,077 Page 41 T able of Content s A summary of the average yields, average rates paid, net interest spread and margin is as follows: Years Ended December 31, 2025 2024 2023 Average yields: Loans (1) 5.66 % 5.30 % 4.78 % Loans (tax equivalent basis) (1) 5.67 5.31 4.80 Taxable securities 4.35 2.57 1.89 Nontaxable securities 3.07 2.65 2.01 Nontaxable securities (tax equivalent basis) 3.72 3.47 2.64 Interest-bearing cash and cash equivalents 4.40 5.82 5.32 Federal funds sold 0.75 4.24 1.51 Average rates paid: Interest-bearing demand deposits 1.32 1.49 1.05 Savings deposits 1.35 1.08 0.78 Time deposits 3.39 4.09 3.03 Short-term borrowings 4.44 4.97 5.29 FHLB borrowings 4.51 5.22 5.55 Yield on average interest-earning assets 5.30 4.82 4.27 Rate on average interest-bearing liabilities 2.45 2.68 1.90 Net interest spread (2) 2.85 2.14 2.37 Net interest margin (3) 3.45 2.78 2.86 (1) Non-accruing loans have been included in the average loan balances for purposes of this computation. (2) Net interest spread is the difference between the yield on average interest-earning assets and the yield on average interest-paying liabilities stated on a tax equivalent basis using a federal rate of 21% for 2025, 2024 and 2023. The net interest spread increased 71 basis points in 2025 compared to 2024 and the net interest spread decreased 23 basis points in 2024 compared to 2023. (3) Net interest margin is net interest income, on a tax equivalent basis, divided by average interest-earning assets. The net interest margin increased 67 basis points in 2025. The net interest margin decreased 8 basis points in 2024 compared to 2023. The Federal Open Market Committee met eight times during 2025. The federal funds target rate decreased to 3.75% as of December 31, 2025 from 4.50% as of December 31, 2024. Interest rates on loans are generally affected by the target rate since interest rates for the U.S. Treasury market normally correlate to the Federal Reserve Board federal funds rate. In the pricing of loans and deposits, the Bank considers the U.S. Treasury indexes as benchmarks in determining interest rates. As of December 31, 2025, the average rate indexes for the one, three and five year indexes were 3.48%, 3.55% and 3.73%, respectively. The one year index decreased 16.35% compared to December 31, 2024, the one, three and five year indexes were 4.16%, 4.27% and 4.38%, respectively. Current Expected Credit Losses and Allowance for Credit Losses (ACL) Credit loss expense was $12.33 million for the year ended December 31, 2025 compared to expense of $2.21 million in 2024, an increase of expense of $10.12 million. The credit loss expense includes an increase of expense of $1.60 million related to the ACL on off-balance sheet credit exposures for the year ended December 31, 2025 compared to $2.21 million benefit for 2024. Credit loss expense is the amount necessary to adjust the allowance for credit losses to the level considered by management to appropriately account for the estimated current expected credit losses within the Bank's loan portfolio. Also, under CECL, a significant component in estimating expected credit losses are economic forecasts such as Iowa unemployment and National real gross domestic product (GDP). The Company believes that credit loss expense is expected to be dependent on the Company’s loan growth, local economic conditions and asset quality. The percentage of the allowance to outstanding loans was 1.63% and 1.48% at December 31, 2025 and 2024, respectively. The credit loss expense was $12.33 million in 2025, and $2.21 million in 2024 and $15.62 million in 2023. Loan charge-offs net of recoveries were $3.46 million in 2025, loan charge-offs net of recoveries were $2.89 million in 2024 and loan recoveries net of charge-offs were $6.97 million in 2023. Management has determined that the allowance for credit losses was appropriate at December 31, 2025, and that the loan portfolio is diversified and secured, without undue concentration in any specific risk area. This process involves a high degree Page 42 T able of Content s of management judgment. However, the allowance for credit losses is based on a comprehensive and well-documented applied analysis of the Company’s loan portfolio. This analysis takes into consideration all available information existing as of the financial statement date, including environmental factors such as economic, industry, geographical and political factors. The relative level of allowance for credit losses is reviewed and compared to industry peers. This review encompasses levels of total nonperforming loans and overall levels of net charge-offs. However, there is no assurance losses will not exceed the allowance, and any growth in the loan portfolio or uncertainty in the general economy will require that management continue to evaluate the adequacy of the ACL and make additional provisions in future periods as deemed necessary. Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to nonaccrual status, a charge-off or the establishment of a specific reserve. In the event a collateral shortfall is identified during the credit review process, the Company will work with the borrower for a principal reduction payment and/or a pledge of additional collateral and/or additional guarantees. In the event that these options are not available, the loan may be subject to a downgrade of the credit risk rating. If we determine that a loan amount, or portion thereof, is uncollectible, the loan’s credit risk rating is immediately downgraded and the uncollectible amount is charged-off. The Bank’s credit and legal departments undertake a thorough and ongoing analysis to determine if an additional specific reserve and/or charge-offs are appropriate and to begin a workout plan for the loan to minimize realized loss. In certain circumstances, the Bank may modify various terms of a loan to maximize the collection of amounts due. Refer to Note 3 for a summary of modifications made to loans in 2025 and 2024. Generally, the borrower is experiencing financial difficulties, so concessionary modification is granted to the borrower that otherwise would not be considered. The Bank regularly reviews loans in the portfolio and assesses whether the loans are nonperforming. If the loans are nonperforming, the Bank determines if a specific reserve is appropriate. In addition, the Bank's management also reviews and, where determined necessary, provides allowances for particular loans based upon (1) reviews of specific borrowers and (2) management’s assessment of areas that management considers are of higher credit risk, including loans that have been modified. Collateral-dependent loans decreased $2.06 million from December 31, 2024 to December 31, 2025. Collateral-dependent loans include any loan that has been placed on nonaccrual status, accruing loans past due 90 days or more and loans made to borrowers with financial difficulties. Collateral-dependent loans also include loans that, based on management’s evaluation of current information and events, the Company expects to be unable to collect in full according to the contractual terms of the original loan agreement. Collateral-dependent loans were 0.88% of loans held for investment as of December 31, 2025 and 0.97% as of December 31, 2024. The decrease in collateral-dependent loans is primarily due to a decrease in nonaccrual loans of $6.31 million. There were no significant changes noted in the extent to which collateral secures collateral-dependent loans. A description of the Bank's credit quality indicators are discussed in Note 3 to the Company's Consolidated Financial Statements. Page 43 T able of Content s The following table summarizes the Company's collateral dependent loans and non-performing assets as of December 31 for each of the years presented: 2025 2024 2023 2022 2021 (Amounts In Thousands) Nonaccrual loans $ 17,613 $ 23,926 $ 30,888 $ 6,815 $ 8,491 Accruing loans past due 90 days or more (1) 2,537 866 545 553 201 Loans with specific reserves, credit cards for 2025 175 192 1,665 307 20 Loan modifications to borrowers experiencing financial difficulties 7,834 6,741 4,087 — — 2025-2023 Other non-performing loans; 2022 and prior former troubled debt restructurings ("TDR loans")(2) 1,306 1,770 3,159 5,905 7,921 Total non-performing loans $ 29,465 $ 33,495 $ 40,344 $ 13,580 $ 16,633 Other real estate 452 1,035 — — — Non-performing assets (includes collateral dependent loans and other real estate) $ 29,917 $ 34,530 $ 40,344 $ 13,580 $ 16,633 Loans held for investment $3,564,732 $3,438,171 $3,438,423 $3,108,113 $2,660,233 Ratio of allowance for credit losses to loans held for investment 1.63 % 1.48 % 1.44 % 1.33 % 1.33 % Ratio of allowance for credit losses to non-performing loans 197.54 152.08 122.47 305.15 213.25 Ratio of non-performing loans to total loans held for investment 0.83 0.97 1.17 0.44 0.63 Ratio of non-performing assets to total assets 0.64 0.75 0.93 0.34 0.41 (1) The accruing loans past due 90 days or more are still believed to be adequately collateralized. Loans are placed on nonaccrual status when management believes the collection of future principal and interest is not reasonably assured. (2) Total TDR loans were $7.66 million and $10.20 million as of December 31, 2022 and 2021, respectively. Included in the total nonaccrual loans were $1.75 million and $2.28 million of TDR loans as of December 31, 2022 and 2021, respectively. The ratio of allowance for credit losses to non-performing loans increased to 197.54% as of December 31, 2025 compared to 152.08% as of December 31, 2024. The increase in 2025 is primarily due to the increase in the allowance for credit losses and the decrease in nonaccrual loans compared to 2024. The ratio of non-performing loans to total gross loans was 0.83% and 0.97% at December 31, 2025 and 2024, respectively. The decrease in the 2025 ratio is primarily due to the decrease in nonaccrual loans. Other factors that are considered in determining the credit quality of the Company’s loan portfolio are the vacancy rates for both residential and commercial space, current equity the borrower has in the property and overall financial strength of the customer including cash flow to continue to fund loan payments. The Company also considers the state of the total economy including unemployment levels. In most instances, the borrowers have used in their rental projections of income at least a 10.00% vacancy rate. As of December 31, 2025, the unemployment levels in Johnson County and Linn County were 2.40% and 3.40%, respectively, compared to 2.20% and 3.20% in December of 2024. These levels compare favorably to the State of Iowa at 3.50% and the national unemployment level at 4.40% in December 2025 compared to 3.20% and 4.10%, respectively in December 2024. The State of Iowa vacancy rate is 7.30% and the national rate is 7.20% with the Midwest rate at 7.20%. These vacancy rates one year ago were 8.40%, 6.90% and 7.20%, respectively, so are slightly lowered compared to the prior year. The Company continues to consider those vacancy rates among other factors in its current evaluation of the real estate portion of its loan portfolio. Vacancy rates may continue to rise in 2026 and affect the overall quality of the loan portfolio. See Note 3 to the Company's Consolidated Financial Statements for additional disclosures on loans. Page 44 T able of Content s SUMMARY OF CREDIT LOSS EXPERIENCE ON LOANS The allowance for credit losses is also affected by the charge-offs and recoveries for the periods presented. For the years ended December 31, 2025, 2024 and 2023, recoveries were $3.53 million, $3.99 million, and $1.67 million, respectively; charge-offs were $6.99 million, $6.88 million, and $8.64 million in 2025, 2024 and 2023, respectively. Overall credit quality may deteriorate in 2026. Such deterioration could cause increases in non-performing loans, allowance for credit losses, credit loss expense and net charge-offs. Management will monitor changing market conditions as a part of its allowance for credit loss methodology. The following table summarizes the Bank's credit loss experience on loans for the years ended December 31 for each of the years presented: Agricultural Commercial and Financial Real Estate: Construction and land development Real Estate: Mortgage, farmland Real Estate: Mortgage, 1 to 4 family Real Estate: Mortgage, multi-family and commercial Other Total (Amounts In Thousands) 2025 Allowance for credit losses: Beginning balance $ 674 $ 10,217 $ 2,393 $ 3,252 $ 22,929 $ 10,353 $ 1,122 $ 50,940 Charge-offs (39) (2,128) (428) — (1,375) (1,297) (1,722) (6,989) Recoveries 180 1,635 77 42 650 517 428 3,529 Credit loss (benefit) expense (397) 2,166 1,740 (816) 4,394 2,627 1,010 10,724 Ending balance $ 418 $ 11,890 $ 3,782 $ 2,478 $ 26,598 $ 12,200 $ 838 $ 58,204 Net charge-offs/(net recoveries) to average net loans outstanding (0.12) % 0.17 % 0.10 % (0.02) % 0.05 % 0.08 % 1.73 % 0.10 % Agricultural Commercial and Financial Real Estate: Construction and land development Real Estate: Mortgage, farmland Real Estate: Mortgage, 1 to 4 family Real Estate: Mortgage, multi-family and commercial Other Total (Amounts In Thousands) 2024 Allowance for credit losses: Beginning balance $ 2,516 $ 8,750 $ 6,482 $ 3,429 $ 18,552 $ 8,156 $ 1,525 $ 49,410 Charge-offs (669) (2,568) (739) (39) (1,151) (224) (1,490) (6,880) Recoveries 100 1,197 886 37 964 430 378 3,992 Credit loss (benefit) expense (1,273) 2,838 (4,236) (175) 4,564 1,991 709 4,418 Ending balance $ 674 $ 10,217 $ 2,393 $ 3,252 $ 22,929 $ 10,353 $ 1,122 $50,940 Net charge-offs/(net recoveries) to average net loans outstanding 0.49 % 0.45 % (0.04) % — % 0.01 % (0.02) % 1.34 % 0.08 % Page 45 T able of Content s Agricultural Commercial and Financial Real Estate: Construction and land development Real Estate: Mortgage, farmland Real Estate: Mortgage, 1 to 4 family Real Estate: Mortgage, multi-family and commercial Other Total (Amounts In Thousands) 2023 Allowance for credit losses: Beginning balance $ 2,542 $ 6,259 $ 4,189 $ 2,989 $ 14,208 $ 9,416 $ 1,837 $ 41,440 Charge-offs (781) (3,214) (2,066) (21) (467) (869) (1,219) (8,637) Recoveries 72 556 13 56 446 256 267 1,666 Credit loss (benefit) expense 683 5,149 4,346 405 4,365 (647) 640 14,941 Ending balance $ 2,516 $ 8,750 $ 6,482 $ 3,429 $ 18,552 $ 8,156 $ 1,525 $49,410 Net charge-offs/(net recoveries) to average net loans outstanding 0.62 % 0.92 % 0.60 % (0.01) % — % 0.07 % 1.11 % 0.21 % Agricultural Commercial and Financial Real Estate: Construction and land development Real Estate: Mortgage, farmland Real Estate: Mortgage, 1 to 4 family Real Estate: Mortgage, multi-family and commercial Other Total (Amounts In Thousands) 2022 Allowance for credit losses: Beginning balance $ 2,261 $ 4,269 $ 2,300 $ 3,433 $ 11,498 $ 10,498 $ 1,211 $ 35,470 Charge-offs (357) (447) — (40) (729) (51) (589) (2,213) Recoveries 83 584 48 296 898 361 153 2,423 Credit loss (benefit) expense 555 1,853 1,841 (700) 2,541 (1,392) 1,062 5,760 Ending balance $ 2,542 $ 6,259 $ 4,189 $ 2,989 $ 14,208 $ 9,416 $ 1,837 $ 41,440 Net charge-offs/(net recoveries) to average net loans outstanding 0.25 % (0.06) % (0.02) % (0.10) % (0.01) % (0.04) % 0.52 % (0.01) % Agricultural Commercial and Financial Real Estate: Construction and land development Real Estate: Mortgage, farmland Real Estate: Mortgage, 1 to 4 family Real Estate: Mortgage, multi-family and commercial Other Total (Amounts In Thousands) 2021 Allowance for credit losses: Beginning balance $ 2,508 $ 4,885 $ 2,319 $ 4,173 $ 12,368 $ 9,415 $ 1,402 $ 37,070 Impact of adopting ASC 326 (328) 298 327 763 522 1,396 (232) 2,746 Charge-offs (106) (136) (3) (1) (482) (265) (323) (1,316) Recoveries 142 1,103 94 25 964 263 152 2,743 Credit loss (benefit) expense 45 (1,881) (437) (1,527) (1,874) (311) 212 (5,773) Ending balance $ 2,261 $ 4,269 $ 2,300 $ 3,433 $ 11,498 $ 10,498 $ 1,211 $ 35,470 Net charge-offs/(net recoveries) to average net loans outstanding (0.04) % (0.38) % (0.05) % (0.01) % (0.05) % — % 0.20 % (0.05) % Page 46 T able of Content s ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES The following table presents the allowance for credit losses by type of loans, the percentage of the allocation for each category to the total allowance and the percentage of all loans in each category to total loans as of December 31, 2025, 2024, 2023, 2022 and 2021: 2025 2024 Amount % of Total Allowance % of Loans to Total Loans Amount % of Total Allowance % of Loans to Total Loans (In Thousands) (In Thousands) Agricultural $ 418 0.72 % 3.34 % $ 674 1.32 % 3.45 % Commercial and financial 11,890 20.43 8.29 10,217 20.06 8.69 Real estate: Construction, 1 to 4 family residential 617 1.06 2.52 280 0.55 2.31 Construction, land development and commercial 3,165 5.44 6.97 2,113 4.15 8.13 Mortgage, farmland 2,478 4.26 7.76 3,252 6.38 8.02 Mortgage, 1 to 4 family first liens 20,959 36.01 35.40 18,210 35.75 34.15 Mortgage, 1 to 4 family junior liens 5,639 9.69 4.02 4,719 9.26 4.12 Mortgage, multi-family 2,345 4.03 13.87 2,828 5.55 14.33 Mortgage, commercial 9,855 16.93 15.85 7,525 14.77 14.49 Loans to individuals 826 1.42 0.81 1,109 2.18 1.03 Obligations of state and political subdivisions 12 0.01 1.17 13 0.03 1.28 $ 58,204 100.00 % 100.00 % $ 50,940 100.00 % 100.00 % 2023 2022 Agricultural $ 2,516 5.09 % 3.37 % $ 2,542 6.13 % 3.63 % Commercial and financial 8,750 17.71 8.93 6,259 15.10 8.67 Real estate: Construction, 1 to 4 family residential 1,113 2.25 2.33 1,111 2.68 2.97 Construction, land development and commercial 5,369 10.87 9.13 3,078 7.43 6.31 Mortgage, farmland 3,429 6.94 8.18 2,989 7.21 8.25 Mortgage, 1 to 4 family first liens 14,664 29.68 35.52 11,147 26.91 36.40 Mortgage, 1 to 4 family junior liens 3,888 7.87 4.20 3,061 7.39 4.02 Mortgage, multi-family 4,255 8.61 13.70 4,435 10.70 14.06 Mortgage, commercial 3,901 7.90 12.12 4,981 12.02 12.96 Loans to individuals 1,247 2.52 1.17 1,397 3.37 1.18 Obligations of state and political subdivisions 278 0.56 1.35 440 1.06 1.55 $ 49,410 100.00 % 100.00 % $ 41,440 100.00 % 100.00 % Page 47 T able of Content s 2021 Amount % of Total Allowance % of Loans to Total Loans (In Thousands) Agricultural $ 2,261 6.37 % 4.02 % Commercial and financial 4,269 12.04 8.35 Real estate: Construction, 1 to 4 family residential 818 2.31 3.03 Construction, land development and commercial 1,482 4.18 4.77 Mortgage, farmland 3,433 9.68 8.75 Mortgage, 1 to 4 family first liens 8,340 23.52 34.19 Mortgage, 1 to 4 family junior liens 3,158 8.90 4.30 Mortgage, multi-family 3,715 10.47 14.39 Mortgage, commercial 6,783 19.12 15.09 Loans to individuals 771 2.17 1.23 Obligations of state and political subdivisions 440 1.24 1.88 $ 35,470 100.00 % 100.00 % The Company believes that the allowance for credit losses is at a level commensurate with the overall risk exposure of the loan portfolio. However, if economic conditions deteriorate, certain borrowers may experience difficulty and the level of non-performing loans, charge-offs and delinquencies could rise and require increases in the allowance for credit losses. The Company will continue to monitor the adequacy of the allowance on a quarterly basis and will consider the impact of economic conditions on the borrowers’ ability to repay, loan collateral values, past collection experience, the risk characteristics of the loan portfolio and such other factors that deserve current recognition. Noninterest Income The following table sets forth the various categories of noninterest income for the years ended December 31, 2025, 2024 and 2023. Year Ended December 31, $ Change % Change 2025 2024 2023 2025/2024 2024/2023 2025/2024 2024/2023 (Amounts in thousands) Net gain on sale of loans $ 1,637 $ 2,342 $ 1,541 $ (705) $ 801 (30.10) % 51.98 % Trust fees 17,141 15,261 13,578 1,880 1,683 12.32 12.40 Service charges and fees 13,114 12,923 12,946 191 (23) 1.48 (0.18) Other noninterest income 2,090 1,512 541 578 971 38.23 179.48 Loss on sale of investment securities (9,633) (5,217) $ — (4,416) (5,217) 84.65 — $ 24,349 $ 26,821 $ 28,606 $ (2,472) $ (1,785) (9.22) % (6.24) % The noninterest income of the Company was $24.35 million in 2025 compared to $26.82 million in 2024. The decrease of $2.47 million in 2025 was the result of a combination of factors discussed below. The net gain on the sale of loans was $1.64 million and $2.34 million for the years ended December 31, 2025 and 2024, respectively, a decrease of 30.10% for the year ended December 31, 2025 compared to the same period in 2024. The amount of the net gain on sale of secondary market mortgage loans in each year can vary significantly. The volume of activity in these types of loans is directly related to the level of interest rates as well as the current origination and refinancing activity. The Page 48 T able of Content s servicing of the loans sold into the secondary market is not retained by the Company so these loans do not provide an ongoing stream of income. Trust fees were $17.14 million and $15.26 million for the years ended December 31, 2025 and 2024, respectively, an increase of 12.32% for the year ended December 31, 2025 compared to the same period in 2024. This is primarily driven by the increase in assets under management of $400.74 million from $2.912 billion as of December 31, 2024 to $3.313 billion as of December 31, 2025 and increased investment transaction activity. The trust assets that are the most volatile are those that are held in common stocks, which amount to approximately 65% of assets under management. In 2025, the Dow Jones Industrial Average increased 12.97%. The Company completed a balance sheet repositioning related to its investment securities portfolio at the end of 2025. This consisted of multiple sales of lower-yielding AFS debt securities in 2025, resulting in a pre-tax realized loss on the sales of $9.63 million in total. The sale of these securities was done for the sole purpose of an investment portfolio repositioning. The securities sales executed as part of the Company’s balance sheet repositioning strategy in 2025 resulted in realized losses recognized in earnings, while also contributing to the improvement in accumulated other comprehensive loss and positioning the investment portfolio for enhanced yield and reduced interest rate sensitivity in future periods. Management does not currently anticipate additional material balance-sheet repositioning losses of a similar magnitude. Other noninterest income categories experienced marginal period-to-period fluctuations for the year ended December 31, 2025. Noninterest Expenses The following table sets forth the various categories of noninterest expenses for the year ended December 31, 2025, 2024 and 2023. Year Ended December 31, $ Change % Change 2025 2024 2023 2025/2024 2024/2023 2025/2024 2024/2023 (Amounts in thousands) Salaries and employee benefits $ 46,176 $ 44,548 $ 44,897 $ 1,628 $ (349) 3.65 % (0.78) % Occupancy 4,688 4,266 4,408 422 (142) 9.89 (3.22) Loss on disposal of property and equipment 1,071 — — 1,071 — 100.00 — Furniture, equipment and software 7,456 6,757 6,835 699 (78) 10.34 (1.14) Office supplies and postage 2,167 2,043 1,879 124 164 6.07 8.73 Advertising and business development 3,128 2,970 2,851 158 119 5.32 4.17 Outside services 16,513 14,021 13,791 2,492 230 17.77 1.67 FDIC insurance assessment 2,018 1,922 1,807 96 115 4.99 6.36 Other noninterest expense 3,296 3,706 1,929 (410) 1,777 (11.06) 92.12 $ 86,513 $ 80,233 $ 78,397 $ 6,280 $ 1,836 7.83 % 2.34 % Total noninterest expenses were $86.51 million and $80.23 million for the years ended December 31, 2025 and 2024, respectively. The increase is $6.28 million or 7.83% in 2025 and an increase of $1.84 million or 2.34% in 2024. Salaries and employee benefits increased $1.63 million or 3.65% in 2025 primarily due to annual salary adjustments. Occupancy expenses increased $422,000 or 9.89% in 2025. The primary reasons for the increase are increased bank building ground maintenance and bank building repairs and maintenance. Furniture, equipment and software increased $699,000 or 10.34% in 2025. This is primarily due to the yearly rate increase in software maintenance contracts. The amounts for 2025 include a loss on disposal of property and equipment of $1.07 million as a result of prior period property and equipment disposals of $36.47 million which were corrected in the current period and are discussed further in Note 1. Page 49 T able of Content s Outside services increased $2.49 million or 17.77% in 2025. This is primarily driven by $1.11 million increase of professional fees related to internal control testing and improvements. Additional increases were a $487,000 increase in debit card and data processing expenses as well as a $434,000 increase in other real estate owned losses over the prior year end. Other noninterest expense categories experienced marginal period-to-period fluctuations for the year ended December 31, 2025. Income Taxes Income tax expense was $15.19 million, $12.60 million, and $10.30 million for the years ended December 31, 2025, 2024 and 2023, respectively. Income taxes as a percentage of income before income taxes were 20.07% in 2025, 20.93% in 2024 and 21.24% in 2023. See Note 11 Income Taxes for additional information. Effects of Inflation The consolidated financial statements and the accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollar amounts without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact in the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. Liquidity and interest rate adjustments are features of the Company’s asset/liability management, which are important to the maintenance of acceptable performance levels. Item 7A of this Form 10-K contains a more thorough discussion of interest rate risk. The Company attempts to maintain a balance between monetary assets and monetary liabilities to offset the potential effects of changing interest rates. Liquidity and Capital Resources The objective of liquidity management is to ensure the availability of sufficient cash flows to fund operations, to meet depositor withdrawals, to provide for our customers' credit needs and to meet maturing obligations and existing commitments. The Company's principal source of funds is deposits. Other sources include loan principal repayments, proceeds from the maturity and sale of investment securities, federal funds purchased, advances from the FHLB, advances on bank lines of credit, brokered deposit relationships and funds provided by operations. Liquidity management is conducted on both a daily and a long-term basis. Investments in liquid assets are adjusted based on expected loan demand, projected loan and investment securities maturities and payments, expected deposit flows and the objectives set by the Company's asset-liability management, liquidity and contingency funding policies. The Company has historically maintained a stable deposit base and a relatively low level of large deposits, which has mitigated the volatility in the Company’s liquidity position. Deposit inflows and outflows can vary widely based on prevailing market interest rates, competition, economic conditions, our business customers' liquidity needs and by recent developments in the financial services industry. Uninsured deposits as of December 31, 2025 and 2024 were approximately $733.97 million and $719.62 million, respectively, which comprised 21.79% and 21.51% of total deposits. As of December 31, 2025, the Company had additional borrowing capacity available from the FHLB of $986.75 million. The Company had $64.33 million outstanding in FHLB borrowings as of December 31, 2025 with maturities through 2030. The Company also had $586.88 million outstanding in FHLB daily reset advances as of December 31, 2025. In addition, the Company had $175.00 million in borrowing capacity available through secured and unsecured lines of credit with correspondent banks with no borrowings under those federal funds lines as of December 31, 2025. During 2025 the Company paid off its outstanding balance of $109.00 million in the Bank Term Funding Program. Finally, the Company had $105.54 million in borrowing capacity available through the Federal Reserve Discount Window with no borrowings as of December 31, 2025. On an unconsolidated basis, the Company had cash balances of $2.96 million as of December 31, 2025. In 2025, the Company received dividends of $26.32 million from its subsidiary Bank and used those funds to pay dividends to its stockholders of $10.32 million and to fund purchases of treasury stock under the 2005 Stock Repurchase Program. The total purchase of treasury stock under the 2005 Stock Repurchase Program totaled $15.63 million and $12.90 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, stockholders' equity, before deducting for the maximum cash obligation related to the ESOP, was $602.71 million and $540.94 million, respectively. This measure of stockholders’ equity as a percent of total assets Page 50 T able of Content s was 12.97% at December 31, 2025 and 11.79% at December 31, 2024. As of December 31, 2025, total equity, after deducting the maximum cash value related to the ESOP, was 11.80% of assets compared to 10.74% of assets at the prior year end. The Company and the Bank are subject to the Federal Deposit Insurance Corporation Improvement Act of 1991, and the Bank is subject to Prompt Corrective Action Rules as determined and enforced by the Federal Reserve. These regulations establish minimum capital requirements that member banks must maintain. The Bank is classified as "well-capitalized" by FDIC capital guidelines. For more information regarding regulatory capital requirements, see the section under Part I, Item 1 to this 10-K captioned “Supervision and Regulation.” On a consolidated basis, 2025 cash flows from operations provided $68.81 million, proceeds from maturities of investments available for sale provided $167.28 million and proceeds from FHLB borrowings, FHLB daily reset advances and Bank Term Funding Program borrowings provided $1.743 billion. These cash flows were invested in multiple areas including $250.17 million in purchases of investment securities and $130.48 million of loans made to customers. In addition, $3.67 million was used to purchase property and equipment. The Bank has a contingency funding plan to address liquidity issues in times of crisis. The primary source of funding will be the Bank’s customer deposit base. The Bank has established alternative sources of funding available to increase liquidity. The availability of the funding sources is tested on an annual basis. The Bank performs quarterly stress testing to determine if the Bank has an appropriate amount of funding sources to address potential liquidity needs. At December 31, 2025, the Bank had total outstanding loan commitments and unused portions of lines of credit totaling $686.44 million (see Note 16 to the Company's Consolidated Financial Statements). Management believes that its liquidity levels are sufficient at this time, but the Bank may increase its liquidity by limiting the growth of its assets, by selling more loans in the secondary market or selling portions of loans to other banks through participation agreements. Another liquidity source includes obtaining additional funds from the Federal Home Loan Bank (FHLB). As of December 31, 2025, the Bank can obtain an additional $986.75 million from the FHLB based on the current real estate mortgage loans held. In addition, the Bank has arranged $175.00 million of credit lines at three banks. Investment securities are pledged to secure a credit line of $50.00 million, while the other credit lines are unsecured. Other liquidity sources include various sources of brokered deposits. The following table shows outstanding balances, weighted average interest rates at year end, maximum month-end balances, average month-end balances and weighted average interest rates of Federal Home Loan Bank borrowings during 2025, 2024 and 2023: 2025 2024 2023 (Amounts In Thousands) Outstanding balance as of December 31 $ 64,333 $ 127,050 $ 296,648 Weighted average interest rate at year end 4.05 % 5.22 % 5.55 % Maximum month-end balance 600,621 359,895 296,648 Average month-end balance 344,950 191,346 94,413 Weighted average interest rate for the year 4.45 % 5.22 % 5.55 % Page 51 T able of Content s The following tables show outstanding balances, weighted average interest rates at year end, maximum month-end balances, average month-end balances and weighted average interest rates of FHLB daily reset advances and bank term funding program borrowings during 2025, 2024 and 2023: 2025 2024 2023 Bank Term Funding Program (Amounts In Thousands) Outstanding balance as of December 31 $ — $ 109,000 $ 219,000 Weighted average interest rate at year end — % 4.77 % 5.29 % Maximum month-end balance — 219,000 219,000 Average month-end balance 4,395 214,726 8,900 Weighted average interest rate for the year 5.17 % 4.77 % 5.29 % FHLB Daily Reset Advances Outstanding balance as of December 31 $ 586,882 $ 437,636 $ — Weighted average interest rate at year end 3.98 % 5.31 % — % Maximum month-end balance 588,740 437,636 286,119 Average month-end balance 293,265 118,113 205,315 Weighted average interest rate for the year 4.43 % 5.31 % 5.31 % The Bank has off-balance sheet commitments to fund additional borrowings of customers. Contractual commitments to fund loans are met from the proceeds of federal funds sold or investment securities and additional borrowings. Many of the contractual commitments to extend credit will not be funded because they represent the credit limits on credit cards and home equity lines of credits. As disclosed in Note 16 to the Company's Consolidated Financial Statements, the Company has certain obligations and commitments to make future payments under contracts. The following table summarizes significant contractual obligations and other commitments as of December 31, 2025: Payments Due By Period (Amounts In Thousands) Total Less Than One Year One - Three Years Three - Five Years More Than Five Years Contractual obligations: Long-term debt obligations $ 651,215 $ 586,882 $ 40,000 $ 24,333 $ — Operating lease obligations 1,001 318 611 72 — Total contractual obligations: $ 652,216 $ 587,200 $ 40,611 $ 24,405 $ — Other commitments: Lines of credit $ 675,284 $ 482,597 $ 147,828 $ 41,219 $ 3,640 Standby letters of credit 11,152 5,806 1,387 1,119 2,840 Total other commitments $ 686,436 $ 488,403 $ 149,215 $ 42,338 $ 6,480 The Company and the Bank have no additional material commitments or plans that will materially affect liquidity or capital resources. Property and equipment may be acquired in cash purchases, or they may be financed if favorable terms are available. Page 52 T able of Content s