FARMERS & MERCHANTS BANCORP
10-Ks and 10-Qs
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30,
2025
or
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
_________
to
__________
Commission File Number:
000-26099
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code (
209
)
367-2300
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which
registered
|
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None
|
Not Applicable
|
Not Applicable
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Y
es
☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐
|
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Non-accelerated filer ☐
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Smaller reporting company
|
|
Emerging growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Y
es ☐ No
☒
As of October 31, 2025, the registrant had
720,365
shares of common stock, $0.01 par value per share, outstanding.
FARMERS & MERCHANTS BANCORP
FORM 10-Q
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PART I. -
FINANCIAL INFORMATION
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Page
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3
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4
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5
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6
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7
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8
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36
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59
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||
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61
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||
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PART II. -
OTHER INFORMATION
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61
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61
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62
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63
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63
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63
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63
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64
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PART 1. FINANCIAL INFORMATION
| Item 1. |
Financial Statements (Unaudited)
|
FARMERS & MERCHANTS BANCORP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
(Dollars in thousands, except share and per share amounts)
|
September 30,
2025
|
December 31,
2024 |
||||||
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ASSETS
|
||||||||
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Cash and due from banks
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$
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$
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||||
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Interest bearing deposits with banks
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||||||
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Total cash and cash equivalents
|
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||||||
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Securities available-for-sale, amortized cost $
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|
||||||
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Securities held-to-maturity, fair value
$
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|
||||||
|
Allowance for credit losses - securities held-to-maturity
|
(
|
)
|
(
|
)
|
||||
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Total investment securities
|
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|
||||||
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Non-marketable securities
|
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||||||
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Loans and leases held for investment, net of unearned income
|
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||||||
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Allowance for credit losses - loans and leases
|
(
|
)
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(
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)
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||||
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Loans and leases held for investment, net
|
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|
||||||
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Bank-owned life insurance
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||||||
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Premises and equipment, net
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||||||
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Deferred income tax assets and income taxes receivable
|
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||||||
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Accrued interest receivable
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||||||
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Goodwill
|
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||||||
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Other intangibles
|
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||||||
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Other real estate owned
|
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||||||
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Other assets
|
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||||||
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Total Assets
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$
|
|
$
|
|
||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
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Deposits:
|
||||||||
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Non-interest bearing
|
$
|
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$
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||||
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Interest bearing:
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||||||||
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Demand
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||||||
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Savings and money market
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||||||
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Certificates of deposit
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||||||
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Total interest bearing
|
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||||||
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Total deposits
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||||||
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Subordinated debentures
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||||||
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Interest payable and other liabilities
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||||||
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Total Liabilities
|
|
|
||||||
|
COMMITMENTS AND CONTINGENCIES (Note 12)
|
||||||||
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SHAREHOLDERS’ EQUITY
|
||||||||
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Preferred shares,
|
|
|
||||||
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Common shares, $
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|
|
||||||
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Additional paid-in capital
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|
||||||
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Retained earnings
|
|
|
||||||
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Accumulated other comprehensive loss, net of taxes
|
(
|
)
|
(
|
)
|
||||
|
Treasury stock, at cost;
|
(
|
)
|
|
|||||
|
TOTAL SHAREHOLDERS’ EQUITY
|
|
|
||||||
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
|
$
|
|
||||
See accompanying notes to the unaudited consolidated financial statements.
FARMERS & MERCHANTS BANCORP
(Unaudited)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
(Dollars in thousands, except share and per share amounts)
|
2025
|
2024
|
2025
|
2024
|
||||||||||||
|
Interest income
|
||||||||||||||||
|
Interest and fees on loans and leases
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Interest and dividends on investment securities
|
|
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|
||||||||||||
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Interest on deposits with others
|
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||||||||||||
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Total interest income
|
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||||||||||||
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Interest expense
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||||||||||||||||
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Deposits
|
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||||||||||||
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Borrowed funds
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||||||||||||
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Subordinated debentures
|
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||||||||||||
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Total interest expense
|
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||||||||||||
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Net interest income
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||||||||||||
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Provision for credit losses
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||||||||||||
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Net interest income after provision for credit losses
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||||||||||||
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Non-interest income
|
||||||||||||||||
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Card processing
|
|
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||||||||||||
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Service charges on deposit accounts
|
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||||||||||||
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Increase in cash surrender value of BOLI
|
|
|
|
|
||||||||||||
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Net gain on sale of securities available-for-sale
|
|
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|
||||||||||||
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Net gain
on deferred compensation benefits
|
|
|
|
|
||||||||||||
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Other
|
|
|
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|
||||||||||||
|
Total non-interest income
|
|
|
|
|
||||||||||||
|
Non-interest expense
|
||||||||||||||||
|
Salaries and employee benefits
|
|
|
|
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||||||||||||
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Data processing
|
|
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|
||||||||||||
|
Occupancy
|
|
|
|
|
||||||||||||
|
Deposit insurance
|
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|
||||||||||||
|
Professional services
|
|
|
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|
||||||||||||
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Marketing
|
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|
||||||||||||
|
Net gain on deferred compensation benefits
|
|
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|
||||||||||||
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Other
|
|
|
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|
||||||||||||
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Total non-interest expense
|
|
|
|
|
||||||||||||
|
INCOME BEFORE INCOME TAXES
|
|
|
|
|
||||||||||||
|
Income tax expense
|
|
|
|
|
||||||||||||
|
NET INCOME
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Earnings per common share:
|
||||||||||||||||
|
Basic
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Diluted
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Weighted average number of common shares
|
||||||||||||||||
|
Basic
|
|
|
|
|
||||||||||||
|
Diluted
|
|
|
|
|
||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
FARMERS & MERCHANTS BANCORP
(Unaudited)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
2025
|
2024
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Other comprehensive income
|
||||||||||||||||
|
Unrealized gains
on available-for-sale securities
|
|
|
|
|
||||||||||||
|
Reclassification adjustment for gains on available-for-sale securities
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
Amortization of unrecognized loss on securities transferred to held-to-maturity
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Net unrealized gains on securities
|
|
|
|
|
||||||||||||
|
Income tax expense
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Other comprehensive income, net of tax
|
|
|
|
|
||||||||||||
|
Total comprehensive income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
See accompanying notes to the unaudited consolidated financial statements.
FARMERS & MERCHANTS BANCORP
(Unaudited)
|
For the three and nine months ended September 30, 2025 and 2024
|
||||||||||||||||||||||||||||||||
|
(Dollars in thousands, except share amounts)
|
Common
Shares
|
Amount
|
Additional
Paid-In
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
(Loss)/Income
|
Shares
|
Treasury
Stock
|
Total
|
||||||||||||||||||||||||
|
Balance as of June 30, 2025
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
|
Net income
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income, net of tax
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Forfeiture of restricted stock awards
|
(
|
)
|
|
|
|
|
-
|
|
|
|||||||||||||||||||||||
|
Stock based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Cash dividends declared ($
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
|
Repurchase of common stock
|
(
|
)
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
|||||||||||||||||||||
|
Adjustment common stock excise tax
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Purchase of treasury stock
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||
|
Balance as of September 30, 2025
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
|
Balance as of June 30, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
|
|||||||||||||||||
|
Net income
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income, net of tax
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Repurchase of common stock
|
(
|
)
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
|||||||||||||||||||||
|
Balance as of September 30, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
|
|||||||||||||||||
|
(Dollars in thousands, except share amounts)
|
Common
Shares
|
Amount
|
Additional
Paid-In
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
(Loss)/Income
|
Shares
|
Treasury
Stock
|
Total
|
||||||||||||||||||||||||
|
Balance as of December 31, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
|
|||||||||||||||||
|
Net income
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income, net of tax
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Issuance of restricted stock awards
|
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Forfeiture of restricted stock awards
|
(
|
)
|
|
|
|
|
-
|
|
|
|||||||||||||||||||||||
|
Stock based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Cash dividends declared ($
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
|
Repurchase of common stock
|
(
|
)
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
|||||||||||||||||||||
|
Purchase of treasury stock
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||
|
Balance as of September 30, 2025
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
|
Balance as of December 31, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
|
|||||||||||||||||
|
Cumulative change from adoption of ASU 2023-02
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Net income
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income, net of tax
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
|
Cash dividends declared ($
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
|
Repurchase of common stock
|
(
|
)
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
|||||||||||||||||||||
|
Balance as of September 30, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
|
|||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
FARMERS & MERCHANTS BANCORP
(Unaudited)
|
Nine Months Ended
September 30,
|
||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Provision for credit losses
|
|
|
||||||
|
Depreciation and amortization
|
|
|
||||||
|
Net accretion of securities premiums and discounts
|
(
|
)
|
(
|
)
|
||||
|
Stock based compensation expense
|
|
|
||||||
|
Increase in cash surrender value of BOLI
|
(
|
)
|
(
|
)
|
||||
|
Decrease in deferred income taxes, net
|
|
|
||||||
|
Gain on sale of securities available-for-sale
|
|
(
|
)
|
|||||
|
Net changes in:
|
||||||||
|
Other assets
|
(
|
)
|
(
|
)
|
||||
|
Other liabilities
|
|
|
||||||
|
Net cash provided by operating activities
|
|
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Net decrease (increase) in loans and leases held for investment
|
|
(
|
)
|
|||||
|
Purchase of available-for-sale securities
|
(
|
)
|
(
|
)
|
||||
|
Purchase of held-to-maturity securities
|
(
|
)
|
(
|
)
|
||||
|
Proceeds from sales, maturities, calls and pay downs of available-for-sale securities
|
|
|
||||||
|
Proceeds from maturities, calls and pay downs of held-to-maturity securities
|
|
|
||||||
|
Purchase of premises and equipment
|
(
|
)
|
(
|
)
|
||||
|
Purchase of other investments
|
(
|
)
|
(
|
)
|
||||
|
Redemption of other investments
|
|
|
||||||
|
Proceeds from bank-owned life insurance
|
|
|
||||||
|
Proceeds from sale of assets
|
|
|
||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Net increase in deposits
|
|
|
||||||
|
Cash dividends paid
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in share repurchase program
|
(
|
)
|
(
|
)
|
||||
|
Purchase of treasury stock
|
(
|
)
|
|
|||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Net change in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Cash and cash equivalents, beginning of period
|
|
|
||||||
|
Cash and cash equivalents, end of period
|
$
|
|
$
|
|
||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Cash paid for interest
|
$
|
|
$
|
|
||||
|
Income taxes paid
|
$
|
|
$
|
|
||||
|
Supplemental disclosures of non-cash transactions:
|
||||||||
|
Net change in unrealized losses on securities available-for-sale
|
$
|
(
|
)
|
$
|
(
|
)
|
||
See accompanying notes to the unaudited consolidated financial statements.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated financial statements include the accounts of Farmers & Merchants Bancorp (“FMCB” or “Bancorp”), a bank holding company incorporated in the State of Delaware, and its wholly
owned subsidiary, Farmers & Merchants Bank of Central California (“F&M Bank” or the “Bank”) (collectively, the “Company”).
These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with
the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation of the financial position and results of operations for the periods presented have been included. Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC and the
accounting standards for interim financial statements. All significant intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s
accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments,
estimates and assumptions inherent in those policies, are significant to an understanding of Bank’s financial statements. These policies relate to: (i) the determination of the provision and allowance for credit losses; (ii) the valuation of
financial assets and liabilities recorded at fair value; (iii) the valuation of intangibles, such as goodwill and core deposit intangibles (“CDI”); (iv) the valuation of other real estate owned (“OREO”); and (v) the valuation or recognition of
deferred tax assets and liabilities. These policies and judgments, estimates and assumptions are described in greater detail in subsequent notes to the Unaudited Consolidated Financial Statements and Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting Policies and Estimates, in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 14, 2025 (“2024 Form 10-K”) and Item 2 - Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates included in this Quarterly Report on Form 10-Q.
The information included in this Form 10-Q should be read in conjunction with our 2024 Form 10-K. Interim results are not necessarily indicative of results for a full year or any other interim period.
Summary of Significant Accounting Policies
Our accounting policies are described in Note 1 – Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our 2024 Form 10-K. As of September 30, 2025, there were no
significant changes to accounting policies from those disclosed in our audited consolidated financial statements included in our 2024 Form 10-K.
Use of estimates
— The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 1—Basis of Presentation and Significant Accounting Policies—Continued
Recently Adopted Accounting Standards
— The Accounting Standards Codification (“ASC”) is the FASB officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Periodically, the FASB will issue Accounting Standard Updates (“ASU”) to its ASC. Rules and interpretive releases of the SEC under the authority of the federal securities laws are also sources of authoritative GAAP for the Company as an SEC registrant. All other accounting literature is non-authoritative.
In December 2023, the FASB issued ASU No. 2023-09
, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.”
ASU 2023-09 requires public business
entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative
threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative
threshold, among other things. On January 1, 2025, the Company adopted this standard with no material impact on the Company’s consolidated financial statements, and the new income tax disclosures will be required beginning with our 2025 Form 10-K.
Accounting Standards Pending Adoption
— The following paragraphs provide descriptions of newly issued but not yet effective accounting standards that could have a material
effect on the Company’s financial position or results of operations.
In November 2024, the FASB issued ASU No. 2024-03, “
Income Statement – Reporting Comprehensive Income - Expense Disaggregation
Disclosures (Subtopic 220-40)
:
Disaggregation of Income Statement Expenses”
(“ASU 2024-03”), and in January 2025,
the FASB issued ASU No. 2025-01, “
Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”
(“ASU 2025-01”). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in
the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Both early
adoption and retrospective application are permitted. The Company is currently evaluating the impact that the adoption of these standards will have
on its consolidated financial statements and disclosures.
In March 2025, the FASB issued ASU No. 2025-02, “
Liabilities (Topic 405)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122
” (“ASU 2025-02”), which
communicates changes to the FASB codification, including changes to non-authoritative SEC content. The update affects SEC registrants, makes amendments to the GAAP taxonomy and is effective upon issuance. Management has evaluated the impact of the
adoption of this standard and determined there would be no material impact to the Company’s consolidated financial position or results of operations.
In July 2025, the FASB issued ASU No. 2025-05, “
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets
”
(“ASU 2025-05”). This ASU provides amendments that provide all entities with a practical expedient when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under
Topic 606. The amendments are effective in fiscal years beginning after December 15, 2025, and interim reporting periods within those fiscal years. The Company is evaluating adoption timing and the impact ASU 2025-05 will have on its financial
statements and, at this time, does not anticipate it will have a material impact on its consolidated financial statements.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2—Investment Securities
The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows:
|
Amortized
|
Gross Unrealized
|
|||||||||||||||
|
(Dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Fair Value
|
||||||||||||
|
As of September 30, 2025
|
||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Mortgage-backed securities
(1)
|
|
|
|
|
||||||||||||
|
Commercial mortgage-backed obligations
(1)
|
|
|
|
|
||||||||||||
|
Collateralized mortgage obligations
(1)
|
|
|
|
|
||||||||||||
|
Municipal securities
|
|
|
|
|
||||||||||||
|
Corporate securities
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total available-for-sale securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
Amortized
|
Gross Unrealized
|
|||||||||||||||
|
(Dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Fair Value
|
||||||||||||
|
As of December 31, 2024
|
||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Mortgage-backed securities
(1)
|
|
|
|
|
||||||||||||
|
Commercial mortgage-backed obligations
(1)
|
|
|
|
|
||||||||||||
|
Collateralized mortgage obligations
(1)
|
|
|
|
|
||||||||||||
|
Corporate securities
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total available-for-sale securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
The book values, estimated fair values and unrecognized gains and losses of investments classified as held-to-maturity are as follows:
|
Amortized
|
Gross Unrecognized
|
Allowance
for Credit
|
||||||||||||||||||
|
(Dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Fair Value
|
Losses
|
|||||||||||||||
|
As of September 30, 2025
|
||||||||||||||||||||
|
Mortgage-backed securities
(1)
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Collateralized mortgage obligations
(1)
|
|
|
|
|
|
|||||||||||||||
|
Municipal securities
|
|
|
|
|
|
|||||||||||||||
|
Total held-to-maturity securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
Amortized
|
Gross Unrecognized
|
Allowance
for Credit
|
||||||||||||||||||
|
(Dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Fair Value
|
Losses
|
|||||||||||||||
|
As of December 31, 2024
|
||||||||||||||||||||
|
Mortgage-backed securities
(1)
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Collateralized mortgage obligations
(1)
|
|
|
|
|
|
|||||||||||||||
|
Municipal securities
|
|
|
|
|
|
|||||||||||||||
|
Total held-to-maturity securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2—Investment Securities—Continued
The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost basis of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly,
no
allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal forecasts and (v) whether or not such securities are guaranteed or pre-refunded by the issuers.
Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.
The following tables show the gross unrealized losses for available-for-sale securities, for which an allowance for credit losses has not been recorded, that have been in an unrealized loss position for less than 12 months or 12 months or more:
|
September 30, 2025
|
||||||||||||||||||||||||
|
Less Than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||
|
(Dollars in thousands)
|
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
||||||||||||||||||
|
Available-for-sale securities
|
||||||||||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Mortgage-backed securities
(1)
|
|
|
|
|
|
|
||||||||||||||||||
|
Collateralized mortgage obligations
(1)
|
|
|
|
|
|
|
||||||||||||||||||
|
Corporate securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Total available-for-sale securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
December 31, 2024
|
||||||||||||||||||||||||
|
Less Than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||
|
(Dollars in thousands)
|
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
||||||||||||||||||
|
Available-for-sale securities
|
||||||||||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Mortgage-backed securities
(1)
|
|
|
|
|
|
|
||||||||||||||||||
|
Commerical mortgage-backed securities
(1)
|
|
|
|
|
|
|
||||||||||||||||||
|
Collateralized mortgage obligations
(1)
|
|
|
|
|
|
|
||||||||||||||||||
|
Corporate securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Total available-for-sale securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the
U.S. Government.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2—Investment Securities—Continued
As of September 30, 2025, the Company held
320
available-for-sale securities of which
24
securities were in an unrealized loss position for less than twelve months and
109
securities were in an unrealized loss position for twelve months or more without an allowance for credit losses. Because the decline in fair value is attributable to changes in interest rates and not credit quality and because the Company does not have the intent to sell and it is likely that the Company will not be required to sell the securities prior to their anticipated recovery at maturity, it has been determined that there is no expected credit loss on these securities. Management evaluates the available-for-sale securities in an unrealized loss position, relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations.
The following tables present the activity in the allowance for credit losses for held-to-maturity securities by major type:
|
September 30, 2025
|
||||||||||||||||
|
(Dollars in thousands)
|
Municipal securities
|
Mortgage-backed
securities
|
Collateralized mortgage obligations
|
Total
|
||||||||||||
|
Allowance for credit losses - securities
|
||||||||||||||||
|
Beginning balance
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Provision for credit losses
|
|
|
|
|
||||||||||||
|
Ending balance
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
December 31, 2024
|
||||||||||||||||
|
(Dollars in thousands)
|
Municipal securities
|
Mortgage-backed
securities
|
Collateralized mortgage obligations
|
Total
|
||||||||||||
|
Allowance for credit losses - securities
|
||||||||||||||||
|
Beginning balance
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Provision for credit losses
|
|
|
|
|
||||||||||||
|
Ending balance
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The amortized cost and estimated fair values of investment securities at September 30, 2025 by contractual final maturity are shown in the following table:
|
Available-for-Sale
|
Held-to-Maturity
|
|||||||||||||||
|
(Dollars in thousands)
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
||||||||||||
|
Securities maturing in:
|
||||||||||||||||
|
One year or less
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
After one year through five years
|
|
|
|
|
||||||||||||
|
After five years through ten years
|
|
|
|
|
||||||||||||
|
After ten years
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Expected maturities of mortgage-backed and CMO securities may differ from
contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2—Investment Securities—Continued
The Company monitors the credit quality of those held-to-maturity securities not issued by the U.S. government or one of its agencies or government sponsored entities, through the use of credit ratings. Credit ratings are reviewed and updated quarterly.
Nonrated municipal investments consist primarily of bonds issued by political subdivisions such as housing authorities and reclamation districts. Nonrated municipal investments are monitored through financial covenants and review of repayment history. As of September 30, 2025, there were
no
past due principal or interest payments associated with held-to-maturity municipal securities. There were
no
holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than
10
% of shareholders’ equity.
The following tables summarize the amortized cost of held-to-maturity municipal securities by credit rating as of the dates indicated
:
|
Held-to-Maturity
|
||||||||||||||||
|
Amortized Cost
|
||||||||||||||||
|
(Dollars in thousands)
|
AAA/AA/A
|
BBB/BB/B
|
Not Rated
|
Total
|
||||||||||||
|
September 30, 2025
|
||||||||||||||||
|
Municipal securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Held-to-Maturity
|
||||||||||||||||
|
Amortized Cost
|
||||||||||||||||
|
(Dollars in thousands)
|
AAA/AA/A
|
BBB/BB/B
|
Not Rated
|
Total
|
||||||||||||
|
December 31, 2024
|
||||||||||||||||
|
Municipal securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Proceeds from sales and calls of investment securities were as follows:
|
(Dollars in thousands)
|
Gross Proceeds
|
Gross Gains
|
Gross Losses
|
|||||||||
|
Nine months ended September 30, 2025
|
$
|
|
$
|
|
$
|
|
||||||
|
Nine months ended September 30, 2024
|
$
|
|
$
|
|
$
|
|
||||||
Pledged Securities
At September 30, 2025, investment securities carried at $
688.4
million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $
712.5
million at December 31, 2024.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases
Loans and leases as of the dates indicated consisted of the following:
|
(Dollars in thousands)
|
September 30,
2025
|
December 31,
2024 |
||||||
|
Loans and leases held for investment, net
|
||||||||
|
Real estate:
|
||||||||
|
Commercial
|
$
|
|
$
|
|
||||
|
Agricultural
|
|
|
||||||
|
Residential and home equity
|
|
|
||||||
|
Construction
|
|
|
||||||
|
Total real estate
|
|
|
||||||
|
Commercial & industrial
|
|
|
||||||
|
Agricultural
|
|
|
||||||
|
Commercial leases
|
|
|
||||||
|
Consumer and other
|
|
|
||||||
|
Total gross loans and leases
|
|
|
||||||
|
Unearned income
|
(
|
)
|
(
|
)
|
||||
|
Total net loans and leases
|
|
|
||||||
|
Allowance for credit losses
|
(
|
)
|
(
|
)
|
||||
|
Total loans and leases held for investment, net
|
$
|
|
$
|
|
||||
At September 30, 2025, the portion of loans that were approved for pledging as collateral on borrowing lines with the FHLB and the Federal Reserve Bank (“FRB”) were $
1.2
billion and $
1.4
billion, respectively. The borrowing capacity on these loans was $
805.9
million from FHLB and $
1.1
billion from the FRB at September 30, 2025.
The following tables show an aging analysis of the loan and lease portfolio, net of unearned income, by the time past due for the periods indicated:
|
September 30, 2025
|
||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
30-89 Days
Past Due
|
90+ Days
Past Due
|
Non-accrual
|
Total Past
Due and
Non-accrual
|
Current
|
Total
|
Non-accrual with no ACL
|
|||||||||||||||||||||
| Loans and leases held for investment, net | ||||||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||
|
Commercial
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Residential and home equity
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Construction
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial & industrial
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial leases
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Consumer and other
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total loans and leases, net
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
|
December 31, 2024
|
||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
30-89 Days
Past Due
|
90+ Days
Past Due
|
Non-accrual
|
Total Past
Due and
Non-accrual
|
Current
|
Total
|
Non-accrual
with no ACL
|
|||||||||||||||||||||
| Loans and leases held for investment, net | ||||||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||
|
Commercial
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Residential and home equity
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Construction
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial & industrial
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial leases
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Consumer and other
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total loans and leases, net
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest
owed to the Company. The Company’s modifications of loans to borrowers experiencing financial difficulty are generally in the form of term extensions, repayment plans, payment deferrals, forbearance agreements, interest rate reductions, forgiveness
of interest and/or fees, or any combination thereof. Commercial loans modified to borrowers experiencing financial difficulty are primarily loans that are substandard or non-accrual, where the maturity date was extended and/or the modified interest
rate and payment terms are not commensurate with the current market. Modifications on personal real estate loans are primarily those placed on forbearance plans, repayment plans, or deferral plans where monthly payments are suspended for a period of
time or past due amounts are paid off over a certain period of time in the future or set up as a balloon payment at maturity. Modifications to certain credit card and other small consumer loans are often modified under debt counseling programs that
can reduce the contractual rate or, in certain instances, forgive certain fees and interest charges. Other consumer loans modified to borrowers experiencing financial difficulty consist of various other workout arrangements with consumer customers.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
The following tables present the amortized cost of loans that were both experiencing financial difficulty and modified, by portfolio segment and type of modification, during the periods presented.
The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each portfolio segment of financing receivable is also presented below:
|
Three Months Ended September 30, 2025
|
||||||||||||||||||||||||||||
|
Amortized cost associated with the following modification types:
|
||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Interest rate reduction
|
Maturity or term extension
|
Principal forgiveness
|
Payment deferral
|
Multiple modification types
1
|
Total
2
|
Percentage of total loan segment
|
|||||||||||||||||||||
| Loans and leases held for investment, net | ||||||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||
|
Commercial
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
%
|
||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Residential and home equity
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Construction
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Total real estate
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Commercial & industrial
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Commercial leases
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Consumer and other
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
%
|
||||||||||||||
1
Includes modifications that resulted from a combination of interest rate reduction, maturity or term extension, principal forgiveness, and payment deferral modifications.
2
Unfunded lending commitments related to loans modified to borrowers experiencing financial difficulty totaled
$
0
million during the three months ended September 30, 2025.
During the three months ended September 30, 2025, the Company modified
one
residential first mortgage loan with a
10
-year maturity extension and re-amortization and
one
commercial loan with a maturity extension of
5
months.
|
Nine Months Ended September 30, 2025
|
||||||||||||||||||||||||||||
|
Amortized cost associated with the following modification types:
|
||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Interest rate reduction
|
Maturity or term extension
|
Principal forgiveness
|
Payment deferral
|
Multiple modification types
1
|
Total
2
|
Percentage of total loan segment
|
|||||||||||||||||||||
| Loans and leases held for investment, net | ||||||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||
|
Commercial
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
%
|
||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Residential and home equity
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Construction
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Total real estate
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Commercial & industrial
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Commercial leases
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Consumer and other
|
|
|
|
|
|
|
|
%
|
||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
%
|
||||||||||||||
1
Includes modifications that resulted from a combination of interest rate reduction, maturity or term extension, principal forgiveness, and payment deferral modifications.
2
Unfunded lending commitments related to loans modified to borrowers experiencing financial difficulty totaled
$
0
million during the nine months ended September 30, 2025.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
During the nine months ended September 30, 2025, the Company modified
four
agricultural real estate loans and
one
agricultural production loan, all related to the same agricultural borrower.
Two
of the loans had the contractual term extended by six months and
three
loans had principal and interest deferrals of
six months
. The Company also modified
one
home equity and
one
residential first mortgage loan with
10
-year maturity extensions and re-amortizations and
one
commercial loan with a maturity extension of
5
months.
The Company did not enter into any loan modifications with borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024.
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of the modification efforts. A payment default is defined as a loan having a payment past due
90
days or more after a modification took place.
There was
one
loan
modified within the last twelve months for $
176,000
that had a payment default and was charged off during the nine months ended September 30, 2025 and
none
during the nine months ended September 30, 2024. There were
no
loans modified to borrowers with financial difficulty that had a payment default subsequent to modification during the three and nine months end September 30, 2025 and 2024.
The effect of modifications made to borrowers experiencing financial difficulty is already included in the ACL because of the measurement methodologies used to estimate the ACL; therefore, a change to the ACL is
generally not recorded upon modification. If principal forgiveness is provided, that portion of the loan will be charged-off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the ACL. An assessment of whether the
borrower is experiencing financial difficulty is made on the date of a modification.
The Company assigns a risk rating to all loans and leases and periodically performs detailed reviews of all such loans and leases over a certain threshold to identify credit risks and assess overall collectability.
For smaller balance loans and leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the
borrower requests a modification. For larger balance loans and leases, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral
securing these loans and leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These
risk ratings can be grouped into five major categories, defined as follows:
Pass
— A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management’s close attention. This category also
includes “Watch” loans, which is a loan with an emerging weakness in either the individual credit or industry that requires additional attention. A credit may also be classified Watch if cash flows have not yet stabilized, such as in the case of a
development project.
Special mention
— A special mention loan or lease has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential
weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company’s credit position at some future date. Special mention loans and leases are not adversely classified and do not expose the Company to sufficient
risk to warrant adverse classification.
Substandard
— A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the
collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project’s failure to fulfill economic
expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful
— Loans or leases classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the
weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.
Loss
— Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company
will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off some or all of the
balance.
The following tables present outstanding loan and lease balances held for investment net of unearned income by segment, credit risk rating categories, vintage year by segment of financing receivable, and current period gross charge-offs by year of origination as follows:
|
September 30, 2025
|
||||||||||||||||||||||||||||||||||||
|
Term Loans and Leases Amortized Cost Basis by Origination Year
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
2023
|
2022
|
2021
|
Prior
|
Revolving Loans Amortized Cost
|
Revolving Loans Converted to Term
|
Total
|
|||||||||||||||||||||||||||
|
Net loans and leases held for investment
|
||||||||||||||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||||||||||
|
Commercial
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Commercial
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Agricultural
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Agricultural
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Agricultural
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Residential and home equity
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Residential and home equity
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Residential and home equity
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Construction
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total construction
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Construction
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Total Real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial & industrial
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Commercial & industrial
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial & industrial
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
|
September 30, 2025
|
||||||||||||||||||||||||||||||||||||
|
Term Loans and Leases Amortized Cost Basis by Origination Year
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
2023
|
2022
|
2021
|
Prior
|
Revolving
Loans
Amortized
Cost
|
Revolving
Loans
Converted
to Term
|
Total
|
|||||||||||||||||||||||||||
| Net loans and leases held for investment | ||||||||||||||||||||||||||||||||||||
|
Agricultural
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Agricultural
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Agricultural
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial leases
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Commercial leases
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial leases
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Consumer and other
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Consumer and other
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Consumer and other
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Total net loans and leases
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total net loans and leases
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Total current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
|
December 31, 2024
|
||||||||||||||||||||||||||||||||||||
|
Term Loans and Leases Amortized Cost Basis by Origination Year
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
2024
|
2023
|
2022
|
2021
|
2020
|
Prior
|
Revolving Loans Amortized Cost
|
Revolving Loans Converted to Term
|
Total
|
|||||||||||||||||||||||||||
|
Net loans and leases held for investment
|
||||||||||||||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||||||||||
|
Commercial
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Commercial
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Agricultural
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Agricultural
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Agricultural
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Residential and home equity
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Residential and home equity
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Residential and home equity
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Construction
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total construction
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Construction
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Total Real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial & industrial
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Commercial & industrial
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial & industrial
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
|
December 31, 2024
|
||||||||||||||||||||||||||||||||||||
|
Term Loans and Leases Amortized Cost Basis by Origination Year
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
2024
|
2023 | 2022 | 2021 | 2020 |
Prior
|
Revolving
Loans
Amortized
Cost
|
Revolving
Loans
Converted
to Term
|
Total
|
|||||||||||||||||||||||||||
|
Net loans and leases held for investment
|
||||||||||||||||||||||||||||||||||||
|
Agricultural
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Agricultural
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Agricultural
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial leases
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Commercial leases
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Commercial leases
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Consumer and other
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total Consumer and other
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Consumer and other
|
||||||||||||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Total net loans and leases
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total net loans and leases
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Total current-period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
The Company, in the ordinary course of business, grants loans to the Company’s executive officers and directors, including their families and firms in which they are principal owners.
Activity in such loans is summarized as follows:
|
(Dollars in thousands)
|
September 30,
2025
|
December 31,
2024
|
||||||
|
Balance at beginning of the period
|
$
|
|
$
|
|
||||
|
New loans or advances during year
|
|
|
||||||
|
Effect of changes in composition of related parties
|
(
|
)
|
|
|||||
|
Repayments
|
(
|
)
|
(
|
)
|
||||
|
Balance at end of period
|
$
|
|
$
|
|
||||
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
A loan or lease is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. When
management determines that foreclosure is probable, expected credit losses for collateral dependent loans or leases are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The collateral on the
loans and leases is a significant portion of what secures the collateral dependent loans or leases, and significant changes to the fair value of the collateral can impact the allowance for credit losses.
The following table presents the amortized cost basis for collateral dependent loans and leases by type as of December 31, 2024:
|
December 31, 2024
|
||||||||||||
|
(Dollars in thousands)
|
Real Estate
|
Vehicles and Equipment
|
Total
|
|||||||||
|
Collateral dependent loans and leases
|
||||||||||||
|
Real estate:
|
||||||||||||
|
Commercial
|
$
|
|
$
|
|
$
|
|
||||||
|
Agricultural
|
|
|
|
|||||||||
|
Residential and home equity
|
|
|
|
|||||||||
|
Construction
|
|
|
|
|||||||||
|
Total real estate
|
|
|
|
|||||||||
|
Commercial & industrial
|
|
|
|
|||||||||
|
Agricultural
|
|
|
|
|||||||||
|
Commercial leases
|
|
|
|
|||||||||
|
Consumer and other
|
|
|
|
|||||||||
|
Total gross loans and leases
|
$
|
|
$
|
|
$
|
|
||||||
There were
no
collateral dependent loans or leases at September 30, 2025.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
Allowance for Credit Losses
The allowance for credit losses (“ACL”) is the combination of the allowance for credit losses for loan and lease losses and the allowance for credit losses for unfunded loan commitments. The ACL for unfunded loan
commitments is included within “Interest payable and other liabilities” on the consolidated balance sheets.
The following tables present a summary of the activity in the ACL for loan and lease losses and ACL for unfunded loan commitments for the periods indicated:
|
For the Three Months Ended September 30,
|
||||||||||||||||||||||||
|
2025
|
2024
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
ACL for
Loans and
Leases
|
ACL for
Unfunded
Commitments
|
Allowance
for
Credit Losses
|
ACL for
Loans and
Leases
|
ACL for
Unfunded
Commitments
|
Allowance
for
Credit Losses
|
||||||||||||||||||
|
Balance at beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Provision for/(reversal of) credit losses
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Charge-offs
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||||
|
Recoveries
|
|
|
|
|
|
|
||||||||||||||||||
|
Net (charge-offs)/recoveries
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||||
|
Balance at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
For the Nine Months Ended September 30,
|
||||||||||||||||||||||||
|
2025
|
2024
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
ACL for
Loans and
Leases
|
ACL for
Unfunded
Commitments
|
Allowance
for
Credit Losses
|
ACL for
Loans and
Leases
|
ACL for
Unfunded
Commitments
|
Allowance
for
Credit Losses
|
||||||||||||||||||
|
Balance at beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Provision for/(reversal of) credit losses
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Charge-offs
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||||
|
Recoveries
|
|
|
|
|
|
|
||||||||||||||||||
|
Net (charge-offs)/recoveries
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||||
|
Balance at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
Changes in the ACL on loans and leases for the periods indicated are as follows:
|
For the Three Months Ended September 30, 2025
|
||||||||||||||||||||
|
(Dollars in thousands)
|
Balance at
beginning of
period
|
Provision
for/(recapture of)
credit losses
|
Charge-Offs
|
Recoveries
|
Balance at
end of period
|
|||||||||||||||
|
Allowance for credit losses:
|
||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||
|
Commercial
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Agricultural
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Residential and home equity
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Construction
|
|
|
|
|
|
|||||||||||||||
|
Total real estate
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Commercial & industrial
|
|
|
|
|
|
|||||||||||||||
|
Agricultural
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Commercial leases
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Consumer and other
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Total allowance for credit losses
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3—Loans and Leases—Continued
|
For the Three Months Ended September 30, 2024
|
||||||||||||||||||||
|
(Dollars in thousands)
|
Balance at beginning of period
|
Provision
for/(recapture of)
credit losses
|
Charge-Offs
|
Recoveries
|
Balance at
end of period
|
|||||||||||||||
|
Allowance for credit losses:
|
||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||
|
Commercial
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||
|
Agricultural
|
|
|
|
|
|
|||||||||||||||
|
Residential and home equity
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Construction
|
|
|
|
|
|
|||||||||||||||
|
Total real estate
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Commercial & industrial
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Agricultural
|
|
|
|
|
|
|||||||||||||||
|
Commercial leases
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Consumer and other
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Total allowance for credit losses
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
For the Nine Months Ended September 30, 2025
|
||||||||||||||||||||
|
(Dollars in thousands)
|
Balance at beginning of period
|
Provision
for/(recapture of)
credit losses
|
Charge-Offs
|
Recoveries
|
Balance at
end of period
|
|||||||||||||||
|
Allowance for credit losses:
|
||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||
|
Commercial
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Agricultural
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Residential and home equity
|
|
|
|
|
|
|||||||||||||||
|
Construction
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Total real estate
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Commercial & industrial
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Agricultural
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Commercial leases
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Consumer and other
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Total allowance for credit losses
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
For the Nine Months Ended September 30, 2024
|
||||||||||||||||||||
|
(Dollars in thousands)
|
Balance at beginning of period
|
Provision
for/(recapture of)
credit losses
|
Charge-Offs
|
Recoveries
|
Balance at
end of period
|
|||||||||||||||
|
Allowance for credit losses:
|
||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||
|
Commercial
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||
|
Agricultural
|
|
|
|
|
|
|||||||||||||||
|
Residential and home equity
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Construction
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Total real estate
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Commercial & industrial
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Agricultural
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Commercial leases
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Consumer and other
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Total allowance for credit losses
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 4—Other Real Estate Owned
OREO was $
873,000
at September 30, 2025 and December 31, 2024, respectively, which includes property no longer utilized for business operations and property acquired through foreclosure proceedings. These properties are carried at fair value less selling costs determined at the date acquired. Losses, if any, arising from properties acquired through foreclosure are charged against the allowance for loan losses at the time of foreclosure. Subsequent declines in value, periodic holding costs, and net gains or losses on disposition are included in other operating expense as incurred.
During the second quarter of 2025, the Company recorded an additional $
326,000
in other real estate owned, which was sold during the third quarter of 2025 at the carrying value.
Note 5—Deposits
Certificates of deposit greater than and less than or equal to the FDIC insurance limit of $250,000 are summarized as follows:
|
(Dollars in thousands)
|
September 30,
2025 |
December 31, 2024
|
||||||
|
Certificates of deposit:
|
||||||||
|
Certificates of deposit equal to or less than $250,000
|
$
|
|
$
|
|
||||
|
Certificates of deposit greater than $250,000
|
|
|
||||||
|
Total certificates of deposit
|
$
|
|
$
|
|
||||
Scheduled maturities for certificates of deposit are as follows for the years ending December 31:
|
(Dollars in thousands)
|
Amount
|
|||
|
2025
|
$
|
|
||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030
|
|
|||
|
Total certificates of deposit
|
$
|
|
||
Overdrawn deposit balances of $
166,000
and $
156,000
were classified as consumer loans at September 30, 2025 and December 31, 2024, respectively.
Note 6—Short-term borrowings
As of September 30, 2025 and December 31, 2024, committed lines of credit arrangements totaling $
2.1
billion, were available to the Company from the FHLB, FRB, and unaffiliated banks.
The Company is a member of the FHLB of San Francisco and has a committed credit line of $
807.3
million, which is secured by $
1.2
billion in various real estate loans and $
1.4
million in investment securities pledged as collateral. Borrowings generally provide for interest at the then current published rate based on the borrowing term. The overnight borrowing rate was
4.36
% as of September 30, 2025.
The Company has $
1.4
billion in pledged loans with the FRB. As of September 30, 2025, the Company’s overnight borrowing capacity using the primary credit facilities from the Fed account was $
1.1
billion. The borrowing rate was
4.25
% as of September 30, 2025.
There were
no
outstanding advances on the above borrowing facilities as of September 30, 2025 or December 31, 2024.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 7—Fair Value
The Company uses fair value measurements to record fair value adjustments to certain financial and non-financial assets and liabilities and to determine fair value disclosures. Various financial instruments such as
available-for-sale securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a non-recurring basis, such as collateral dependent
loans and other real estate owned. These non-recurring fair value adjustments typically involve lower of cost or fair value accounting or write-down of individual assets.
Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or
liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is
based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
|
|
• |
Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
|
• |
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not
active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds).
|
|
|
• |
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider.
|
The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair value estimates are made at a specific point in time based on relevant market information. They do
not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for many of the Company’s financial instruments, fair value
estimates are based on judgements regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or
model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.
Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total
earnings.
Securities classified as available-for-sale are reported at fair value on a recurring basis utilizing Level 1, 2 and 3 inputs. For these securities, the Company obtains fair value measurements from an independent
pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit
information and the bond’s terms and conditions, among other things.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 7—Fair Value—Continued
The Company does not record all loans and leases at fair value on a recurring basis. However, from time to time, a loan or lease is considered collateral dependent and an allowance for
credit losses is established. Once a loan or lease is identified as collateral dependent, management measures specific reserves in accordance FASB ASC Topic 326. The fair value of collateral dependent loans or leases is estimated using one of
several methods, including collateral value when the loan is collateral dependent, market value of similar debt, enterprise value, and discounted cash flows. Collateral dependent loans and leases not requiring an allowance represent loans and
leases for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans and leases. Collateral dependent loans and leases where an allowance is established based on the fair value of collateral require
classification in the fair value hierarchy.
In determining the value of real estate collateral, the Company relies on external and internal appraisals of property values depending on the size and complexity of the real estate collateral.
These appraisals may utilize a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take into account differences
between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 non-recurring
collateral dependent loans is primarily the sales comparison approach less estimated selling costs. The Company maintains a list of qualified property appraisers who review appraisal reports for reasonableness. In the case of non-real estate
collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists. Values of all loan collateral are regularly reviewed by credit administration.
Unobservable inputs to these measurements, which include estimates and judgments often used in conjunction with appraisals, are not readily quantifiable. These measurements are classified as Level 3.
Other Real Estate Owned (“OREO”) is reported at fair value on a non-recurring basis.
Fair values are based on recent real estate appraisals. These appraisals may use a single
valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take into account differences between the comparable sales and income
and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 non-recurring OREO is primarily the sales comparison
approach less estimated selling costs.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 7—Fair Value—Continued
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.
|
September 30, 2025
|
Fair Value Measurements
|
|||||||||||||||||||
|
(Dollars in thousands)
|
Carrying Amount
|
Level 1
|
Level 2
|
Level 3
|
Total Fair
Value
|
|||||||||||||||
|
Fair valued on a recurring basis:
|
||||||||||||||||||||
|
Financial assets
|
||||||||||||||||||||
|
Available-for-sale securities
|
||||||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Mortgage-backed securities
|
|
|
|
|
|
|||||||||||||||
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|||||||||||||||
|
Collateralized mortgage obligations
|
|
|
|
|
|
|||||||||||||||
|
Municipal securities
|
|
|
|
|
|
|||||||||||||||
|
Corporate securities
|
|
|
|
|
|
|||||||||||||||
|
Other
|
|
|
|
|
|
|||||||||||||||
|
Other equity investments
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Derivatives not designated as hedging instruments
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Financial liabilities
|
||||||||||||||||||||
|
Derivatives not designated as hedging instruments
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Fair valued on a non-recurring basis:
|
||||||||||||||||||||
|
Other real estate owned
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
December 31, 2024
|
Fair Value Measurements
|
|||||||||||||||||||
|
(Dollars in thousands)
|
Carrying Amount
|
Level 1
|
Level 2
|
Level 3
|
Total Fair
Value
|
|||||||||||||||
|
Fair valued on a recurring basis:
|
||||||||||||||||||||
|
Available-for-sale securities
|
||||||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Mortgage-backed securities
|
|
|
|
|
|
|||||||||||||||
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|||||||||||||||
|
Collateralized mortgage obligations
|
|
|
|
|
|
|||||||||||||||
|
Corporate securities
|
|
|
|
|
|
|||||||||||||||
|
Other
|
|
|
|
|
|
|||||||||||||||
|
Fair valued on a non-recurring basis:
|
||||||||||||||||||||
|
Collateral dependent loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Other real estate owned
|
|
|
|
|
|
|||||||||||||||
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 7—Fair Value—Continued
The following tables summarize the carrying amount and estimated fair values of the Company’s financial assets and liabilities not carried at fair value, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.
|
September 30, 2025
|
Fair Value Measurements
|
|||||||||||||||||||
|
(Dollars in thousands)
|
Carrying Amount
|
Level 1
|
Level 2
|
Level 3
|
Total Fair
Value
|
|||||||||||||||
|
Financial assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Held-to-maturity securities, net
|
|
|
|
|
|
|||||||||||||||
|
Non-marketable securities, at cost
|
|
|
|
|
|
|||||||||||||||
|
Loans and leases, net
|
|
|
|
|
|
|||||||||||||||
|
Financial liabilities:
|
||||||||||||||||||||
|
Total deposits
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Subordinated debentures
|
|
|
|
|
|
|||||||||||||||
|
December 31, 2024
|
Fair Value Measurements
|
|||||||||||||||||||
|
(Dollars in thousands)
|
Carrying Amount
|
Level 1
|
Level 2
|
Level 3
|
Total Fair
Value
|
|||||||||||||||
|
Financial assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Held-to-maturity securities, net
|
|
|
|
|
|
|||||||||||||||
|
Non-marketable securities, at cost
|
|
|
|
|
|
|||||||||||||||
|
Loans and leases, net
|
|
|
|
|
|
|||||||||||||||
|
Financial liabilities:
|
||||||||||||||||||||
|
Total deposits
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Subordinated debentures
|
|
|
|
|
|
|||||||||||||||
Non-marketable securities include FHLB stock, PCBB stock and TIB, National Association stock, which are recorded at cost. Ownership of these stocks is restricted to member banks. Purchases and sales of these securities
are at par value with the issuer. The fair value of these investments is equal to the carrying amount.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8—Earnings Per Share
Basic earnings per common share is computed by dividing net earnings allocated to common shareholders by the weighted average number of common shares outstanding during the applicable period. Diluted earnings per common share is computed using the weighted average number of shares determined for the basic earnings per common share computation plus the dilutive effects of outstanding restricted stock awards using the treasury stock method. Shares are excluded from the computations of diluted earnings per share when their inclusion has an anti-dilutive effect. For the three and nine months ended September 30, 2025, there were
no
potential common shares that were anti-dilutive.
The following tables present the factors used in the earnings per share computation for the periods indicated:
|
Three Months Ended
September 30,
|
||||||||
|
(Dollars in thousands, except share and per share amounts)
|
2025
|
2024
|
||||||
|
Net income
|
$
|
|
$
|
|
||||
|
|
||||||||
|
Weighted average common shares outstanding for basic earnings per common share
|
|
|
||||||
|
Dilutive potential common shares
|
|
|
||||||
|
Shares used in computing diluted earnings per common share
|
|
|
||||||
|
|
||||||||
|
Basic earnings per common share
|
$
|
|
$
|
|
||||
|
Diluted earnings per common share
|
$
|
|
$
|
|
||||
|
Nine Months Ended
September 30,
|
||||||||
|
(Dollars in thousands, except share and per share amounts)
|
2025
|
2024
|
||||||
|
Net income
|
$
|
|
$
|
|
||||
|
|
||||||||
|
Weighted average common shares outstanding for basic earnings per common share
|
|
|
||||||
|
Dilutive potential common shares
|
|
|
||||||
|
Shares used in computing diluted earnings per common share
|
|
|
||||||
|
|
||||||||
|
Basic earnings per common share
|
$
|
|
$
|
|
||||
|
Diluted earnings per common share
|
$
|
|
$
|
|
||||
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 9—Employee Benefit Plans
Executive Retirement Plan
The Company, through the Bank, sponsors an Executive Retirement Plan (“ERP”) for certain executive level employees. The ERP is a non-qualified deferred compensation plan and was developed to supplement the Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue Service. The ERP is comprised of: (1) a Performance Component which makes contributions based upon long-term cumulative profitability and increase in market value of the Company; (2) a Salary Component which makes contributions based upon participant salary levels; and (3) an Equity Component for which contributions are discretionary and subject to Board of Directors approval. The Company maintains a Rabbi Trust to fund, in part, the ERP. The Rabbi Trust is an irrevocable grantor trust to which the Company may contribute assets for the limited purpose of funding a non-qualified deferred compensation plan. The Company may not use the assets of the Rabbi Trust for any purpose other than meeting its obligations under the ERP; however, the assets of the Rabbi Trust remain subject to the claims of its creditors and are included in the consolidated financial statements. The Company contributes cash to the Rabbi Trust from time to time for the sole purpose of funding the ERP. The Rabbi Trust will use any cash the Company contributes to purchase shares of common stock of the Company, and other financial instruments, on the open market. ERP contributions are invested in a mix of financial instruments; however, the Equity Component contributions are invested primarily in common stock of the Company. Effective November 29, 2024, each component of the ERP was terminated and frozen and no future contributions are permitted to be made. For each existing participant, the account balances will be liquidated and paid out to each participant at a time to be determined, but which will occur sometime between the
12
-month anniversary and the
24
-month anniversary of the termination of the components of the ERP pursuant to regulations promulgated by the Department of the Treasury.
The Company incurred
no
expense for the ERP during the nine months ended September 30, 2025 due to the freezing of the plans and a net expense of $
6.8
million during the nine months ended September 30, 2024. The Company’s carrying value of the liability under the ERP was $
58.1
million as of September 30, 2025 and $
61.4
million as of December 31, 2024, which is included in interest payable and other liabilities on the balance sheet. The Company’s shares of common stock held as investments in the Rabbi Trust of the ERP as of September 30, 2025 and December 31, 2024 totaled
47,806
and
48,877
shares with an historical cost basis of $
31.4
million and $
31.8
million, respectively. All amounts have been fully funded into the Rabbi Trust as of September 30, 2025 and December 31, 2024. The consolidated investments held in the Rabbi Trust are recorded at fair value with changes in unrealized gains or losses recorded within non-interest income, and the equal and offsetting charges in the related liability are recorded in non-interest expense in the consolidated statements of income.
Net gains on ERP investments were $
2.2
million and $
2.4
million at September 30, 2025 and 2024, respectively. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices.
Senior Management Retention Plan
The Company, through the Bank, sponsors a Senior Management Retention Plan (“SMRP”) for certain senior level employees. The SMRP is a non-qualified deferred compensation plan and was developed to supplement the
Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue Service. All contributions are discretionary and subject to the Board of Directors approval. The Company maintains a Rabbi
Trust to fund, in part, the SMRP. The Rabbi Trust is an irrevocable grantor trust to which the Company may contribute assets for the limited purpose of funding a non-qualified deferred compensation plan. The Company may not use the assets of the
Rabbi Trust for any purpose other than meeting its obligations under the SMRP; however, the assets of the Rabbi Trust remain subject to the claims of its creditors and are included in the consolidated financial statements. The Company contributes
cash to the Rabbi Trust from time to time for the sole purpose of funding the SMRP.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 9—Employee Benefit Plans—Continued
The Rabbi Trust will use any cash the Company contributes to purchase shares of common stock of the Company, and other financial instruments, on the open market. Contributions to the SMRP are invested primarily in common stock of the Company. Effective November 29, 2024, the SMRP was terminated and frozen and no future contributions are permitted to be made. For each existing participant, the account balances will be liquidated and paid out to each participant at a time to be determined, but which will occur sometime between the
12
-month anniversary and the
24
-month anniversary of the termination of the plan pursuant to regulations promulgated by the Department of the Treasury.
The Company incurred
no
expense for the SMRP during the nine months ended September 30, 2025 due to the freezing of the plans and a net expense of $
3.4
million for the nine months ended September 30, 2024. The plan recognized $
0.1
million in forfeitures for the nine months ended September 30, 2025. The Company’s carrying value of the liability under the SMRP was $
20.6
million as of September 30, 2025 and $
21.2
million as of December 31, 2024, which is included in interest payable and other liabilities on the balance sheet. The Company’s shares of stock held as investments in the Rabbi Trust of the SMRP as of September 30, 2025 and December 31, 2024 totaled
17,946
and
19,647
shares with an historical cost basis of $
13.9
million and $
14.6
million, respectively. All amounts have been fully funded into the Rabbi Trust as of September 30, 2025 and December 31, 2024. The consolidated investments held in the Rabbi Trust are recorded at fair value with changes recorded within non-interest income and the equal and offsetting charges in the related liability are recorded in non-interest expense in the consolidated statements of income.
Net gains on SMRP plan investments were $
0.6
million and $
0.5
million at September 30, 2025 and 2024, respectively. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 10—Stock-Based Compensation
Restricted Stock Award Plan
At the special meeting of shareholders held on November 25, 2024, the Company’s shareholders approved the Farmers & Merchants Bancorp 2025 Restricted Stock Retirement Plan (the “2025 Plan”). The 2025 Plan provides for the issuance of up to
80,000
shares to directors and employees of the Company and its subsidiaries and affiliates. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. Due to the illiquidity of the stock, the fair value of the stock was determined using a volume weighted average price over a
30
-day period as of the grant date, which equaled $
1,033.03
per share. The first awards were granted on February 3, 2025 and totaled
30,818
shares. The awards contain a service condition, which requires the employees to provide services during the applicable vesting periods. The awards were comprised of a
one-year
award for directors and
two-year
,
three-year
and
four-year
awards for employees depending on their roles and responsibilities. The awards vest on a pro-rated basis over the life of the award. Total remaining shares issuable under the 2025 Plan were
50,598
at September 30, 2025. The unvested restricted shares generally have voting rights and dividend rights; however, the dividends are paid to the holder only if, when and to the extent such unvested restricted shares vest. Dividends on forfeited restricted stock are also forfeited.
The following tables summarize the change in the Company’s nonvested shares for the three and nine months ended September 30, 2025:
|
Number of Shares
|
Weighted Average Fair
Value at Grant-Date
|
|||||||
|
Restricted Stock Award
|
||||||||
|
Nonvested shares outstanding, June 30, 2025
|
|
$
|
|
|||||
|
Granted
|
|
|
||||||
|
Vested
|
|
|
||||||
|
Forfeited
|
|
|
||||||
|
Nonvested shares outstanding, September 30, 2025
|
|
$
|
|
|||||
|
Number of Shares
|
Weighted Average Fair
Value at Grant-Date
|
|||||||
|
Restricted Stock Award
|
||||||||
|
Nonvested shares outstanding, January 1, 2025
|
|
$
|
|
|||||
|
Granted
|
|
|
||||||
|
Vested
|
|
|
||||||
|
Forfeited
|
|
|
||||||
|
Nonvested shares outstanding, September 30, 2025
|
|
$
|
|
|||||
For the nine months ended September 30, 2025, the Company has recognized $
8.2
million in compensation cost related to shares granted under the 2025 Plan. As of September 30, 2025, there was $
23.6
million of total unrecognized compensation cost related to nonvested shares granted under the 2025 Plan. The remaining cost is expected to be recognized over a weighted-average period of
1.92
years.
No
shares of restricted stock vested during the three and nine months ended September 30, 2025.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 11—Derivatives
Derivatives Not Designated as Hedging Instruments
As a customer accommodation, the Company may enter into interest rate swaps with its loan customers. The Company also enters into corresponding offsetting derivatives with third parties. While these derivatives
represent economic hedges, they do not qualify as hedges for accounting purposes.
The fair value of these swaps are recorded as components of other assets and other liabilities in the Company’s consolidated balance sheets.
|
September 30, 2025
|
December 31, 2024
|
|||||||||||||||
|
(Dollars in thousands)
|
Notional Amount
|
Fair Value
|
Notional Amount
|
Fair Value
|
||||||||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||||||||
|
Interest rate swaps related to customer loans
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total included in other assets
|
$
|
|
$
|
|
||||||||||||
|
|
||||||||||||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||||||||
|
Interest rate swaps related to customer loans
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total included in other liabilities
|
$
|
|
$
|
|
||||||||||||
|
Location of Gain or (Loss)
Recognized in Income on
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
(Dollars in thousands)
|
Derivatives
|
2025
|
2024
|
2025
|
2024
|
||||||||||||
|
Derivatives not designated as hedging instruments:
|
|||||||||||||||||
|
Interest rate swaps related to loan customers
|
Other (expense) income
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Total
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||
Note 12—Commitments and Contingencies
In the normal course of business, the Company enters into financial instruments with off-balance-sheet risk/commitments in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These instruments include commitments to extend credit, letters of credit, and other types of financial guarantees.
The Company had the following off-balance-sheet risk/commitments as of the dates indicated.
|
(Dollars in thousands)
|
September 30, 2025
|
December 31, 2024
|
||||||
|
|
||||||||
|
Commitments to extend credit, including unsecured commitments of $
as of September 30, 2025 and December 31, 2024, respectively
|
$
|
|
$
|
|
||||
|
Standby letters of credit, including unsecured commitments of $
as of September 30, 2025 and December 31, 2024, respectively
|
|
|
||||||
The Company’s exposure to credit loss in the event of nonperformance by the other party with regard to standby letters of credit, undisbursed loan commitments, and financial guarantees is represented by the contractual notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Company uses the same credit policies in making commitments and conditional obligations as it does for recorded balance sheet items. The Company may or may not require collateral or other security to support financial instruments with credit risk. Evaluations of each customer’s creditworthiness are performed on a case-by-case basis. The estimated exposure to loss from these commitments is included in the allowance for credit losses for unfunded loan commitments, which amounted to $
2.8
million at September 30, 2025 and $
2.7
million at December 31, 2024.
FARMERS & MERCHANTS BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 12—Commitments and Contingencies—Continued
Standby letters of credit are conditional commitments issued by the Company to guarantee performance of or payment for a customer to a third-party. Outstanding standby letters of credit at September 30, 2025 had maturity dates ranging from
1
to
54
months with a final expiration in some cases up to April 1, 2030. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
The Company has commitments to fund investments in low income housing tax credit investments (“LIHTC”) partnerships and limited liability companies. The Company invests in LIHTC partnerships and solar tax funds that are designed to generate a return primarily through the realization of federal tax credits. The Company accounts for these investments by amortizing the cost of tax credit investments over the life of the investment using a proportional amortization method, and tax credit investment amortization expense is a component of the provision for income taxes. At September 30, 2025 and December 31, 2024, the balance of the investments in LIHTC was $
45.3
million and $
43.8
million, respectively. These balances are reflected in other assets on the consolidated balance sheets. Total unfunded commitments related to the investments in LIHTC totaled $
16.0
million and $
18.9
million at September 30, 2025 and December 31, 2024, respectively. These balances are reflected in interest payable and other liabilities on the consolidated balance sheets. The Company expects to fulfill these commitments through 2040. Additionally, during the nine months ended September 30, 2025 and the year ended December 31, 2024, the Company recognized tax credits from its investments in LIHTC of $
3.9
million and $
4.4
million, respectively.
In the ordinary course of business, the Company becomes involved in litigation arising out of its normal business activities. Management, after consultation with legal counsel, believes that the ultimate liability,
if any, resulting from the disposition of such claims would not be material in relation to the financial position of the Company.
The Company may be required to maintain average reserves on deposit with the FRB primarily based on deposits outstanding. Reserve requirements are offset by the Company’s vault cash and deposit balances maintained
with the FRB.
Note 13—Subsequent Events
In accordance with ASC Topic 855, “
Subsequent Events
”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2025 up through the date the Company issued the financial statements. During this period, there were no subsequent
events that required recognition or disclosure.
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion is intended to provide a comprehensive review of the Company’s operating results and financial condition. The information contained in this section should be read in conjunction with the
Unaudited Consolidated Financial Statements and the accompanying Notes to Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q included in “Part I. Item 1. Financial Statements.”
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10–Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act. These
forward-looking statements reflect our current views and are not historical facts. These statements may include statements regarding projected performance for periods following the date of this report. These statements can generally be identified
by use of phrases such as “believe,” “expect,” “will,” “seek,” “should,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “project,” “commit” or other words of similar import. Similarly, statements that describe our future financial condition,
results of operations, objectives, strategies, plans, goals or future performance and business are also forward-looking statements. Statements that project future financial conditions, results of operations, and shareholder value are not guarantees
of performance and many of the factors that will determine these results and values are beyond our ability to control or predict. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties and other factors, including, but not limited to, those described in the “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” sections and other parts of this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”), and our actual results may
differ materially from those anticipated in these forward-looking statements. The following is a non-exclusive list of factors which could cause actual results to differ materially from forward-looking statements in this Quarterly Report on Form
10-Q:
| ■ |
changes in general economic conditions, either nationally, in California, or in our local markets;
|
| ■ |
inflation, changes in interest rates, securities market volatility and monetary fluctuations;
|
| ■ |
increases in competitive pressures among financial institutions and businesses offering similar products and services;
|
| ■ |
impacts of tariff policies by U.S. and foreign governments;
|
| ■ |
risks associated with negative events in the banking industry, and any legislative and/or bank regulatory actions, that could potentially impact earnings, liquidity and/or the availability of capital or which could increase the cost of
our deposit insurance by the FDIC;
|
| ■ |
higher defaults in our loan and lease portfolio than we expect;
|
| ■ |
changes in management’s estimate of the adequacy of the allowance for credit losses;
|
| ■ |
risks associated with our growth and expansion strategy and related costs;
|
| ■ |
increased lending risks associated with our high concentration of real estate loans or agricultural loans;
|
| ■ |
legislative or regulatory changes, changes in monetary and fiscal policies or changes in accounting principles, policies or guidelines;
|
| ■ |
technological changes;
|
| ■ |
operational risks, including processing, information systems, cybersecurity, vendor problems, business interruption, and fraud;
|
| ■ |
regulatory or judicial proceedings; and
|
| ■ |
other factors and risks including those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and the Company’s 2024 Form 10-K.
|
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended,
committed or believed. Please take into account that forward-looking statements speak only as of the date of this Form 10-Q (or documents incorporated by reference, if applicable). The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future events or circumstances after the date of this Report or otherwise, except as may be required by applicable law.
The Company does not undertake any obligation to publicly correct or update any forward-looking statements if it later becomes aware that actual results are likely to differ materially from those expressed in such
forward-looking statements, except as required by law.
Overview
Farmers & Merchants Bancorp (the “Company” or “FMCB”) is a Delaware registered bank holding company organized in 1999. As a registered bank holding company, FMCB is subject to regulation, supervision, and
examination by the Federal Reserve and by the California Department of Financial Protection and Innovation (“DFPI”). The Company’s principal business is to serve as a holding company for Farmers & Merchants Bank of Central California (the
“Bank” or “F&M Bank”) and for other banking or banking-related subsidiaries, which the Company may establish or acquire. Over 109 years ago, August 1, 1916, marked the first day of business for Farmers & Merchants Bank. The Bank was
incorporated under the laws of the State of California and licensed as a state-chartered bank. The Bank’s first venture out of Lodi occurred when the Galt office opened in 1948. Since then, the Bank has opened full-service branches in Linden,
Manteca, Riverbank, Modesto, Sacramento, Elk Grove, Turlock, Hilmar, Stockton, Merced, Walnut Creek, Concord, Walnut Grove, Oakland, Napa, and Danville. As a legal entity separate and distinct from its subsidiary, the Company’s principal source of
funds is, and will continue to be, dividends paid by and other funds received from the Bank. Legal limitations are imposed on the amount of dividends that may be paid and loans that may be made by the Bank to the Company.
The Company’s outstanding common stock as of September 30, 2025, consisted of 721,411 shares of common stock, $0.01 par value. No shares of preferred stock were issued or outstanding as of September 30, 2025. The
common stock of the Company is not widely held or listed on any exchange. However, trades are reported on the OTCQX under the symbol “FMCB.”
The primary source of funding for the Company’s growth has been the generation of deposits, which the Company raises through its existing branch locations, newly opened branch locations, or through acquisitions. Loan
growth over the years is the result of organic growth generated by the Company’s seasoned relationship managers and supporting associates who provide outstanding service and responsiveness to the Company’s clients.
The Company’s results of operations are largely dependent on net interest income. Net interest income is the difference between interest income earned on interest earning assets, which are comprised of loans and
leases, investment securities, short-term investments and interest bearing deposits at other banks, and the interest the Company pays on interest bearing liabilities, which are primarily deposits, and, to a lesser extent, other borrowings.
Management strives to match the re-pricing characteristics of the interest earning assets and interest bearing liabilities to protect net interest income from changes in market interest rates and changes in the shape of the yield curve.
The Company measures its performance by calculating the net interest margin, return on average assets, return on average equity and the efficiency ratio. Net interest margin is calculated by dividing net interest
income, which is the difference between interest income on interest earning assets and interest expense on interest bearing liabilities, by average interest earning assets. Net interest income is the Company’s largest source of revenue. Interest
rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income. The return on average assets is calculated by dividing the Company’s net income by its total average assets and
the return on average equity is calculated by dividing the Company’s net income by its shareholders’ equity. The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.
Critical Accounting Policies and Estimates
Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. We identify critical policies and estimates as those that require
management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using
different assumptions. Our critical accounting policy relates to the allowance for credit losses on loans and leases held for investment. Further details are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our 2024 Form 10-K.
Impact of Recently Issued Accounting Standards
See Note 1. “Basis of Presentation and Significant Accounting Policies” to the Unaudited Consolidated Financial Statements in “Item 1. Financial Information” in this Quarterly Report on Form 10-Q.
Non-GAAP Measurements
We use certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial
performance. The methodology for determining these non-GAAP measures may differ among companies. We used the following non-GAAP measures in this Form 10-Q:
|
|
• |
Tangible common equity ratio and tangible book value per common share:
Given that the use of these measures is prevalent among banking regulators, investors, and analysts, we disclose them in
addition to the related GAAP measures of return on average equity and book value per common share. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods
presented.
|
|
Tangible Common Equity Ratio and
|
September 30,
|
December 31,
|
September 30,
|
|||||||||
|
Tangible Book Value Per Common Share
|
2025
|
2024
|
2024
|
|||||||||
|
(Dollars in thousands, except share and per share data)
|
||||||||||||
|
Shareholders’ equity
|
$
|
645,252
|
$
|
573,072
|
$
|
602,696
|
||||||
|
Less: Intangible assets
|
12,478
|
12,870
|
13,007
|
|||||||||
|
Tangible common equity
|
$
|
632,774
|
$
|
560,202
|
$
|
589,689
|
||||||
|
Total assets
|
$
|
5,629,867
|
$
|
5,370,196
|
$
|
5,418,132
|
||||||
|
Less: Intangible assets
|
12,478
|
12,870
|
13,007
|
|||||||||
|
Tangible assets
|
$
|
5,617,389
|
$
|
5,357,326
|
$
|
5,405,125
|
||||||
|
Tangible common equity ratio
(1)
|
11.26
|
%
|
10.46
|
%
|
10.91
|
%
|
||||||
|
Book value per common share
(2)
|
$
|
894.43
|
$
|
818.91
|
$
|
816.67
|
||||||
|
Tangible book value per common share
(3)
|
$
|
877.13
|
$
|
800.52
|
$
|
799.04
|
||||||
|
Common shares
outstanding
|
721,411
|
699,798
|
737,995
|
|||||||||
(1)
Tangible common equity divided by tangible assets.
(2)
Total common equity divided by common shares outstanding.
(3)
Tangible common equity divided by common shares outstanding.
Results of Operations
The following discussion and analysis is intended to provide a better understanding of the Company’s performance during each of the three- and nine-month periods ended September 30, 2025 and 2024 and the material
changes in financial condition, operating income, and expense of the Company and its subsidiaries as shown in the accompanying unaudited consolidated financial statements. Information related to the comparison of the results of operations for the
years ended December 31, 2024, and 2023 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2024 Form 10-K.
Factors that determine the level of net income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, fee income, non-interest expense, the level of non-performing loans
and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income includes card processing fees, service charges on deposit accounts, bank-owned life insurance income, gains/losses on
the sale of investment securities, and gains/losses on deferred compensation plan investments. Non-interest expense consists primarily of salaries and employee benefits, cost of deferred compensation benefits, occupancy, data processing, deposit
insurance, marketing, professional services, and other expenses.
Earnings Performance
The following table presents performance metrics for the periods indicated:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
(Dollars in thousands, except share and per share amounts)
|
2025
|
2024
|
2025
|
2024
|
||||||||||||
|
Earnings Summary:
|
||||||||||||||||
|
Interest income
|
$
|
70,592
|
$
|
68,635
|
$
|
207,791
|
$
|
205,107
|
||||||||
|
Interest expense
|
15,175
|
16,642
|
45,365
|
50,620
|
||||||||||||
|
Net interest income
|
55,417
|
51,993
|
162,426
|
154,487
|
||||||||||||
|
Provision for credit losses
|
700
|
-
|
2,400
|
-
|
||||||||||||
|
Non-interest income
|
6,867
|
6,280
|
17,407
|
16,122
|
||||||||||||
|
Non-interest expense
|
28,948
|
27,755
|
81,108
|
78,698
|
||||||||||||
|
Income before taxes
|
32,636
|
30,518
|
96,325
|
91,911
|
||||||||||||
|
Income tax expense
|
8,918
|
8,397
|
26,543
|
25,300
|
||||||||||||
|
Net Income
|
$
|
23,718
|
$
|
22,121
|
$
|
69,782
|
$
|
66,611
|
||||||||
|
Per Common Share Data:
|
||||||||||||||||
|
Basic earnings per common share
|
$
|
34.24
|
$
|
29.96
|
$
|
100.18
|
$
|
89.91
|
||||||||
|
Diluted earnings per common share
|
$
|
33.92
|
$
|
29.96
|
$
|
99.67
|
$
|
89.91
|
||||||||
|
Book value per common share
|
$
|
894.43
|
$
|
816.67
|
$
|
894.43
|
$
|
816.67
|
||||||||
|
Tangible book value per common share
(1)
|
$
|
877.13
|
$
|
799.04
|
$
|
877.13
|
$
|
799.04
|
||||||||
|
Performance Ratios:
|
||||||||||||||||
|
Return on average assets
|
1.70
|
%
|
1.65
|
%
|
1.68
|
%
|
1.65
|
%
|
||||||||
|
Return on average equity
|
15.10
|
%
|
15.03
|
%
|
15.28
|
%
|
15.55
|
%
|
||||||||
|
Net interest margin (tax equivalent)
|
4.16
|
%
|
4.07
|
%
|
4.14
|
%
|
4.04
|
%
|
||||||||
|
Yield on average loans and leases (tax equivalent)
|
6.05
|
%
|
6.13
|
%
|
6.06
|
%
|
6.11
|
%
|
||||||||
|
Cost of average total deposits
|
1.22
|
%
|
1.39
|
%
|
1.24
|
%
|
1.39
|
%
|
||||||||
|
Efficiency ratio
|
46.48
|
%
|
47.63
|
%
|
45.10
|
%
|
46.13
|
%
|
||||||||
|
Loan-to-deposit ratio
|
74.16
|
%
|
78.87
|
%
|
74.16
|
%
|
78.87
|
%
|
||||||||
|
Percentage of checking deposits to total deposits
|
48.69
|
%
|
50.01
|
%
|
48.69
|
%
|
50.01
|
%
|
||||||||
|
Capital Ratios - Bancorp:
|
||||||||||||||||
|
Common equity tier 1 capital to risk-weighted assets
|
14.26
|
%
|
13.47
|
%
|
14.26
|
%
|
13.47
|
%
|
||||||||
|
Tier 1 capital to risk-weighted assets
|
14.48
|
%
|
13.70
|
%
|
14.48
|
%
|
13.70
|
%
|
||||||||
|
Risk-based capital to risk-weighted assets
|
15.74
|
%
|
14.95
|
%
|
15.74
|
%
|
14.95
|
%
|
||||||||
|
Tier 1 leverage capital ratio
|
11.59
|
%
|
11.32
|
%
|
11.59
|
%
|
11.32
|
%
|
||||||||
|
Tangible common equity ratio
(1)
|
11.26
|
%
|
10.91
|
%
|
11.26
|
%
|
10.91
|
%
|
||||||||
(1)
See “Non-GAAP Measurements”
Average Balance and Yields
The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield, cost and net interest margin information for the periods presented.
Average balances are derived from daily balances.
|
For the Three Months Ended September 30,
|
||||||||||||||||||||||||
|
2025
|
2024
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Average
Balance
|
Interest
Income / Expense
|
Average
Yield /
Rate
|
Average
Balance
|
Interest
Income / Expense
|
Average
Yield /
Rate
|
||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||
|
Interest earnings deposits in other banks and federal funds sold
|
$
|
274,506
|
$
|
3,065
|
4.43
|
%
|
$
|
286,108
|
$
|
3,893
|
5.41
|
%
|
||||||||||||
|
Investment securities:
(1)
|
||||||||||||||||||||||||
|
Taxable securities
|
1,331,683
|
11,067
|
3.32
|
%
|
1,055,551
|
7,116
|
2.70
|
%
|
||||||||||||||||
|
Non-taxable securities
(2)
|
66,137
|
1,173
|
7.10
|
%
|
62,021
|
767
|
4.95
|
%
|
||||||||||||||||
|
Total investment securities
|
1,397,820
|
12,240
|
3.50
|
%
|
1,117,572
|
7,883
|
2.82
|
%
|
||||||||||||||||
|
Loans:
(3)
|
||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||
|
Commercial
|
1,412,052
|
19,638
|
5.52
|
%
|
1,343,844
|
18,118
|
5.36
|
%
|
||||||||||||||||
|
Agricultural
|
717,015
|
10,108
|
5.59
|
%
|
732,100
|
10,600
|
5.76
|
%
|
||||||||||||||||
|
Residential and home equity
|
401,365
|
5,153
|
5.09
|
%
|
404,014
|
4,979
|
4.90
|
%
|
||||||||||||||||
|
Construction
|
175,351
|
3,177
|
7.19
|
%
|
205,061
|
3,623
|
7.03
|
%
|
||||||||||||||||
|
Total real estate
|
2,705,783
|
38,076
|
5.58
|
%
|
2,685,019
|
37,320
|
5.53
|
%
|
||||||||||||||||
|
Commercial & industrial
|
483,192
|
8,862
|
7.28
|
%
|
507,504
|
9,693
|
7.60
|
%
|
||||||||||||||||
|
Agricultural
|
258,126
|
5,182
|
7.96
|
%
|
308,530
|
6,547
|
8.44
|
%
|
||||||||||||||||
|
Commercial leases
|
167,914
|
2,976
|
7.03
|
%
|
174,939
|
3,046
|
6.93
|
%
|
||||||||||||||||
|
Consumer and other
|
5,206
|
89
|
6.78
|
%
|
5,500
|
92
|
6.65
|
%
|
||||||||||||||||
|
Total loans and leases
|
3,620,221
|
55,185
|
6.05
|
%
|
3,681,492
|
56,698
|
6.13
|
%
|
||||||||||||||||
|
Non-marketable securities
|
15,549
|
334
|
8.52
|
%
|
15,549
|
317
|
8.11
|
%
|
||||||||||||||||
|
Total interest earning assets
|
5,308,096
|
70,824
|
5.29
|
%
|
5,100,721
|
68,791
|
5.37
|
%
|
||||||||||||||||
|
Allowance for credit losses
|
(76,505
|
)
|
(75,488
|
)
|
||||||||||||||||||||
|
Non-interest earning assets
|
356,589
|
350,420
|
||||||||||||||||||||||
|
Total average assets
|
$
|
5,588,180
|
$
|
5,375,653
|
||||||||||||||||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||
|
Interest bearing deposits:
|
||||||||||||||||||||||||
|
Demand
|
$
|
794,683
|
695
|
0.35
|
%
|
$
|
877,985
|
776
|
0.35
|
%
|
||||||||||||||
|
Savings and money market accounts
|
1,786,743
|
8,404
|
1.87
|
%
|
1,636,997
|
8,358
|
2.03
|
%
|
||||||||||||||||
|
Certificates of deposit greater than $250,000
|
393,222
|
3,431
|
3.46
|
%
|
404,988
|
4,231
|
4.16
|
%
|
||||||||||||||||
|
Certificates of deposit equal to or less than $250,000
|
343,364
|
2,451
|
2.83
|
%
|
354,311
|
3,056
|
3.43
|
%
|
||||||||||||||||
|
Total interest bearing deposits
|
3,318,012
|
14,981
|
1.79
|
%
|
3,274,281
|
16,421
|
2.00
|
%
|
||||||||||||||||
|
Subordinated debentures
|
10,310
|
194
|
7.47
|
%
|
10,310
|
221
|
8.53
|
%
|
||||||||||||||||
|
Total interest bearing liabilities
|
3,328,322
|
15,175
|
1.81
|
%
|
3,284,591
|
16,642
|
2.02
|
%
|
||||||||||||||||
|
Non-interest bearing deposits
|
1,539,835
|
1,410,025
|
||||||||||||||||||||||
|
Total funding
|
4,868,157
|
15,175
|
1.24
|
%
|
4,694,616
|
16,642
|
1.41
|
%
|
||||||||||||||||
|
Other non-interest bearing liabilities
|
91,883
|
92,147
|
||||||||||||||||||||||
|
Shareholders’ equity
|
628,140
|
588,890
|
||||||||||||||||||||||
|
Total average liabilities and shareholders’ equity
|
$
|
5,588,180
|
$
|
5,375,653
|
||||||||||||||||||||
|
Net interest income and margin
(4)
|
$
|
55,649
|
4.16
|
%
|
$
|
52,149
|
4.07
|
%
|
||||||||||||||||
|
Interest rate spread
|
3.48
|
%
|
3.35
|
%
|
||||||||||||||||||||
|
Tax equivalent adjustment
|
(232
|
)
|
(156
|
)
|
||||||||||||||||||||
|
Net interest income
|
$
|
55,417
|
4.14
|
%
|
$
|
51,993
|
4.06
|
%
|
||||||||||||||||
(1)
Excludes average unrealized losses of $17.2 million and $17.0 million for the three months ended September 30, 2025, and 2024, respectively, which are included
in non-interest earning assets.
(2)
Yield and interest income are calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21%.
(3)
Loan interest income includes loan fees of $1.6 million and $1.3 million for the three months ended September 30, 2025 and 2024, respectively.
(4)
Net interest margin is computed by dividing net interest income by average interest earning assets.
|
For the Nine Months Ended September 30,
|
||||||||||||||||||||||||
|
2025
|
2024
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Average
Balance
|
Interest
Income / Expense
|
Average
Yield / Rate
|
Average
Balance
|
Interest
Income / Expense
|
Average
Yield /
Rate
|
||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||
|
Interest earnings deposits in other banks and federal funds sold
|
$
|
297,885
|
$
|
9,892
|
4.44
|
%
|
$
|
358,180
|
$
|
14,640
|
5.46
|
%
|
||||||||||||
|
Investment securities:
(1)
|
||||||||||||||||||||||||
|
Taxable securities
|
1,264,605
|
30,601
|
3.23
|
%
|
1,012,943
|
19,309
|
2.54
|
%
|
||||||||||||||||
|
Non-taxable securities
(2)
|
66,813
|
2,765
|
5.52
|
%
|
62,483
|
2,289
|
4.88
|
%
|
||||||||||||||||
|
Total investment securities
|
1,331,418
|
33,366
|
3.34
|
%
|
1,075,426
|
21,598
|
2.68
|
%
|
||||||||||||||||
|
Loans:
(3)
|
||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||
|
Commercial
|
1,379,852
|
56,188
|
5.44
|
%
|
1,338,178
|
53,711
|
5.36
|
%
|
||||||||||||||||
|
Agricultural
|
729,365
|
31,494
|
5.77
|
%
|
727,478
|
31,361
|
5.76
|
%
|
||||||||||||||||
|
Residential and home equity
|
399,028
|
14,928
|
5.00
|
%
|
403,737
|
14,666
|
4.85
|
%
|
||||||||||||||||
|
Construction
|
180,147
|
9,329
|
6.92
|
%
|
217,368
|
11,502
|
7.07
|
%
|
||||||||||||||||
|
Total real estate
|
2,688,392
|
111,939
|
5.57
|
%
|
2,686,761
|
111,240
|
5.53
|
%
|
||||||||||||||||
|
Commercial & industrial
|
489,567
|
26,952
|
7.36
|
%
|
497,925
|
28,101
|
7.54
|
%
|
||||||||||||||||
|
Agricultural
|
262,733
|
15,647
|
7.96
|
%
|
313,596
|
19,606
|
8.35
|
%
|
||||||||||||||||
|
Commercial leases
|
170,801
|
9,256
|
7.25
|
%
|
173,474
|
9,064
|
6.98
|
%
|
||||||||||||||||
|
Consumer and other
|
5,155
|
265
|
6.87
|
%
|
5,614
|
285
|
6.78
|
%
|
||||||||||||||||
|
Total loans and leases
|
3,616,648
|
164,059
|
6.06
|
%
|
3,677,370
|
168,296
|
6.11
|
%
|
||||||||||||||||
|
Non-marketable securities
|
15,549
|
1,020
|
8.77
|
%
|
15,549
|
1,038
|
8.92
|
%
|
||||||||||||||||
|
Total interest earning assets
|
5,261,500
|
208,337
|
5.29
|
%
|
5,126,525
|
205,572
|
5.36
|
%
|
||||||||||||||||
|
Allowance for credit losses
|
(76,202
|
)
|
(75,518
|
)
|
||||||||||||||||||||
|
Non-interest earning assets
|
349,700
|
345,236
|
||||||||||||||||||||||
|
Total average assets
|
$
|
5,534,998
|
$
|
5,396,243
|
||||||||||||||||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||
|
Interest bearing deposits:
|
||||||||||||||||||||||||
|
Demand
|
$
|
878,917
|
4,267
|
0.65
|
%
|
$
|
914,908
|
3,568
|
0.52
|
%
|
||||||||||||||
|
Savings and money market accounts
|
1,723,405
|
23,160
|
1.80
|
%
|
1,623,784
|
23,253
|
1.91
|
%
|
||||||||||||||||
|
Certificates of deposit greater than $250,000
|
386,639
|
10,219
|
3.53
|
%
|
419,528
|
13,264
|
4.22
|
%
|
||||||||||||||||
|
Certificates of deposit equal to or less than $250,000
|
331,959
|
7,139
|
2.88
|
%
|
354,164
|
8,887
|
3.35
|
%
|
||||||||||||||||
|
Total interest bearing deposits
|
3,320,920
|
44,785
|
1.80
|
%
|
3,312,384
|
48,972
|
1.97
|
%
|
||||||||||||||||
|
Short-term borrowings
|
1
|
-
|
0.00
|
%
|
22,629
|
986
|
5.82
|
%
|
||||||||||||||||
|
Subordinated debentures
|
10,310
|
580
|
7.52
|
%
|
10,310
|
662
|
8.58
|
%
|
||||||||||||||||
|
Total interest bearing liabilities
|
3,331,231
|
45,365
|
1.82
|
%
|
3,345,323
|
50,620
|
2.02
|
%
|
||||||||||||||||
|
Non-interest bearing deposits
|
1,505,088
|
1,393,955
|
||||||||||||||||||||||
|
Total funding
|
4,836,319
|
45,365
|
1.25
|
%
|
4,739,278
|
50,620
|
1.43
|
%
|
||||||||||||||||
|
Other non-interest bearing liabilities
|
89,604
|
85,788
|
||||||||||||||||||||||
|
Shareholders’ equity
|
609,075
|
571,177
|
||||||||||||||||||||||
|
Total average liabilities and shareholders’ equity
|
$
|
5,534,998
|
$
|
5,396,243
|
||||||||||||||||||||
|
Net interest income and margin
(4)
|
$
|
162,972
|
4.14
|
%
|
$
|
154,952
|
4.04
|
%
|
||||||||||||||||
|
Interest rate spread
|
3.47
|
%
|
3.34
|
%
|
||||||||||||||||||||
|
Tax equivalent adjustment
|
(546
|
)
|
(465
|
)
|
||||||||||||||||||||
|
Net interest income
|
$
|
162,426
|
4.13
|
%
|
$
|
154,487
|
4.03
|
%
|
||||||||||||||||
(1)
Excludes average unrealized losses of $20.8 million and $19.6 million for the nine months ended September 30, 2025, and 2024, respectively, which are included in
non-interest earning assets.
(2)
Yield and interest income are calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21%.
(3)
Loan interest income includes loan fees of $5.1 million and $4.1 million for the nine months ended September 30, 2025 and 2024, respectively.
(4)
Net interest margin is computed by dividing net interest income by average interest earning assets.
Third Quarter 2025 vs. Third Quarter 2024
Interest bearing deposits with banks and FRB balances are earning assets available to the Company. Average interest bearing deposits with banks
consisted primarily of FRB
deposits. Balances with the FRB
earned an average interest rate of 4.43% and 5.41% for the third quarter of 2025 and 2024, respectively.
The decrease was primarily the result of the Federal Open Market
Committee (“FOMC”) decreasing rates by 125 basis points from September 2024 to September 2025.
Average interest bearing deposits with banks were $274.5 million and $286.1 million for the quarter ended September
30, 2025 and 2024, respectively. Interest income on interest bearing deposits with banks was $3.1 million and $3.9 million for the quarter ended September 30, 2025 and 2024, respectively.
The investment portfolio is also a component of the Company’s earning assets. Historically, the Company invested primarily in: (1) mortgage-backed securities issued by government-sponsored entities; (2) debt
securities issued by the U.S. Treasury, government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, at certain times the Company has selectively added investment grade corporate
securities (floating rate and fixed rate with maturities less than 7 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity. Since the risk factor for these types of investments is
generally lower than that of loans and leases, the yield earned on investments is generally less than that of loans and leases.
Average total investment securities were $1.4 billion and $1.1 billion for the quarter ended September 30, 2025 and 2024, respectively. The average yield on total investment securities was 3.50% and 2.82% for the
quarter ended September 30, 2025 and 2024, respectively. The increase in the yield reflects the increase in yields on purchases in 2024 and during the nine months ended September 30, 2025.
Average loans and leases held for investment were $3.6 billion and $3.7 billion for the quarter ended September 30, 2025 and 2024, respectively. The average yield on the loan and lease portfolio was 6.05% and 6.13%
for the quarter ended September 30, 2025 and 2024, respectively. The decrease in the loan yield reflects the decrease in market interest rates compared to the same period in the prior year.
Average interest bearing deposits were $3.3 billion for the quarters ended September 30, 2025 and 2024. The average rate paid on interest bearing deposits was 1.79% and 2.00% for the quarter ended September 30, 2025
and 2024, respectively. Total interest expense on interest bearing deposits was $15.0 million and $16.4 million for the quarter ended September 30, 2025 and 2024, respectively, with the decrease driven by decreases in short-term market interest
rates compared to the same period in the prior year. The average rate paid on total funding costs was 1.24% and 1.41% for the quarter ended September 30, 2025 and 2024, respectively.
Nine Months Ended September 30, 2025 vs. Nine Months Ended September 30, 2024
Average interest bearing deposits with banks
consisted primarily of FRB deposits. Balances with the FRB
earned an average interest rate of
4.44% and 5.46% for the first nine months of 2025 and 2024, respectively.
The decrease was primarily the result of the FOMC decreasing rates by 125 basis points from September 2024 to September 2025.
Average
interest bearing deposits with banks was $297.9 million and $358.2 million for the nine months ended September 30, 2025 and 2024, respectively. Interest income on interest bearing deposits with banks was $9.9 million and $14.6 million for the
nine months ended September 30, 2025 and 2024, respectively.
Average total investment securities were $1.3 billion and $1.1 billion for the nine months ended September 30, 2025 and 2024, respectively. The average yield on total investment securities was 3.34% and 2.68% for the
nine months ended September 30, 2025 and 2024, respectively. The increase in the yield reflects the increase in yields on purchases in 2024 and during the nine months ended September 30, 2025.
Average loans and leases held for investment were $3.6 billion and $3.7 billion for the nine months ended September 30, 2025 and 2024, respectively. The average yield on the loan and lease portfolio was 6.06% and
6.11% for the nine months ended September 30, 2025 and 2024, respectively. The decrease in the loan yield reflects the decrease in market interest rates compared to the same period in the prior year.
Average interest bearing deposits were $3.3 billion for the nine months ended September 30, 2025 and 2024. The average rate paid on interest bearing deposits was 1.80% and 1.97% for the nine months ended September
30, 2025 and 2024, respectively. Total interest expense on interest bearing deposits was $44.8 million and $49.0 million for the nine months ended September 30, 2025 and 2024, respectively. The decrease was driven by decreases in short-term market
interest rates compared to the same period in the prior year. The average rate paid on total funding costs was 1.25% and 1.43% for the nine months ended September 30, 2025 and 2024, respectively.
Rate/Volume Analysis
The following table shows the change in interest income and interest expense and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes
of volume and rates. For purposes of this table, the change in interest due to both volume and rate has been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts of change in each.
|
Three Months Ended September 30,
2025 compared with 2024
|
Nine Months Ended September 30,
2025 compared with 2024
|
|||||||||||||||||||||||
|
Increase (Decrease) Due to:
|
Increase (Decrease) Due to:
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Volume
|
Rate
|
Net
|
Volume
|
Rate
|
Net
|
||||||||||||||||||
|
Interest income:
|
||||||||||||||||||||||||
|
Interest earnings deposits in other banks and federal funds sold
|
$
|
(151
|
)
|
$
|
(677
|
)
|
$
|
(828
|
)
|
$
|
(2,251
|
)
|
$
|
(2,497
|
)
|
$
|
(4,748
|
)
|
||||||
|
Investment securities:
|
||||||||||||||||||||||||
|
Taxable securities
|
2,091
|
1,860
|
3,951
|
5,417
|
5,875
|
11,292
|
||||||||||||||||||
|
Non-taxable securities
|
54
|
353
|
407
|
166
|
310
|
476
|
||||||||||||||||||
|
Total investment securities
|
2,145
|
2,213
|
4,358
|
5,583
|
6,185
|
11,768
|
||||||||||||||||||
|
Loans:
|
||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||
|
Commercial
|
971
|
549
|
1,520
|
1,655
|
822
|
2,477
|
||||||||||||||||||
|
Agricultural
|
(204
|
)
|
(288
|
)
|
(492
|
)
|
67
|
66
|
133
|
|||||||||||||||
|
Residential and home equity
|
(30
|
)
|
204
|
174
|
(177
|
)
|
439
|
262
|
||||||||||||||||
|
Construction
|
(527
|
)
|
81
|
(446
|
)
|
(1,941
|
)
|
(232
|
)
|
(2,173
|
)
|
|||||||||||||
|
Total real estate
|
210
|
546
|
756
|
(396
|
)
|
1,095
|
699
|
|||||||||||||||||
|
Commercial & industrial
|
(441
|
)
|
(390
|
)
|
(831
|
)
|
(477
|
)
|
(672
|
)
|
(1,149
|
)
|
||||||||||||
|
Agricultural
|
(1,014
|
)
|
(351
|
)
|
(1,365
|
)
|
(3,076
|
)
|
(883
|
)
|
(3,959
|
)
|
||||||||||||
|
Commercial leases
|
(117
|
)
|
47
|
(70
|
)
|
(144
|
)
|
336
|
192
|
|||||||||||||||
|
Consumer and other
|
(5
|
)
|
2
|
(3
|
)
|
(24
|
)
|
4
|
(20
|
)
|
||||||||||||||
|
Total loans and leases
|
(1,367
|
)
|
(146
|
)
|
(1,513
|
)
|
(4,117
|
)
|
(120
|
)
|
(4,237
|
)
|
||||||||||||
|
Non-marketable securities
|
-
|
17
|
17
|
-
|
(18
|
)
|
(18
|
)
|
||||||||||||||||
|
Total interest income
|
627
|
1,407
|
2,034
|
(785
|
)
|
3,550
|
2,765
|
|||||||||||||||||
|
Interest expense:
|
||||||||||||||||||||||||
|
Interest bearing deposits:
|
||||||||||||||||||||||||
|
Demand
|
(71
|
)
|
(10
|
)
|
(81
|
)
|
(146
|
)
|
845
|
699
|
||||||||||||||
|
Savings and money market accounts
|
740
|
(694
|
)
|
46
|
1,375
|
(1,468
|
)
|
(93
|
)
|
|||||||||||||||
|
Certificates of deposit greater than $250,000
|
(118
|
)
|
(682
|
)
|
(800
|
)
|
(988
|
)
|
(2,057
|
)
|
(3,045
|
)
|
||||||||||||
|
Certificates of deposit equal to or less than $250,000
|
(91
|
)
|
(514
|
)
|
(605
|
)
|
(535
|
)
|
(1,213
|
)
|
(1,748
|
)
|
||||||||||||
|
Total interest bearing deposits
|
460
|
(1,900
|
)
|
(1,440
|
)
|
(294
|
)
|
(3,893
|
)
|
(4,187
|
)
|
|||||||||||||
|
Short-term borrowings
|
-
|
-
|
-
|
(986
|
)
|
-
|
(986
|
)
|
||||||||||||||||
|
Subordinated debentures
|
-
|
(27
|
)
|
(27
|
)
|
-
|
(82
|
)
|
(82
|
)
|
||||||||||||||
|
Total interest expense
|
460
|
(1,927
|
)
|
(1,467
|
)
|
(1,280
|
)
|
(3,975
|
)
|
(5,255
|
)
|
|||||||||||||
|
Net interest income
|
$
|
167
|
$
|
3,334
|
$
|
3,501
|
$
|
495
|
$
|
7,525
|
$
|
8,020
|
||||||||||||
Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2025 and 2024
|
Three Months Ended
September 30,
|
$ Better /
|
% Better /
|
Nine Months Ended
September 30,
|
$ Better /
|
% Better /
|
|||||||||||||||||||||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
(Worse)
|
(Worse)
|
2025
|
2024
|
(Worse)
|
(Worse)
|
||||||||||||||||||||||||
|
Selected Income Statement Information:
|
||||||||||||||||||||||||||||||||
|
Interest income
|
$
|
70,592
|
$
|
68,635
|
$
|
1,957
|
2.85
|
%
|
$
|
207,791
|
$
|
205,107
|
$
|
2,684
|
1.31
|
%
|
||||||||||||||||
|
Interest expense
|
15,175
|
16,642
|
1,467
|
8.82
|
%
|
45,365
|
50,620
|
5,255
|
10.38
|
%
|
||||||||||||||||||||||
|
Net interest income
|
55,417
|
51,993
|
3,424
|
6.59
|
%
|
162,426
|
154,487
|
7,939
|
5.14
|
%
|
||||||||||||||||||||||
|
Provision for credit losses
|
700
|
-
|
(700
|
)
|
N/A
|
2,400
|
-
|
(2,400
|
)
|
N/A
|
||||||||||||||||||||||
|
Net interest income after provision for credit losses
|
54,717
|
51,993
|
2,724
|
5.24
|
%
|
160,026
|
154,487
|
5,539
|
3.59
|
%
|
||||||||||||||||||||||
|
Non-interest income
|
6,867
|
6,280
|
587
|
9.35
|
%
|
17,407
|
16,122
|
1,285
|
7.97
|
%
|
||||||||||||||||||||||
|
Non-interest expense
|
28,948
|
27,755
|
(1,193
|
)
|
(4.30
|
%)
|
81,108
|
78,698
|
(2,410
|
)
|
(3.06
|
%)
|
||||||||||||||||||||
|
Income before income tax expense
|
32,636
|
30,518
|
2,118
|
6.94
|
%
|
96,325
|
91,911
|
4,414
|
4.80
|
%
|
||||||||||||||||||||||
|
Income tax expense
|
8,918
|
8,397
|
(521
|
)
|
(6.20
|
%)
|
26,543
|
25,300
|
(1,243
|
)
|
(4.91
|
%)
|
||||||||||||||||||||
|
Net income
|
$
|
23,718
|
$
|
22,121
|
$
|
1,597
|
7.22
|
%
|
$
|
69,782
|
$
|
66,611
|
$
|
3,171
|
4.76
|
%
|
||||||||||||||||
For the three and nine months ended September 30, 2025, net income was $23.7 million and $69.8 million, respectively, compared to $22.1 million and $66.6 million for the same periods a year ago. For the three months
ended September 30, 2025, the increase in net income was primarily the result of higher net interest income of $3.4 million and a $0.6 million increase in non-interest income. These increases were offset by a $0.7 million provision for credit
losses during the third quarter of 2025, compared to no provision in 2024, and an increase of $1.2 million in non-interest expense during the three months ended September 30, 2025, compared to the same period in the prior year.
For the nine months ended September 30, 2025, the increase in net income was primarily the result of higher net interest income of $7.9 million and a $1.3 million increase in non-interest income. These increases were
offset by a $2.4 million provision for credit losses during the nine months ended September 30, 2025, compared to no provision during the same period in 2024, an increase of $2.4 million in non-interest expense and an increase in income tax expense
of $1.2 million during the first nine months of 2025, compared to the same period in the prior year.
Net Interest Income and Net Interest Margin
For the quarter ended September 30, 2025 and 2024, net interest income was $55.4 million compared with $52.0 million, respectively. The increase in net interest income is primarily the result of the net interest
margin (tax equivalent basis) increasing 9 basis points to 4.16% compared with 4.07% for the same period a year earlier. The increase in the net interest margin was primarily the result of a decrease in deposit costs of $1.4 million due to the
interest rate environment, as the federal funds rate decreased 125 basis points from September 2024 to September 2025. The investment securities yield during the third quarter of 2025 increased 68 basis points from 2.82% to 3.50% compared to the
third quarter of 2024. The loan yield decreased 8 basis points from 6.13% to 6.05% compared to the third quarter of 2024. The cost of interest bearing deposits decreased 21 basis points from 2.00% to 1.79% and outpaced the decrease in loan yield
over the same period a year earlier.
For the nine months ended September 30, 2025 and 2024, net interest income was $162.4 million compared with $154.5 million, respectively. The increase is primarily the result of the net interest margin (tax
equivalent basis) increasing 10 basis points to 4.14% compared with 4.04% for the same period a year earlier. The increase in the net interest margin was primarily the result of a decrease in deposit costs of $4.2 million due to the interest rate
environment, as the federal funds rate decreased 125 basis points from September 2024 to September 2025, and a decrease in short-term borrowing costs of $1.0 million. The investment securities yield increased 66 basis points from 2.68% to 3.34%
compared to the first nine months of 2024. The loan yield decreased 5 basis points from 6.11% to 6.06% compared to the first nine months of 2024. The cost of interest bearing deposits decreased 17 basis points from 1.97% to 1.80% and outpaced the
decrease in loan yield over the same period a year earlier.
Provision for Credit Losses
The provision for credit losses in each period is a charge against earnings in that period. The provision is the amount required to maintain the allowance for credit losses at a level that, in management’s judgment,
is adequate to absorb expected credit losses over the life of the loans and leases, unfunded loan commitments and HTM securities portfolios.
Based on the Company’s evaluation of the credit quality of the loan and lease portfolio and the calculations of the allowance for credit losses under the current expected credit losses (“CECL”) methodology, the
Company recorded a $0.7 million provision for credit losses during the three months ended September 30, 2025 compared to no provision for the same period a year ago. Net charge-offs during the three months ended September 30, 2025 were $906,000
compared to $216,000 for the same period a year earlier.
The Company recorded a $2.4 million provision for credit losses during the first nine months of 2025 compared to no provision for credit losses during the first nine months of 2024. The increase in the provision was
primarily due to higher net charge-offs in the first nine months of 2025 and an increase in economic qualitative risk factors beginning in the second quarter of 2025. Net charge-offs during the first nine months of 2025 were $1.6 million compared
to net charge-offs of $149,000 in the first nine months of 2024.
Non-interest Income
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
$ Better / (Worse)
|
% Better / (Worse)
|
2025
|
2024
|
$ Better / (Worse)
|
% Better / (Worse)
|
||||||||||||||||||||||||
|
Non-interest income:
|
||||||||||||||||||||||||||||||||
|
Card processing
|
$
|
1,780
|
$
|
1,777
|
$
|
3
|
0.17
|
%
|
$
|
5,236
|
$
|
5,170
|
$
|
66
|
1.28
|
%
|
||||||||||||||||
|
Net gain
on deferred compensation benefits
|
1,200
|
1,277
|
(77
|
)
|
(6.03
|
%)
|
2,797
|
2,849
|
(52
|
)
|
(1.83
|
%)
|
||||||||||||||||||||
|
Service charges on deposit accounts
|
779
|
794
|
(15
|
)
|
(1.89
|
%)
|
2,295
|
2,291
|
4
|
0.17
|
%
|
|||||||||||||||||||||
|
Increase in cash surrender value of BOLI
|
639
|
606
|
33
|
5.45
|
%
|
1,869
|
1,803
|
66
|
3.66
|
%
|
||||||||||||||||||||||
|
Net gain on sale of securities available-for-sale
|
-
|
743
|
(743
|
)
|
N/A
|
-
|
743
|
(743
|
)
|
N/A
|
||||||||||||||||||||||
|
Other
|
2,469
|
1,083
|
1,386
|
127.98
|
%
|
5,210
|
3,266
|
1,944
|
59.52
|
%
|
||||||||||||||||||||||
|
Total non-interest income
|
$
|
6,867
|
$
|
6,280
|
$
|
587
|
9.35
|
%
|
$
|
17,407
|
$
|
16,122
|
$
|
1,285
|
7.97
|
%
|
||||||||||||||||
Non-interest income increased $0.6 million, or 9.35%, to $6.9 million for the quarter ended September 30, 2025, compared with $6.3 million for the same period a year earlier. The year-over-year increase in
non-interest income was primarily due to a $1.3 million gain on early payoff of leases, partially offset by a $0.7 million decrease in the gain on sale of investment securities.
The Company recorded net gains on deferred compensation plan investments of $1.2 million for the quarter ended September 30, 2025, compared with net gains of $1.3 million for the same respective period a year ago.
See Note 10, “Employee Benefit Plans,” located in Item 8. “Financial Statements and Supplementary Data” in the Company’s 2024 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in
financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these investment gains/losses to be recorded in non-interest income, an offsetting entry is also required to be made
to non-interest expense resulting in no net-effect on the Company’s net income.
Non-interest income increased $1.3 million, or 7.97%, to $17.4 million for the nine months ended September 30, 2025, compared with $16.1 million for the same period of 2024. The year-over-year increase in
non-interest income was primarily due to a $2.0 million increase in other non-interest income, partially offset by a $0.7 million decrease in the gain on sale of investment securities. The increase in other non-interest income was primarily due
to a $1.3 million increase in the gain on early payoff of leases.
The Company recorded net gains on deferred compensation plan investments of $2.8 million for the nine months ended September 30, 2025 and 2024. See Note 10, “Employee Benefit Plans,” located in Item 8. “Financial
Statements and Supplementary Data” in the Company’s 2024 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in
interest rates and stock prices. Although GAAP requires these investment gains/losses to be recorded in non-interest income, an offsetting entry is also required to be made to non-interest expense resulting in no net-effect on the Company’s net
income.
Non-interest Expense
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
$ Better / (Worse)
|
% Better / (Worse)
|
2025
|
2024
|
$ Better / (Worse)
|
% Better / (Worse)
|
||||||||||||||||||||||||
|
Non-interest expense:
|
||||||||||||||||||||||||||||||||
|
Salaries and employee benefits
|
$
|
18,912
|
$
|
19,049
|
$
|
137
|
0.72
|
%
|
$
|
54,488
|
$
|
54,551
|
$
|
63
|
0.12
|
%
|
||||||||||||||||
|
Data processing
|
1,764
|
1,513
|
(251
|
)
|
(16.59
|
%)
|
5,186
|
4,503
|
(683
|
)
|
(15.17
|
%)
|
||||||||||||||||||||
|
Occupancy
|
1,259
|
1,318
|
59
|
4.48
|
%
|
3,854
|
3,793
|
(61
|
)
|
(1.61
|
%)
|
|||||||||||||||||||||
|
Net gain on deferred compensation benefits
|
1,200
|
1,277
|
77
|
6.03
|
%
|
2,797
|
2,849
|
52
|
1.83
|
%
|
||||||||||||||||||||||
|
Deposit insurance
|
719
|
705
|
(14
|
)
|
(1.99
|
%)
|
2,217
|
2,119
|
(98
|
)
|
(4.62
|
%)
|
||||||||||||||||||||
|
Professional services
|
786
|
968
|
182
|
18.80
|
%
|
2,402
|
2,130
|
(272
|
)
|
(12.77
|
%)
|
|||||||||||||||||||||
|
Marketing
|
478
|
504
|
26
|
5.16
|
%
|
1,397
|
1,546
|
149
|
9.64
|
%
|
||||||||||||||||||||||
|
Other
|
3,830
|
2,421
|
(1,409
|
)
|
(58.20
|
%)
|
8,767
|
7,207
|
(1,560
|
)
|
(21.65
|
%)
|
||||||||||||||||||||
|
Total non-interest expense
|
$
|
28,948
|
$
|
27,755
|
$
|
(1,193
|
)
|
(4.30
|
%)
|
$
|
81,108
|
$
|
78,698
|
$
|
(2,410
|
)
|
(3.06
|
%)
|
||||||||||||||
Non-interest expense increased $1.2 million, or 4.30%, to $28.9 million for the quarter ended September 30, 2025, compared with $27.8 million for the same period a year ago. This increase was primarily comprised of
a $1.4 million increase in other non-interest expense.
Net gains on deferred compensation plan obligations were $1.2 million for the quarter ended September 30, 2025, compared with net gains on deferred compensation plan investments of $1.3 million for the same
respective period in 2024. See Note 10 “Employee Benefit Plans,” located in “Item 8. Financial Statements and Supplementary Data” in the Company’s 2024 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation
plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these gains/losses on obligations to be recorded in non-interest expense, an offsetting
entry is also required to be made to non-interest income resulting in no net-effect on the Company’s net income.
Non-interest expense increased $2.4 million, or 3.06%, to $81.1 million for the nine months ended September 30, 2025 compared with $78.7 million for the same period a year ago. This increase was primarily comprised
of a $1.6 million increase in other non-interest expense and a $0.7 million increase in data processing.
The Company recorded net gains on deferred compensation plan investments of $2.8 million for the nine months ended September 30, 2025 and $2.8 million for the nine months ended September 30, 2024. See Note 10
“Employee Benefit Plans,” located in “Item 8. Financial Statements and Supplementary Data” in the Company’s 2024 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial
instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these gains/losses on obligations to be recorded in non-interest expense, an offsetting entry is also required to be made to
non-interest income resulting in no net-effect on the Company’s net income.
Income Tax Expense
For the three and nine months ended September 30, 2025, income tax expense was $8.9 million and $26.5 million, respectively, compared to $8.4 million and $25.3 million for the same periods a year ago. The Company’s
effective tax rate for the three and nine months ended September 30, 2025 was 27.33% and 27.56%, respectively, compared to 27.51% and 27.53% for the same periods in 2024. The Company’s effective tax rate can fluctuate from quarter to quarter due
primarily to changes in the mix of taxable and tax-exempt earning assets. The effective rates were lower than the combined Federal and State statutory rate of 30% primarily due to credits associated with low income housing tax credit investments
(“LIHTC”) and tax-exempt interest income on municipal securities and loans.
The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. The Company’s 2020 through 2024 tax years remain subject to
selection for examination as of September 30, 2025. The IRS is in the process of reviewing the Company’s 2023 tax return. This review includes inquiries related to certain investment tax credits, including one investment tax credit that was
sold to a third party for which the investment tax credits are covered by a tax liability insurance company.
Balance Sheet Analysis
Total assets were $5.6 billion at September 30, 2025, compared with $5.4 billion at December 31, 2024, an increase of $259.7 million, or 4.84%. Total cash and cash equivalents decreased $40.0 million from $212.6
million as of December 31, 2024 to $172.6 million as of September 30, 2025. The net investment portfolio increased by $371.0 million, or 30.07%, to $1.6 billion at September 30, 2025, compared to $1.2 billion at December 31, 2024. Gross loans and
leases held for investment were $3.6 billion at September 30, 2025, compared with $3.7 billion at December 31, 2024, a decrease of $70.0 million, or 1.90%. Total deposits were $4.9 billion at September 30, 2025, compared with $4.7 billion at
December 31, 2024, an increase of $185.9 million, or 3.96%. Our loan to deposit ratio was 74.16% and 78.53% as of September 30, 2025 and December 31, 2024, respectively.
Cash and Cash Equivalents
The Company’s cash and cash equivalents consist of interest bearing deposits with banks and overnight investments in Federal Reserve balances. Interest bearing deposits with banks consisted primarily of FRB
deposits. Interest bearing deposits with banks totaled $102.1 million at September 30, 2025 and $141.5 million at December 31, 2024. The Company’s total cash and cash equivalents as of September 30, 2025 represented 3.1% of the Company’s total
assets as compared to 4.0% of total assets as of December 31, 2024.
Investment Securities
The Company’s net investment portfolio increased by $371.0 million, or 30.07%, to $1.6 billion at September 30, 2025, compared to $1.2 billion at December 31, 2024. During the first nine months of 2025, the Company
purchased $429.4 million of investment securities with an average yield of 5.03%. The Company uses its investment portfolio to manage interest rate and liquidity risks. The Company’s total investment portfolio as of September 30, 2025 represented
28.50% of the Company’s total assets as compared to 22.98% of total assets as of December 31, 2024.
Available-for-sale securities are carried at fair value and held-to-maturity securities are carried at amortized cost under GAAP. The carrying value of our portfolio of investment securities for the dates indicated
are as follows:
|
(Dollars in thousands)
|
September 30,
2025
|
December 31,
2024
|
||||||
|
Available-for-sale securities
|
||||||||
|
U.S. Government-sponsored securities
|
$
|
2,130
|
$
|
2,644
|
||||
|
Mortgage-backed securities
(1)
|
746,463
|
439,858
|
||||||
|
Commercial mortgage-backed securities
(1)
|
1,254
|
1,212
|
||||||
|
Collateralized mortgage obligations
(1)
|
20,877
|
5,497
|
||||||
|
Municipal securities
|
69,486
|
-
|
||||||
|
Corporate securities
|
29,641
|
14,856
|
||||||
|
Other
|
310
|
347
|
||||||
|
Total available-for-sale securities
|
$
|
870,161
|
$
|
464,414
|
||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
(Dollars in thousands)
|
September 30,
2025
|
December 31,
2024
|
||||||
|
Held-to-maturity securities
|
||||||||
|
Mortgage-backed securities
(1)
|
$
|
598,870
|
$
|
626,427
|
||||
|
Collateralized mortgage obligations
(1)
|
63,635
|
68,377
|
||||||
|
Municipal securities
|
72,123
|
74,639
|
||||||
|
Total held-to-maturity securities
|
$
|
734,628
|
$
|
769,443
|
||||
|
Allowance for credit losses
|
(450
|
)
|
(450
|
)
|
||||
|
Total held-to-maturity securities
|
$
|
734,178
|
$
|
768,993
|
||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
The following tables show the carrying value for final contractual maturities of investment securities and the weighted average yields of such securities, including the benefit of tax-exempt securities:
|
As of September 30, 2025
|
||||||||||||||||||||||||||||||||||||||||
|
Within One Year
|
After One but Within
Five Years
|
After Five but
Within Ten Years
|
After Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
||||||||||||||||||||||||||||||
|
Securities available-for-sale
|
||||||||||||||||||||||||||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
-
|
0.00
|
%
|
$
|
5
|
5.30
|
%
|
$
|
314
|
6.28
|
%
|
$
|
1,811
|
5.30
|
%
|
$
|
2,130
|
5.44
|
%
|
||||||||||||||||||||
|
Mortgage-backed securities
(1)
|
99
|
2.57
|
%
|
1,619
|
2.50
|
%
|
2,642
|
4.10
|
%
|
742,103
|
4.89
|
%
|
746,463
|
4.87
|
%
|
|||||||||||||||||||||||||
|
Commercial mortgage-backed securities
(1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
1,254
|
5.83
|
%
|
1,254
|
5.83
|
%
|
|||||||||||||||||||||||||
|
Collateralized mortgage obligations
(1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
20,877
|
4.80
|
%
|
20,877
|
4.80
|
%
|
|||||||||||||||||||||||||
|
Municipal securities
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
19,930
|
4.71
|
%
|
49,556
|
4.77
|
%
|
69,486
|
4.75
|
%
|
|||||||||||||||||||||||||
|
Corporate securities
|
4,993
|
4.34
|
%
|
24,648
|
4.74
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
29,641
|
4.67
|
%
|
|||||||||||||||||||||||||
|
Other
|
310
|
7.54
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
310
|
7.54
|
%
|
|||||||||||||||||||||||||
|
Total securities available-for-sale
|
$
|
5,402
|
4.49
|
%
|
$
|
26,272
|
4.60
|
%
|
$
|
22,886
|
4.66
|
%
|
$
|
815,601
|
4.88
|
%
|
$
|
870,161
|
4.86
|
%
|
||||||||||||||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
As of September 30, 2025
|
||||||||||||||||||||||||||||||||||||||||
|
Within One Year
|
After One but Within
Five Years
|
After Five but
Within Ten Years
|
After Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
||||||||||||||||||||||||||||||
|
Securities held-to-maturity
|
||||||||||||||||||||||||||||||||||||||||
|
Mortgage-backed securities
(1)
|
$
|
-
|
0.00
|
%
|
$
|
2,510
|
0.86
|
%
|
$
|
7,299
|
1.69
|
%
|
$
|
589,061
|
1.91
|
%
|
$
|
598,870
|
1.90
|
%
|
||||||||||||||||||||
|
Collateralized mortgage obligations
(1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
63,635
|
1.78
|
%
|
63,635
|
1.77
|
%
|
|||||||||||||||||||||||||
|
Municipal securities
|
1,502
|
3.61
|
%
|
20,376
|
4.74
|
%
|
13,025
|
4.09
|
%
|
37,220
|
5.28
|
%
|
72,123
|
4.88
|
%
|
|||||||||||||||||||||||||
|
Total securities held-to-maturity
|
$
|
1,502
|
3.61
|
%
|
$
|
22,886
|
4.32
|
%
|
$
|
20,324
|
3.23
|
%
|
$
|
689,916
|
2.08
|
%
|
$
|
734,628
|
2.18
|
%
|
||||||||||||||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
As of December 31, 2024
|
||||||||||||||||||||||||||||||||||||||||
|
Within One Year
|
After One but Within
Five Years
|
After Five but
Within Ten Years
|
After Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
||||||||||||||||||||||||||||||
|
Securities available-for-sale
|
||||||||||||||||||||||||||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
2
|
3.00
|
%
|
$
|
33
|
5.64
|
%
|
$
|
279
|
6.15
|
%
|
$
|
2,330
|
5.89
|
%
|
$
|
2,644
|
5.92
|
%
|
||||||||||||||||||||
|
Mortgage-backed securities
(1)
|
74
|
2.83
|
%
|
3,074
|
2.57
|
%
|
1,949
|
3.92
|
%
|
434,761
|
4.70
|
%
|
439,858
|
4.70
|
%
|
|||||||||||||||||||||||||
|
Commercial mortgage-backed securities
(1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
1,212
|
6.01
|
%
|
1,212
|
6.01
|
%
|
|||||||||||||||||||||||||
|
Collateralized mortgage obligations
(1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
5,497
|
6.01
|
%
|
5,497
|
6.01
|
%
|
|||||||||||||||||||||||||
|
Corporate securities
|
-
|
0.00
|
%
|
14,856
|
5.63
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
14,856
|
5.63
|
%
|
|||||||||||||||||||||||||
|
Other
|
347
|
3.72
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
347
|
3.72
|
%
|
|||||||||||||||||||||||||
|
Total securities available-for-sale
|
$
|
423
|
3.56
|
%
|
$
|
17,963
|
5.10
|
%
|
$
|
2,228
|
4.20
|
%
|
$
|
443,800
|
4.72
|
%
|
$
|
464,414
|
4.75
|
%
|
||||||||||||||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or
government sponsored entity of the U.S. Government.
|
As of December 31, 2024
|
||||||||||||||||||||||||||||||||||||||||
|
Within One Year
|
After One but Within
Five Years
|
After Five but
Within Ten Years
|
After Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
||||||||||||||||||||||||||||||
|
Securities held-to-maturity
|
||||||||||||||||||||||||||||||||||||||||
|
Mortgage-backed securities
(1)
|
$
|
-
|
0.00
|
%
|
$
|
3,426
|
0.82
|
%
|
$
|
7,756
|
1.66
|
%
|
$
|
615,245
|
1.89
|
%
|
$
|
626,427
|
1.88
|
%
|
||||||||||||||||||||
|
Collateralized mortgage obligations
(1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
68,377
|
1.75
|
%
|
68,377
|
1.75
|
%
|
|||||||||||||||||||||||||
|
Municipal securities
|
1,180
|
3.86
|
%
|
18,365
|
4.79
|
%
|
6,733
|
4.34
|
%
|
48,361
|
5.01
|
%
|
74,639
|
4.88
|
%
|
|||||||||||||||||||||||||
|
Total securities held-to-maturity
|
$
|
1,180
|
3.86
|
%
|
$
|
21,791
|
4.17
|
%
|
$
|
14,489
|
2.91
|
%
|
$
|
731,983
|
2.08
|
%
|
$
|
769,443
|
2.16
|
%
|
||||||||||||||||||||
(1)
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or
government sponsored entity of the U.S. Government.
Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Expected maturities of mortgage-backed and CMO securities may differ
from contractual maturities because borrowers have the right to call or prepay obligations with or without penalties. The Company evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic
or market concerns warrant such evaluation.
Loans and Leases
Loans and leases can be categorized by borrowing purpose and use of funds. For detailed descriptions of the various loan types offered by the Company see “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our 2024 Form 10-K.
The Company’s loan and lease portfolio at September 30, 2025 totaled $3.6 billion, a decrease of $67.6 million, or 1.83%, from December 31, 2024, due to lower loan production as the Company continued to
prioritize appropriate loan pricing and loan structure over loan growth.
The following table sets forth the distribution of the loan and lease portfolio by type and percent at the dates indicated:
|
September 30, 2025
|
December 31, 2024
|
|||||||||||||||
|
(Dollars in thousands)
|
Dollars
|
Percent of
Total |
Dollars
|
Percent of
Total
|
||||||||||||
|
Gross loans and leases
|
||||||||||||||||
|
Real estate:
|
||||||||||||||||
|
Commercial
|
$
|
1,425,598
|
39.35
|
%
|
$
|
1,360,841
|
36.88
|
%
|
||||||||
|
Agricultural
|
710,789
|
19.62
|
%
|
751,026
|
20.35
|
%
|
||||||||||
|
Residential and home equity
|
404,635
|
11.17
|
%
|
404,399
|
10.96
|
%
|
||||||||||
|
Construction
|
170,681
|
4.71
|
%
|
194,903
|
5.28
|
%
|
||||||||||
|
Total real estate
|
2,711,703
|
74.85
|
%
|
2,711,169
|
73.47
|
%
|
||||||||||
|
Commercial & industrial
|
488,440
|
13.48
|
%
|
504,403
|
13.67
|
%
|
||||||||||
|
Agricultural
|
251,958
|
6.96
|
%
|
289,847
|
7.85
|
%
|
||||||||||
|
Commercial leases
|
165,754
|
4.58
|
%
|
179,718
|
4.87
|
%
|
||||||||||
|
Consumer and other
|
4,727
|
0.13
|
%
|
5,084
|
0.14
|
%
|
||||||||||
|
Total gross loans and leases
|
$
|
3,622,582
|
100.00
|
%
|
$
|
3,690,221
|
100.00
|
%
|
||||||||
The following table shows the maturity distribution and interest rate sensitivity of the loan and lease portfolio of the Company at September 30, 2025.
|
Loan Contractual Maturity
|
||||||||||||||||||||
|
(Dollars in thousands)
|
One Year or
Less
|
After One But
Within Five
Years
|
After Five
Years But
Within Fifteen
Years
|
After Fifteen
Years
|
Total
|
|||||||||||||||
|
Gross loan and leases:
|
||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||
|
Commercial
|
$
|
71,826
|
$
|
558,927
|
$
|
759,851
|
$
|
34,994
|
$
|
1,425,598
|
||||||||||
|
Agricultural
|
50,723
|
171,911
|
457,324
|
30,831
|
710,789
|
|||||||||||||||
|
Residential and home equity
|
36
|
5,083
|
114,978
|
284,538
|
404,635
|
|||||||||||||||
|
Construction
|
158,667
|
12,014
|
-
|
-
|
170,681
|
|||||||||||||||
|
Total real estate
|
281,252
|
747,935
|
1,332,153
|
350,363
|
2,711,703
|
|||||||||||||||
|
Commercial & industrial
|
223,415
|
171,342
|
91,419
|
2,264
|
488,440
|
|||||||||||||||
|
Agricultural
|
167,171
|
73,644
|
11,143
|
-
|
251,958
|
|||||||||||||||
|
Commercial leases
|
2,776
|
81,281
|
81,697
|
-
|
165,754
|
|||||||||||||||
|
Consumer and other
|
647
|
3,462
|
165
|
453
|
4,727
|
|||||||||||||||
|
Total gross loans and leases
|
$
|
675,261
|
$
|
1,077,664
|
$
|
1,516,577
|
$
|
353,080
|
$
|
3,622,582
|
||||||||||
|
Rate structure for loans and leases
|
||||||||||||||||||||
|
Fixed rate
|
$
|
175,021
|
$
|
808,886
|
$
|
911,817
|
$
|
195,616
|
$
|
2,091,340
|
||||||||||
|
Adjustable rate
|
500,240
|
268,778
|
604,760
|
157,464
|
1,531,242
|
|||||||||||||||
|
Total gross loans and leases
|
$
|
675,261
|
$
|
1,077,664
|
$
|
1,516,577
|
$
|
353,080
|
$
|
3,622,582
|
||||||||||
The following table summarizes the loans for which the accrual of interest has been discontinued and OREO (as hereinafter defined) at the dates indicated:
|
(Dollars in thousands)
|
September 30, 2025
|
December 31, 2024
|
||||||
|
Non-performing assets:
|
||||||||
|
Non-accrual loans and leases
|
||||||||
|
Real estate:
|
||||||||
|
Commercial
|
$
|
955
|
$
|
170
|
||||
|
Agricultural
|
-
|
-
|
||||||
|
Residential and home equity
|
-
|
-
|
||||||
|
Construction
|
-
|
-
|
||||||
|
Total real estate
|
955
|
170
|
||||||
|
Commercial & industrial
|
-
|
759
|
||||||
|
Agricultural
|
-
|
-
|
||||||
|
Commercial leases
|
-
|
-
|
||||||
|
Consumer and other
|
-
|
-
|
||||||
|
Total non-performing loans and leases
|
955
|
929
|
||||||
|
Other real estate owned (“OREO”)
|
873
|
873
|
||||||
|
Total non-performing assets
|
$
|
1,828
|
$
|
1,802
|
||||
|
Selected ratios:
|
||||||||
|
Non-performing loans to total loans and leases
|
0.03
|
%
|
0.03
|
%
|
||||
|
Non-performing assets to total assets
|
0.03
|
%
|
0.03
|
%
|
||||
Non-Accrual Loans and Leases
–
Accrual of interest on loans and leases is generally discontinued when a loan or lease becomes
contractually past due by 90 days or more with respect to interest or principal. When loans and leases are 90 days past due, but in management’s judgment are well secured and in the process of collection, they may not be classified as
non-accrual. When a loan or lease is placed on non-accrual status, all interest previously accrued but not collected is reversed. Income on such loans and leases is then recognized only to the extent that cash is received and where the future
collection of principal is probable. The Company had $955,000 in non-accrual loans at September 30, 2025 and $929,000 in non-accrual loans at December 31, 2024.
Although management believes that non-performing loans and leases are generally well-secured and that potential losses are provided for in the Company’s allowance for credit losses, there can be no assurance that
future deterioration in economic conditions and/or collateral values will not result in future credit losses.
Other Real Estate Owned
– OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the
borrower. The Company records all OREO properties at amounts equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs.
The Company reported $873,000 of
foreclosed OREO at September 30, 2025, and December 31, 2024, respectively.
Loan Modifications to Borrowers Experiencing Financial Difficulties
–
In the normal course of business, the Company may execute
loan modifications to borrowers experiencing financial difficulties. Some of these modifications include: term extension, principal forgiveness, rate reduction, other-than-insignificant payment delay, or any combination of those. ASU 2022-02
requires certain disclosure of loans and leases that have been modified within the past 12 months and the effects that those modifications had on the modified loans and leases. Because the effect of most modifications made to borrowers
experiencing financial difficulty is already included in the allowance for credit losses and because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon
modification. Occasionally, the Company modifies loans by providing principal forgiveness that is deemed to be uncollectable; therefore, the portion of the loan forgiven is written off, resulting in a reduction of the amortized cost basis and a
corresponding adjustment to the allowance for credit losses.
The Company modified eight loans in the aggregate amount of $4.7 million, during the nine months ended September 30, 2025.
There was
one loan
modified within the last twelve months that had a payment default and was charged off during the nine months ended September 30, 2025.
The Company modified six loans, with two borrowers, in the aggregate amount of $13.2 million, during the year ended December 31, 2024. These loans were current as of December 31, 2024.
Allowance for Credit Losses—Loans and Leases
The Company maintains an allowance for credit losses (“ACL”) under ASC Topic 326,
Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial
Instruments
(“CECL”). The allowance is established through a provision for credit losses, which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan
and lease growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of two primary
components: specific reserves related to individually evaluated loans and leases and general reserves comprised of both quantitative and qualitative factors for current expected credit losses related to loans and leases that are not
individually evaluated. The Company uses the Weighted Average Remaining Maturity (“WARM”) methodology to calculate the ACL, as this method is deemed the most appropriate given the Company’s size and complexity. See Note 1 “Summary of
Significant Accounting Policies - Allowance for Credit Losses – Loans and Leases” in our 2024 Form 10-K.
The allowance for credit losses is the combination of the allowance for credit losses on loan and lease losses and the allowance for credit losses on unfunded loan commitments. The ACL for unfunded loan
commitments is included within “Interest payable and other liabilities” on the consolidated balance sheets.
The following table sets forth the activity in our ACL on loans and leases held for investment and unfunded loan commitments for the periods indicated:
|
Nine Months Ended
September 30,
|
||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
||||||
|
Allowance for credit losses:
|
||||||||
|
Balance at beginning of year
|
$
|
77,973
|
$
|
78,655
|
||||
|
Provision for credit losses:
|
||||||||
|
Allowance for credit losses- loans and leases
|
2,290
|
1,000
|
||||||
|
Allowance for credit losses- unfunded loan commitments
|
110
|
(1,000
|
)
|
|||||
|
Total provision for credit losses
|
2,400
|
-
|
||||||
|
Charge-offs:
|
||||||||
|
Real estate:
|
||||||||
|
Commercial
|
(175
|
)
|
-
|
|||||
|
Agricultural
|
(1,119
|
)
|
-
|
|||||
|
Residential and home equity
|
-
|
(29
|
)
|
|||||
|
Construction
|
-
|
-
|
||||||
|
Total real estate
|
(1,294
|
)
|
(29
|
)
|
||||
|
Commercial & industrial
|
(232
|
)
|
(200
|
)
|
||||
|
Agricultural
|
(234
|
)
|
-
|
|||||
|
Commercial leases
|
-
|
-
|
||||||
|
Consumer and other
|
(44
|
)
|
(52
|
)
|
||||
|
Total charge-offs
|
(1,804
|
)
|
(281
|
)
|
||||
|
Recoveries:
|
||||||||
|
Real estate:
|
||||||||
|
Commercial
|
-
|
-
|
||||||
|
Agricultural
|
5
|
-
|
||||||
|
Residential and home equity
|
6
|
19
|
||||||
|
Construction
|
-
|
-
|
||||||
|
Total real estate
|
11
|
19
|
||||||
|
Commercial & industrial
|
142
|
51
|
||||||
|
Agricultural
|
24
|
16
|
||||||
|
Commercial leases
|
-
|
-
|
||||||
|
Consumer and other
|
17
|
46
|
||||||
|
Total recoveries
|
194
|
132
|
||||||
|
Net (charge-offs)
|
(1,610
|
)
|
(149
|
)
|
||||
|
Balance at end of period
|
$
|
78,763
|
$
|
78,506
|
||||
|
Allowance for credit losses - loans and leases
|
75,963
|
75,816
|
||||||
|
Allowance for credit losses - unfunded loan commitments
|
2,800
|
2,690
|
||||||
|
Total allowance for credit losses
|
$
|
78,763
|
$
|
78,506
|
||||
|
Selected financial information:
|
||||||||
|
Net loans and leases held for investment
|
$
|
3,532,383
|
$
|
3,628,293
|
||||
|
Average loans and leases
|
3,616,648
|
3,677,370
|
||||||
|
Non-performing loans and leases
|
955
|
677
|
||||||
|
Allowance for credit losses to non-performing loans and leases
|
N/M
|
(1)
|
N/M
|
(1)
|
||||
|
Net (charge-offs) / recoveries to average loans and leases
|
(0.04
|
%)
|
(0.004
|
%)
|
||||
|
Provision for credit losses to average loans and leases
|
0.07
|
%
|
0.00
|
%
|
||||
|
Allowance for loan and lease losses to loans and leases held for investment
|
2.10
|
%
|
2.04
|
%
|
||||
(1)
Not meaningful (N/M)
The following table indicates management’s allocation of the ACL for loans and leases by loan type as of each of the following dates:
|
September 30, 2025
|
December 31, 2024
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Dollars
|
Percent of
Each Loan
Type to Total
Loans
|
Percent of
ACL to Each
Loan Type
|
Dollars
|
Percent of
Each Loan
Type to Total
Loans
|
Percent of
ACL to Each
Loan Type
|
||||||||||||||||||
|
Allowance for credit losses:
|
||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||
|
Commercial
|
$
|
21,514
|
39.35
|
%
|
1.51
|
%
|
$
|
20,382
|
36.88
|
%
|
1.50
|
%
|
||||||||||||
|
Agricultural
|
24,347
|
19.62
|
%
|
3.43
|
%
|
23,615
|
20.35
|
%
|
3.14
|
%
|
||||||||||||||
|
Residential and home equity
|
7,473
|
11.17
|
%
|
1.85
|
%
|
7,340
|
10.96
|
%
|
1.82
|
%
|
||||||||||||||
|
Construction
|
2,820
|
4.71
|
%
|
1.65
|
%
|
3,055
|
5.28
|
%
|
1.57
|
%
|
||||||||||||||
|
Total real estate
|
56,154
|
74.85
|
%
|
2.07
|
%
|
54,392
|
73.47
|
%
|
2.01
|
%
|
||||||||||||||
|
Commercial & industrial
|
7,375
|
13.48
|
%
|
1.51
|
%
|
7,791
|
13.67
|
%
|
1.54
|
%
|
||||||||||||||
|
Agricultural
|
6,631
|
6.96
|
%
|
2.63
|
%
|
6,725
|
7.85
|
%
|
2.32
|
%
|
||||||||||||||
|
Commercial leases
|
5,583
|
4.58
|
%
|
3.37
|
%
|
6,153
|
4.87
|
%
|
3.42
|
%
|
||||||||||||||
|
Consumer and other
|
220
|
0.13
|
%
|
4.65
|
%
|
222
|
0.14
|
%
|
4.37
|
%
|
||||||||||||||
|
Total allowance for credit losses
|
$
|
75,963
|
100.00
|
%
|
2.10
|
%
|
$
|
75,283
|
100.00
|
%
|
2.04
|
%
|
||||||||||||
Deposits
Total deposits were $4.9 billion and $4.7 billion as of September 30, 2025 and December 31, 2024, respectively, an increase of $185.9 million or 3.96%. Non-interest bearing demand deposits were $1.58 billion
and $1.52 billion as of September 30, 2025 and December 31, 2024, respectively, an increase of $62.8 million or 4.14%. Non-interest bearing deposits were 32.37% of total deposits as of September 30, 2025 and 32.31% of total deposits as of
December 31, 2024. Interest bearing deposits were $3.3 billion at September 30, 2025 and $3.2 million at December 31, 2024. Interest bearing deposits are comprised of interest bearing transaction accounts, money market accounts, regular
savings accounts, and certificates of deposit. Interest bearing transaction accounts decreased $84.6 million, or 9.59%, to $797.5 million at September 30, 2025, compared with $882.1 million at December 31, 2024. Savings and money market
accounts increased $174.7 million, or 11.03%, to $1.8 billion at September 30, 2025, compared with $1.6 billion at December 31, 2024. Certificates of deposit accounts increased $33.0 million, or 4.61%, to $748.5 million at September 30, 2025,
compared with $715.5 million at December 31, 2024.
The following table shows the average amount and average rate paid on the categories of deposits for each of the periods presented:
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||
|
2025
|
2024
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Average
Balance
|
Interest
Expense
|
Average
Rate
|
Average
Balance
|
Interest
Expense
|
Average
Rate
|
||||||||||||||||||
|
Total deposits:
|
||||||||||||||||||||||||
|
Interest bearing deposits:
|
||||||||||||||||||||||||
|
Demand
|
$
|
878,917
|
$
|
4,267
|
0.65
|
%
|
$
|
914,908
|
$
|
3,568
|
0.52
|
%
|
||||||||||||
|
Savings and money market
|
1,723,405
|
23,160
|
1.80
|
%
|
1,623,784
|
23,253
|
1.91
|
%
|
||||||||||||||||
|
Certificates of deposit greater than $250,000
|
386,639
|
10,219
|
3.53
|
%
|
419,528
|
13,264
|
4.22
|
%
|
||||||||||||||||
|
Certificates of deposit equal to or less than $250,000
|
331,959
|
7,139
|
2.88
|
%
|
354,164
|
8,887
|
3.35
|
%
|
||||||||||||||||
|
Total interest bearing deposits
|
3,320,920
|
44,785
|
1.80
|
%
|
3,312,384
|
48,972
|
1.97
|
%
|
||||||||||||||||
|
Non-interest bearing deposits
|
1,505,088
|
1,393,955
|
||||||||||||||||||||||
|
Total deposits
|
$
|
4,826,008
|
$
|
44,785
|
1.24
|
%
|
$
|
4,706,339
|
$
|
48,972
|
1.39
|
%
|
||||||||||||
Deposits are gathered from individuals and businesses in our market areas. The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements.
The Company reduced interest rates during the last four months of 2024 when the FOMC cut interest rates by 100 basis points between September and December 2024 and then another 25 basis points in September 2025, when the FOMC cut interest
rates. The average cost of total deposits, including non-interest bearing deposits, decreased to 1.22% for the three months ended September 30, 2025, compared with 1.39% for the same period a year ago, and to 1.24% for the nine months ended
September 30, 2025, compared with 1.39% for the nine months ended September 30, 2024.
The following table shows deposits with a balance greater than $250,000 at September 30, 2025 and December 31, 2024:
|
September 30,
|
December 31,
|
|||||||
|
(Dollars in thousands)
|
2025
|
2024
|
||||||
|
Non-maturity deposits greater than $250,000
|
$
|
2,636,359
|
$
|
2,486,450
|
||||
|
Certificates of deposit greater than $250,000, by maturity:
|
||||||||
|
Less than 3 months
|
191,103
|
153,662
|
||||||
|
3 months to 6 months
|
117,937
|
146,341
|
||||||
|
6 months to 12 months
|
90,301
|
81,642
|
||||||
|
More than 12 months
|
1,210
|
3,427
|
||||||
|
Total certificates of deposit greater than $250,000
|
$
|
400,551
|
$
|
385,072
|
||||
|
Total deposits greater than $250,000
|
$
|
3,036,910
|
$
|
2,871,522
|
||||
The Bank participates in a program wherein the State of California places time deposits with the Bank at the Bank’s option. As of September 30, 2025 and December 31, 2024, the Bank had $3.0 million of such
deposits.
Total estimated uninsured deposits based on our regulatory reporting amounted to $2.5 billion at September 30, 2025 and $2.3 billion at December 31, 2024.
Federal Home Loan Bank Advances and Federal Reserve Bank Borrowings
Lines of Credit with the Federal Home Loan Bank and FRB are other key sources of funds to support earning assets and liquidity. These sources of funds are also used to manage the Company’s interest rate risk
exposure and, as opportunities arise, to borrow and invest the proceeds at a positive spread through the investment portfolio. There were no FHLB advances at September 30, 2025 or December 31, 2024. There were no Federal Funds purchased or
advances from the FRB at September 30, 2025 or December 31, 2024.
Long-Term Subordinated Debentures
On December 17, 2003, the Company raised $10.0 million through the sale of subordinated debentures to an off-balance-sheet trust and its sale of trust-preferred securities. See Note 9. “Long-term Subordinated
Debentures” located in “Item 8. Financial Statements and Supplementary Data” in our 2024 Form 10-K. Although this amount is reflected as subordinated debt on the Company’s balance sheet, under current regulatory guidelines, our Trust
Preferred Securities continue to qualify as regulatory capital.
These securities accrue interest at a variable rate based upon 3-month SOFR plus 2.85%. Interest rates reset quarterly (the next reset is December 17, 2025), and the rate was 7.13% as of September 30, 2025 and
7.46% at December 31, 2024. The average rate paid for these securities was 7.52% for the first nine months of 2025 and 8.58% for the first nine months of 2024. Additionally, if the Company decided to defer interest on the subordinated
debentures, the Company would be prohibited by the terms of the debentures, from paying cash dividends on the Company’s common stock.
Capital Resources
The Company relies primarily on capital generated through the retention of earnings to satisfy its capital requirements. The Company engages in an ongoing assessment of its capital needs in order to support
business growth and to insure depositor protection. Shareholders’ Equity totaled $645.3 million at September 30, 2025, an increase of $72.2 million, or 12.6%, from $573.1 million at December 31, 2024, due primarily to net income of $69.8
million during the first nine months of 2025.
The Company and the Bank are subject to various regulatory capital adequacy guidelines as outlined under Part 324 of the FDIC Rules and Regulations. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Company and the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
As of September 30, 2025, the Company was in compliance with all of these capital requirements and there were no restrictions on the Company’s business activity. As of September 30, 2025, the Bank met the
requirements to be categorized as “well-capitalized” under the FDIC regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” the Bank must maintain minimum Total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth in the following tables as of September 30, 2025 and December 31, 2024.
The Company’s and Bank’s actual and required capital amounts and ratios are as follows:
|
September 30, 2025
|
||||||||||||||||||||||||
|
Actual
|
Required for Capital
Adequacy Purposes
|
Minimum to be Categorized
as “Well Capitalized” Under
Prompt Corrective Action
Regulation
|
||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
Bancorp:
|
||||||||||||||||||||||||
|
CET1 capital to risk-weighted assets
|
$
|
639,030
|
14.26
|
%
|
$
|
201,655
|
4.50
|
%
|
N/A
|
N/A
|
||||||||||||||
|
Tier 1 capital to risk-weighted assets
|
649,030
|
14.48
|
%
|
268,874
|
6.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Risk-based capital to risk-weighted assets
|
705,332
|
15.74
|
%
|
358,498
|
8.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Tier 1 leverage capital ratio
|
649,030
|
11.59
|
%
|
223,969
|
4.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Bank:
|
||||||||||||||||||||||||
|
CET1 capital to risk-weighted assets
|
$
|
626,414
|
13.98
|
%
|
$
|
201,612
|
4.50
|
%
|
$
|
291,217
|
6.50
|
%
|
||||||||||||
|
Tier 1 capital to risk-weighted assets
|
626,414
|
13.98
|
%
|
268,816
|
6.00
|
%
|
358,421
|
8.00
|
%
|
|||||||||||||||
|
Risk-based capital to risk-weighted assets
|
682,704
|
15.24
|
%
|
358,421
|
8.00
|
%
|
448,026
|
10.00
|
%
|
|||||||||||||||
|
Tier 1 leverage capital ratio
|
626,414
|
11.21
|
%
|
223,510
|
4.00
|
%
|
279,387
|
5.00
|
%
|
|||||||||||||||
|
December 31, 2024
|
||||||||||||||||||||||||
|
Actual
|
Required for Capital
Adequacy Purposes
|
Minimum to be Categorized
as “Well Capitalized” Under
Prompt Corrective Action
Regulation
|
||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
Bancorp:
|
||||||||||||||||||||||||
|
CET1 capital to risk-weighted assets
|
$
|
579,602
|
13.04
|
%
|
$
|
200,046
|
4.50
|
%
|
N/A
|
N/A
|
||||||||||||||
|
Tier 1 capital to risk-weighted assets
|
589,602
|
13.26
|
%
|
266,728
|
6.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Risk-based capital to risk-weighted assets
|
645,453
|
14.52
|
%
|
355,637
|
8.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Tier 1 leverage capital ratio
|
589,602
|
10.95
|
%
|
215,379
|
4.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Bank:
|
||||||||||||||||||||||||
|
CET1 capital to risk-weighted assets
|
$
|
591,072
|
13.30
|
%
|
$
|
200,038
|
4.50
|
%
|
$
|
288,944
|
6.50
|
%
|
||||||||||||
|
Tier 1 capital to risk-weighted assets
|
591,072
|
13.30
|
%
|
266,718
|
6.00
|
%
|
355,624
|
8.00
|
%
|
|||||||||||||||
|
Risk-based capital to risk-weighted assets
|
646,920
|
14.55
|
%
|
355,624
|
8.00
|
%
|
444,530
|
10.00
|
%
|
|||||||||||||||
|
Tier 1 leverage capital ratio
|
591,072
|
10.99
|
%
|
215,213
|
4.00
|
%
|
269,016
|
5.00
|
%
|
|||||||||||||||
On September 10, 2024, the Board of Directors authorized a new share repurchase program (the “Repurchase Plan”) in which the Company may repurchase up to $55.0 million of the Company’s common stock, which
represented approximately 9% of outstanding shareholders’ equity at the time of approval. On August 14, 2025, the Board of Directors authorized an increase of $45.0 million to the existing share repurchase program along with an extension of
the program through December 31, 2027.
Repurchases by the Company under the Repurchase Plan may be made from time to time at market prices through open market purchases, trading plans established in accordance with SEC rules, or privately negotiated
transactions. In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. Among other things, the IRA imposes an excise tax equal to 1% of the fair market value of any stock repurchased by covered corporations during a taxable
year, subject to certain limits and provisions.
During the three months ended September 30, 2025, the Company repurchased 2,540 shares under the Repurchase Plan, for a total of $2.6 million, inclusive of the excise tax. During the nine months ended September
30, 2025, the Company repurchased 7,789 shares under the Repurchase Plan, for a total of $7.9 million, inclusive of the excise tax. As of September 30, 2025, there remains $57.1 million authorized for repurchases under the Repurchase Plan.
On August 12, 2025, the Board of Directors announced that the Company was changing its dividend policy related to the frequency of cash dividend payments from semi-annually to quarterly and on the same date
declared a third quarter cash dividend of $5.00 per share. The cash dividend totaling $3.6 million was paid on October 1, 2025, to shareholders of record on September 11, 2025.
Off-Balance-Sheet Arrangements
Off-balance-sheet arrangements are any contractual arrangement to which an unconsolidated
entity is a party, under which the Company has: (1) any obligation under a
guarantee contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity, or market risk support to that entity for such assets; (3) any obligation
under certain derivative instruments; or (4) any obligation under a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company, or engages in
leasing, hedging, or research and development services with the Company.
The following table sets forth our off-balance-sheet lending commitments as of September 30, 2025:
|
Amount of Commitment Expiration per Period
|
||||||||||||||||||||
|
(Dollars in thousands)
|
Total
Committed
Amount
|
Less than
One Year
|
One to
Three
Years
|
Three to
Five Years
|
After Five Years
|
|||||||||||||||
|
Off-balance sheet commitments
|
||||||||||||||||||||
|
Commitments to extend credit
|
$
|
1,057,402
|
$
|
510,030
|
$
|
363,448
|
$
|
45,277
|
$
|
138,647
|
||||||||||
|
Standby letters of credit
|
18,995
|
15,683
|
1,812
|
1,500
|
-
|
|||||||||||||||
|
Total off-balance sheet commitments
|
$
|
1,076,397
|
$
|
525,713
|
$
|
365,260
|
$
|
46,777
|
$
|
138,647
|
||||||||||
The Company’s exposure to credit loss in the event of nonperformance by the other party with regard to standby letters of credit, undisbursed loan commitments, and financial guarantees is represented by the
contractual notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Company uses the same credit policies in
making commitments and conditional obligations as it does for recorded balance sheet items. The Company may or may not require collateral or other security to support financial instruments with credit risk. Evaluations of each customer’s
creditworthiness are performed on a case-by-case basis. Additionally, the Company maintains an allowance for credit losses for unfunded loan commitments, which amounted to $2.8 million at September 30, 2025 and $2.7 million at December 31,
2024.
Standby letters of credit are conditional commitments issued by the Company to guarantee performance of or payment for a customer to a third-party. Outstanding standby letters of credit at September 30, 2025
had maturity dates ranging from 1 to 54 months with final expiration in some cases up to April 1, 2030. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Liquidity
The ability to have readily available funds sufficient to repay maturing and non-maturing liabilities is of primary importance to depositors, creditors and regulators. In an effort to satisfy our liquidity
needs, we actively manage our assets and liabilities. We have access to immediate liquid resources in the form of cash, which totaled $172.6 million, or 3.1% of total assets, as of September 30, 2025. The majority of cash is on deposit with
the FRB and amounted to $102.1 million. Potential sources of liquidity also include our ability to sell or pledge our available-for-sale securities portfolio, our ability to pledge for borrowing purposes our held-to-maturity portfolio, our
ability to sell loans in the secondary market, and our ability to borrow from the FRB and FHLB. Our diversified deposit portfolio has historically provided us with a long-term source of stable low-cost funding. Maturities and payments on
outstanding loans and investment securities also provide a steady flow of funds. Our liquidity, represented by cash borrowing lines, federal funds and available-for-sale securities, is a result of our operating, investing and financing
activities and related cash flows. In order to ensure funds are available at all times, we devote resources to projecting the amount of funds that will be required and we maintain relationships with a diversified client base. Liquidity
requirements can also be met through short-term borrowings or the disposition of short-term assets. We actively monitor our liquidity on a daily basis and manage our liquidity and overall balance sheet positions through both our management
and Board-level Asset and Liability Management committees (“ALCO”), which meet regularly during the year.
We had the following borrowing lines available at September 30, 2025:
|
September 30, 2025
|
||||||||||||||||
|
(Dollars in thousands)
|
Total Credit
Line Limit
|
Outstanding
Amount
|
Remaining
Credit Line
Available
|
Value of
Collateral
Pledged
|
||||||||||||
|
Additional liquidity sources:
|
||||||||||||||||
|
Federal Reserve Bank BIC
|
$
|
1,127,174
|
$
|
-
|
$
|
1,127,174
|
$
|
1,414,322
|
||||||||
|
Federal Home Loan Bank
|
807,252
|
-
|
807,252
|
1,039,503
|
||||||||||||
|
US Bank Fed Funds
|
65,000
|
-
|
65,000
|
-
|
||||||||||||
|
PCBB Fed Funds
|
50,000
|
-
|
50,000
|
-
|
||||||||||||
|
FHLB Fed Funds
|
18,000
|
-
|
18,000
|
-
|
||||||||||||
|
Total additional liquidity sources
|
$
|
2,067,426
|
$
|
-
|
$
|
2,067,426
|
$
|
2,453,825
|
||||||||
We continued our focus on maintaining a strong liquidity position throughout the first nine months of 2025, and we believe our liquid assets and short-term borrowing credit lines are adequate to meet our cash
flow needs for loan and lease funding and deposit cash withdrawals for the foreseeable future. As of September 30, 2025, we had internal sources of liquidity comprised of $172.6 million in cash and $863.5 million of unencumbered investment
securities, which represented in the aggregate 18.4% of total assets. We also had $2.1 billion in external sources of liquidity as outlined in the table above, bringing our total available liquidity to $3.1 billion as of September 30, 2025.
Our pledged collateral on short-term borrowing lines was comprised of $2.5 billion in loans and $1.4 million in investment securities held at market value at September 30, 2025. We have the option of either borrowing on our credit lines or
selling these investment securities for cash flow needs.
On a long-term basis, we can, as needed, meet our liquidity needs by changing the relative distribution of our asset portfolios by reducing our investment or loan and lease volumes, or selling or encumbering
assets. Further, we can increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from our correspondent banks as well as the Federal Reserve and FHLB. At the current time, our
long-term liquidity needs primarily relate to funds required to support loan and lease originations and commitments and deposit withdrawals.
We believe we can meet all of these needs from existing liquidity sources. Our liquidity is comprised of three primary classifications: cash flows from or used in operating activities; cash flows from or used
in investing activities; and cash flows from or used in financing activities. Net cash provided by or used in operating activities has consisted primarily of net income adjusted for certain non-cash income and expense items such as the credit
loss provision, investment and other amortization and depreciation. Our net cash provided by operating activities for the first nine months of 2025 was $90.5 million, driven by net income of $69.8 million.
Our primary investing activities are the origination of loans and leases and purchases and sales of investment securities. Net cash used in investing activities was $298.1 million during the first nine months
of 2025, driven by a net increase of purchases in our investment portfolio of $426.7 million in available-for-sale securities offset by a decrease in loans and leases of $68.5 million and proceeds from the sale, maturities, calls, and pay
downs of investment securities of $83.3 million.
As of September 30, 2025, we had unfunded loan commitments of $1.1 billion and unfunded letters of credit of $19.0 million. At September 30, 2025, we believe that we had sufficient sources of funds available to
meet current loan commitments.
Net cash provided by financing activities totaled $167.6 million in the first nine months of 2025, driven by an increase in deposits of $185.9 million, partially offset by $10.4 million of dividends paid and
$7.9 million in stock repurchases.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
The Company’s assessment of market risk at September 30, 2025 indicates there have been no material changes in the quantitative and qualitative disclosures from those made in the Company’s 2024 Form 10-K.
Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market risk arises
primarily from interest rate risk inherent in our lending and deposit taking activities. Management actively monitors and manages our interest rate risk exposure. We do not have any market-risk sensitive instruments entered into for trading
purposes. In monitoring interest rate risk we continually analyze and manage our earning assets and funding liabilities based on their payment streams and interest rates, the timing of their maturities and/or prepayments, and their
sensitivity to actual or potential changes in market interest rates.
Management uses various asset/liability strategies to manage the re-pricing characteristics of our assets and liabilities designed to ensure that exposure to interest rate fluctuations is limited within our
guidelines of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits, and managing the deployment of our securities, are considered to reduce mismatches in interest rate re-pricing
opportunities of portfolio assets and their funding sources.
Since our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest
income. Our Asset Liability Management Committee, which is comprised of members of the Board of Directors and Executive Officers, manages market risk. ALCO monitors interest rate risk by analyzing the potential impact on net interest income
from potential changes in interest rates, and considers the impact of alternative strategies or changes in balance sheet structure. ALCO manages our balance sheet in part to maintain the potential impact of changes in interest rates on net
interest income within acceptable ranges despite changes in interest rates. ALCO and management utilize a third party to assist with asset liability management including the use of simulation models.
Our exposure to interest rate risk is reviewed on at least a quarterly basis by ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in net interest
income in the event of hypothetical changes in interest rates. If potential changes to net interest income resulting from hypothetical interest rate changes are not within risk tolerances determined by ALCO, and approved by the full Board of
Directors, Management may make adjustments to the Company’s asset and liability mix to bring interest rate risk levels within the Board-approved limits.
Net Interest Income Simulation.
In order to measure interest rate risk, we use a simulation model to project changes in net interest income that result from forecasted
changes in interest rates. This analysis calculates the difference between net interest income forecasted using a rising and a falling interest rate scenario and a net interest income forecast using a base market interest rate derived from
the current Treasury yield curve. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately,
and to the same extent as the change in market rates according to their contracted index.
Some loans and investment vehicles include the opportunity of prepayment (embedded options), and accordingly the simulation model uses various proprietary models to estimate these prepayments and assumes the
reinvestment of the proceeds at current yields. Our non-term deposit products generally re-price more slowly, usually changing less than the change in market rates and at our discretion.
This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet size remains static throughout the simulation horizon by
replacing existing cash flows/amortization into similar products at current rates to try and capture the ongoing activity of the balance sheet without forecasting any level of growth. It does not account for all factors that affect this
analysis, including changes by management to mitigate the effect of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.
Furthermore, loan prepayment-rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates
incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.
For the rising and falling interest rate scenarios, the base market interest rate forecast was increased or decreased, on an instantaneous and sustained basis, by 100, 200 and 300 basis points. We then evaluate
the simulation results using two approaches: Net Interest Income at Risk (“NII at Risk”) and Economic Value of Equity (“EVE”). Under NII at Risk, the impact on net interest income from the changes in interest rates on interest earning assets
and interest bearing liabilities is modeled using various assumptions of assets and liabilities. EVE measures the period-end present value of assets minus the present value of liabilities. Management uses this value to measure the changes in
the economic value of the Company under various interest rate scenarios.
Based on our quarterly simulations, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by ALCO. Our simulation model
highlights the fact that our balance sheet is asset sensitive, which means that our net interest income rises in a rising interest rate environment as rates earned on our interest bearing assets reprice higher and at a faster pace than rates
paid on our interest bearing liabilities.
The ratio of variable to fixed-rate loans in our loan portfolio, the ratio of short-term (maturing at a given time within 12 months) to long-term loans, and the ratio of our demand, money market and savings
deposits to CDs (and their time periods), are the primary factors affecting the sensitivity of our net interest income to changes in market interest rates. Our short-term loans are typically priced at prime plus a margin, and our long-term
loans are typically priced based on a specific term of the Treasury Curve for comparable maturities, plus a margin. The composition of our rate-sensitive assets or liabilities is subject to change and could result in a more unbalanced
position that would cause market rate changes to have a greater impact on our net interest margin. As of September 30, 2025, our loan and lease portfolio was comprised of 57.73% fixed rate and 42.27% variable rate loans. An additional
component of managing our interest rate risk is the use of loan floors when structuring our variable loan products. At loan origination, a loan floor rate, typically equal to or slightly below the initial rate on the loan, is established.
This is particularly beneficial in a declining interest rate environment.
The following table presents the projected change in the Company’s net interest income over the next twelve months and the economic value of equity at September 30, 2025, that would occur upon an immediate
change in interest rates based on the models discussed above, but without giving effect to any steps that management might take to counteract such change:
|
Estimated Change in
Net Interest Income (NII)
(as a % of NII)
|
Estimated Change in
Economic Value of Equity
(EVE)
(as a % of EVE)
|
|||||||
|
September 30, 2025
|
||||||||
|
+300 bps
|
(2.0
|
%)
|
(11.8
|
%)
|
||||
|
+200 bps
|
(1.7
|
%)
|
(7.9
|
%)
|
||||
|
+100 bps
|
(1.0
|
%)
|
(3.0
|
%)
|
||||
|
0 bps
|
-
|
-
|
||||||
|
-100 bps
|
0.1
|
%
|
0.7
|
%
|
||||
|
-200 bps
|
(0.5
|
%)
|
(1.5
|
%)
|
||||
|
-300 bps
|
(0.6
|
%)
|
(6.1
|
%)
|
||||
| Item 4. |
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the
effectiveness of the disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(a)). Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this Report, the
disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports that are filed or submitted under the Exchange Act are recorded, processed, summarized
and timely reported as provided in the SEC’s rules and forms.
Changes in Internal Controls
There have been no material changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the nine months ended
September 30, 2025, to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
| Item 1. |
Legal Proceedings
|
In the ordinary course of business, the Company becomes involved in litigation arising out of its normal business activities. Management, after consultation with legal counsel, believes that the ultimate
liability, if any, resulting from the disposition of such claims would not be material in relation to the financial position of the Company.
There are no material proceedings adverse to the Company to which any director, officer or affiliate of the Company is a party.
| Item 1A. |
Risk Factors
|
We are subject to various risks and uncertainties, which could materially affect our business, results of operations, financial condition, future results, and the trading price of our common stock. You should
read carefully the following information together with the information appearing in Part I, Item 1A, “Risk Factors” in our 2024 Form 10-K. The following information supplements and, to the extent inconsistent, supersedes some of the
information appearing in the “Risk Factors” section of our 2024 Form 10-K. These risk factors, as well as our condensed consolidated financial statements and notes thereto and the other information appearing in this Report, should be reviewed
carefully for important information regarding risks that affect us.
Changes in or uncertainty around U.S. and foreign government policies, including the imposition of or further increases in tariffs and changes to existing
trade agreements, could have a material adverse effect on the Bank’s customers, which, in turn, could adversely affect our business, financial condition and results of operations.
In February 2025, the new Trump Administration
announced that it would be imposing increases in tariffs on goods imported to the U.S. from Canada, Mexico, and China, and, in April 2025, the Administration announced the imposition of increased tariffs on goods imported to the U.S. from
other countries. As a consequence, other countries, in retaliation to the U.S.’s announced tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S. The
Administration subsequently announced a delay of 90 days in the implementation of those increased tariffs for most other countries, leaving in place, however, a 10% baseline tariff that went into effect on April 5 and that applies to nearly
all imports from all countries. The 90-day pause on the implementation of nearly all of the country-specific tariffs was initially set to expire on July 8, 2025, but was extended to August 1, 2025, to provide additional time to negotiate and
finalize bilateral trade agreements with key countries. On July 31, 2025, the Trump Administration issued an Executive Order further adjusting the tariff rates to be applied against nearly 70 countries, effective August 7, 2025. The Trump
Administration has announced agreements in principle regarding tariffs with certain significant trading partners of the United States, including (among others) the European Union, the United Kingdom, Japan, and South Korea. It remains
uncertain whether such agreements in principle will lead to definitive agreements with such trading partners and, if so, on what terms and whether agreements with other trading partners will eventually be consummated. More recently, the U.S.
government has introduced new tariffs and tariff-related measures and has indicated that other potential tariff measures and modifications to existing tariffs continue to be under consideration. The tariff environment continues to remain
highly dynamic, and the specific tariffs applicable to goods imported into the U.S. continue to evolve, as do import tariffs charged by other countries. These tariffs could be of particular concern to U.S. companies operating in the
agricultural sector who export agricultural goods to other countries. The Company’s customers include a number of agricultural businesses, which could be affected, but to what extent remains uncertain.
As a result of these changes to U.S. and foreign government trade policies, there may be changes to existing trade agreements, greater restrictions on free trade generally, the imposition of or significant
further increases in tariffs on goods imported into the U.S., and adverse responses by foreign governments to U.S. trade policies, among other possible changes. The extent and duration of any tariffs, and the resulting impact on global,
national and state economic conditions generally, and on our customers’ businesses in particular, are uncertain and depend on various factors, such as negotiations between the U.S. and other countries, the responses of such countries, and
exemptions or exclusions that may be granted. A significant trade disruption or the establishment or further increase of any tariffs, trade protection measures or restrictions could result in lost sales, adversely impacting our banking
customers and their businesses, including our agricultural business customers. Impacts to the general economic conditions, such as a heightened risk of a recession caused by lower GDP, higher unemployment and/or changes in the interest rate
environment, could adversely impact our business. In addition, international trade disputes, including those related to tariffs, could result in inflationary pressures and/or adversely impact global supply chains, which could increase the
costs of doing business for our banking customers. Changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the countries where our
banking customers currently sell products, including agricultural products, and any resulting negative sentiments towards the U.S. and U.S. businesses as a result of such changes, could also have a material adverse effect on our banking
customers’ business, financial condition, results of operations and cash flows. If these events negatively affect our banking clients, or general economic conditions nationally, in California, or in our local markets, our business, financial
condition and results of operations could be adversely affected.
The following table reports information regarding repurchases of our common stock during the nine months ended September 30, 2025:
|
Period
|
Total number
of shares
purchased
|
Average price
paid per share
(1)
|
Total number of shares
purchased as part of
publicly announced
plans or programs
|
Maximum number (or
approximate dollar
value) of shares that
may yet be purchased
under the plans or
programs (
In
thousands
)
|
||||||||||||
|
Total 1st Quarter 2025
|
703
|
$
|
1,001.00
|
703
|
$
|
19,205
|
||||||||||
|
Total 2nd Quarter 2025
|
4,546
|
1,002.82
|
4,546
|
14,651
|
||||||||||||
|
July 1, 2025 to July 31, 2025
|
2,077
|
$
|
995.49
|
2,077
|
$
|
12,584
|
||||||||||
|
August 1, 2025 to August 31, 2025
|
202
|
1,014.46
|
202
|
57,379
|
||||||||||||
|
September 1, 2025 to September 30, 2025
|
261
|
1,036.00
|
261
|
57,108
|
||||||||||||
|
Total 3rd Quarter 2025
|
2,540
|
$
|
1,001.16
|
2,540
|
$
|
57,108
|
||||||||||
|
Total 2025
|
7,789
|
$
|
1,002.12
|
7,789
|
$
|
57,108
|
||||||||||
(1)
The aggregate purchase price and weighted average price per share does not include the effect of excise tax expense incurred
on net stock repurchases. For the nine months ended September 30, 2025, excise tax expense totaled $61,000.
On September 10, 2024 the Board of Directors authorized a new share repurchase program (the “Repurchase Plan”) in which the Company may repurchase up to $55.0 million of the Company’s common stock, which
represented approximately 9% of outstanding shareholders’ equity at the time of approval. On August 14, 2025, the Board of Directors authorized an increase of $45.0 million to the existing share repurchase program along with an extension of
the program through December 31, 2027.
Repurchases by the Company under the Repurchase Plan may be made from time to time at market prices through open market purchases, trading plans established in accordance with SEC rules, or privately negotiated
transactions. In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. Among other things, the IRA imposes an excise tax equal to 1% of the fair market value of any stock repurchased by covered corporations during a taxable
year, subject to certain limits and provisions.
During the three months ended September 30, 2025, the Company repurchased 2,540 shares under the Repurchase Plan, for a total of $2.6 million, inclusive of the excise tax. During the nine months ended September
30, 2025, the Company repurchased 7,789 shares under the Repurchase Plan, for a total of $7.9 million, inclusive of the excise tax. As of September 30, 2025, there remains $57.1 million authorized for repurchases under the Repurchase Plan.
| Item 3. |
Defaults Upon Senior Securities
|
Not Applicable
| Item 4. |
Mine Safety Disclosures
|
Not Applicable
| Item 5. |
Other Information
|
During the three months ended September 30, 2025,
no
director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408(a) of Regulation S-K.
| Item 6. |
Exhibits
|
|
Exhibit
Number
|
Description
|
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
101
|
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated
Statements of Comprehensive Income, (iv) the Unaudited Consolidated Statements of Changes in Shareholders’ Equity, (v) the Unaudited Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements. The
XBRL instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
FARMERS & MERCHANTS BANCORP
|
|
|
|
|
|
Date: November 7, 2025
|
/s/ Kent A. Steinwert
|
|
Kent A. Steinwert
|
|
|
Director, Chairman, President and Chief Executive Officer
(Principal Executive Officer)
|
|
Date: November 7, 2025
|
/s/ Bart R. Olson
|
|
Bart R. Olson
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
64
TABLE OF CONTENTS
Part 1. Financial InformationItem 1. Financial Statements (unaudited)Note 1 Basis Of Presentation and Significant Accounting PoliciesNote 1 Basis Of Presentation and Significant Accounting Policies ContinuedNote 2 Investment SecuritiesNote 2 Investment Securities ContinuedNote 3 Loans and LeasesNote 3 Loans and Leases ContinuedNote 4 Other Real Estate OwnedNote 5 DepositsNote 6 Short-term BorrowingsNote 7 Fair ValueNote 7 Fair Value ContinuedNote 8 Earnings Per ShareNote 9 Employee Benefit PlansNote 9 Employee Benefit Plans ContinuedNote 10 Stock-based CompensationNote 11 DerivativesNote 12 Commitments and ContingenciesNote 12 Commitments and Contingencies ContinuedNote 13 Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits