Equibles

10-Q

FARMERS & MERCHANTS BANCORP (FMCB)

10-Q 2025-11-07 For: 2025-09-30
View Original
Added on April 04, 2026

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to__________

Commission File Number:  000-26099

FARMERS & MERCHANTS BANCORP

(Exact name of registrant as specified in its charter)

Delaware 94-3327828

| (State or other jurisdiction of incorporation or organization) | (I.R.S.  Employer Identification No.) | | 111 W. Pine Street, Lodi, California | 95240 |

| (Address of principal executive offices) | (Zip Code) |

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<br><br> <br>registered
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. Yes ☒ 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 ☐ Accelerated filer ☒

| Non-accelerated filer ☐ | 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).

Yes ☐  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

TABLE OF CONTENTS

PART I. - FINANCIAL INFORMATION Page
Item 1 - Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Changes in Shareholders’ Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 36
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 59
Item 4 - Controls and Procedures 61
PART II. - OTHER INFORMATION
Item 1 – Legal Proceedings 61
Item 1A – Risk Factors 61
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 62
Item 3 – Defaults Upon Senior Securities 63
Item 4 – Mine Safety Disclosures 63
Item 5 – Other Information 63
Item 6 – Exhibits 63
Signatures 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) December 31,<br><br> 2024
ASSETS
Cash and due from banks 70,447 $ 71,058
Interest bearing deposits with banks 102,120 141,505
Total cash and cash equivalents 172,567 212,563
Securities available-for-sale, amortized cost 879,082 and 490,992, respectively 870,161 464,414
Securities held-to-maturity, fair value 604,131 and 610,953, respectively 734,628 769,443
Allowance for credit losses - securities held-to-maturity (450 ) (450 )
Total investment securities 1,604,339 1,233,407
Non-marketable securities 15,549 15,549
Loans and leases held for investment, net of unearned income 3,608,346 3,678,388
Allowance for credit losses - loans and leases (75,963 ) (75,283 )
Loans and leases held for investment, net 3,532,383 3,603,105
Bank-owned life insurance 75,954 74,085
Premises and equipment, net 54,369 51,367
Deferred income tax assets and income taxes receivable 28,224 36,729
Accrued interest receivable 31,505 30,152
Goodwill 11,183 11,183
Other intangibles 1,295 1,687
Other real estate owned 873 873
Other assets 101,626 99,496
Total Assets 5,629,867 $ 5,370,196
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing 1,581,097 $ 1,518,267
Interest bearing:
Demand 797,507 882,123
Savings and money market 1,757,896 1,583,202
Certificates of deposit 748,514 715,547
Total interest bearing 3,303,917 3,180,872
Total deposits 4,885,014 4,699,139
Subordinated debentures 10,310 10,310
Interest payable and other liabilities 89,291 87,675
Total Liabilities 4,984,615 4,797,124
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS’ EQUITY
Preferred shares, no par value, 1,000,000 shares authorized and none issued or outstanding - -
Common shares, 0.01 par value, 7,500,000 authorized, 726,294 and 699,798 issued and 721,411 and 699,798 outstanding at September 30, 2025 and December 31, 2024, respectively 7 7
Additional paid-in capital 8,201 -
Retained earnings 648,916 592,431
Accumulated other comprehensive loss, net of taxes (6,942 ) (19,366 )
Treasury stock, at cost; 4,883 shares at September 30, 2025 and 0 shares at December 31, 2024 (4,930 ) -
TOTAL SHAREHOLDERS’ EQUITY 645,252 573,072
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 5,629,867 $ 5,370,196

All values are in US Dollars.

See accompanying notes to the unaudited consolidated financial statements.

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FARMERS & MERCHANTS BANCORP

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended<br><br> <br>September 30, Nine Months Ended<br><br> <br>September 30,
(Dollars in thousands, except share and per share amounts) 2025 2024 2025 2024
Interest income
Interest and fees on loans and leases $ 55,185 $ 56,698 $ 164,059 $ 168,296
Interest and dividends on investment securities 12,343 8,044 33,841 22,171
Interest on deposits with others 3,064 3,893 9,891 14,640
Total interest income 70,592 68,635 207,791 205,107
Interest expense
Deposits 14,981 16,421 44,785 48,972
Borrowed funds - - - 986
Subordinated debentures 194 221 580 662
Total 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 -
Net interest income after provision for credit losses 54,717 51,993 160,026 154,487
Non-interest income
Card processing 1,780 1,777 5,236 5,170
Service charges on deposit accounts 779 794 2,295 2,291
Increase in cash surrender value of BOLI 639 606 1,869 1,803
Net gain on sale of securities available-for-sale - 743 - 743
Net gain on deferred compensation benefits 1,200 1,277 2,797 2,849
Other 2,469 1,083 5,210 3,266
Total non-interest income 6,867 6,280 17,407 16,122
Non-interest expense
Salaries and employee benefits 18,912 19,049 54,488 54,551
Data processing 1,764 1,513 5,186 4,503
Occupancy 1,259 1,318 3,854 3,793
Deposit insurance 719 705 2,217 2,119
Professional services 786 968 2,402 2,130
Marketing 478 504 1,397 1,546
Net gain on deferred compensation benefits 1,200 1,277 2,797 2,849
Other 3,830 2,421 8,767 7,207
Total non-interest expense 28,948 27,755 81,108 78,698
INCOME BEFORE INCOME 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
Earnings per common share:
Basic $ 34.24 $ 29.96 $ 100.18 $ 89.91
Diluted $ 33.92 $ 29.96 $ 99.67 $ 89.91
Weighted average number of common shares
Basic 692,727 738,421 696,572 740,898
Diluted 699,211 738,421 700,128 740,898

See accompanying notes to the unaudited consolidated financial statements.

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FARMERS & MERCHANTS BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended<br><br> <br>September 30, Nine Months Ended<br><br> <br>September 30,
(Dollars in thousands) 2025 2024 2025 2024
Net income $ 23,718 $ 22,121 $ 69,782 $ 66,611
Other comprehensive income
Unrealized gains on available-for-sale securities 8,722 8,769 17,657 5,074
Reclassification adjustment for gains on available-for-sale securities - (743 ) - (743 )
Amortization of unrecognized loss on securities transferred to held-to-maturity (5 ) (17 ) (19 ) (66 )
Net unrealized gains on securities 8,717 8,009 17,638 4,265
Income tax expense (2,577 ) (2,368 ) (5,214 ) (1,261 )
Other comprehensive income, net of tax 6,140 5,641 12,424 3,004
Total comprehensive income $ 29,858 $ 27,762 $ 82,206 $ 69,615

See accompanying notes to the unaudited consolidated financial statements.

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FARMERS & MERCHANTS BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)
(Dollars in thousands, except share amounts) Amount Additional<br><br> <br>Paid-In<br><br> <br>Capital Retained<br><br> <br>Earnings Accumulated<br><br> <br>Other<br><br> <br>Comprehensive<br><br> <br>(Loss)/Income Shares Treasury<br><br> <br>Stock Total
Balance as of June 30, 2025 727,722 $ 7 $ 5,192 $ 628,793 $ (13,082 ) (2,355 ) $ (2,378 ) $ 618,532
Net income - - - 23,718 - - - 23,718
Other comprehensive income, net of tax - - - - 6,140 - - 6,140
Forfeiture of restricted stock awards (1,416 ) - - - - - - -
Stock based compensation expense - - 3,009 - - - - 3,009
Cash dividends declared (5.00 per share) - - - (3,595 ) - - - (3,595 )
Repurchase of common stock (12 ) - - (12 ) - - - (12 )
Adjustment common stock excise tax - - - 12 - - - 12
Purchase of treasury stock - - - - - (2,528 ) (2,552 ) (2,552 )
Balance as of September 30, 2025 726,294 $ 7 $ 8,201 $ 648,916 $ (6,942 ) (4,883 ) $ (4,930 ) $ 645,252
Balance as of June 30, 2024 739,308 $ 7 $ 27,931 $ 563,383 $ (15,101 ) - $ - $ 576,220
Net income - - - 22,121 - - - 22,121
Other comprehensive income, net of tax - - - - 5,641 - - 5,641
Repurchase of common stock (1,313 ) - (1,286 ) - - - - (1,286 )
Balance as of September 30, 2024 737,995 $ 7 $ 26,645 $ 585,504 $ (9,460 ) - $ - $ 602,696

All values are in US Dollars.

(Dollars in thousands, except share amounts) Amount Additional<br><br> <br>Paid-In<br><br> <br>Capital Retained<br><br> <br>Earnings Accumulated<br><br> <br>Other<br><br> <br>Comprehensive<br><br> <br>(Loss)/Income Shares Treasury<br><br> <br>Stock Total
Balance as of December 31, 2024 699,798 $ 7 $ - $ 592,431 $ (19,366 ) - $ - $ 573,072
Net income - - - 69,782 - - - 69,782
Other comprehensive income, net of tax - - - - 12,424 - - 12,424
Issuance of restricted stock awards 30,818 - - - - - - -
Forfeiture of restricted stock awards (1,416 ) - - - - - - -
Stock based compensation expense - - 8,201 - - - - 8,201
Cash dividends declared (14.30 per share) - - - (10,364 ) - - - (10,364 )
Repurchase of common stock (2,906 ) - - (2,933 ) - - - (2,933 )
Purchase of treasury stock - - - - - (4,883 ) (4,930 ) (4,930 )
Balance as of September 30, 2025 726,294 $ 7 $ 8,201 $ 648,916 $ (6,942 ) (4,883 ) $ (4,930 ) $ 645,252
Balance as of December 31, 2023 747,971 $ 7 $ 36,852 $ 525,360 $ (12,464 ) - $ - $ 549,755
Cumulative change from adoption of ASU 2023-02 - - - 40 - - - 40
Net income - - - 66,611 - - - 66,611
Other comprehensive income, net of tax - - - - 3,004 - - 3,004
Cash dividends declared (8.80 per share) - - - (6,507 ) - - - (6,507 )
Repurchase of common stock (9,976 ) - (10,207 ) - - - - (10,207 )
Balance as of September 30, 2024 737,995 $ 7 $ 26,645 $ 585,504 $ (9,460 ) - $ - $ 602,696

All values are in US Dollars.

See accompanying notes to the unaudited consolidated financial statements.

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FARMERS & MERCHANTS BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended<br><br> <br>September 30,
(Dollars in thousands) 2025 2024
Cash flows from operating activities:
Net income $ 69,782 $ 66,611
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 2,400 -
Depreciation and amortization 2,311 2,191
Net accretion of securities premiums and discounts (1,083 ) (1,132 )
Stock based compensation expense 8,201 -
Increase in cash surrender value of BOLI (1,869 ) (1,803 )
Decrease in deferred income taxes, net 4,010 5,829
Gain on sale of securities available-for-sale - (743 )
Net changes in:
Other assets (3,152 ) (3,146 )
Other liabilities 9,902 22,728
Net cash provided by operating activities 90,502 90,535
Cash flows from investing activities:
Net decrease (increase) in loans and leases held for investment 68,455 (49,540 )
Purchase of available-for-sale securities (426,729 ) (300,456 )
Purchase of held-to-maturity securities (8,847 ) (3,043 )
Proceeds from sales, maturities, calls and pay downs of available-for-sale securities 39,542 87,693
Proceeds from maturities, calls and pay downs of held-to-maturity securities 43,807 40,247
Purchase of premises and equipment (5,348 ) (1,413 )
Purchase of other investments (9,086 ) (14,486 )
Redemption of other investments - 5,917
Proceeds from bank-owned life insurance - 3,281
Proceeds from sale of assets 60 -
Net cash used in investing activities (298,146 ) (231,800 )
Cash flows from financing activities:
Net increase in deposits 185,875 40,587
Cash dividends paid (10,364 ) (6,507 )
Net cash used in share repurchase program (2,933 ) (10,207 )
Purchase of treasury stock (4,930 ) -
Net cash provided by financing activities 167,648 23,873
Net change in cash and cash equivalents (39,996 ) (117,392 )
Cash and cash equivalents, beginning of period 212,563 410,642
Cash and cash equivalents, end of period $ 172,567 $ 293,250
Supplemental disclosures of cash flow information:
Cash paid for interest $ 47,495 $ 12,631
Income taxes paid $ 10,002 $ 4,241
Supplemental disclosures of non-cash transactions:
Net change in unrealized losses on securities available-for-sale $ (17,657 ) $ (4,331 )

See accompanying notes to the unaudited consolidated financial statements.

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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.

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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.

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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 $ 2,144 $ 1 $ 15 $ 2,130
Mortgage-backed securities^(1)^ 758,047 6,599 18,183 746,463
Commercial mortgage-backed obligations^(1)^ 1,231 23 - 1,254
Collateralized mortgage obligations^(1)^ 21,356 - 479 20,877
Municipal securities 66,465 3,021 - 69,486
Corporate securities 29,529 148 36 29,641
Other 310 - - 310
Total available-for-sale securities $ 879,082 $ 9,792 $ 18,713 $ 870,161

^(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 $ 2,657 $ 4 $ 17 $ 2,644
Mortgage-backed securities^(1)^ 466,302 464 26,908 439,858
Commercial mortgage-backed obligations^(1)^ 1,228 - 16 1,212
Collateralized mortgage obligations^(1)^ 5,653 - 156 5,497
Corporate securities 14,800 56 - 14,856
Other 352 - 5 347
Total available-for-sale securities $ 490,992 $ 524 $ 27,102 $ 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.

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<br><br> <br>for Credit
(Dollars in thousands) Cost Gains Losses Fair Value Losses
As of September 30, 2025
Mortgage-backed securities^(1)^ $ 598,870 $ 57 $ 119,781 $ 479,146 $ -
Collateralized mortgage obligations^(1)^ 63,635 - 10,634 53,001 -
Municipal securities 72,123 1,071 1,210 71,984 450
Total held-to-maturity securities $ 734,628 $ 1,128 $ 131,625 $ 604,131 $ 450

^(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<br><br> <br>for Credit
(Dollars in thousands) Cost Gains Losses Fair Value Losses
As of December 31, 2024
Mortgage-backed securities^(1)^ $ 626,427 $ - $ 143,544 $ 482,883 $ -
Collateralized mortgage obligations^(1)^ 68,377 - 13,876 54,501 -
Municipal securities 74,639 46 1,116 73,569 450
Total held-to-maturity securities $ 769,443 $ 46 $ 158,536 $ 610,953 $ 450

^(1)^ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

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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 $ 798 $ 4 $ 686 $ 11 $ 1,484 $ 15
Mortgage-backed securities^(1)^ 97,156 176 87,979 18,007 185,135 18,183
Collateralized mortgage obligations^(1)^ 15,365 340 5,512 139 20,877 479
Corporate securities 4,684 36 - - 4,684 36
Total available-for-sale securities $ 118,003 $ 556 $ 94,177 $ 18,157 $ 212,180 $ 18,713

^(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 $ 600 $ 1 $ 888 $ 16 $ 1,488 $ 17
Mortgage-backed securities^(1)^ 324,202 5,772 67,319 21,136 391,521 26,908
Commerical mortgage-backed securities^(1)^ 1,212 16 - - 1,212 16
Collateralized mortgage obligations^(1)^ 5,043 147 454 9 5,497 156
Corporate securities 347 5 - - 347 5
Total available-for-sale securities $ 331,404 $ 5,941 $ 68,661 $ 21,161 $ 400,065 $ 27,102

^(1)^ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

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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<br><br> <br>securities Collateralized mortgage obligations Total
Allowance for credit losses - securities
Beginning balance $ 450 $ - $ - $ 450
Provision for credit losses - - - -
Ending balance $ 450 $ - $ - $ 450
December 31, 2024
--- --- --- --- --- --- --- --- ---
(Dollars in thousands) Municipal securities Mortgage-backed<br><br> <br>securities Collateralized mortgage obligations Total
Allowance for credit losses - securities
Beginning balance $ 450 $ - $ - $ 450
Provision for credit losses - - - -
Ending balance $ 450 $ - $ - $ 450

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 $ 5,402 $ 5,402 $ 1,502 $ 1,491
After one year through five years 26,180 26,272 22,886 22,709
After five years through ten years 21,996 22,886 20,324 19,292
After ten years 825,504 815,601 689,916 560,639
Total $ 879,082 $ 870,161 $ 734,628 $ 604,131

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.

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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 $ 18,590 $ 933 $ 52,600 $ 72,123
Total $ 18,590 $ 933 $ 52,600 $ 72,123
Held-to-Maturity
--- --- --- --- --- --- --- --- ---
Amortized Cost
(Dollars in thousands) AAA/AA/A BBB/BB/B Not Rated Total
December 31, 2024
Municipal securities $ 19,022 $ 403 $ 55,214 $ 74,639
Total $ 19,022 $ 403 $ 55,214 $ 74,639

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 $ 925 $ - $ -
Nine months ended September 30, 2024 $ 70,251 $ 839 $ 96

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.

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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,<br><br> <br>2025 December 31,<br><br> 2024
Loans and leases held for investment, net
Real estate:
Commercial $ 1,425,598 $ 1,360,841
Agricultural 710,789 751,026
Residential and home equity 404,635 404,399
Construction 170,681 194,903
Total real estate 2,711,703 2,711,169
Commercial & industrial 488,440 504,403
Agricultural 251,958 289,847
Commercial leases 165,754 179,718
Consumer and other 4,727 5,084
Total gross loans and leases 3,622,582 3,690,221
Unearned income (14,236 ) (11,833 )
Total net loans and leases 3,608,346 3,678,388
Allowance for credit losses (75,963 ) (75,283 )
Total loans and leases held for investment, net $ 3,532,383 $ 3,603,105

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<br><br> <br>Past Due 90+ Days<br><br> <br>Past Due Non-accrual Total Past<br><br> <br>Due and<br><br> <br>Non-accrual Current Total Non-accrual with no ACL
Loans and leases held for investment, net
Real estate:
Commercial $ 7,249 $ - $ 955 $ 8,204 $ 1,409,788 $ 1,417,992 $ 955
Agricultural - - - - 710,789 710,789 -
Residential and home equity - 134 - 134 404,501 404,635 -
Construction - - - - 170,681 170,681 -
Total real estate 7,249 134 955 8,338 2,695,759 2,704,097 955
Commercial & industrial - - - - 488,440 488,440 -
Agricultural 16 - - 16 251,942 251,958 -
Commercial leases 1,404 - - 1,404 157,720 159,124 -
Consumer and other 8 - - 8 4,719 4,727 -
Total loans and leases, net $ 8,677 $ 134 $ 955 $ 9,766 $ 3,598,580 $ 3,608,346 $ 955

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3—Loans and Leases—Continued

December 31, 2024
(Dollars in thousands) 30-89 Days<br><br> <br>Past Due 90+ Days<br><br> <br>Past Due Non-accrual Total Past<br><br> <br>Due and<br><br> <br>Non-accrual Current Total Non-accrual<br><br> <br>with no ACL
Loans and leases held for investment, net
Real estate:
Commercial $ - $ - $ 170 $ 170 $ 1,353,101 $ 1,353,271 $ 170
Agricultural - - - - 751,026 751,026 -
Residential and home equity - - - - 404,399 404,399 -
Construction - - - - 194,903 194,903 -
Total real estate - - 170 170 2,703,429 2,703,599 170
Commercial & industrial 33 - 759 792 503,611 504,403 -
Agricultural 36 - - 36 289,811 289,847 -
Commercial leases - - - - 175,455 175,455 -
Consumer and other 5 - - 5 5,079 5,084 -
Total loans and leases, net $ 74 $ - $ 929 $ 1,003 $ 3,677,385 $ 3,678,388 $ 170

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.

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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 $ - $ - $ - $ - $ - $ - 0.00 %
Agricultural - - - - - - 0.00 %
Residential and home equity - 56 - - - 56 0.01 %
Construction - - - - - - 0.00 %
Total real estate - 56 - - - 56 0.00 %
Commercial & industrial - 1,973 - - - 1,973 0.40 %
Agricultural - - - - - - 0.00 %
Commercial leases - - - - - - 0.00 %
Consumer and other - - - - - - 0.00 %
Total $ - $ 2,029 $ - $ - $ - $ 2,029 0.06 %

^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 $ - $ - $ - $ - $ - $ - 0.00 %
Agricultural - 983 - 1,656 - 2,639 0.37 %
Residential and home equity - 89 - - - 89 0.02 %
Construction - - - - - - 0.00 %
Total real estate - 1,072 - 1,656 - 2,728 0.10 %
Commercial & industrial - 1,973 - - - 1,973 0.40 %
Agricultural - 43 - - - 43 0.02 %
Commercial leases - - - - - - 0.00 %
Consumer and other - - - - - - 0.00 %
Total $ - $ 3,088 $ - $ 1,656 $ - $ 4,744 0.13 %

^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.

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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.

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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 $ 142,589 $ 39,281 $ 115,585 $ 157,726 $ 195,827 $ 373,009 $ 256,616 $ 126,059 $ 1,406,692
Special mention 225 - - - 7,248 - 2,872 - 10,345
Substandard - - - 955 - - - - 955
Total Commercial $ 142,814 $ 39,281 $ 115,585 $ 158,681 $ 203,075 $ 373,009 $ 259,488 $ 126,059 $ 1,417,992
Commercial
Current-period gross charge-offs $ - $ - $ - $ 175 $ - $ - $ - $ - $ 175
Agricultural
Pass $ 31,645 $ 24,140 $ 36,128 $ 63,037 $ 39,299 $ 180,437 $ 275,808 $ 48,931 $ 699,425
Special mention 3,156 - - - - 3,100 5,108 - 11,364
Substandard - - - - - - - - -
Total Agricultural $ 34,801 $ 24,140 $ 36,128 $ 63,037 $ 39,299 $ 183,537 $ 280,916 $ 48,931 $ 710,789
Agricultural
Current-period gross charge-offs $ - $ - $ 180 $ 939 $ - $ - $ - $ - $ 1,119
Residential and home equity
Pass $ 27,780 $ 30,047 $ 33,424 $ 51,862 $ 78,030 $ 132,843 $ 49,851 $ 355 $ 404,192
Special mention - - - - - 51 - - 51
Substandard - - - - - 56 336 - 392
Total Residential and home equity $ 27,780 $ 30,047 $ 33,424 $ 51,862 $ 78,030 $ 132,950 $ 50,187 $ 355 $ 404,635
Residential and home equity
Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Construction
Pass $ - $ 2,700 $ - $ 500 $ - $ 1,374 $ 150,218 $ 15,889 $ 170,681
Special mention - - - - - - - - -
Substandard - - - - - - - - -
Total construction $ - $ 2,700 $ - $ 500 $ - $ 1,374 $ 150,218 $ 15,889 $ 170,681
Construction
Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Total Real estate $ 205,395 $ 96,168 $ 185,137 $ 274,080 $ 320,404 $ 690,870 $ 740,809 $ 191,234 $ 2,704,097
Commercial & industrial
Pass $ 19,562 $ 22,263 $ 32,421 $ 17,112 $ 14,010 $ 6,420 $ 340,648 $ 31,389 $ 483,825
Special mention - - - 47 - - 203 4,348 4,598
Substandard - - - - 17 - - - 17
Total Commercial & industrial $ 19,562 $ 22,263 $ 32,421 $ 17,159 $ 14,027 $ 6,420 $ 340,851 $ 35,737 $ 488,440
Commercial & industrial
Current-period gross charge-offs $ - $ - $ 69 $ 98 $ 53 $ 12 $ - $ - $ 232

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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<br><br> <br>Loans<br><br> <br>Amortized<br><br> <br>Cost Revolving<br><br> <br>Loans<br><br> <br>Converted<br><br> <br>to Term Total
Net loans and leases held for investment
Agricultural
Pass $ 192 $ 3,199 $ 2,431 $ 2,232 $ 1,133 $ 2,414 $ 232,975 $ 7,290 $ 251,866
Special mention - - - 33 - - - 43 76
Substandard - - - - - - 16 - 16
Total Agricultural $ 192 $ 3,199 $ 2,431 $ 2,265 $ 1,133 $ 2,414 $ 232,991 $ 7,333 $ 251,958
Agricultural
Current-period gross charge-offs $ - $ - $ - $ 200 $ 34 $ - $ - $ - $ 234
Commercial leases
Pass $ 7,614 $ 30,148 $ 69,867 $ 22,649 $ 6,297 $ 22,549 $ - $ - $ 159,124
Special mention - - - - - - - - -
Substandard - - - - - - - - -
Total Commercial leases $ 7,614 $ 30,148 $ 69,867 $ 22,649 $ 6,297 $ 22,549 $ - $ - $ 159,124
Commercial leases
Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Consumer and other
Pass $ 1,076 $ 561 $ 694 $ 295 $ 33 $ 1,115 $ 767 $ - $ 4,541
Special mention - - - - - - - - -
Substandard 174 - - - - 12 - - 186
Total Consumer and other $ 1,250 $ 561 $ 694 $ 295 $ 33 $ 1,127 $ 767 $ - $ 4,727
Consumer and other
Current-period gross charge-offs $ 31 $ 3 $ - $ - $ - $ 10 $ - $ - $ 44
Total net loans and leases
Pass $ 230,458 $ 152,339 $ 290,550 $ 315,413 $ 334,629 $ 720,161 $ 1,306,883 $ 229,913 $ 3,580,346
Special mention 3,381 - - 80 7,248 3,151 8,183 4,391 26,434
Substandard 174 - - 955 17 68 352 - 1,566
Total net loans and leases $ 234,013 $ 152,339 $ 290,550 $ 316,448 $ 341,894 $ 723,380 $ 1,315,418 $ 234,304 $ 3,608,346
Total current-period gross charge-offs $ 31 $ 3 $ 249 $ 1,412 $ 87 $ 22 $ - $ - $ 1,804

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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 $ 63,216 $ 117,550 $ 163,875 $ 209,222 $ 134,254 $ 292,326 $ 270,231 $ 99,819 $ 1,350,493
Special mention - - 1,138 - - 170 1,470 - 2,778
Substandard - - - - - - - - -
Total Commercial $ 63,216 $ 117,550 $ 165,013 $ 209,222 $ 134,254 $ 292,496 $ 271,701 $ 99,819 $ 1,353,271
Commercial
Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Agricultural
Pass $ 24,877 $ 36,693 $ 69,209 $ 38,847 $ 46,452 $ 169,301 $ 309,661 $ 32,086 $ 727,126
Special mention - - - - 2,099 5,011 16,790 - 23,900
Substandard - - - - - - - - -
Total Agricultural $ 24,877 $ 36,693 $ 69,209 $ 38,847 $ 48,551 $ 174,312 $ 326,451 $ 32,086 $ 751,026
Agricultural
Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Residential and home equity
Pass $ 33,036 $ 37,378 $ 57,760 $ 82,936 $ 72,304 $ 72,360 $ 47,669 $ 65 $ 403,508
Special mention - - - - - 85 - - 85
Substandard - - - - - 603 203 - 806
Total Residential and home equity $ 33,036 $ 37,378 $ 57,760 $ 82,936 $ 72,304 $ 73,048 $ 47,872 $ 65 $ 404,399
Residential and home equity
Current-period gross charge-offs $ - $ 29 $ - $ - $ - $ - $ - $ - $ 29
Construction
Pass $ 5,774 $ - $ 1,000 $ - $ - $ 1,375 $ 186,754 $ - $ 194,903
Special mention - - - - - - - - -
Substandard - - - - - - - - -
Total construction $ 5,774 $ - $ 1,000 $ - $ - $ 1,375 $ 186,754 $ - $ 194,903
Construction
Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Total Real estate $ 126,903 $ 191,621 $ 292,982 $ 331,005 $ 255,109 $ 541,231 $ 832,778 $ 131,970 $ 2,703,599
Commercial & industrial
Pass $ 23,235 $ 39,415 $ 20,065 $ 16,715 $ 3,525 $ 6,192 $ 363,947 $ 24,269 $ 497,363
Special mention - 2,280 67 3 - 381 1,017 2,500 6,248
Substandard - 107 - 33 - - 422 230 792
Total Commercial & industrial $ 23,235 $ 41,802 $ 20,132 $ 16,751 $ 3,525 $ 6,573 $ 365,386 $ 26,999 $ 504,403
Commercial & industrial
Current-period gross charge-offs $ 231 $ 176 $ - $ 44 $ 100 $ 185 $ - $ - $ 736

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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<br><br> <br>Loans<br><br> <br>Amortized<br><br> <br>Cost Revolving<br><br> <br>Loans<br><br> <br>Converted<br><br> <br>to Term Total
Net loans and leases held for investment
Agricultural
Pass $ 2,831 $ 2,820 $ 2,584 $ 1,708 $ 393 $ 2,471 $ 270,595 $ 6,325 $ 289,727
Special mention - - 41 - - - - 43 84
Substandard - - - - - - 36 - 36
Total Agricultural $ 2,831 $ 2,820 $ 2,625 $ 1,708 $ 393 $ 2,471 $ 270,631 $ 6,368 $ 289,847
Agricultural
Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial leases
Pass $ 31,977 $ 74,956 $ 21,859 $ 8,314 $ 8,065 $ 26,182 $ - $ - $ 171,353
Special mention - - 4,102 - - - - - 4,102
Substandard - - - - - - - - -
Total Commercial leases $ 31,977 $ 74,956 $ 25,961 $ 8,314 $ 8,065 $ 26,182 $ - $ - $ 175,455
Commercial leases
Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Consumer and other
Pass $ 1,049 $ 1,195 $ 535 $ 71 $ 13 $ 1,349 $ 693 $ - $ 4,905
Special mention - - - - - - - - -
Substandard 161 - - - - 18 - - 179
Total Consumer and other $ 1,210 $ 1,195 $ 535 $ 71 $ 13 $ 1,367 $ 693 $ - $ 5,084
Consumer and other
Current-period gross charge-offs $ 63 $ 1 $ - $ - $ - $ 29 $ - $ - $ 93
Total net loans and leases
Pass $ 185,995 $ 310,007 $ 336,887 $ 357,813 $ 265,006 $ 571,556 $ 1,449,550 $ 162,564 $ 3,639,378
Special mention - 2,280 5,348 3 2,099 5,647 19,277 2,543 37,197
Substandard 161 107 - 33 - 621 661 230 1,813
Total net loans and leases $ 186,156 $ 312,394 $ 342,235 $ 357,849 $ 267,105 $ 577,824 $ 1,469,488 $ 165,337 $ 3,678,388
Total current-period gross charge-offs $ 294 $ 206 $ - $ 44 $ 100 $ 214 $ - $ - $ 858

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,<br><br> 2025 December 31,<br><br> 2024
Balance at beginning of the period $ 15,626 $ 17,035
New loans or advances during year 495 1,871
Effect of changes in composition of related parties (80 ) -
Repayments (2,624 ) (3,280 )
Balance at end of period $ 13,417 $ 15,626

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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 $ 170 $ - $ 170
Agricultural - - -
Residential and home equity - - -
Construction - - -
Total real estate 170 - 170
Commercial & industrial - 759 759
Agricultural - - -
Commercial leases - - -
Consumer and other - - -
Total gross loans and leases $ 170 $ 759 $ 929

There were no collateral dependent loans or leases at September 30, 2025.

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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<br><br> <br>Loans and<br><br> <br>Leases ACL for<br><br> <br>Unfunded<br><br> <br>Commitments Allowance<br><br> <br>for<br><br> <br>Credit Losses ACL for<br><br> <br>Loans and<br><br> <br>Leases ACL for<br><br> <br>Unfunded<br><br> <br>Commitments Allowance<br><br> <br>for<br><br> <br>Credit Losses
Balance at beginning of period $ 76,169 $ 2,800 $ 78,969 $ 75,032 $ 3,690 $ 78,722
Provision for/(reversal of) credit losses 700 - 700 1,000 (1,000 ) -
Charge-offs (962 ) - (962 ) (255 ) - (255 )
Recoveries 56 - 56 39 - 39
Net (charge-offs)/recoveries (906 ) - (906 ) (216 ) - (216 )
Balance at end of period $ 75,963 $ 2,800 $ 78,763 $ 75,816 $ 2,690 $ 78,506
For the Nine Months Ended September 30,
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
2025 2024
(Dollars in thousands) ACL for<br><br> <br>Loans and<br><br> <br>Leases ACL for<br><br> <br>Unfunded<br><br> <br>Commitments Allowance<br><br> <br>for<br><br> <br>Credit Losses ACL for<br><br> <br>Loans and<br><br> <br>Leases ACL for<br><br> <br>Unfunded<br><br> <br>Commitments Allowance<br><br> <br>for<br><br> <br>Credit Losses
Balance at beginning of period $ 75,283 $ 2,690 $ 77,973 $ 74,965 $ 3,690 $ 78,655
Provision for/(reversal of) credit losses 2,290 110 2,400 1,000 (1,000 ) -
Charge-offs (1,804 ) - (1,804 ) (281 ) - (281 )
Recoveries 194 - 194 132 - 132
Net (charge-offs)/recoveries (1,610 ) - (1,610 ) (149 ) - (149 )
Balance at end of period $ 75,963 $ 2,800 $ 78,763 $ 75,816 $ 2,690 $ 78,506

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<br><br> <br>beginning of<br><br> <br>period Provision<br><br> <br>for/(recapture of)<br><br> <br>credit losses Charge-Offs Recoveries Balance at<br><br> <br>end of period
Allowance for credit losses:
Real estate:
Commercial $ 20,946 $ 568 $ - $ - $ 21,514
Agricultural 24,469 812 (939 ) 5 24,347
Residential and home equity 7,599 (126 ) - - 7,473
Construction 2,766 54 - - 2,820
Total real estate 55,780 1,308 (939 ) 5 56,154
Commercial & industrial 7,326 30 - 19 7,375
Agricultural 6,982 (375 ) - 24 6,631
Commercial leases 5,858 (275 ) - - 5,583
Consumer and other 223 12 (23 ) 8 220
Total allowance for credit losses $ 76,169 $ 700 $ (962 ) $ 56 $ 75,963

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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<br><br> <br>for/(recapture of)<br><br> <br>credit losses Charge-Offs Recoveries Balance at<br><br> <br>end of period
Allowance for credit losses:
Real estate:
Commercial $ 22,608 $ (1,570 ) $ - $ - $ 21,038
Agricultural 16,486 6,932 - - 23,418
Residential and home equity 7,584 (593 ) (29 ) 5 6,967
Construction 2,165 1,308 - - 3,473
Total real estate 48,843 6,077 (29 ) 5 54,896
Commercial & industrial 10,972 (2,996 ) (200 ) 15 7,791
Agricultural 6,908 8 - 13 6,929
Commercial leases 7,597 (1,628 ) - - 5,969
Consumer and other 712 (461 ) (26 ) 6 231
Total allowance for credit losses $ 75,032 $ 1,000 $ (255 ) $ 39 $ 75,816
For the Nine Months Ended September 30, 2025
--- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollars in thousands) Balance at beginning of period Provision<br><br> <br>for/(recapture of)<br><br> <br>credit losses Charge-Offs Recoveries Balance at<br><br> <br>end of period
Allowance for credit losses:
Real estate:
Commercial $ 20,382 $ 1,307 $ (175 ) $ - $ 21,514
Agricultural 23,615 1,846 (1,119 ) 5 24,347
Residential and home equity 7,340 127 - 6 7,473
Construction 3,055 (235 ) - - 2,820
Total real estate 54,392 3,045 (1,294 ) 11 56,154
Commercial & industrial 7,791 (326 ) (232 ) 142 7,375
Agricultural 6,725 116 (234 ) 24 6,631
Commercial leases 6,153 (570 ) - - 5,583
Consumer and other 222 25 (44 ) 17 220
Total allowance for credit losses $ 75,283 $ 2,290 $ (1,804 ) $ 194 $ 75,963
For the Nine Months Ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollars in thousands) Balance at beginning of period Provision<br><br> <br>for/(recapture of)<br><br> <br>credit losses Charge-Offs Recoveries Balance at<br><br> <br>end of period
Allowance for credit losses:
Real estate:
Commercial $ 26,093 $ (5,055 ) $ - $ - $ 21,038
Agricultural 7,744 15,674 - - 23,418
Residential and home equity 7,770 (793 ) (29 ) 19 6,967
Construction 4,432 (959 ) - - 3,473
Total real estate 46,039 8,867 (29 ) 19 54,896
Commercial & industrial 13,380 (5,440 ) (200 ) 51 7,791
Agricultural 8,872 (1,959 ) - 16 6,929
Commercial leases 6,537 (568 ) - - 5,969
Consumer and other 137 100 (52 ) 46 231
Total allowance for credit losses $ 74,965 $ 1,000 $ (281 ) $ 132 $ 75,816

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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) December 31, 2024
Certificates of deposit:
Certificates of deposit equal to or less than 250,000 347,963 $ 330,475
Certificates of deposit greater than 250,000 400,551 385,072
Total certificates of  deposit 748,514 $ 715,547

All values are in US Dollars.

Scheduled maturities for certificates of deposit are as follows for the years ending December 31:

(Dollars in thousands) Amount
2025 $ 303,034
2026 438,277
2027 5,027
2028 1,588
2029 237
2030 351
Total certificates of deposit $ 748,514

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.

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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<br> 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.

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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.

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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<br><br> <br>Value
Fair valued on a recurring basis:
Financial assets
Available-for-sale securities
U.S. Government-sponsored securities $ 2,130 $ - $ 2,130 $ - $ 2,130
Mortgage-backed securities 746,463 - 746,463 - 746,463
Commercial mortgage-backed securities 1,254 - 1,254 - 1,254
Collateralized mortgage obligations 20,877 - 20,877 - 20,877
Municipal securities 69,486 - 69,486 - 69,486
Corporate securities 29,641 - 29,641 - 29,641
Other 310 - 310 - 310
Other equity investments $ 3,050 $ 3,050 $ - $ - $ 3,050
Derivatives not designated as hedging instruments $ 218 $ - $ 218 $ - $ 218
Financial liabilities
Derivatives not designated as hedging instruments $ 229 $ - $ 229 $ - $ 229
Fair valued on a non-recurring basis:
Other real estate owned $ 873 $ - $ - $ 873 $ 873
December 31, 2024 Fair Value Measurements
--- --- --- --- --- --- --- --- --- --- ---
(Dollars in thousands) Carrying Amount Level 1 Level 2 Level 3 Total Fair<br><br> <br>Value
Fair valued on a recurring basis:
Available-for-sale securities
U.S. Government-sponsored securities $ 2,644 $ - $ 2,644 $ - $ 2,644
Mortgage-backed securities 439,858 - 439,858 - 439,858
Commercial mortgage-backed securities 1,212 - 1,212 - 1,212
Collateralized mortgage obligations 5,497 - 5,497 - 5,497
Corporate securities 14,856 - 14,856 - 14,856
Other 347 - 347 - 347
Fair valued on a non-recurring basis:
Collateral dependent loans $ 929 $ - $ - $ 929 $ 929
Other real estate owned 873 - - 873 873

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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<br><br> <br>Value
Financial assets:
Cash and cash equivalents $ 172,567 $ 172,567 $ - $ - $ 172,567
Held-to-maturity securities, net 734,178 - 532,147 71,984 604,131
Non-marketable securities, at cost 15,549 - 15,549 - 15,549
Loans and leases, net 3,532,383 - - 3,526,525 3,526,525
Financial liabilities:
Total deposits $ 4,885,014 $ - $ 4,882,391 $ - $ 4,882,391
Subordinated debentures 10,310 - 12,180 - 12,180
December 31, 2024 Fair Value Measurements
--- --- --- --- --- --- --- --- --- --- ---
(Dollars in thousands) Carrying Amount Level 1 Level 2 Level 3 Total Fair<br><br> <br>Value
Financial assets:
Cash and cash equivalents $ 212,563 $ 212,563 $ - $ - $ 212,563
Held-to-maturity securities, net 768,993 - 537,384 73,569 610,953
Non-marketable securities, at cost 15,549 - 15,549 - 15,549
Loans and leases, net 3,603,105 - - 3,523,057 3,523,057
Financial liabilities:
Total deposits $ 4,699,139 $ - $ 4,695,388 $ - $ 4,695,388
Subordinated debentures 10,310 - 11,738 - 11,738

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.

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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<br><br> <br>September 30,
(Dollars in thousands, except share and per share amounts) 2025 2024
Net income $ 23,718 $ 22,121
Weighted average common shares outstanding for basic earnings per common share 692,727 738,421
Dilutive potential common shares 6,484 -
Shares used in computing diluted earnings per common share 699,211 738,421
Basic earnings per common share $ 34.24 $ 29.96
Diluted earnings per common share $ 33.92 $ 29.96
Nine Months Ended<br><br> <br>September 30,
--- --- --- --- ---
(Dollars in thousands, except share and per share amounts) 2025 2024
Net income $ 69,782 $ 66,611
Weighted average common shares outstanding for basic earnings per common share 696,572 740,898
Dilutive potential common shares 3,556 -
Shares used in computing diluted earnings per common share 700,128 740,898
Basic earnings per common share $ 100.18 $ 89.91
Diluted earnings per common share $ 99.67 $ 89.91

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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.

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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.

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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<br><br> <br>Value at Grant-Date
Restricted Stock Award
Nonvested shares outstanding, June 30, 2025 30,818 $ 1,033.03
Granted - -
Vested - -
Forfeited 1,416 -
Nonvested shares outstanding, September 30, 2025 29,402 $ 1,033.03
Number of Shares Weighted Average Fair<br><br> <br>Value at Grant-Date
--- --- --- --- ---
Restricted Stock Award
Nonvested shares outstanding, January 1, 2025 - $ -
Granted 30,818 1,033.03
Vested - -
Forfeited 1,416 -
Nonvested shares outstanding, September 30, 2025 29,402 $ 1,033.03

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.

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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 $ 8,842 $ 218 $ - $ -
Total included in other assets $ 218 $ -
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans $ 8,842 $ 229 $ - $ -
Total included in other liabilities $ 229 $ -
Location of Gain or (Loss)<br><br> <br>Recognized in Income on Three Months Ended<br><br> <br>September 30, Nine Months Ended<br><br> <br>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 $ 1 $ - $ (11 ) $ -
Total $ 1 $ - $ (11 ) $ -

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) December 31, 2024
Commitments to extend credit, including unsecured commitments of 20,926 and 20,535 as of September 30, 2025 and December 31, 2024, respectively 1,057,402 $ 1,006,649
Standby letters of credit, including unsecured commitments of 4,993 and 4,490 as of September 30, 2025 and December 31, 2024, respectively 18,995 15,411

All values are in US Dollars.

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.

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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.

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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<br> 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.
--- ---

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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.

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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<br> 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<br> 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.

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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<br><br> September 30, Nine Months Ended<br><br> 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”

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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.
2024
(Dollars in thousands) Interest<br><br> <br>Income / Expense Average<br><br> <br>Yield /<br><br> <br>Rate Average<br><br> <br>Balance Interest<br><br> <br>Income / Expense Average<br><br> <br>Yield /<br><br> <br>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 %

All values are in US Dollars.

^(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.

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2024
(Dollars in thousands) Interest<br><br> <br>Income / Expense Average<br><br> <br>Yield / Rate Average<br><br> <br>Balance Interest<br><br> <br>Income / Expense Average<br><br> <br>Yield /<br><br> <br>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 %

All values are in US Dollars.

^(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.

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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.

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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.

Nine Months Ended September 30,<br><br> <br>2025 compared with 2024
Increase (Decrease) Due to:
(Dollars in thousands) 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

All values are in US Dollars.

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Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2025 and 2024

Three Months Ended<br><br> September 30, Better / % Better / Nine Months Ended<br><br> 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 2.85 % $ 207,791 $ 205,107 1.31 %
Interest expense 15,175 16,642 8.82 % 45,365 50,620 10.38 %
Net interest income 55,417 51,993 6.59 % 162,426 154,487 5.14 %
Provision for credit losses 700 - ) N/A 2,400 - ) N/A
Net interest income after provision for credit losses 54,717 51,993 5.24 % 160,026 154,487 3.59 %
Non-interest income 6,867 6,280 9.35 % 17,407 16,122 7.97 %
Non-interest expense 28,948 27,755 ) (4.30 %) 81,108 78,698 ) (3.06 %)
Income before income tax expense 32,636 30,518 6.94 % 96,325 91,911 4.80 %
Income tax expense 8,918 8,397 ) (6.20 %) 26,543 25,300 ) (4.91 %)
Net income $ 23,718 $ 22,121 7.22 % $ 69,782 $ 66,611 4.76 %

All values are in US Dollars.

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.

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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<br><br> September 30, Nine Months Ended<br><br> 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 0.17 % $ 5,236 $ 5,170 1.28 %
Net gain on deferred compensation benefits 1,200 1,277 ) (6.03 %) 2,797 2,849 ) (1.83 %)
Service charges on deposit accounts 779 794 ) (1.89 %) 2,295 2,291 0.17 %
Increase in cash surrender value of BOLI 639 606 5.45 % 1,869 1,803 3.66 %
Net gain on sale of securities available-for-sale - 743 ) N/A - 743 ) N/A
Other 2,469 1,083 127.98 % 5,210 3,266 59.52 %
Total non-interest income $ 6,867 $ 6,280 9.35 % $ 17,407 $ 16,122 7.97 %

All values are in US Dollars.

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.

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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<br><br> September 30, Nine Months Ended<br><br> 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 0.72 % $ 54,488 $ 54,551 0.12 %
Data processing 1,764 1,513 ) (16.59 %) 5,186 4,503 ) (15.17 %)
Occupancy 1,259 1,318 4.48 % 3,854 3,793 ) (1.61 %)
Net gain on deferred compensation benefits 1,200 1,277 6.03 % 2,797 2,849 1.83 %
Deposit insurance 719 705 ) (1.99 %) 2,217 2,119 ) (4.62 %)
Professional services 786 968 18.80 % 2,402 2,130 ) (12.77 %)
Marketing 478 504 5.16 % 1,397 1,546 9.64 %
Other 3,830 2,421 ) (58.20 %) 8,767 7,207 ) (21.65 %)
Total non-interest expense $ 28,948 $ 27,755 ) (4.30 %) $ 81,108 $ 78,698 ) (3.06 %)

All values are in US Dollars.

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.

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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,<br><br> <br>2025 December 31,<br><br> <br>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.

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(Dollars in thousands) September 30,<br><br> <br>2025 December 31,<br><br> <br>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<br><br> <br>Five Years After Five but<br><br> <br>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<br><br> <br>Five Years After Five but<br><br> <br>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<br><br> <br>Five Years After Five but<br><br> <br>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.

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As of December 31, 2024
Within One Year After One but Within<br><br> <br>Five Years After Five but<br><br> <br>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<br><br> Total Dollars Percent of<br><br> <br>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 %

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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<br><br> <br>Less After One But<br><br> <br>Within Five<br><br> <br>Years After Five<br><br> <br>Years But<br><br> <br>Within Fifteen<br><br> <br>Years After Fifteen<br><br> <br>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.

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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.

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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<br><br> <br>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)

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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<br><br> <br>Each Loan<br><br> <br>Type to Total<br><br> <br>Loans Percent of<br><br> <br>ACL to Each<br><br> <br>Loan Type Dollars Percent of<br><br> <br>Each Loan<br><br> <br>Type to Total<br><br> <br>Loans Percent of<br><br> <br>ACL to Each<br><br> <br>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:
2024
(Dollars in thousands) Interest<br><br> <br>Expense Average<br><br> <br>Rate Average<br><br> <br>Balance Interest<br><br> <br>Expense Average<br><br> <br>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 %

All values are in US Dollars.

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.

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The following table shows deposits with a balance greater than $250,000 at September 30, 2025 and December 31, 2024:

December 31,
(Dollars in thousands) 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

All values are in US Dollars.

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.

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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<br><br> <br>Adequacy Purposes Minimum to be Categorized<br><br> <br>as “Well Capitalized” Under<br><br> <br>Prompt Corrective Action<br><br> <br>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 %

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December 31, 2024
Actual Required for Capital<br><br> <br>Adequacy Purposes Minimum to be Categorized<br><br> <br>as “Well Capitalized” Under<br><br> <br>Prompt Corrective Action<br><br> <br>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.

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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<br><br> <br>Committed<br><br> <br>Amount Less than<br><br> <br>One Year One to<br><br> <br>Three<br><br> <br>Years Three to<br><br> <br>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.

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We had the following borrowing lines available at September 30, 2025:

September 30, 2025
(Dollars in thousands) Total Credit<br><br> <br>Line Limit Outstanding<br><br> <br>Amount Remaining<br><br> <br>Credit Line<br><br> <br>Available Value of<br><br> <br>Collateral<br><br> <br>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.

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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.

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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<br><br> <br>Net Interest Income (NII)<br><br> <br>(as a % of NII) Estimated Change in<br><br> <br>Economic Value of Equity<br><br> <br>(EVE)<br><br> <br>(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 %)

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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.

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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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table reports information regarding repurchases of our common stock during the nine months ended September 30, 2025:

Period Total number<br><br> <br>of shares<br><br> <br>purchased Average price<br><br> <br>paid per share^(1)^ Total number of shares<br><br> <br>purchased as part of<br><br> <br>publicly announced<br><br> <br>plans or programs Maximum number (or<br><br> <br>approximate dollar<br><br> <br>value) of shares that<br><br> <br>may yet be purchased<br><br> <br>under the plans or<br><br> <br>programs (In<br><br> <br>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.

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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<br><br> <br>Number Description
--- ---
31(a) Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b) Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 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<br> 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<br> 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)

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SIGNATURES

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<br><br> <br>(Principal Executive Officer)
Date:  November 7, 2025 /s/ Bart R. Olson
--- ---
Bart R. Olson
Executive Vice President and Chief Financial Officer<br><br> <br>(Principal Financial Officer)

64

Exhibit 31(a)

Certification Pursuant to Section 302

Of the Sarbanes-Oxley Act of 2002

For the Chief Executive Officer

I, Kent A. Steinwert, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Farmers & Merchants Bancorp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not<br> misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and<br> for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting<br> (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures  and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors<br> (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 7, 2025
/s/ Kent A. Steinwert
Kent A. Steinwert
Chairman, President & Chief Executive Officer

Exhibit 31(b)

Certification Pursuant to Section 302

Of the Sarbanes-Oxley Act of 2002

For the Chief Financial Officer

I, Bart R. Olson, certify that:

1. I have reviewed this quarterly  report on Form 10-Q of Farmers & Merchants Bancorp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not<br> misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and<br> for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting<br> (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures  and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors<br> (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2025 /s/ Bart R. Olson
Bart R. Olson
Executive Vice President & Chief Financial Officer

Exhibit 32

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Farmers & Merchants Bancorp (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Kent A. Steinwert, Chairman, President and Chief Executive Officer, and Bart R. Olson, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange act of 1934 and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. $ 1350), that:

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. $ 78m or 78o(d)); and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
--- ---

November 7, 2025

/s/ Kent A. Steinwert
Kent A. Steinwert
Chairman, President
& Chief Executive Officer
/s/ Bart R. Olson
---
Bart R. Olson
Executive Vice President & Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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