Farmers & Merchants Bancorp
03/13/2026 | Press release | Distributed by Public on 03/13/2026 13:59
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
|
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 Audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements in this Form 10-K. Information related to the comparison of the results of operations for the years December 31, 2024 to 2023 is found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2024 Annual Report on Form 10-K filed with the SEC on March 14, 2025.
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, later renamed Farmers & Merchants Bank of Central California. 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 December 31, 2025, consisted of 697,904 shares of common stock, $0.01 par value. No shares of preferred stock were issued or outstanding as of December 31, 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.
Selected Financial Data
The following condensed consolidated statements of financial condition and operations and selected performance ratios as of December 31, 2025, 2024, and 2023 and for the years then ended have been derived from our audited consolidated financial statements. The information below is qualified in its entirety by the detailed information included elsewhere herein and should be read along with this "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8, Financial Statements and Supplementary Data."
|
Years Ended December 31
|
||||||||||||
|
(Dollars in thousands, except share and per share amounts)
|
2025
|
2024
|
2023
|
|||||||||
|
Selected Income Statement Information:
|
||||||||||||
|
Interest income
|
$
|
279,492
|
$
|
271,977
|
$
|
253,754
|
||||||
|
Interest expense
|
60,332
|
65,301
|
38,369
|
|||||||||
|
Net interest income
|
219,160
|
206,676
|
215,385
|
|||||||||
|
Provision for credit losses
|
3,500
|
-
|
9,407
|
|||||||||
|
Net interest income after provision for credit losses
|
215,660
|
206,676
|
205,978
|
|||||||||
|
Non-interest income
|
23,633
|
20,700
|
14,914
|
|||||||||
|
Non-interest expense
|
110,517
|
105,132
|
104,339
|
|||||||||
|
Income before income tax expense
|
128,776
|
122,244
|
116,553
|
|||||||||
|
Income tax expense
|
35,171
|
33,787
|
28,239
|
|||||||||
|
Net income
|
$
|
93,605
|
$
|
88,457
|
$
|
88,314
|
||||||
|
Selected financial ratios:
|
||||||||||||
|
Basic earnings per share
|
$
|
134.96
|
$
|
121.02
|
$
|
116.61
|
||||||
|
Diluted earnings per share
|
$
|
133.96
|
$
|
121.02
|
$
|
116.61
|
||||||
|
Cash dividends per common share
|
$
|
19.35
|
$
|
18.10
|
$
|
17.10
|
||||||
|
Dividend payout ratio
|
14.34
|
%
|
14.96
|
%
|
14.66
|
%
|
||||||
|
Net interest margin (tax equivalent)
|
4.15
|
%
|
4.05
|
%
|
4.30
|
%
|
||||||
|
Non-interest income to average assets
|
0.42
|
%
|
0.38
|
%
|
0.28
|
%
|
||||||
|
Non-interest expense to average assets
|
1.97
|
%
|
1.95
|
%
|
1.98
|
%
|
||||||
|
Efficiency ratio
|
45.52
|
%
|
46.24
|
%
|
45.31
|
%
|
||||||
|
Return on average assets
|
1.67
|
%
|
1.64
|
%
|
1.68
|
%
|
||||||
|
Return on average equity
|
15.11
|
%
|
15.49
|
%
|
17.05
|
%
|
||||||
|
Net charge-offs (recoveries) to average loans
|
0.05
|
%
|
0.02
|
%
|
(0.01
|
%)
|
||||||
|
As of December 31,
|
||||||||||||
|
(Dollars in thousands, except share and per share amounts)
|
2025
|
2024
|
2023
|
|||||||||
|
Selected Balance Sheet Information:
|
||||||||||||
|
Cash and cash equivalents
|
$
|
144,864
|
$
|
212,563
|
$
|
410,642
|
||||||
|
Investment securities
|
1,669,345
|
1,233,407
|
999,750
|
|||||||||
|
Gross loans held for investment
|
3,667,325
|
3,690,221
|
3,665,397
|
|||||||||
|
Total assets
|
5,690,110
|
5,370,196
|
5,308,928
|
|||||||||
|
Total deposits
|
4,977,826
|
4,699,139
|
4,668,095
|
|||||||||
|
Shareholders' equity
|
645,514
|
573,072
|
549,755
|
|||||||||
|
Average Balances:
|
||||||||||||
|
Average earning assets
|
5,305,575
|
5,118,165
|
5,027,990
|
|||||||||
|
Average assets
|
5,612,046
|
5,389,132
|
5,270,352
|
|||||||||
|
Average shareholders' equity
|
619,558
|
571,086
|
518,035
|
|||||||||
|
Selected financial ratios:
|
||||||||||||
|
Book value per share
|
$
|
924.93
|
$
|
818.91
|
$
|
735.00
|
||||||
|
Tangible book value per share
|
$
|
907.24
|
$
|
800.52
|
$
|
717.05
|
||||||
|
Allowance for credit losses to total loans and leases
|
2.08
|
%
|
2.04
|
%
|
2.05
|
%
|
||||||
|
Non-performing assets to total assets
|
0.01
|
%
|
0.03
|
%
|
0.02
|
%
|
||||||
|
Loans held for investment to deposits
|
73.67
|
%
|
78.53
|
%
|
78.52
|
%
|
||||||
|
Capital ratios:
|
||||||||||||
|
Common equity tier 1 capital to risk-weighted assets
|
13.81
|
%
|
13.04
|
%
|
12.30
|
%
|
||||||
|
Tier 1 capital to risk-weighted assets
|
14.04
|
%
|
13.26
|
%
|
12.53
|
%
|
||||||
|
Risk-based capital to risk-weighted assets
|
15.29
|
%
|
14.52
|
%
|
13.78
|
%
|
||||||
|
Tier 1 leverage capital ratio
|
11.00
|
%
|
10.95
|
%
|
10.38
|
%
|
||||||
|
Tangible common equity ratio (1)
|
11.15
|
%
|
10.46
|
%
|
10.13
|
%
|
||||||
|
(1)
|
See "Non-GAAP Measurements".
|
Critical Accounting Policies and Estimates
The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable; however, actual results may ultimately differ significantly from these estimates and assumptions, which could have a material adverse effect on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods.
Our significant accounting policies and practices are described in Note 1 "Summary of Significant Accounting Policies", located in Item 8: "Financial Statements and Supplementary Data" in this Form 10-K. We have identified one policy and estimate as being critical because it requires 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. This policy relates to the allowance for credit losses on loans and leases held for investment.
Allowance for Credit Losses on Loans and Leases Held for Investment - The allowance for credit losses ("ACL") on loans and leases represents management's estimate of all expected credit losses over the expected life of the loan portfolio, utilizing the current expected credit loss ("CECL") accounting standard as prescribed under GAAP. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. The provision for credit losses reflects the amount required to maintain the ACL at an appropriate level based upon management's evaluation of the adequacy of the current expected credit losses. The Company increases its ACL by charging provisions for credit losses on its consolidated statement of income. Losses related to specific assets are applied as a reduction of the carrying value of the assets and charged against the ACL when management believes a loan balance is uncollectable. Recoveries on previously charged off loans are credited to the ACL. Determining the appropriateness of the ACL is complex and requires judgment by management about inherently uncertain factors.
Management utilizes the weighted average remaining maturity ("WARM") methodology given its size and level of complexity. Under the WARM methodology, lifetime losses are calculated by determining the remaining life of the loan pool, and then applying a loss rate over the remaining life of the loan pool. The methodology considers historical loss experience to estimate credit losses for the remaining balance of the loan pool. The calculated loss rate is applied to the contractual term (adjusted for prepayments) to determine the loan pool's current expected credit losses. Among the significant estimates required to establish the ACL are: (i) a weighted average loss estimate categorized by loan segmentation; (ii) average duration calculations in order to assess the loss factors over the life of the loan segment; (iii) application of a reasonable and supportable forecast based on macro- and micro-economic factors expected to influence losses; (iv) value of collateral and strength of borrowers; and (v) the determination of the qualitative loss factors. All of these estimates are susceptible to significant change.
Qualitative factors are evaluated each period and applied in instances when management assesses that additional risks not captured in the quantitative estimate should be factored into the overall ACL estimate. These risks include loan performance trends, collateral value risk and changes in the nature and volume of the loan portfolio. Changes in the assessment of these qualitative factors could significantly impact the calculated estimated credit loss.
The ACL represents management's best estimate of potential loan losses, but significant changes in prevailing economic conditions could result in material changes in the allowance. Generally, an improving economic environment generates a lower ACL estimate than a weakening economic environment. Changes in the macro-economic and micro-economic conditions, especially those impacting the agricultural industry in California, could significantly impact the calculated estimated credit loss. Changes in economic conditions and/or interest rates can also impact the duration assumption. An increase in the duration of loans would increase the allowance while a decrease in the duration would decrease the allowance. The economic information utilized in the ACL process is inherently uncertain and many external factors could impact the information. Management reviews the inputs to the WARM model to ensure they are reasonable and supportable; however, changes in local and national economic conditions will impact the allowance level. While management utilizes its best judgment and current information available, the adequacy of the ACL is significantly determined by certain factors outside the Company's control, such as the performance of our loan portfolio, changes in the economic environment including economic uncertainty, changes in interest rates, and any regulatory changes. Additionally, the level of ACL may fluctuate based on the balance and mix of the loan portfolio. See Note 1 "Summary of Significant Accounting Policies", located in Item 8. "Financial Statements and Supplementary Data", of this Form 10-K for a detailed discussion of the Company's allowance for credit losses.
Impact of Recently Issued Accounting Standards
See Note 1. "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in this Form 10-K.
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-K:
|
|
• |
Tangible common equity ratio and tangible book value per common share: Given that the use of these measures is prevalent among banking regulators, investors, and analysts, we disclose them in addition to the related GAAP measures of return on average equity and book value per common share. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented.
|
|
Tangible Common Equity Ratio and
|
December 31,
|
|||||||||||
|
Tangible Book Value Per Common Share
|
2025
|
2024
|
2023
|
|||||||||
|
(Dollars in thousands, except share and per share amounts)
|
||||||||||||
|
Shareholders' equity
|
$
|
645,514
|
$
|
573,072
|
$
|
549,755
|
||||||
|
Less: Intangible assets
|
12,348
|
12,870
|
13,419
|
|||||||||
|
Tangible common equity
|
$
|
633,166
|
$
|
560,202
|
$
|
536,336
|
||||||
|
Total assets
|
$
|
5,690,110
|
$
|
5,370,196
|
$
|
5,308,928
|
||||||
|
Less: Intangible assets
|
12,348
|
12,870
|
13,419
|
|||||||||
|
Tangible assets
|
$
|
5,677,762
|
$
|
5,357,326
|
$
|
5,295,509
|
||||||
|
Tangible common equity ratio(1)
|
11.15
|
%
|
10.46
|
%
|
10.13
|
%
|
||||||
|
Book value per common share(2)
|
$
|
924.93
|
$
|
818.91
|
$
|
735.00
|
||||||
|
Tangible book value per common share(3)
|
$
|
907.24
|
$
|
800.52
|
$
|
717.05
|
||||||
|
Common shares outstanding
|
697,904
|
699,798
|
747,971
|
|||||||||
|
(1)
|
Tangible common equity divided by tangible assets.
|
|
(2)
|
Total common equity divided by common shares outstanding.
|
|
(3)
|
Tangible common equity divided by common shares outstanding.
|
Results of Operations
The following discussion and analysis is intended to provide a better understanding of the Company's performance during each of the years in the two-year period ended December 31, 2025 and the material changes in financial condition, operating income, and expense of the Company and its subsidiaries as shown in the accompanying 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 Annual Report on Form 10-K filed with the SEC on March 14, 2025.
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:
|
December 31,
|
||||||||
|
(Dollars in thousands, except share and per share amounts)
|
2025
|
2024
|
||||||
|
Earnings Summary:
|
||||||||
|
Interest income
|
$
|
279,492
|
$
|
271,977
|
||||
|
Interest expense
|
60,332
|
65,301
|
||||||
|
Net interest income
|
219,160
|
206,676
|
||||||
|
Provision for credit losses
|
3,500
|
-
|
||||||
|
Non-interest income
|
23,633
|
20,700
|
||||||
|
Non-interest expense
|
110,517
|
105,132
|
||||||
|
Income before taxes
|
128,776
|
122,244
|
||||||
|
Income tax expense
|
35,171
|
33,787
|
||||||
|
Net Income
|
$
|
93,605
|
$
|
88,457
|
||||
|
Per Common Share Data:
|
||||||||
|
Basic earnings per common share
|
$
|
134.96
|
$
|
121.02
|
||||
|
Diluted earnings per common share
|
$
|
133.96
|
$
|
121.02
|
||||
|
Book value per common share
|
$
|
924.93
|
$
|
818.91
|
||||
|
Tangible book value per common share(1)
|
$
|
907.24
|
$
|
800.52
|
||||
|
Performance Ratios:
|
||||||||
|
Return on average assets
|
1.67
|
%
|
1.64
|
%
|
||||
|
Return on average equity
|
15.11
|
%
|
15.49
|
%
|
||||
|
Net interest margin (tax equivalent)
|
4.15
|
%
|
4.05
|
%
|
||||
|
Yield on average loans and leases (tax equivalent)
|
6.06
|
%
|
6.08
|
%
|
||||
|
Cost of average total deposits
|
1.22
|
%
|
1.35
|
%
|
||||
|
Efficiency ratio
|
45.52
|
%
|
46.24
|
%
|
||||
|
Loan-to-deposit ratio
|
73.67
|
%
|
78.53
|
%
|
||||
|
Percentage of checking deposits to total deposits
|
49.11
|
%
|
51.08
|
%
|
||||
|
Capital Ratios Bancorp:
|
||||||||
|
Common equity tier 1 capital to risk-weighted assets
|
13.81
|
%
|
13.04
|
%
|
||||
|
Tier 1 capital to risk-weighted assets
|
14.04
|
%
|
13.26
|
%
|
||||
|
Risk-based capital to risk-weighted assets
|
15.29
|
%
|
14.52
|
%
|
||||
|
Tier 1 leverage capital ratio
|
11.00
|
%
|
10.95
|
%
|
||||
|
Tangible common equity ratio(1)
|
11.15
|
%
|
10.46
|
%
|
||||
|
(1)
|
See "Non-GAAP Measurements"
|
Average Balance and Yields
The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield, cost and net interest margin information for the periods presented. Average balances are derived from daily balances.
|
Year ended December 31,
|
||||||||||||||||||||||||
|
2025
|
2024
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Average
Balance
|
Interest
Income /
Expense
|
Average
Yield /
Rate
|
Average
Balance
|
Interest
Income /
Expense
|
Average
Yield /
Rate
|
||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||
|
Interest earnings deposits in other banks and federal funds sold
|
$
|
271,276
|
$
|
11,819
|
4.36
|
%
|
$
|
314,892
|
$
|
16,860
|
5.35
|
%
|
||||||||||||
|
Investment securities:(1)
|
||||||||||||||||||||||||
|
Taxable securities
|
1,344,823
|
43,949
|
3.27
|
%
|
1,053,601
|
28,074
|
2.66
|
%
|
||||||||||||||||
|
Non-taxable securities(2)
|
65,936
|
4,616
|
7.00
|
%
|
61,863
|
2,994
|
4.84
|
%
|
||||||||||||||||
|
Total investment securities
|
1,410,759
|
48,565
|
3.44
|
%
|
1,115,464
|
31,068
|
2.79
|
%
|
||||||||||||||||
|
Loans:(3)
|
||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||
|
Commercial
|
1,390,895
|
76,126
|
5.47
|
%
|
1,342,623
|
72,091
|
5.37
|
%
|
||||||||||||||||
|
Agricultural
|
724,057
|
41,621
|
5.75
|
%
|
729,648
|
41,426
|
5.68
|
%
|
||||||||||||||||
|
Residential and home equity
|
400,313
|
20,147
|
5.03
|
%
|
403,736
|
19,646
|
4.87
|
%
|
||||||||||||||||
|
Construction
|
171,580
|
11,948
|
6.96
|
%
|
212,941
|
14,904
|
7.00
|
%
|
||||||||||||||||
|
Total real estate
|
2,686,845
|
149,842
|
5.58
|
%
|
2,688,948
|
148,067
|
5.51
|
%
|
||||||||||||||||
|
Commercial & industrial
|
487,315
|
35,554
|
7.30
|
%
|
498,898
|
37,319
|
7.48
|
%
|
||||||||||||||||
|
Agricultural
|
258,764
|
20,483
|
7.92
|
%
|
305,703
|
25,378
|
8.30
|
%
|
||||||||||||||||
|
Commercial leases
|
169,991
|
12,437
|
7.32
|
%
|
173,208
|
12,131
|
7.00
|
%
|
||||||||||||||||
|
Consumer and other
|
5,076
|
352
|
6.93
|
%
|
5,503
|
371
|
6.74
|
%
|
||||||||||||||||
|
Total loans and leases
|
3,607,991
|
218,668
|
6.06
|
%
|
3,672,260
|
223,266
|
6.08
|
%
|
||||||||||||||||
|
Non-marketable securities
|
15,549
|
1,358
|
8.73
|
%
|
15,549
|
1,374
|
8.84
|
%
|
||||||||||||||||
|
Total interest earning assets
|
5,305,575
|
280,410
|
5.29
|
%
|
5,118,165
|
272,568
|
5.33
|
%
|
||||||||||||||||
|
Allowance for credit losses
|
(76,317
|
)
|
(75,674
|
)
|
||||||||||||||||||||
|
Non-interest earning assets
|
382,788
|
346,641
|
||||||||||||||||||||||
|
Total average assets
|
$
|
5,612,046
|
$
|
5,389,132
|
||||||||||||||||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||||||||||||||||||
|
Interest-bearing deposits:
|
||||||||||||||||||||||||
|
Demand
|
$
|
857,222
|
$
|
4,938
|
0.58
|
%
|
$
|
908,561
|
$
|
4,277
|
0.47
|
%
|
||||||||||||
|
Savings and money market accounts
|
1,745,290
|
31,369
|
1.80
|
%
|
1,614,117
|
30,304
|
1.88
|
%
|
||||||||||||||||
|
Certificates of deposit greater than $250,000
|
390,281
|
13,659
|
3.50
|
%
|
413,077
|
11,663
|
2.82
|
%
|
||||||||||||||||
|
Certificates of deposit equal to or less than $250,000
|
335,224
|
9,599
|
2.86
|
%
|
349,933
|
17,200
|
4.92
|
%
|
||||||||||||||||
|
Total interest-bearing deposits
|
3,328,017
|
59,565
|
1.79
|
%
|
3,285,688
|
63,444
|
1.93
|
%
|
||||||||||||||||
|
Short-term borrowings
|
-
|
-
|
-
|
16,940
|
986
|
5.82
|
%
|
|||||||||||||||||
|
Subordinated debentures
|
10,310
|
767
|
7.44
|
%
|
10,310
|
871
|
8.45
|
%
|
||||||||||||||||
|
Total interest-bearing liabilities
|
3,338,327
|
60,332
|
1.81
|
%
|
3,312,938
|
65,301
|
1.97
|
%
|
||||||||||||||||
|
Non-interest bearing deposits
|
1,535,999
|
1,417,121
|
||||||||||||||||||||||
|
Total funding
|
4,874,326
|
60,332
|
1.24
|
%
|
4,730,059
|
65,301
|
1.38
|
%
|
||||||||||||||||
|
Other non-interest bearing liabilities
|
118,162
|
87,987
|
||||||||||||||||||||||
|
Shareholders' equity
|
619,558
|
571,086
|
||||||||||||||||||||||
|
Total average liabilities and shareholders' equity
|
$
|
5,612,046
|
$
|
5,389,132
|
||||||||||||||||||||
|
Net interest income and margin(4)
|
$
|
220,078
|
4.15
|
%
|
$
|
207,267
|
4.05
|
%
|
||||||||||||||||
|
Interest rate spread
|
3.49
|
%
|
3.36
|
%
|
||||||||||||||||||||
|
Tax equivalent adjustment
|
(918
|
)
|
(591
|
)
|
||||||||||||||||||||
|
Net interest income
|
$
|
219,160
|
4.13
|
%
|
$
|
206,676
|
4.04
|
%
|
||||||||||||||||
| (1) |
Excludes average unrealized losses of ($17.0) million and ($19.5) million for the years ended December 31, 2025, and 2024, respectively, which are included in non-interest earning assets.
|
| (2) |
Yields 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 $7.0 million and $5.6 million for the years ended December 31, 2025 and 2024, respectively.
|
| (4) |
Net interest margin is computed by dividing net interest income by average interest earning assets.
|
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 4.36% and 5.35% for the years ended December 31, 2025 and 2024, respectively. The decrease was primarily the result of the Federal Reserve decreasing rates by 100 basis points from September 2024 to December 2024 and by 75 basis points from September 2025 to December 2025.Average interest-bearing deposits with banks was $271.3 million and $314.9 million for the years ended December 31, 2025 and 2024, respectively, and decreased primarily to fund the purchases of investment securities. Interest income on interest-bearing deposits with banks was $11.8 million and $16.9 million for the years ended December 31, 2025 and 2024, respectively. The decrease was due to lower average interest-bearing deposits with banks and the decline in interest rates.
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 years ended December 31, 2025 and 2024, respectively. The average yield on total investment securities was 3.44% and 2.79% for the years ended December 31, 2025 and 2024, respectively. The increase in the yield reflects the higher interest rates on investment securities based on the yield curve and the higher yields on investment purchases made during the year. See "Investment Securities" for a discussion of the Company's investment strategy in 2025.
Average loans and leases held for investment were $3.61 billion and $3.67 billion for the years ended December 31, 2025 and 2024, respectively. The average yield on the loan and lease portfolio was 6.06% and 6.08% for the years ended December 31, 2025 and 2024, respectively. The slight decrease in the loan yield reflects the decrease in market interest rates over the prior year.
Average interest-bearing deposits were $3.33 billion and $3.29 billion for the years ended December 31, 2025 and 2024, respectively. The average rate paid on interest-bearing deposits was 1.79% and 1.93% for the years ended December 31, 2025 and 2024, respectively. Total interest expense on interest-bearing deposits was $59.6 million and $63.4 million for the years ended December 31, 2025 and 2024, respectively, with the decrease driven by decreases in short-term market interest rates during 2024 and 2025. The average rate paid on total funding costs was 1.24% and 1.38% for the years ended December 31, 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.
|
Year Ended December 31, 2025 compared with 2024
|
||||||||||||
|
Increase (Decrease) Due to:
|
||||||||||||
|
(Dollars in thousands)
|
Volume
|
Rate
|
Net
|
|||||||||
|
Interest income:
|
||||||||||||
|
Interest earnings deposits in other banks and federal funds sold
|
$
|
(2,150
|
)
|
$
|
(2,891
|
)
|
$
|
(5,041
|
)
|
|||
|
Investment securities:
|
||||||||||||
|
Taxable securities
|
8,726
|
7,149
|
15,875
|
|||||||||
|
Non-taxable securities
|
208
|
1,414
|
1,622
|
|||||||||
|
Total investment securities
|
8,934
|
8,563
|
17,497
|
|||||||||
|
Loans:
|
||||||||||||
|
Real estate:
|
||||||||||||
|
Commercial
|
2,624
|
1,411
|
4,035
|
|||||||||
|
Agricultural
|
(319
|
)
|
514
|
195
|
||||||||
|
Residential and home equity
|
(168
|
)
|
669
|
501
|
||||||||
|
Construction
|
(2,881
|
)
|
(75
|
)
|
(2,956
|
)
|
||||||
|
Total real estate
|
(744
|
)
|
2,519
|
1,775
|
||||||||
|
Commercial & industrial
|
(856
|
)
|
(909
|
)
|
(1,765
|
)
|
||||||
|
Agricultural
|
(3,758
|
)
|
(1,137
|
)
|
(4,895
|
)
|
||||||
|
Commercial leases
|
(228
|
)
|
534
|
306
|
||||||||
|
Consumer and other
|
(29
|
)
|
10
|
(19
|
)
|
|||||||
|
Total loans and leases
|
(5,615
|
)
|
1,017
|
(4,598
|
)
|
|||||||
|
Non-marketable securities
|
-
|
(16
|
)
|
(16
|
)
|
|||||||
|
Total interest income
|
1,169
|
6,673
|
7,842
|
|||||||||
|
Interest expense:
|
||||||||||||
|
Interest-bearing deposits:
|
||||||||||||
|
Demand
|
(253
|
)
|
914
|
661
|
||||||||
|
Savings and money market accounts
|
2,394
|
(1,329
|
)
|
1,065
|
||||||||
|
Certificates of deposit greater than $250,000
|
(673
|
)
|
2,669
|
1,996
|
||||||||
|
Certificates of deposit equal to or less than $250,000
|
(695
|
)
|
(6,906
|
)
|
(7,601
|
)
|
||||||
|
Total interest-bearing deposits
|
773
|
(4,652
|
)
|
(3,879
|
)
|
|||||||
|
Short-term borrowings
|
(986
|
)
|
-
|
(986
|
)
|
|||||||
|
Subordinated debentures
|
-
|
(104
|
)
|
(104
|
)
|
|||||||
|
Total interest expense
|
(213
|
)
|
(4,756
|
)
|
(4,969
|
)
|
||||||
|
Net interest income
|
$
|
1,382
|
$
|
11,429
|
$
|
12,811
|
||||||
Comparison of Results of Operations for the Years Ended December 31, 2025 and 2024
|
Years Ended
December 31 |
$ Better /
|
% Better /
|
||||||||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
(Worse)
|
(Worse)
|
||||||||||||
|
Selected Income Statement Information:
|
||||||||||||||||
|
Interest income
|
$
|
279,492
|
$
|
271,977
|
$
|
7,515
|
2.76
|
%
|
||||||||
|
Interest expense
|
60,332
|
65,301
|
4,969
|
7.61
|
%
|
|||||||||||
|
Net interest income
|
219,160
|
206,676
|
12,484
|
6.04
|
%
|
|||||||||||
|
Provision for credit losses
|
3,500
|
-
|
(3,500
|
)
|
N/A
|
|||||||||||
|
Net interest income after provision for credit losses
|
215,660
|
206,676
|
8,984
|
4.35
|
%
|
|||||||||||
|
Non-interest income
|
23,633
|
20,700
|
2,933
|
14.17
|
%
|
|||||||||||
|
Non-interest expense
|
110,517
|
105,132
|
(5,385
|
)
|
(5.12
|
%)
|
||||||||||
|
Income before income tax expense
|
128,776
|
122,244
|
6,532
|
5.34
|
%
|
|||||||||||
|
Income tax expense
|
35,171
|
33,787
|
(1,384
|
)
|
(4.10
|
%)
|
||||||||||
|
Net income
|
$
|
93,605
|
$
|
88,457
|
$
|
5,148
|
5.82
|
%
|
||||||||
For the years ended December 31, 2025 and 2024, net income was $93.6 million compared with $88.5 million, respectively. The increase in net income was primarily the result of an increase in net interest income of $12.5 million and an increase in non-interest income of $2.9 million. This increase was partially offset by a higher non-interest expense of $5.4 million, an increase in the provision for credit losses of $3.5 million, and a higher income tax expense of $1.4 million.
Net Interest Income and Net Interest Margin
For the year ended December 31, 2025, net interest income increased $12.5 million, or 6.04%, to $219.2 million compared with $206.7 million for the same period a year earlier. The increase was primarily due to an increase in interest income from $272.6 million in 2024 to $280.4 million in 2025 as the average investment yield increased from 2.79% in 2024 to 3.44% in 2025 and average investment balances increased from $1.1 billion in 2024 to $1.4 billion in 2025. The increase in interest income was partially offset by a decrease in loan and lease interest and fee income from $223.3 million in 2024 to $218.7 million in 2025 as the average loan yield decreased from 6.08% in 2024 to 6.06% in 2025 and average loan and lease balances decreased from $3.67 billion in 2024 to $3.61 billion in 2025. The increase in the net interest income also benefited from a decrease in interest expense from $65.3 million in 2024 to $60.3 million in 2025 as the cost of average total deposits decreased from 1.35% in 2024 to 1.22% in 2025 while average total deposits increased from $4.73 billion for 2024 to $4.87 billion in 2025. The cost of funds for the year ended December 31, 2025, decreased by 14 basis points from 1.38% to 1.24% compared to the same period a year earlier. The net interest margin increased to 4.15% in 2025 from 4.05% in 2024 due to the changes in net interest income as described above.
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 losses, over the life of the loans and leases, unfunded loan commitments and the HTM securities portfolio.
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 CECL methodology, the Company recorded a $3.5 million provision for credit losses for the year ended December 31, 2025 compared with no provision for credit losses in 2024. Net charge-offs for the year ended December 31, 2025 were $1.8 million compared to net charge-offs of $0.7 million in 2024. The increases in net charge-offs, the provision for credit losses, and the allowance for credit losses reflected the ongoing economic stress in certain agricultural sectors. For the year ended December 31, 2024, based on the Company's evaluation of the credit quality of the loan and lease portfolio, modest loan growth of 0.65% and the calculations of the allowance for credit losses under CECL methodology, no provision for credit losses was necessary.
Non-interest Income
|
Years Ended
December 31 |
$ Better /
|
% Better /
|
||||||||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
(Worse)
|
(Worse)
|
||||||||||||
|
Non-interest Income:
|
||||||||||||||||
|
Card processing
|
$
|
7,023
|
$
|
6,950
|
$
|
73
|
1.05
|
%
|
||||||||
|
Gain on BOLI death benefit
|
-
|
4
|
(4
|
)
|
NM
|
|||||||||||
|
Net gain on deferred compensation benefits
|
4,629
|
3,270
|
1,359
|
41.56
|
%
|
|||||||||||
|
Service charges on deposit accounts
|
3,072
|
3,054
|
18
|
0.59
|
%
|
|||||||||||
|
Increase in cash surrender value of BOLI
|
2,530
|
2,430
|
100
|
4.12
|
%
|
|||||||||||
|
Net gain on sale of securities available-for-sale
|
44
|
743
|
(699
|
)
|
(94.08
|
%)
|
||||||||||
|
Other
|
6,335
|
4,249
|
2,086
|
49.09
|
%
|
|||||||||||
|
Total non-interest income
|
$
|
23,633
|
$
|
20,700
|
$
|
2,933
|
14.17
|
%
|
||||||||
Non-interest income increased $2.9 million to $23.6 million for 2025 compared with $20.7 million for 2024. The year-over-year increase in non-interest income was primarily due to the $2.1 million increase in other non-interest income, of which $1.3 million related to net gains on early lease terminations, a $1.4 million net gain on deferred compensation benefits and a $0.3 million gain on equity investments, partially offset by a reduction of $0.7 million in net gains on the sale of investment securities as the net gain on the sale of securities in 2024 was $743,000 compared to a net gain of $44,000 in 2025.
The Company recorded net gains on deferred compensation plan investments of $4.6 million in 2025 compared to net gains of $3.3 million in 2024, due to market value changes in underlying assets and increases in interest and dividends. See Note 12 "Employee Benefit Plans", located in Item 8. "Financial Statements and Supplementary Data" in this 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 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
|
Years Ended
December 31 |
$ Better /
|
% Better /
|
||||||||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
(Worse)
|
(Worse)
|
||||||||||||
|
Non-interest Expense:
|
||||||||||||||||
|
Salaries and employee benefits
|
$
|
74,129
|
$
|
72,472
|
$
|
(1,657
|
)
|
(2.29
|
%)
|
|||||||
|
Data Processing
|
6,914
|
6,055
|
(859
|
)
|
(14.19
|
%)
|
||||||||||
|
Occupancy
|
5,121
|
5,090
|
(31
|
)
|
(0.61
|
%)
|
||||||||||
|
Net gain on deferred compensation benefits
|
4,629
|
3,270
|
(1,359
|
)
|
(41.56
|
%)
|
||||||||||
|
Deposit insurance
|
2,997
|
2,852
|
(145
|
)
|
(5.08
|
%)
|
||||||||||
|
Professional services
|
3,651
|
3,587
|
(64
|
)
|
(1.78
|
%)
|
||||||||||
|
Marketing
|
1,895
|
1,967
|
72
|
3.66
|
%
|
|||||||||||
|
Other
|
11,181
|
9,839
|
(1,342
|
)
|
(13.64
|
%)
|
||||||||||
|
Total non-interest expense
|
$
|
110,517
|
$
|
105,132
|
$
|
(5,385
|
)
|
(5.12
|
%)
|
|||||||
Non-interest expense increased $5.4 million to $110.5 million for 2025 compared with $105.1 million for 2024. The year-over-year increase was primarily comprised of a $1.7 million increase in salaries and employee benefits, primarily due to an increase in FTEs from 373 in 2024 to 383 in 2025, normal annual cost of living increases, and higher cost of benefit premiums. The remainder of the increase in non-interest expense was due to a $1.4 million increase in the net gain on deferred compensation benefits, a $1.3 million increase in other operating expenses, primarily due to the write down of OREO of $873,000, and a $0.9 million increase in data processing expense.
Net gains on deferred compensation plan obligations were $4.6 million in 2025 compared to net gains of $3.3 million in 2024, due to market value changes in underlying assets and increases in interest and dividends. See Note 12 "Employee Benefit Plans", located in "Item 8. "Financial Statements and Supplementary Data" in this 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 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.
For the year ended December 31, 2025, the Company's expense efficiency ratio was 45.52% compared with 46.24% for 2024 as the increase in revenue outpaced the increase in expenses. The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.
Income Tax Expense
For the year ended December 31, 2025, income tax expense was $35.2 million, compared with $33.8 million in 2024. For the year ended December 31, 2025, the effective tax rate was 27.31% compared with 27.64% in 2024. The Company's effective tax rate can also fluctuate from year to year 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 2022 through 2025 federal tax years and the 2021 through 2025 state tax years remain subject to selection for examination as of December 31, 2025. The IRS is in the process of reviewing the Company's 2023 tax return including inquiries related to certain leasing investment tax credits. The timing related to when the IRS review will be complete remains uncertain.
Balance Sheet Analysis
Total assets were $5.7 billion at December 31, 2025, an increase of $319.9 million or 5.96% compared to December 31, 2024. The net investment portfolio increased by $436.0 million, or 35.34%, to $1.7 billion at December 31, 2025, compared to $1.2 billion at December 31, 2024. Total cash and cash equivalents were $144.9 million at December 31, 2025, a decrease of $67.7 million or 31.85% from $212.6 million at December 31, 2024. Gross loans and leases held for investment were $3.6 billion at December 31, 2025, compared with $3.7 billion at December 31, 2024, a decrease of $29.4 million, or 0.80%. Total deposits were $5.0 billion at December 31, 2025 compared with $4.7 billion at December 31, 2024, an increase of $278.7 million, or 5.93%. Our loan to deposit ratio was 73.67% and 78.53% as of December 31, 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 $84.2 million at December 31, 2025 and $141.5 million at December 31, 2024. The decrease was primarily due to the Company proactively moving excess cash into available-for-sale securities in anticipation of lower market rates in the second half of 2025. The Company's total cash and cash equivalents as of December 31, 2025 represented 2.6% of the Company's total assets as compared to 4.0% as of December 31, 2024.
Investment Securities
The Company's net investment portfolio increased by $436.0 million to $1.7 billion at December 31, 2025 compared to $1.2 billion at December 31, 2024. The increase was due to the purchase of $574.4 million in investment securities during 2025 offset by normal principal maturities and pay downs and the sale of $24.8 million in securities comprised of $21.6 million in available-for-sale securities and $3.2 million in held-to-maturity securities. All held-to-maturity securities sold were mortgage-backed securities with a remaining book value of less than 15% of the original principal balance at the time of purchase and, as allowed under ASC 320-10-25-14, the sales were considered maturities for purposes of security classification. The Company uses its investment portfolio to manage interest rate and liquidity risks. The Company's total investment portfolio as of December 31, 2025 represented 29.35% 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 were as follows:
|
As of December 31,
|
||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
||||||
|
Available-for-sale securities
|
||||||||
|
U.S. Government-sponsored securities
|
$
|
2,038
|
$
|
2,644
|
||||
|
Mortgage-backed securities(1)
|
826,240
|
439,858
|
||||||
|
Commercial mortgage-backed securities(1)
|
1,253
|
1,212
|
||||||
|
Collateralized mortgage obligations(1)
|
20,730
|
5,497
|
||||||
|
Municipal securities
|
70,845
|
-
|
||||||
|
Corporate securities
|
29,738
|
14,856
|
||||||
|
Other
|
310
|
347
|
||||||
|
Total available-for-sale securities
|
$
|
951,154
|
$
|
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.
|
|
As of December 31,
|
||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
||||||
|
Held-to-maturity securities
|
||||||||
|
Mortgage-backed securities(1)
|
$
|
586,001
|
$
|
626,427
|
||||
|
Collateralized mortgage obligations(1)
|
62,476
|
68,377
|
||||||
|
Municipal securities
|
70,164
|
74,639
|
||||||
|
Total held-to-maturity securities
|
$
|
718,641
|
$
|
769,443
|
||||
|
Allowance for credit losses
|
(450
|
)
|
(450
|
)
|
||||
|
Total held-to-maturity securities
|
$
|
718,191
|
$
|
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 December 31, 2025
|
||||||||||||||||||||||||||||||||||||||||
|
Within One Year
|
After One but
Within Five Years
|
After Five but
Within Ten Years
|
After Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
||||||||||||||||||||||||||||||
|
Securities available-for-sale
|
||||||||||||||||||||||||||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
-
|
0.00
|
%
|
$
|
14
|
5.36
|
%
|
$
|
290
|
6.03
|
%
|
$
|
1,734
|
5.03
|
%
|
2,038
|
5.17
|
%
|
|||||||||||||||||||||
|
Mortgage-backed securities(1)
|
362
|
2.40
|
%
|
981
|
2.53
|
%
|
2,816
|
4.09
|
%
|
822,081
|
4.76
|
%
|
826,240
|
4.75
|
%
|
|||||||||||||||||||||||||
|
Commercial mortgage-backed securities (1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
1,253
|
5.82
|
%
|
1,253
|
5.82
|
%
|
|||||||||||||||||||||||||
|
Collateralized mortgage obligations(1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
20,730
|
4.74
|
%
|
20,730
|
4.74
|
%
|
|||||||||||||||||||||||||
|
Municipal securities
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
22,672
|
4.70
|
%
|
48,173
|
4.76
|
%
|
70,845
|
4.74
|
%
|
|||||||||||||||||||||||||
|
Corporate securities
|
5,000
|
4.34
|
%
|
24,738
|
4.72
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
29,738
|
4.66
|
%
|
|||||||||||||||||||||||||
|
Other
|
310
|
7.45
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
310
|
7.45
|
%
|
|||||||||||||||||||||||||
|
Total securities available-for-sale
|
$
|
5,672
|
4.39
|
%
|
$
|
25,733
|
4.64
|
%
|
$
|
25,778
|
4.65
|
%
|
$
|
893,971
|
4.76
|
%
|
$
|
951,154
|
4.75
|
%
|
||||||||||||||||||||
|
(1)
|
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
|
As of December 31, 2025
|
||||||||||||||||||||||||||||||||||||||||
|
Within One Year
|
After One but
Within Five Years
|
After Five but
Within Ten Years
|
After Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
||||||||||||||||||||||||||||||
|
Securities held-to-maturity
|
||||||||||||||||||||||||||||||||||||||||
|
Mortgage-backed securities(1)
|
$
|
-
|
0.00
|
%
|
$
|
48
|
2.64
|
%
|
$
|
5,649
|
1.68
|
%
|
$
|
580,304
|
1.90
|
%
|
$
|
586,001
|
1.90
|
%
|
||||||||||||||||||||
|
Collateralized mortgage obligations(1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
62,476
|
1.74
|
%
|
62,476
|
1.74
|
%
|
|||||||||||||||||||||||||
|
Municipal securities
|
1,918
|
3.57
|
%
|
18,363
|
4.56
|
%
|
13,004
|
4.09
|
%
|
36,879
|
5.10
|
%
|
70,164
|
4.73
|
%
|
|||||||||||||||||||||||||
|
Total securities held-to-maturity
|
$
|
1,918
|
3.57
|
%
|
$
|
18,411
|
4.55
|
%
|
$
|
18,653
|
3.36
|
%
|
$
|
679,659
|
2.06
|
%
|
$
|
718,641
|
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.
|
|
As of December 31, 2024
|
||||||||||||||||||||||||||||||||||||||||
|
Within One Year
|
After One but
Within Five Years
|
After Five but
Within Ten Years
|
After Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
||||||||||||||||||||||||||||||
|
Securities available-for-sale
|
||||||||||||||||||||||||||||||||||||||||
|
U.S. Government-sponsored securities
|
$
|
2
|
3.00
|
%
|
$
|
33
|
5.64
|
%
|
$
|
279
|
6.15
|
%
|
$
|
2,330
|
5.89
|
%
|
2,644
|
5.92
|
%
|
|||||||||||||||||||||
|
Mortgage-backed securities(1)
|
74
|
2.83
|
%
|
3,074
|
2.57
|
%
|
1,949
|
3.92
|
%
|
434,761
|
4.70
|
%
|
439,858
|
4.68
|
%
|
|||||||||||||||||||||||||
|
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
|
4.74
|
%
|
||||||||||||||||||||
|
(1)
|
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
|
As of December 31, 2024
|
||||||||||||||||||||||||||||||||||||||||
|
Within One Year
|
After One but
Within Five Years
|
After Five but
Within Ten Years
|
After Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
||||||||||||||||||||||||||||||
|
Securities held-to-maturity
|
||||||||||||||||||||||||||||||||||||||||
|
Mortgage-backed securities(1)
|
$
|
-
|
0.00
|
%
|
$
|
3,426
|
0.82
|
%
|
$
|
7,756
|
1.66
|
%
|
$
|
615,245
|
1.89
|
%
|
$
|
626,427
|
1.88
|
%
|
||||||||||||||||||||
|
Collateralized mortgage obligations(1)
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
-
|
0.00
|
%
|
68,377
|
1.75
|
%
|
68,377
|
1.75
|
%
|
|||||||||||||||||||||||||
|
Municipal securities
|
1,180
|
3.86
|
%
|
18,365
|
4.79
|
%
|
6,733
|
4.34
|
%
|
48,361
|
5.01
|
%
|
74,639
|
4.88
|
%
|
|||||||||||||||||||||||||
|
Total securities held-to-maturity
|
$
|
1,180
|
3.86
|
%
|
$
|
21,791
|
4.17
|
%
|
$
|
14,489
|
2.91
|
%
|
$
|
731,983
|
2.08
|
%
|
$
|
769,443
|
2.16
|
%
|
||||||||||||||||||||
|
(1)
|
All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Expected maturities of mortgage-backed and CMO securities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without penalties. The Company evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.
Loans and Leases
Loans and leases can be categorized by borrowing purpose and use of funds. Common examples of loans and leases made by the Company include:
Commercial and Agricultural Real Estate- These are loans secured by owner-occupied real estate, non-owner-occupied real estate, owner-occupied farmland, and multifamily residential properties. Commercial mortgage term loans can be made if the property is either income producing or scheduled to become income producing based upon acceptable pre-leasing, or the income will be the Bank's primary source of repayment for the loan. Loans are made both on owner occupied and investor properties; maturities generally do not exceed 15 years (and may have pricing adjustments on a shorter timeframe); amortizations of up to 25 years (30 years for multifamily residential properties); have debt service coverage ratios of 1.00 or better with a target of 1.25 or greater; and fixed rates that are most often tied to Treasury indices with an appropriate spread based on the amount of perceived risk in the loan.
Real Estate Construction- These are loans for acquisition, development and construction and are secured by commercial or residential real estate. These loans are generally made only to experienced local developers with a successful track record; for projects in our service area; with Loan to Value ("LTV") below 75%; and where the property can generally be developed and sold within 2 years. Commercial construction loans are generally made only when there is an approved take-out commitment from the Bank or an acceptable financial institution or government agency. Most acquisition, development and construction loans are tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan.
Single Family Residential Real Estate- These are loans primarily made on owner occupied residences; generally underwritten to income and LTV guidelines similar to those used by FNMA and FHLMC. However, the Company will make loans on rural residential properties up to 41 acres. Most residential loans have terms from ten to thirty years and carry fixed or variable rates priced to Treasury rates. The Company has always underwritten mortgage loans based upon traditional underwriting criteria and does not make loans that are known in the industry as "subprime," "no or low doc," or "stated income" loans.
Home Equity Lines and Loans- These are loans made to individuals for home improvements and other personal needs. Generally, amounts do not exceed $500,000; but can be made for up to $1,000,000 in high cost counties. Combined Loan to Value ("CLTV") does not exceed 75%; FICO scores are at or above 670; Total Debt Ratios do not exceed 43%; and in some situations the Company is in a 1st lien position.
Agricultural- These are non-real estate loans and lines of credit made to farmers to finance agricultural production. Lines of credit are extended to finance the seasonal needs of farmers during peak growing periods; are usually established for periods no longer than 12 to 36 months; are often secured by general filing liens on livestock, crops, crop proceeds and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a processing plant, or orchard/vineyard development; have maturities from five to seven years; and fixed rates that are most often tied to Treasury indices or variable rates tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan.
Commercial- These are non-real estate loans and lines of credit to businesses that are sole proprietorships, partnerships, LLC's and corporations. Lines of credit are extended to finance the seasonal working capital needs of customers during peak business periods; are usually established for periods no longer than 12 to 36 months; are often secured by general filing liens on accounts receivable, inventory and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a plant or purchase of a business; have maturities from three to seven years; and fixed rates that are most often tied to Treasury indices or variable rates tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan.
Consumer- These are loans to individuals for personal use, and primarily include loans to purchase automobiles or recreational vehicles, and unsecured lines of credit. The Company has a minimal consumer loan portfolio.
Commercial Leases- These are leases primarily to businesses and farmers for financing the acquisition of equipment. They can be either "finance leases" where the lessee retains the tax benefits of ownership but obtains 100% financing on their equipment purchases; or "true tax leases" where the Company, as lessor, places reliance on equipment residual value and in doing so obtains the tax benefits of ownership. Leases typically have a maturity of three to ten years, and fixed rates that are most often tied to Treasury indices with an appropriate spread based on the amount of perceived risk. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed with qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.
The Company accounts for leases with Investment Tax Credits ("ITC") under the deferred method as established in ASC 740-10. ITCs are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income in the Company's financial statements.
Each loan or lease type involves risks specific to the: (1) borrower; (2) collateral; and (3) loan or lease structure. See "Results of Operations - Allowance for Credit Losses - Loans and Leases" for a more detailed discussion of risks by loan and lease type. The Company's current underwriting policies and standards are designed to mitigate the risks involved in each loan and lease type. The Company's policies require that loans and leases be approved only to those borrowers exhibiting a clear source of repayment and the ability to service existing and proposed debt. The Company's underwriting procedures for all loan and lease types require careful consideration of the borrower, the borrower's financial condition, the borrower's management capability, the borrower's industry, and the economic environment affecting the loan or lease.
Most loans and leases made by the Company are secured, but collateral is the secondary or tertiary source of repayment; cash flow is our primary source of repayment. The quality and liquidity of collateral are important and must be confirmed before the loan or lease is made.
In order to be responsive to borrower needs, the Company prices loans and leases: (1) on both a fixed rate and adjustable rate basis; (2) over different terms; and (3) based upon different rate indices as long as these structures are consistent with the Company's interest rate risk management policies and procedures. See Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" in this Form 10-K for further details.
The Company's loan and lease portfolio at December 31, 2025 totaled $3.6 billion, a decrease of $29.4 million or 0.80% compared to December 31, 2024. The decrease was due to the Company prioritizing risk appropriate loan pricing and structure over loan growth. This was primarily due to industry market pricing on loans not adequately compensating for overall loan risk and duration risk on loans.
The following table sets forth the distribution of the loan and lease portfolio by type and percent at the dates indicated:
|
December 31,
|
||||||||||||||||
|
2025
|
2024
|
|||||||||||||||
|
(Dollars in thousands)
|
Dollars
|
Percent of
Total
|
Dollars
|
Percent of
Total
|
||||||||||||
|
Gross Loans and Leases
|
||||||||||||||||
|
Real estate:
|
||||||||||||||||
|
Commercial
|
$
|
1,480,906
|
40.37
|
%
|
$
|
1,360,841
|
36.88
|
%
|
||||||||
|
Agricultural
|
705,668
|
19.24
|
%
|
751,026
|
20.35
|
%
|
||||||||||
|
Residential and home equity
|
405,080
|
11.05
|
%
|
404,399
|
10.96
|
%
|
||||||||||
|
Construction
|
128,179
|
3.50
|
%
|
194,903
|
5.28
|
%
|
||||||||||
|
Total real estate
|
2,719,833
|
74.16
|
%
|
2,711,169
|
73.47
|
%
|
||||||||||
|
Commercial & industrial
|
497,700
|
13.57
|
%
|
504,403
|
13.67
|
%
|
||||||||||
|
Agricultural
|
264,117
|
7.20
|
%
|
289,847
|
7.85
|
%
|
||||||||||
|
Commercial leases
|
181,004
|
4.94
|
%
|
179,718
|
4.87
|
%
|
||||||||||
|
Consumer and other
|
4,671
|
0.13
|
%
|
5,084
|
0.14
|
%
|
||||||||||
|
Total gross loans and leases
|
$
|
3,667,325
|
100.00
|
%
|
$
|
3,690,221
|
100.00
|
%
|
||||||||
The following table shows the maturity distribution and interest rate sensitivity of the loan and lease portfolio of the Company at December 31, 2025:
|
Loan Contractual Maturity
|
||||||||||||||||||||
|
(Dollars in thousands)
|
One Year or
Less
|
After One
But Within
Five Years
|
After Five
But Within
Fifteen Years
|
After Fifteen
Years
|
Total
|
|||||||||||||||
|
Gross loan and leases:
|
||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||
|
Commercial
|
$
|
72,469
|
$
|
636,166
|
$
|
741,313
|
$
|
30,958
|
$
|
1,480,906
|
||||||||||
|
Agricultural
|
43,445
|
193,049
|
438,445
|
30,729
|
705,668
|
|||||||||||||||
|
Residential and home equity
|
96
|
5,582
|
116,795
|
282,607
|
405,080
|
|||||||||||||||
|
Construction
|
95,418
|
32,761
|
-
|
-
|
128,179
|
|||||||||||||||
|
Total real estate
|
211,428
|
867,558
|
1,296,553
|
344,294
|
2,719,833
|
|||||||||||||||
|
Commercial & industrial
|
177,671
|
228,895
|
88,882
|
2,252
|
497,700
|
|||||||||||||||
|
Agricultural
|
185,580
|
67,443
|
11,094
|
-
|
264,117
|
|||||||||||||||
|
Commercial leases
|
3,067
|
99,332
|
78,605
|
-
|
181,004
|
|||||||||||||||
|
Consumer and other
|
979
|
3,096
|
146
|
450
|
4,671
|
|||||||||||||||
|
Total gross loans and leases
|
$
|
578,725
|
$
|
1,266,324
|
$
|
1,475,280
|
$
|
346,996
|
$
|
3,667,325
|
||||||||||
|
Rate structure for loans and leases
|
||||||||||||||||||||
|
Fixed rate
|
$
|
180,637
|
$
|
926,064
|
$
|
847,953
|
$
|
189,396
|
$
|
2,144,050
|
||||||||||
|
Adjustable rate
|
398,088
|
340,260
|
627,327
|
157,600
|
1,523,275
|
|||||||||||||||
|
Total gross loans and leases
|
$
|
578,725
|
$
|
1,266,324
|
$
|
1,475,280
|
$
|
346,996
|
$
|
3,667,325
|
||||||||||
The following table summarizes the loans for which the accrual of interest has been discontinued and OREO (as hereinafter defined) at the dates indicated:
|
December 31,
|
||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
||||||
|
Non-performing assets:
|
||||||||
|
Non-accrual loans and leases
|
||||||||
|
Real estate:
|
||||||||
|
Commercial
|
$
|
750
|
$
|
170
|
||||
|
Agricultural
|
-
|
-
|
||||||
|
Residential and home equity
|
-
|
-
|
||||||
|
Construction
|
-
|
-
|
||||||
|
Total real estate
|
750
|
170
|
||||||
|
Commercial & industrial
|
-
|
759
|
||||||
|
Agricultural
|
-
|
-
|
||||||
|
Commercial leases
|
-
|
-
|
||||||
|
Consumer and other
|
-
|
-
|
||||||
|
Total non-performing loans and leases
|
750
|
929
|
||||||
|
Other real estate owned ("OREO")
|
-
|
873
|
||||||
|
Total non-performing assets
|
$
|
750
|
$
|
1,802
|
||||
|
Selected ratios:
|
||||||||
|
Non-performing loans to total loans and leases
|
0.02
|
%
|
0.03
|
%
|
||||
|
Non-performing assets to total assets
|
0.01
|
%
|
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 $750,000 in non-accrual loans and leases at December 31, 2025, compared to $929,000 at December 31, 2024.
Although management believes that non-performing loans and leases are generally well-secured and that potential losses are provided for in the Company's allowance for credit losses, there can be no assurance that future deterioration in economic conditions and/or collateral values will not result in future credit losses.
Other Real Estate Owned- OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. The Company records all OREO properties at amounts equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs. The Company reported no OREO at December 31, 2025 compared to $873,000 at December 31, 2024.
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, that portion of the loan 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 nine loans, with five borrowers, in the aggregate amount of $7.0 million, during the year ended December 31, 2025. These loans were current at December 31, 2025.
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 " - Critical Accounting Policies and Estimates" above, and Note 1 "Summary of Significant Accounting Policies", located in Item 8. "Financial Statements and Supplementary Data", of this Form 10-K for a detailed discussion of the Company's allowance for credit losses.
The allowance for credit losses is the combination of the allowance for credit losses on loan and lease losses and the allowance for credit losses on unfunded loan commitments. The ACL for unfunded loan commitments is included within "Interest payable and other liabilities" on the consolidated balance sheets.
The following table sets forth the activity in our ACL on loans and leases held for investment and unfunded loan commitments for the periods indicated:
|
Year Ended December 31,
|
||||||||
|
(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
|
2,890
|
1,000
|
||||||
|
Allowance for credit losses- unfunded loan commitments
|
610
|
(1,000
|
)
|
|||||
|
Total provision for credit losses
|
3,500
|
-
|
||||||
|
Charge-offs:
|
||||||||
|
Real estate:
|
||||||||
|
Commercial
|
(380
|
)
|
-
|
|||||
|
Agricultural
|
(1,119
|
)
|
-
|
|||||
|
Residential and home equity
|
-
|
(29
|
)
|
|||||
|
Construction
|
-
|
-
|
||||||
|
Total real estate
|
(1,499
|
)
|
(29
|
)
|
||||
|
Commercial & industrial
|
(233
|
)
|
(736
|
)
|
||||
|
Agricultural
|
(234
|
)
|
-
|
|||||
|
Commercial leases
|
-
|
-
|
||||||
|
Consumer and other
|
(50
|
)
|
(93
|
)
|
||||
|
Total charge-offs
|
(2,016
|
)
|
(858
|
)
|
||||
|
Recoveries:
|
||||||||
|
Real estate:
|
||||||||
|
Commercial
|
-
|
-
|
||||||
|
Agricultural
|
5
|
-
|
||||||
|
Residential and home equity
|
10
|
23
|
||||||
|
Construction
|
-
|
-
|
||||||
|
Total real estate
|
15
|
23
|
||||||
|
Commercial & industrial
|
156
|
86
|
||||||
|
Agricultural
|
24
|
16
|
||||||
|
Commercial leases
|
-
|
-
|
||||||
|
Consumer and other
|
23
|
51
|
||||||
|
Total recoveries
|
218
|
176
|
||||||
|
Net charge-offs
|
(1,798
|
)
|
(682
|
)
|
||||
|
Balance at end of year
|
$
|
79,675
|
$
|
77,973
|
||||
|
Allowance for credit losses - loans and leases
|
76,375
|
75,283
|
||||||
|
Allowance for credit losses - unfunded loan commitments
|
3,300
|
2,690
|
||||||
|
Total allowance for credit losses
|
$
|
79,675
|
$
|
77,973
|
||||
|
Selected financial information:
|
||||||||
|
Net loans and leases held for investment
|
$
|
3,648,945
|
$
|
3,678,388
|
||||
|
Average loans and leases
|
3,607,991
|
3,672,260
|
||||||
|
Non-performing loans and leases
|
750
|
929
|
||||||
|
Allowance for credit losses to non-performing loans and leases
|
N/M
|
(1)
|
N/M
|
(1)
|
||||
|
Net charge-offs to average loans and leases
|
0.05
|
%
|
0.02
|
%
|
||||
|
Provision for credit losses to average loans and leases
|
0.10
|
%
|
0.00
|
%
|
||||
|
Allowance for loan and lease losses to loans and leases held for investment
|
2.08
|
%
|
2.04
|
%
|
||||
|
(1)
|
Not meaningful (N/M)
|
The following table indicates management's allocation of the ACL for loan and leases by loan type as of the dates indicated:
|
December 31,
|
||||||||||||||||||||||||
|
2025
|
2024
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Dollars
|
Percent of
Each Loan
Type to Total
Loans
|
Percent of
ACL to Each
Loan Type
|
Dollars
|
Percent of
Each Loan
Type to Total
Loans
|
Percent of
ACL to Each
Loan Type
|
||||||||||||||||||
|
Allowance for credit losses:
|
||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||
|
Commercial
|
$
|
22,574
|
40.37
|
%
|
1.52
|
%
|
$
|
20,382
|
36.88
|
%
|
1.50
|
%
|
||||||||||||
|
Agricultural
|
23,647
|
19.24
|
%
|
3.35
|
%
|
23,615
|
20.35
|
%
|
3.14
|
%
|
||||||||||||||
|
Residential and home equity
|
7,620
|
11.05
|
%
|
1.88
|
%
|
7,340
|
10.96
|
%
|
1.82
|
%
|
||||||||||||||
|
Construction
|
2,311
|
3.50
|
%
|
1.80
|
%
|
3,055
|
5.28
|
%
|
1.57
|
%
|
||||||||||||||
|
Total real estate
|
56,152
|
74.16
|
%
|
2.06
|
%
|
54,392
|
73.47
|
%
|
2.01
|
%
|
||||||||||||||
|
Commercial & industrial
|
7,355
|
13.57
|
%
|
1.48
|
%
|
7,791
|
13.67
|
%
|
1.54
|
%
|
||||||||||||||
|
Agricultural
|
6,760
|
7.20
|
%
|
2.56
|
%
|
6,725
|
7.85
|
%
|
2.32
|
%
|
||||||||||||||
|
Commercial leases
|
5,861
|
4.94
|
%
|
3.24
|
%
|
6,153
|
4.87
|
%
|
3.42
|
%
|
||||||||||||||
|
Consumer and other
|
247
|
0.13
|
%
|
5.29
|
%
|
222
|
0.14
|
%
|
4.37
|
%
|
||||||||||||||
|
Total allowance for credit losses
|
$
|
76,375
|
100.00
|
%
|
2.08
|
%
|
$
|
75,283
|
100.00
|
%
|
2.04
|
%
|
||||||||||||
Deposits
The following table shows the deposit balances at the dates indicated:
|
December 31,
|
||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
||||||
|
Deposits:
|
||||||||
|
Non-interest bearing
|
$
|
1,642,119
|
$
|
1,518,267
|
||||
|
Interest-bearing:
|
||||||||
|
Demand
|
802,352
|
882,123
|
||||||
|
Savings and money market
|
1,790,274
|
1,583,202
|
||||||
|
Certificates of deposit
|
743,081
|
715,547
|
||||||
|
Total interest-bearing
|
3,335,707
|
3,180,872
|
||||||
|
Total deposits
|
$
|
4,977,826
|
$
|
4,699,139
|
||||
Total deposits increased by $278.7 million or 5.93% from December 31, 2024 to December 31, 2025. The increase was driven by an increase in savings and money market accounts of $207.1 million or 13.1%, an increase in non-interest bearing demand deposits of $123.9 million or 8.16%, and an increase in certificates of deposit of $27.5 million or 3.9% from 2024 to 2025, respectively, all partially offset by a decrease of $79.8 million or 9.0% in interest-bearing demand deposits from 2024 to 2025. The increases were primarily from an increase in the number of client accounts and fluctuations in client balances along with shifts from lower yielding demand deposits into higher yielding savings and money market accounts and certificates of deposit. Conversely, this shift contributed to the decrease in interest-bearing demand deposits. Non-interest bearing deposits were 32.99% and 32.31% of total deposits, at December 31, 2025 and 2024, respectively.
The following table shows the average amount and average rate paid on the categories of deposits for each of the periods presented:
|
As of December 31,
|
||||||||||||||||||||||||||||||||||||
|
2025
|
2024
|
2023
|
||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Average Balance
|
Interest Expense
|
Average Rate
|
Average Balance
|
Interest Expense
|
Average Rate
|
Average Balance
|
Interest Expense
|
Average Rate
|
|||||||||||||||||||||||||||
|
Total deposits:
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing deposits:
|
||||||||||||||||||||||||||||||||||||
|
Demand
|
$
|
857,222
|
$
|
4,938
|
0.58
|
%
|
$
|
908,561
|
$
|
4,277
|
0.47
|
%
|
$
|
983,340
|
$
|
2,357
|
0.24
|
%
|
||||||||||||||||||
|
Savings and money market
|
1,745,290
|
31,369
|
1.80
|
%
|
1,614,117
|
30,304
|
1.88
|
%
|
1,631,818
|
21,831
|
1.34
|
%
|
||||||||||||||||||||||||
|
Certificates of deposit greater than $250,000
|
390,281
|
13,659
|
3.50
|
%
|
413,077
|
11,663
|
2.82
|
%
|
245,094
|
7,680
|
3.13
|
%
|
||||||||||||||||||||||||
|
Certificates of deposit equal to or less than $250,000
|
335,224
|
9,599
|
2.86
|
%
|
349,933
|
17,200
|
4.92
|
%
|
273,281
|
5,655
|
2.07
|
%
|
||||||||||||||||||||||||
|
Total interest-bearing deposits
|
3,328,017
|
59,565
|
1.79
|
%
|
3,285,688
|
63,444
|
1.93
|
%
|
3,133,533
|
37,523
|
1.20
|
%
|
||||||||||||||||||||||||
|
Non-interest bearing deposits
|
1,535,999
|
1,417,121
|
1,528,375
|
|||||||||||||||||||||||||||||||||
|
Total deposits
|
$
|
4,864,016
|
$
|
59,565
|
1.22
|
%
|
$
|
4,702,809
|
$
|
63,444
|
1.35
|
%
|
$
|
4,661,908
|
$
|
37,523
|
0.80
|
%
|
||||||||||||||||||
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 75 basis points when the FOMC cut interest rates again, between September 2025 and December 2025. The average cost of total deposits, including non-interest bearing deposits, decreased to 1.22% for 2025 compared to 1.35% for 2024. The Company had no brokered deposits as of December 31, 2025 or 2024.
The following table shows deposits with a balance greater than $250,000 at December 31, 2025 and 2024:
|
December 31
|
||||||||
|
(Dollars in thousands)
|
2025
|
2024
|
||||||
|
Non-Maturity Deposits greater than $250,000
|
$
|
2,729,456
|
$
|
2,486,450
|
||||
|
Certificates of deposit greater than $250,000, by maturity:
|
||||||||
|
Less than 3 months
|
137,517
|
153,662
|
||||||
|
3 months to 6 months
|
192,804
|
146,341
|
||||||
|
6 months to 12 months
|
67,313
|
81,642
|
||||||
|
More than 12 months
|
629
|
3,427
|
||||||
|
Total certificates of deposit greater than $250,000
|
$
|
398,263
|
$
|
385,072
|
||||
|
Total deposits greater than $250,000
|
$
|
3,127,719
|
$
|
2,871,522
|
||||
Refer to the Average Balance and Yield Schedule located in this "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for information on separate deposit categories.
The Bank participates in a program wherein the State of California places time deposits with the Bank at the Bank's option. At December 31, 2025 and 2024, the Bank had $3.0 million of these deposits.
Total estimated uninsured deposits based on our regulatory reporting amounted to $2.6 billion and $2.3 billion at December 31, 2025 and December 31, 2024, respectively.
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 December 31, 2025 or 2024. There were no Federal Funds purchased or advances from the FRB at December 31, 2025 or 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 this 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 and the rate was 6.82% at December 31, 2025 (the next reset is March 17, 2026). The average rate paid for these securities was 7.44% in 2025 and 8.45% in 2024. Additionally, if the Company decided to defer interest on the subordinated debentures, the Company would be prohibited by the terms of the debentures, from paying cash dividends on the Company's common stock.
Capital Resources
The Company relies primarily on capital generated through the retention of earnings to satisfy its capital requirements. The Company engages in an ongoing assessment of its capital needs in order to support business growth and to ensure depositor protection. Shareholders' equity totaled $645.5 million at December 31, 2025, and $573.1 million at the end of 2024, an increase of $72.4 million or 12.64%. The growth in capital during the year ended December 31, 2025 was driven by net income of $93.6 million partially offset by stock repurchases of $34.7 million and cash dividends paid on common shares of $13.8 million.
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.
At December 31, 2025, the Company was in compliance with all of these capital requirements and there were no restrictions on the Company's business activity. At December 31, 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 at December 31, 2025 and 2024.
The Company's and the Bank's actual and required capital amounts and ratios are as follows:
|
December 31, 2025
|
||||||||||||||||||||||||
|
Actual
|
Required for Capital
Adequacy Purposes
|
Minimum to be Categorized
as "Well Capitalized" Under
Prompt Corrective Action
Regulation
|
||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
Farmers & Merchants Bancorp
|
||||||||||||||||||||||||
|
CET1 capital to risk-weighted assets
|
$
|
620,134
|
13.81
|
%
|
$
|
202,001
|
4.50
|
%
|
N/A
|
N/A
|
||||||||||||||
|
Tier 1 capital to risk-weighted assets
|
630,134
|
14.04
|
%
|
269,334
|
6.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Risk-based capital to risk-weighted assets
|
686,542
|
15.29
|
%
|
359,112
|
8.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Tier 1 leverage capital ratio
|
630,134
|
11.00
|
%
|
229,189
|
4.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
F & M Bank
|
||||||||||||||||||||||||
|
CET1 capital to risk-weighted assets
|
$
|
627,683
|
13.99
|
%
|
$
|
201,969
|
4.50
|
%
|
$
|
291,733
|
6.50
|
%
|
||||||||||||
|
Tier 1 capital to risk-weighted assets
|
627,683
|
13.99
|
%
|
269,292
|
6.00
|
%
|
359,056
|
8.00
|
%
|
|||||||||||||||
|
Risk-based capital to risk-weighted assets
|
684,082
|
15.24
|
%
|
359,056
|
8.00
|
%
|
448,820
|
10.00
|
%
|
|||||||||||||||
|
Tier 1 leverage capital ratio
|
627,683
|
10.98
|
%
|
228,755
|
4.00
|
%
|
285,944
|
5.00
|
%
|
|||||||||||||||
|
December 31, 2024
|
||||||||||||||||||||||||
|
Actual
|
Required for Capital
Adequacy Purposes
|
Minimum to be Categorized
as "Well Capitalized" Under
Prompt Corrective Action
Regulation
|
||||||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
Farmers & Merchants 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
|
||||||||||||||||
|
F & M 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 through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means. 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 2025, the Company repurchased 33,562 shares under the Repurchase Plan, for a total of $34.7 million, inclusive of the excise tax. At December 31, 2025, there remained $30.3 million authorized for repurchases under the Repurchase Plan.
On August 13, 2025, the Company announced that it changed its dividend policy related to the frequency of cash dividend payments from semi-annually to quarterly. The first quarterly cash dividend of $5.00 per share was declared on August 12, 2025 and paid on October 1, 2025. On November 12, 2025, the Company declared a quarterly cash dividend of $5.05 per share which was paid on January 2, 2026, to shareholders of record on December 4, 2025.
Off-Balance-Sheet Arrangements
Off-balance-sheet arrangements are any contractual arrangement to which an unconsolidated entity is a party, under which the Company has: (1) any obligation under a guarantee contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity, or market risk support to that entity for such assets; (3) any obligation under certain derivative instruments; or (4) any obligation under a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company, or engages in leasing, hedging, or research and development services with the Company.
The following table sets forth our off-balance sheet lending commitments at December 31, 2025:
|
Amount of Commitment Expiration per Period
|
||||||||||||||||||||
|
(Dollars in thousands)
|
Total
Committed
Amount
|
Less than
One Year
|
One to
Three
Years
|
Three to
Five Years
|
After
Five Years
|
|||||||||||||||
|
Off-balance sheet commitments
|
||||||||||||||||||||
|
Commitments to extend credit
|
$
|
1,049,468
|
$
|
458,744
|
$
|
400,107
|
$
|
53,836
|
$
|
136,781
|
||||||||||
|
Standby letters of credit
|
19,250
|
15,957
|
2,293
|
1,000
|
-
|
|||||||||||||||
|
Total off-balance sheet commitments
|
$
|
1,068,718
|
$
|
474,701
|
$
|
402,400
|
$
|
54,836
|
$
|
136,781
|
||||||||||
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 totaled $3.3 million and $2.7 million at December 31, 2025 and December 31, 2024, respectively.
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 December 31, 2025 had maturity dates ranging from 1 to 51 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 $144.9 million or 2.6% of total assets at December 31, 2025. The majority of cash is on deposit with the FRB and amounted to $84.2 million. Potential sources of liquidity also include our ability to sell or pledge our available-for-sale securities portfolio, our ability to pledge for borrowing purposes our held-to-maturity portfolio, our ability to sell loans in the secondary market, and our ability to borrow from the FRB and FHLB. Our diversified deposit portfolio has historically provided us with a long-term source of stable low-cost funding. Maturities and payments on outstanding loans and investment securities also provide a steady flow of funds. Our liquidity, represented by cash borrowing lines, federal funds and available-for-sale securities, is a result of our operating, investing and financing activities and related cash flows. In order to ensure funds are available at all times, we devote resources to projecting the amount of funds that will be required and we maintain relationships with a diversified client base. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets. We actively monitor our liquidity on a daily basis and manage our liquidity and overall balance sheet positions through both our management and Board-level Asset and Liability Management committees ("ALCO"), which meet regularly during the year.
We had the following borrowing lines available at December 31, 2025:
|
December 31, 2025
|
||||||||||||||||
|
(Dollars in thousands)
|
Total Credit
Line Limit
|
Outstanding
Amount
|
Remaining
Credit Line
Available
|
Value of
Collateral
Pledged
|
||||||||||||
|
Additional liquidity sources:
|
||||||||||||||||
|
Federal Reserve BIC
|
$
|
1,089,928
|
$
|
-
|
$
|
1,089,928
|
$
|
1,367,302
|
||||||||
|
Federal Home Loan Bank
|
890,447
|
-
|
890,447
|
1,147,499
|
||||||||||||
|
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
|
$
|
2,113,375
|
$
|
-
|
$
|
2,113,375
|
$
|
2,514,801
|
||||||||
We maintained a strong liquidity position throughout 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 withdrawal for the foreseeable future. At December 31, 2025, we had internal sources of liquidity comprised of $144.9 million in cash and $945.0 million of unencumbered investment securities, which represented in the aggregate 19.15% 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 $3.2 billion at December 31, 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 December 31, 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 our liquidity 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 2025 was $104.2 million driven by record net income of $93.6 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 $402.0 million during 2025 driven by a net increase of purchases in our investment portfolio of $564.8 million in available-for-sale securities offset by a decrease in loans and leases of $27.7 million and proceeds from the sale, maturities, calls, and pay downs of investment securities of $162.8 million.
At December 31, 2025, we had unfunded loan commitments of $1.0 billion and unfunded letters of credit of $19.3 million. At December 31, 2025, we believe that we had sufficient sources of funds available to meet current loan commitments.
Net cash provided by financing activities totaled $230.1 million in 2025, driven by an increase in deposits of $278.7 million partially offset by the repurchase of $34.7 million in common stock and $13.8 million in cash dividends paid to shareholders.
Farmers & Merchants Bancorp published this content on March 13, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 13, 2026 at 20:00 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]