FMCB 10-K & 10-Q changes, risk factors and insider trading

As a financial services company, our business and operations may be adversely affected by weak economic conditions. Our business operations, which primarily consist of lending money to clients in the form of loans, borrowing money from clients in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the United States and California. The The tightening of the Federal Reserve’s monetary policies, including repeated and aggressive increases in target range for the federal funds rate as well as the conclusion of the Federal Reserve’s tapering of asset purchases, together with ongoing ongoing economic and geopolitical instability, increases the risk of an economic recession. The prolonged inverted yield curve and the actions by the Treasury Department in recent years such as financing more of the U.S. debt with short-term instruments instruments resulted in higher short-term borrowing costs. Despite four rate cuts by the Federal Reserve between September and December 2024, and three consecutive 25 basis point rate cuts in late 2025, the Federal Reserve has signaled caution in easing monetary policypolicy. At its January 2026 meeting, the Federal Reserve, citing strongcontinued elevated uncertainty about the economic performance,outlook, robust GDPlow growth,job gains, and persistent inflation asthat reasonsremains somewhat elevated, determined to movemaintain slowlythe withtarget anyrange furtherfor the federal funds rate cuts.at 3.50% to 3.75% percent. During his second term, President Trump has regularly pushed for the Federal Reserve to cut short-term interest rates, threatened to fire the Federal Reserve Chairman, and taken steps to remove another member of the Federal Reserve’s governing board, and, in January 2026, the U.S. attorney’s office in the District of Columbia opened a criminal investigation into the Federal Reserve Chairman over the central bank’s renovation of its Washington headquarters. These actions have the potential to threaten the independence of the Federal Reserve, and the outcome of these actions, and their impact on interest rates, financial markets, borrowing costs and the U.S. economy in general, cannot be predicted at this time. If the U.S. economy weakens, our growth and profitability from our lending, deposit and investment operations could be constrained and our asset quality, deposit levels, loan demand and results of operations may be adversely affected. In addition, economic conditions in foreign countries could affect the stability of global financial markets, which could hinder U.S. economic growth. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including the recent military actions in Iran and the Middle East, escalating military tension between Russia and Ukraine, terrorism and other geopolitical events. Our business is also significantly affected by monetary and related policies of the U.S. federal government and its agencies. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control. Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our financial condition and operations. Our clients businesses are also impacted by the strong US dollar which impacts commodity prices and hurts U.S. exports.

A large portion of our loan portfolio is tied to the real estate market where we operate and we may be negatively impacted by downturns in that market. A significant percentage of our loans are real estate related, consisting of loans for construction and land development projects, and for the purchase, improvement or refinancing of residential and commercial real estate. A downturn in the real estate market could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Real estate collateral provides an alternate source of repayment in the event of default by the client and may deteriorate in value during the time the credit is extended. If values decline, it is also more likely that we would be required to increase our allowance for credit losses. IfIf, during a period of reduced real estate valuesvalues, we are required to liquidate the property collateralizing a loan to satisfy the debt or to increase our allowance for credit losses, it could materially reduce our profitability and adversely affect our financial condition.

Since 2022, inflationary pressures have affected many aspects of the U.S. economy, including gasoline and fuel prices, and global and domestic supply-chain issues have also had a disruptive effect on many industries, industries, including the agricultural industry. In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced after several periods of historically low federal funds rates and yields on Treasury notes that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time. The FOMC increased the target range 11 times or 525 basis points from March 2022 to July 2023. The target range remained unchanged through much of 2024 until the FOMC decreased the rate 100 basis points during the last four months of the year. The target range remained unchanged through much of 2025 until the FOMC decreased the rate 75 basis points during the last four months of the year. As of December 31, 2024,2025, the federal funds rate decreased to 4.50%.3.75%. It remains uncertain whether the FOMC will further decrease the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels, begin to increase the federal funds rate or leave the rate at its current elevated level for a lengthy period of time. As noted previously, the newcurrent Trump Administration has taken steps to increase tariffs on goods imported to the U.S. from certain countries. RetaliationAs bya consequence, other countries, in retaliation to the U.S.’s announced tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries throughby the impositioncompanies of higher tariffs on exports fromin the U.S. appears to be a possibility. The imposition of increased tariffs on imports and exports is believed by some economists to entail the possibility of increased inflationary pressures on the U.S. economy. President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA). On February 20, 2026, the U.S. Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA. The Trump Administration responded by announcing the imposition of new tariffs under alternative legal authorities to replace the IEEPA tariffs, including an executive order imposing a global surcharge (tariff) of 10% on most imports, effective for 150 days. While the President, on February 21, 2026, announced that the tariff rate would be increased to the maximum tariff rate of 15%, U.S. Customs and Border Protection issued guidance on February 23, 2026, confirming that the tariff rate is 10%.The impact of these developments on the business of our clients and on our business cannot be predicted with certainty but could present challenges in 20252026 and beyond.

We face strong competition from banks, credit unions and other financial services providers that offer banking services, which may limit our ability to attract and and retain banking clients. Competition in the banking industry generally, and in our geographic market specifically, is strong. Competitors include banks, as well as other financial services providers, such as savings and loan institutions, institutions, consumer finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. Our competitors include several larger national and regional financial institutions whose greater resources may afford them a marketplace advantage inasmuch as they may offer a wider array of banking services at better rates and be able to target a broader client base through more extensive promotional and advertising campaigns. Moreover, larger competitors may not be as vulnerable as we are to downturns in the local economy and real estate market since they have a broader geographic area and their loan portfolio is more diversified. While our deposit base has increased, several banks have grown their deposit market share in our markets faster than we have resulting in a declining relative deposit market share for us in our existing markets. We believe our declining relative market share in deposits has resulted primarily from aggressive marketing and advertising, in-migration of more competitors, expanded delivery channels and more attractive rates offered by larger bank competitors. We also compete against community banks, credit unions and non-bank financial services companies that have strong local ties. These smaller institutions are likely to cater to the same small to medium-sized businesses that we target. Additionally, non-traditional financial services firms, such as financial technology companies, are less regulated and continue to expand their offerings of services traditionally provided by financial institutions. In 2025, the OCC announced its conditional approval of five national trust bank charter applications to either newly charter or convert existing institutions into national trust banks that propose to offer digital asset products and services. While national trust banks generally do not take insured deposits or engage in commercial lending, the proposed activities of the five institutions include digital asset custody, settlement, clearing, transfer, escrow, staking, trade execution, and brokerage services; fiduciary, exchange, and payment agent services; stablecoin issuance; and the provision of services, including reserve asset custody, to affiliated stablecoin issuers. These new non-traditional trust banks offer deposit-like products, although lacking FDIC insurance and core consumer protections, and they are not subject to the same capital, liquidity or supervisory standards as banks. Emerging technologies, such as artificial intelligence (including machine learning and generative artificial intelligence) and quantum computing, have the potential to intensify competition and accelerate disruption in the financial services industry. If we are unable to attract and retain customers, we may be unable to continue to grow our loan and deposit portfolios and our operations and financial condition may otherwise be adversely affected. Ultimately, we may be unable to compete successfully against current and future competitors.

Our financial results may be impacted by the cyclicality and seasonality of our agricultural lending business. The Company has provided financing to agricultural customers in the mid Central Valley of California throughout its history. We recognize the cyclical nature of the industry, often caused by fluctuating commodity prices, changing climatic conditions and the availability of seasonal labor, and manage these risks accordingly. The Company remains committed to providing credit to agricultural customers and will always have a material exposure to this industry. Although the Company’s loan portfolio is believed to be well diversified, at various times during 20242025 a significant portion of the Company’s loans (as much as 29.2%28.9%) were outstanding to agricultural borrowers. Commitments are well diversified across various commodities, including dairy, grapes, walnuts, almonds, cherries, apples, pears, and various row crops. Additionally, many individual borrowers are themselves diversified across commodity types, reducing their exposure, and therefore the Company’s, to cyclical downturns in any one commodity.

The impact of climate change and governmental and societal responses to climate change, including on the availability of water and the transition to a low-carbon economy, could adversely affect our business and our clients’ businesses. Despite the fact that 2024 had above-average levels of precipitation in California, the StateCalifornia has experienced severe drought conditions at times over the past several years. These weather patterns reinforce the fact that the long-term risks associated with the availability of water are significant. The farming belt of the Central Valley is often cited as an example of an area that experienced extreme drought. However, not all areas of the state are impacted equally, and this is particularly true in the Central Valley, which stretches some 450 miles from Bakersfield in the south to Redding in the north. The vast majority of the Company’s agricultural customers are located in the mid Central Valley, an area that benefits from the drainage of the Sacramento, American, Mokelumne and Stanislaus rivers.

On October 21, 2021, the Financial Stability Oversight Council published a report identifying climate-related financial risks as an “emerging threat” to financial stability. On October 24, 2023, the FDIC, the OCC and the Federal Reserve jointly finalized principles for climate-related financial risk management for national banks with more than $100 billion in total assets. Although these risk management principles do not apply to the Bank directly based upon our current size, the FDIC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management. As climate-related supervisory guidance is formalized, and relevant risk areas and corresponding control expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance and remediation costs in order to conform to such requirements.

We may be unable to, or choose not to, pay dividends on our common shares. We have consistently declared an annual cash dividend for 89the last 90 years. Our ability to continue to pay dividends depends on various factors. The Company is a legal entity separate and distinct from the Bank, and does not conduct stand-alone operations, which means that the Bank must first pay dividend(s) to the Company. Company. The FDIC, the DFPI and California corporate and banking laws may, under certain circumstances, prohibit the Bank’s payment of dividends to the Company. Federal Reserve policy requires bank holding companies to pay cash dividends on common shares shares only out of net income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The Company’s Board of Directors may determine that, even though though funds are available for dividend payments, retaining the funds for other internal uses, such as expansion of our operations, is necessary or appropriate in light of our business plan and objectives. A failure to pay dividends may negatively affect your investment.

The rapid contraction of the M1 and M2 money supply in 2022 and the first quarter of 2023 materially impacted liquidity levels at many financial institutions. The high-profile bank failures of Silicon Valley Bank, Signature Signature Bank and First Republic Bank in 2023, and related negative media attention, also generated significant market trading volatility among publicly-traded bank holding companies and, in particular, regional and community banks. These developments developments negatively impacted customer confidence in the safety and soundness of regional and community banks.

Information security risks for financial institutions have increased recently in part because of new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, nation-state adversaries, and others.others Inany additionof which may see their effectiveness increase as a result of artificial intelligence, including the use of generative AI to cyber-attacksconduct more sophisticated social engineering attacks on us or otherour security breachesclients, involvingfurther theincreasing theft of sensitive and confidential information, hackers recently have engagedrisks in attacksthis againstarea, largeincluding financialby institutions,making particularlyfraud denialdetection ofmore service and ransomware attacks that are designed to disrupt key business services, such as client-facing websites.difficult. We are not able to anticipate or implement effective preventive measures against all potential security breaches, because the techniques used change frequently and because attacks can originate from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents, but early detection may be thwarted by sophisticated attacks and malware designed to avoid detection.

We also face risks related to cyber-attacks and other security breaches in connection with credit and debit card transactions that typically involve the transmission of sensitive information regarding our clients through various third parties, including merchant acquiring banks, payment processors, payment card networks and our core processors. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some some casescases, we may have exposure and suffer losses for breaches or attacks relating to them. We also rely on numerous other third-party service providers to conduct other aspects of our business operations and face similar risks relating to them. While While we regularly conduct security assessments on these third parties, we cannot be sure that their information security protocols are sufficient at all times to withstand a cyber-attack or other security breach. The access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our clients or our own proprietary information, software, methodologies, and business secrets could result in significant legal and financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products and services, which could have a material adverse effect on our financial condition or operations. In the past several years, there have been a number of well-publicized attacks or breaches affecting others in our industry that have heightened concern by consumers and have resulted in increased regulatory focus. Furthermore, cyber-attacks or other breaches in the future, whether affecting others or us, could intensify consumer concern and regulatory focus and result in reduced use of our cards and increased costs, all of which could have a material adverse effect on our business. To the extent we are involved in any future cyber-attacks or other breaches, our brand and reputation could be affected, and this could have a material adverse effect on our financial condition and operations. If we experience a cyber-attack, our insurance coverage may not cover all losses, and furthermore, we may experience a loss of reputation.

We rely on our information technology and telecommunications systems and third-party servicers, and the failure of these systems could adversely affect our business. Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. We rely on these systems to process deposit services, electronic funds transfer services (including wires and ACH), new and renewal loans, provide client service, facilitate collections and share data across our organization. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process deposit services, electronic funds transfer services (including wires and ACH), new and renewal loans and provide client service or compromise our ability to collect loan payments in a timely manner. Our ability to adopt new information technology and technological products needed to meet our clients’ banking needs may be limited if our third-party servicers are slow to adopt or choose not to adopt such new technology and products. Furthermore, the widespread adoption of new technologies by competitors, including artificial intelligence, could require us to make additional substantial investments to modify or adapt our existing products and services or alter the way we conduct business. These and other capital investments in the Company's business may not produce the growth in earnings anticipated at the time of the expenditure, and we may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Such a failure to provide this technology and products to our clients could result in a loss of clients, which would negatively affect our financial condition and operations. Implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, also may have unintended consequences, including fraud or cybersecurity risk, due to their limitations, potential manipulation, or our failure to use them effectively.

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 relatedbanking-related subsidiaries, which the Company may establish or acquire. Over 108109 years ago, August 1, 1916, marked the first day of business for Farmers & Merchants Bank, later renamed Farmers & Merchants Bank (theof “Bank”).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 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 bearinginterest-bearing deposits at other banks, and the interest the Company pays on interest bearinginterest-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 bearinginterest-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 bearinginterest-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 shareholdershareholders’ equity. The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.

Factors that determine the level of net income include the volume of earning assets and interest bearinginterest-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.

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 5.35%4.36% and 5.17%5.35% for the years ended December 31, 20242025 and 2023,2024, respectively. The increasedecrease was primarily the result of the Federal Reserve increasingdecreasing rates by 100 basis points from February 2023 to July 2023. The Federal Reserve dropped rates 100 basis points from September 2024 to December 2024.2024 and by 75 basis points from September 2025 to December 2025. Average interest-bearing deposits with banks was $314.9$271.3 million and $519.3 $314.9 million for the years ended December 31, 20242025 and 2023,2024, respectively, and decreased primarily to fund loan and lease growth and the purchases of investment securities. Interest income on interest-bearing deposits with banks was $16.9$11.8 million and $26.9$16.9 million for the years ended December 31, 20242025 and 2023,2024, respectively. The decrease was due to lower average interest-bearing deposits with banks and the decline in interest rates.

Average total investment securities were $1.1$1.4 billion and $990.5$1.1 millionbillion for the years ended December 31, 20242025 and 2023,2024, respectively. The average yield on total investment securities was 2.79%3.44% and 2.20%2.79% for the years ended December 31, 20242025 and 2023,2024, 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 2024.2025.

Average loans and leases held for investment were $3.7$3.61 billion and $3.5$3.67 billion for the years ended December 31, 20242025 and 2023,2024, respectively. The average yield on the loan and lease portfolio was 6.08%6.06% and 5.84%6.08% for the years ended December 31, 20242025 and 2023,2024, respectively. The increaseslight decrease in the loan yield reflects the increasedecrease in market interest rates over the prior year.

Average interest-bearing deposits were $3.3$3.33 billion and $3.1$3.29 billion for the years ended December 31, 20242025 and 2023,2024, respectively. The average rate paid on interest-bearing deposits was 1.93%1.79% and 1.20%1.93% for the years ended December 31, 20242025 and 2023,2024, respectively. Total interest expense on interest-bearing deposits was $63.4$59.6 million and $37.5$63.4 million for the years ended December 31, 20242025 and 2023,2024, respectively, with the increasedecrease driven by increasesdecreases in short-term market interest rates during 20232024 and customers seeking higher rates on deposit products.2025. The average rate paid on total funding costs was 1.38%1.24% and 0.82%1.38% for the years ended December 31, 20242025 and 2023,2024, respectively.

For the years ended December 31, 20242025 and 2023,2024, net income was $88.5$93.6 million compared with $88.3$88.5 million, respectively. The increase in net income was primarily the result of noan provision for credit lossesincrease in 2024net interest income of compared to $9.4$12.5 million in 2023 and an increase in non-interest income of $5.8$2.9 million. This increase was partially offset by a decrease in net interest income of $8.7 million, higher income tax expense of $5.5 million and 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 $0.8expense of $1.4 million.

For the year ended December 31, 2024,2025, net interest income decreasedincreased $8.7$12.5 million, or 4.04%,6.04%, to $206.7$219.2 million compared with $215.4$206.7 million for the same period a year earlier. The decreaseincrease was primarily due to an increase in interest expenseincome from $37.5 million to $63.4$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 increaseddecreased from 0.80% in 2023 to 1.35% in 2024 andto 1.22% in 2025 while average total deposits increased from $4.66$4.73 billion for 20232024 to $4.70$4.87 billion in 2024. 2025. The cost of funds for the year ended December 31, 2024,2025, increaseddecreased by 56 14 basis points from 0.82%1.38% to 1.38%1.24% compared to the same period a year earlier. The increasenet interest margin increased to 4.15% in interest expense was partially offset by an increase in loan and lease interest and fee income2025 from $204.5 million in 2023 to $223.3 million4.05% in 2024 asdue to the average loan yield increased from 5.84%changes in 2023net tointerest 6.08%income inas 2024described and average loan and lease balances increased from $3.50 billion in 2023 to $3.67 billion in 2024.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 portfolios.portfolio.

The Company recorded net gains on deferred compensation plan investments of $3.3$4.6 million in 20242025 compared to net gains of $3.0$3.3 million in 2023.2024, due to market value changes in underlying assets and increases in interest and dividends. See Note 1012 “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.

Net gains on deferred compensation plan obligations were $3.3$4.6 million in 20242025 compared to net gains of $3.0$3.3 million in 2023.2024, due to market value changes in underlying assets and increases in interest and dividends. See Note 1012 “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.

The Company’s cash and cash equivalents consist of interest bearinginterest-bearing deposits with banks and overnight investments in Federal Reserve balances. Interest bearingInterest-bearing deposits with banks consisted primarily of FRB deposits. Since balances at the FRB are effectively risk free, the Company elected to maintain its excess cash at the FRB. Interest bearingInterest-bearing deposits with banks totaled $84.2 million at December 31, 2025 and $141.5 million at December 31, 20242024. and $338.4 million at December 31, 2023. The decrease was primarily due to funding loan and lease growth and the purchaseCompany ofproactively moving excess cash into available-for-sale securities duringin anticipation of lower market rates in the year.second half of 2025. The Company’s total cash and cash equivalents as of December 31, 20242025 represented 4.0%2.6% of the Company’s total assets as compared to 7.7%4.0% as of December 31, 2023.2024.

The Company’s net investment portfolio increased by $233.7$436.0 million to $1.7 billion at December 31, 2025 compared to $1.2 billion at December 31, 2024 compared to $1.0 billion at December 31, 2023.2024. The increase was due to the purchase of $389.5$574.4 million in investment securities during 20242025 offset by normal principal maturities and pay downs and the sale of $69.5$24.8 million in securities comprised of $21.6 million in available-for-sale securities. During 2024, as part of managing the investment portfoliosecurities and balance sheet, the portfolio mix shifted as available-for-sale securities increased from $182.5$3.2 million asin ofheld-to-maturity Decembersecurities. 31, 2023 to $464.4 million as of December 31, 2024 while the All held-to-maturity securities decreasedsold fromwere $817.7mortgage-backed millionsecurities with a remaining book value of less than 15% of the original principal balance at the time of purchase and, as ofallowed Decemberunder 31,ASC 2023320-10-25-14, the tosales $769.4were million asconsidered maturities for purposes of Decembersecurity 30, 2024.classification. The Company uses its investment portfolio to manage interest rate and liquidity risks. The Company's total investment portfolio as of December 31, 20242025 represented 22.98% 29.35% of the Company’s total assets as compared to 18.84% at22.98% of total assets as of December 31, 2023.2024.

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 wasfor the dates indicated were as follows:

The following tabletables showsshow 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:

The following table sets forth the distribution of the loan and lease portfolio by type and percent at the enddates of each period presentedindicated:

The following table shows the maturity distribution and interest rate sensitivity of the loan and lease portfolio of the Company as ofat December 31, 2024.2025:

The following table summarizes the loans for which the accrual of interest has been discontinued and loans more than 90 days past due and still accruing interest, and OREO (as hereinafter defined) at the dates indicated:

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 $929,000 $750,000 in non-accrual loans and leases as ofat December 31, 2024,2025, andcompared noto non-accrual loans or leases$929,000 at December 31, 2023.2024.

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. See Note 4 “Loans and Leases”, located in Item 8. “Financial Statements and Supplementary Data” in this Form 10-K for an allocation of the allowance classified to collateral dependent loans and leases.

Other Real Estate Owned – OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. The Company records all OREO properties at amounts equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs. The Company reported $873,000no of foreclosed OREO at December 31, 2025 2024,compared andto 2023.$873,000 at December 31, 2024.

The Company modified sixnine loans, with twofive borrowers, in the aggregate amount of $13.2$7.0 million, during the year ended December 31, 2024.2025. These loans were current as ofat December 31, 2024.2025.

The following table sets forth the activity in our allowance for credit lossesACL on loans and leases held for investment and unfunded loan commitments for the periods indicated:

The following table indicates management’s allocation of the ACL for loan and leases by loan type as of each of the followingdates datesindicated:

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 increase in short-term interest rates during 2023 and customers seeking higher yielding deposit products continued to place pressure on deposit pricing during 2024. The Company did reducereduced interest rates during the last four months of 2024 after when the Federal ReserveFOMC cut interest rates by 100 basis points between September and December.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, increaseddecreased to 1.22% for 2025 compared to 1.35% for 2024 compared to 0.80% for 2023 due to the higher interest rate environment during the year before the Federal Reserve rate cuts.2024. The Company had no brokered deposits atas of December 31, 2025 or 2024.

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, 20252026) and the rate was 7.35% as of December 31, 2024.. The average rate paid for these securities was 7.44% in 2025 and 8.45% in 2024 and 8.21% in 2023.2024. Additionally, if the Company decided to defer interest on the subordinated debentures, the Company would be prohibited,prohibited by the terms of the debentures, from paying cash dividends on the Company’s common stock.

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’ Equityequity totaled $573.1$645.5 million at December 31, 2024,2025, and $549.8$573.1 million at the end of 2023,2024, an increase of $23.3$72.4 million or 4.24%.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.

As ofAt December 31, 2024,2025, the Company was in compliance with all of these capital requirements and there were no restrictions on the Company’s business activity. As ofAt December 31, 20242025 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 totalTotal risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set set forth in the following tables as ofat December 31, 20242025 and 2023.2024.

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. TheOn newAugust Repurchase14, Plan2025, extendsthe 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, 2026. The Board concurrently terminated the existing $25.0 million repurchase plan previously approved on November 14, 2023.2027.

Repurchases by the Company under the Repurchase Plan may be made from time to time at market prices through open market purchases, trading plans established in accordance with SEC rules andrules, privately negotiated transactions, or by transactions.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.

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 109110 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, Rio Vista, 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 MarchJune 31,30, 2026, consisted of 693,043691,944 shares of common stock, $0.01 par value. No shares of preferred stock were issued or outstanding as of March 31,June 30, 2026. 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 following discussion and analysis is intended to provide a better understanding of the Company’s performance during each of the three-monththree- and six-month periods ended MarchJune 31,30, 2026 and 2025 and the material material changes in financial condition, operating income, and expense of the Company and its subsidiaries as shown in the accompanying unaudited consolidated financial statements. Information related to the comparison of the results of operations for the years ended December 31, 2025, and 2024 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2025 Form 10-K.

Interest-bearingInterest 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 3.57%3.68% and 4.44%4.45% for the threesecond monthsquarter ended March 31,of 2026 and 2025, respectively. The decrease was primarily the result of the Federal ReserveOpen Market Committee (“FOMC”) decreasing rates by 75 basis points from September 2025 to December 2025. Average interest-bearing deposits with banks was $146.0$201.3 million and $241.3$377.5 million for the three monthsquarter ended June March 31,30, 2026 and 2025, respectively. Interest income on interest bearing deposits with banks was $1.3$1.8 million and $2.6$4.2 million for the three monthsquarter ended MarchJune 31,30, 2026 and 2025, respectively. The decrease was due to lower average interest-bearing deposits with banks and the decline in interest rates.

Average total investment securities were $1.66$1.6 billion and $1.28$1.3 billion for the three monthsquarter ended MarchJune 31,30, 2026 and 2025, respectively. The average tax equivalent yield on total investment securities was 3.70%3.72% and 3.20% 3.31% for the three monthsquarter ended MarchJune 31,30, 2026 and 2025, respectively. The increase in the yield reflects the higherincrease interest rates on investment securities based on the yield curve and the higherin yields on investment purchases madein 2025 and during 2025.the quarter ended June 30, 2026.

Average loans and leases held for investment were $3.65$3.7 billion and $3.61$3.6 billion for the three monthsquarter ended MarchJune 31,30, 2026 and 2025, respectively. The average yield on the loan and lease portfolio was 6.08%6.11% and 6.07% 6.08% for the three monthsquarter ended MarchJune 31,30, 2026 and 2025, respectively.

Average interest-bearing deposits were $3.43$3.5 billion and $3.24$3.4 billion for the three monthsquarter ended MarchJune 31,30, 2026 and 2025, respectively. The average rate paid on interest bearing deposits was 1.73%1.72% and 1.88% for the three months quarter ended MarchJune 31,30, 2026 and 2025.2025, respectively. Total interest expense on interest-interest bearing deposits was $14.6$15.0 million and $13.8$16.0 million for the three monthsquarter ended MarchJune 31,30, 2026 and 2025, respectively, with the increase decrease driven by an increasedecreases in short-term averagemarket balances.interest rates from September 2025 to December 2025. The average rate paid on total funding costs was 1.20% and 1.33% for the three monthsquarter ended MarchJune 31,30, 2026 and 2025.2025, respectively.

Comparison of Results of Operations for the Three and Six Months Ended MarchJune 31,30, 2026 and 2025

For the three and six months ended MarchJune 31,30, 2026 and 2025, net income was $24.1$24.7 million and $48.8 million, respectively, compared with $23.0$23.1 million,million respectively.and The$46.1 million for the same periods a year ago. For the three months ended June 30, 2026, the increase in net income was primarily the result of higher net interest income of $3.8$3.5 million.million This increase waspartially offset by an increase in non-interest expense of $3.7$1.5 million and a $0.5 million decrease in non-interest income during the threesecond monthsquarter endedof March 31, 2026,2026 compared to the same period in the prior year, and a $0.5 million provision for credit losses during the first quarter of 2026 compared to a $0.3 million provision in 2025.year.

For the three monthsquarters ended MarchJune 31,30, 2026 and 2025, net interest income was $56.9$57.4 million compared with $53.1$53.9 million, respectively. The increase in net interest income is primarily the result of the net interest margin (tax equivalent basis) increasing 513 basis points to 4.25%4.20% compared with 4.20%4.07% for the same period a year earlier. The increase in the net interest margin was primarily the result of the increase in investment securities income of $5.1 $4.4 million as the average balance increased $375.9$326.6 million compared to the firstsecond quarter of 2025. The investment securities yield during the firstsecond quarter of 2026 increased 5041 basis points from 3.20%3.31% to 3.70% 3.72% compared to the firstsecond quarter of 2025. The loan yield increased 13 basis pointpoints from 6.07%6.08% to 6.08%6.11% compared to the firstsecond quarter of 2025. The yield on interest-bearing deposits remaineddecreased flat16 atbasis 1.73%points forfrom 1.88% to 1.72% compared to the firstsecond quarter of 2026 and 2025. The cost of average total deposits wasdecreased also12 flatbasis atpoints 1.18%from for1.31% to 1.19% compared to the firstsecond quarter of 2026 and 2025.

Based on the Company’s evaluation of the credit quality of the loan and lease portfolio and the calculations of the allowance for credit losses under the current expected credit losses (“CECL”) methodology, the Company recorded a $0.5 million provision for credit losses during the first three months ofended June 30, 2026 compared to a $0.3$1.4 million provision for credit losses during the first three months ofended June 30, 2025. Net recoveries forcharge-offs during the three months ended MarchJune 31,30, 2026 were $43,000$165,000 compared to net charge-offs of $161,000$544,000 for the same period a year earlier.

Non-interest income increaseddecreased $138,000,$0.5 million, or 2.8%,8.75%, to $5.2$5.0 million for the three monthsquarter ended MarchJune 31,30, 2026, compared with $5.0$5.5 million for the same period a year earlier. The year-over-year increase in non-interest incomedecrease was primarilythe dueresult toof a $0.8 million increase decrease in other income due to a gain on the sale of other real estate owned of $340,000 and a net gain on equitydeferred investmentscompensation of $283,000.$0.8 million as the deferred compensation plan was distributed in December 2025. Excluding this item, non-interest income increased $0.3 million during the quarter ended June 30, 2026 compared to 2025.

The Company’s deferred compensation plans were terminated and frozen effective November 29, 2024, and all of the components of the plans were liquidated and paid out to eligible participants on December 10, 2025. The Company recorded net gains on deferred compensation plan investments of $0.8 million and $1.6 million for the three and six months ended MarchJune 31,30, 2025, respectively, due to market value changes in the underlying assets and increases in interest and dividends. See Note 10,12, “Employee Benefit Plans,” located in Item 8. “Financial Statements and Supplementary Data” in the Company’s 2025 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these investment gains/losses to be recorded in non-interest income, an offsetting entry is also required to be made to non-interest expense resulting in no net-effect on the Company’s net income.

Non-interest expense increased $3.7$5.2 million, or 14.38%,9.89%, to $29.2$57.3 million for the threesix months ended MarchJune 31,30, 2026,2026 compared with $25.5$52.2 million for the same period a year ago. This year-over-year increase was primarily due to ana $4.1 million increase in salaries and employee benefits which included anannual increasesalary in compensation expense of $2.8 million due toincreases, an increase in employee headcount of eleven, annual increases in salaries, an increase in payroll taxestaxes, and threesix months of stock compensation expense in 2026 versus twofive months in 2025 since the first ever restricted stock awards were issued in February 2025. Professional services increased $0.2$1.1 million due to higher legal and consulting services while most expensesof continuedwhich were related to risenon-recurring duecorporate in part to ongoing inflation.activities.

The Company’sCompany deferredrecorded compensation plans were terminated and frozen effective November 29, 2024, and all of the components of the plans were liquidated and paid out to eligible participants on December 10, 2025. Netnet gains on deferred compensation plan obligationsinvestments wereof $0.8 million and $1.6 million for the three and six months ended MarchJune 31,30, 2025, respectively, due to market value changes in the underlying assets and increases in interest and dividends. See Note 10 12 “Employee Benefit Plans,” located in “Item 8. Financial Statements and Supplementary Data” in the Company’s 2025 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these gains/losses on obligations to be recorded in non-interest expense, an offsetting entry is also required to be made to non-interest income resulting in no net-effect on the Company’s net income.

For the three and six months ended MarchJune 31,30, 2026, income tax expense was $8.3$9.0 million and $17.3 million, respectively, compared to $9.3$8.3 million and $17.6 million for the same periodperiods a year earlier.ago. ForThe the three months ended March 31, 2026, theCompany’s Company’s effective tax rate for the three and six months ended June 30, 2026 was 25.67%26.71% and 26.20%, respectively, compared to 28.88%26.43% and 27.67% for the same periodperiods ain year earlier.2025. The Company’s effective tax rate can fluctuate from quarter to quarter due primarily to changes in the mix of taxable and tax-exempt earning assets. The effective rates were lower than the combined Federal and State statutory rate of 30% primarily due to credits associated with low-income housing tax credit investments (“LIHTC”); and tax-exempt interest income on municipal securities and loans.

The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. The 2022 through 2025 federal tax years and the 2021 through 2025 state tax years remain subject to selection for examination as of MarchJune 31,30, 2026. TheAs previously disclosed, the IRS isconducted inan examination of the process of reviewing the Company’sCompany's 2023 tax returnreturn. includingOn inquiriesAugust related4, to2026, certainthe leasingCompany investmentwas taxnotified credits. The timing related to whenthat the IRS has completed their examination report with no reviewadjustments willto bethe completetax remainsreturns uncertain.examined.

Total assets were $5.8 billion at MarchJune 31,30, 2026, compared with $5.7 billion at December 31, 2025, an increase of $146.6$145.3 million, or 2.58%.2.55%. Total cash and cash equivalents increased $239.4 $133.8 million from $144.9 million as of December 31, 2025 to $384.2$278.6 million as of MarchJune 31,30, 2026.The2026. The net investment portfolio decreased by $59.6$40.6 million, or 3.57%,2.43%, to $1.6 billion at MarchJune 31,30, 2026, compared to $1.7 billion at December 31, 2025. Total loans and leases held for investment were $3.62$3.70 billion at MarchJune 31,30, 2026, compared with $3.65 billion at December 31, 2025, aan decreaseincrease of $32.1$54.9 million, or 0.88%.1.50%. Total deposits were $5.1 billion at MarchJune 31,30, 2026, compared with $5.0 billion at December 31, 2025, an increase of $138.4$115.1 million, or 2.78%.2.31%. OurThe Company’s loan to deposit ratio was 71.04%73.07% and 73.67% as of MarchJune 31,30, 2026 and December 31, 2025, respectively.

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. Since balances at the FRB are effectively risk free, the Company elected to maintain its excess cash at the FRB. Interest-bearing deposits with banks totaled $318.1$186.0 million at MarchJune 31,30, 2026 and $84.2 million at December 31, 2025. The increase in cash was primarily due to the increase in deposits of $138.4$115.1 million. The Company’s total cash and cash equivalents as of MarchJune 31,30, 2026 represented 6.6%4.8% of the Company’s total assets as compared to 2.6% of total assets as of December 31, 2025.

The Company’s net investment portfolio decreased by $59.6$40.6 million, or 3.57%,2.43%, to $1.61$1.63 billion at MarchJune 31,30, 2026, compared to $1.67 billion at December 31, 2025. The Company uses its investment portfolio to manage interest rate and liquidity risks. The Company’s total investment portfolio as of MarchJune 31,30, 2026 representsrepresented 27.59%27.92% of the Company’s total assets as compared to 29.35% of total assets at December 31, 2025.

The Company’s loan and lease portfolio at MarchJune 31,30, 2026 totaled $3.6$3.7 billion, aan decreaseincrease of $32.1$54.9 million, or 0.88%,1.50%, from December 31, 2025, due partially to seasonality in the agricultural portfolio andprimarily due to lowerincreased loanlending productionactivity asin theour Companycommercial continued to prioritize appropriate loan pricingreal estate and loancommercial structureand overindustrial loan growth.portfolios.

The following table shows the maturity distribution and interest rate sensitivity of the loan and lease portfolio of the Company at MarchJune 31,30, 2026.

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 $730,000$2.67 million in non-accrual loans at MarchJune 31,30, 2026, compared to $750,000 in non-accrual loans at December 31, 2025.

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. See Note 3. “Loans and Leases”, located in “Item 1. Financial Statements” in this Quarterly Report on Form 10-Q for an allocation of the allowance classified to collateral dependent loans and leases.

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$1.0 million of foreclosed OREO at MarchJune 31,30, 2026 andcompared to zero at December 31, 2025.

The Company modified fourthree loans in the aggregate amount of $5.0$4.8 million, during the first threesix months ofended MarchJune 31,30, 2026. There was one loan modified within the last twelve months that had a payment default and was past due at ofJune March 31,30, 2026.

Total deposits were $5.1 billion and $5.0 billion as of MarchJune 31,30, 2026 and December 31, 2025, respectively, an increase of $138.4$115.1 million or 2.78%.2.31%. The increase was primarily due to an increase in interest-bearing demand accounts of $91.0 million or 11.34%, and an increase in savings and money market accounts of $125.7$69.6 million or 7.02%, and an increase in certificates of deposit of $56.1 million or 7.56%3.89% from December 31, 2025 to MarchJune 31,30, 2026, respectively. The increase in certificates of deposit reflects a $50.0 million increase in public time deposits related to the State of California which matures in June 2026. These increases were partially offset by a decrease of $26.7 $45.5 million or 1.63%2.77%, in non-interest bearing demand deposits and a decrease of $16.7 million or 2.1% in interest-bearing demand deposits from December 31, 2025 to MarchJune 31,30, 2026. The increases were primarily from an increase in the number of client accounts and fluctuations in client balances along with shifts from non-interest lower yieldingbearing 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.accounts. Non-interest bearing deposits were 31.57%31.35% and 32.99% of total deposits, at MarchJune 31,30, 2026 and December 31, 2025, respectively.

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 2025 after the Federal Reserve cut interest rates by 75 basis points between September and December.December 2025. The average cost of total deposits, including non-interest bearing deposits, decreased remainedto flat at 1.18%1.19% for the three months ended MarchJune 31,30, 2026, compared towith 1.31% for the same period a year ago.ago, and decreased to 1.19% for the six months ended June 30, 2026, compared with 1.25% for the six months ended June 30, 2025.

The following table shows deposits with a balance greater than $250,000 at MarchJune 31,30, 2026 and December 31, 2025:

Refer to the Year-To-Date “Average Balance and YieldYields” Scheduleschedules located in this “Item 2. 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. As of MarchJune 30, 2026 and December 31, 20262025 the Bank had $53.0$3.0 million of such deposits compared to $3.0 million at December 31, 2025.deposits.

Total estimated uninsured deposits based on ourthe Company’s regulatory reporting amounted to $2.7 billion and $2.6 billion at MarchJune 31,30, 2026 and December 31, 2025, respectively.2025.

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 MarchJune 31,30, 2026 or December 31, 2025. There were no Federal Funds purchased or advances from the FRB at MarchJune 31,30, 2026 or December 31, 2025.

These securities accrue interest at a variable rate based upon 3-month SOFR plus 2.85%. Interest rates reset quarterly and the rate was 6.79%6.78% at MarchJune 31,30, 2026 (the next reset is JuneSeptember 17, 2026). The average rate paid for these securities was 6.92%6.90% for the first three monthshalf of 2026 and 7.55% for the first three monthshalf of 2025. 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.

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 insureensure depositor protection. Shareholders’ equity totaled $656.1$679.0 million at MarchJune 31,30, 2026, an increase of $10.5$33.5 million, or 1.63%,5.19%, from $645.5 million at December 31, 20252025, due primarily to net income of $24.1$48.8 million during the first quarterhalf of 2026 partially offset by dividends of $3.7$7.4 million and aan decreaseincrease in accumulated other comprehensive incomeloss of $6.8$8.0 million.

As of MarchJune 31,30, 2026, the Company was in compliance with all of these capital requirements and there were no restrictions on the Company’s business activity. As of MarchJune 31,30, 2026 the Bank met the requirements to be categorized as “well-capitalized” under the FDIC regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” the Bank must maintain minimum Total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables as of MarchJune 31,30, 2026 and December 31, 2025.

During the first threesix months of 2026, the Company repurchased 181240 shares under the Repurchase Plan, for a total of $202,000,$279,000, inclusive of the excise tax. As of MarchJune 31,30, 2026, there remains $30.1 $30.0 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. On FebruaryMay 12,11, 2026, the Company declared a quarterly cash dividend of $5.10$5.35 per share which was paid on AprilJuly 1, 2026, to shareholders of record on MarchJune 11,12, 2026.

The following table sets forth our off-balance-sheet lending commitments as of MarchJune 31,30, 2026: