FARMERS & MERCHANTS BANCORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to provide a comprehensive review of the Company’s operating results and financial condition. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and the accompanying Notes to Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q included in “Part I. Item 1. Financial Statements.” FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10–Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act. These forward-looking statements reflect our current views and are not historical facts. These statements may include statements regarding projected performance for periods following the date of this report. These statements can generally be identified by use of phrases such as “believe,” “expect,” “will,” “seek,” “should,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “project,” “commit” or other words of similar import. Similarly, statements that describe our future financial condition, results of operations, objectives, strategies, plans, goals or future performance and business are also forward-looking statements. Statements that project future financial conditions, results of operations, and shareholder value are not guarantees of performance and many of the factors that will determine these results and values are beyond our ability to control or predict. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including, but not limited to, those described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and other parts of this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”), and our actual results may differ materially from those anticipated in these forward-looking statements. The following is a non-exclusive list of factors which could cause actual results to differ materially from forward-looking statements in this Quarterly Report on Form 10-Q: ■ changes in general economic conditions, either nationally, in California, or in our local markets; ■ inflation, changes in interest rates, securities market volatility and monetary fluctuations; ■ increases in competitive pressures among financial institutions and businesses offering similar products and services; ■ impacts of tariff policies by U.S. and foreign governments; ■ risks associated with negative events in the banking industry, and any legislative and/or bank regulatory actions, that could potentially impact earnings, liquidity and/or the availability of capital or which could increase the cost of our deposit insurance by the FDIC; ■ higher defaults in our loan and lease portfolio than we expect; ■ changes in management’s estimate of the adequacy of the allowance for credit losses; ■ risks associated with our growth and expansion strategy and related costs; ■ increased lending risks associated with our high concentration of real estate loans or agricultural loans; ■ legislative or regulatory changes, changes in monetary and fiscal policies or changes in accounting principles, policies or guidelines; ■ technological changes; ■ operational risks, including processing, information systems, cybersecurity, vendor problems, business interruption, and fraud; ■ regulatory or judicial proceedings; and ■ other factors and risks including those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and the Company’s 2024 Form 10-K. 36 Table of Contents Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. Please take into account that forward-looking statements speak only as of the date of this Form 10-Q (or documents incorporated by reference, if applicable). The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or circumstances after the date of this Report or otherwise, except as may be required by applicable law. The Company does not undertake any obligation to publicly correct or update any forward-looking statements if it later becomes aware that actual results are likely to differ materially from those expressed in such forward-looking statements, except as required by law. Overview Farmers & Merchants Bancorp (the “Company” or “FMCB”) is a Delaware registered bank holding company organized in 1999. As a registered bank holding company, FMCB is subject to regulation, supervision, and examination by the Federal Reserve and by the California Department of Financial Protection and Innovation (“DFPI”). The Company’s principal business is to serve as a holding company for Farmers & Merchants Bank of Central California (the “Bank” or “F&M Bank”) and for other banking or banking-related subsidiaries, which the Company may establish or acquire. Over 109 years ago, August 1, 1916, marked the first day of business for Farmers & Merchants Bank. The Bank was incorporated under the laws of the State of California and licensed as a state-chartered bank. The Bank’s first venture out of Lodi occurred when the Galt office opened in 1948. Since then, the Bank has opened full-service branches in Linden, Manteca, Riverbank, Modesto, Sacramento, Elk Grove, Turlock, Hilmar, Stockton, Merced, Walnut Creek, Concord, Walnut Grove, Oakland, Napa, and Danville. As a legal entity separate and distinct from its subsidiary, the Company’s principal source of funds is, and will continue to be, dividends paid by and other funds received from the Bank. Legal limitations are imposed on the amount of dividends that may be paid and loans that may be made by the Bank to the Company. The Company’s outstanding common stock as of September 30, 2025, consisted of 721,411 shares of common stock, $0.01 par value. No shares of preferred stock were issued or outstanding as of September 30, 2025. The common stock of the Company is not widely held or listed on any exchange. However, trades are reported on the OTCQX under the symbol “FMCB.” The primary source of funding for the Company’s growth has been the generation of deposits, which the Company raises through its existing branch locations, newly opened branch locations, or through acquisitions. Loan growth over the years is the result of organic growth generated by the Company’s seasoned relationship managers and supporting associates who provide outstanding service and responsiveness to the Company’s clients. The Company’s results of operations are largely dependent on net interest income. Net interest income is the difference between interest income earned on interest earning assets, which are comprised of loans and leases, investment securities, short-term investments and interest bearing deposits at other banks, and the interest the Company pays on interest bearing liabilities, which are primarily deposits, and, to a lesser extent, other borrowings. Management strives to match the re-pricing characteristics of the interest earning assets and interest bearing liabilities to protect net interest income from changes in market interest rates and changes in the shape of the yield curve. The Company measures its performance by calculating the net interest margin, return on average assets, return on average equity and the efficiency ratio. Net interest margin is calculated by dividing net interest income, which is the difference between interest income on interest earning assets and interest expense on interest bearing liabilities, by average interest earning assets. Net interest income is the Company’s largest source of revenue. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income. The return on average assets is calculated by dividing the Company’s net income by its total average assets and the return on average equity is calculated by dividing the Company’s net income by its shareholders’ equity. The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income. 37 Table of Contents Critical Accounting Policies and Estimates Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. We identify critical policies and estimates as those that require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. Our critical accounting policy relates to the allowance for credit losses on loans and leases held for investment. Further details are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2024 Form 10-K. Impact of Recently Issued Accounting Standards See Note 1. “Basis of Presentation and Significant Accounting Policies” to the Unaudited Consolidated Financial Statements in “Item 1. Financial Information” in this Quarterly Report on Form 10-Q. Non-GAAP Measurements We use certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. We used the following non-GAAP measures in this Form 10-Q: • Tangible common equity ratio and tangible book value per common share: Given that the use of these measures is prevalent among banking regulators, investors, and analysts, we disclose them in addition to the related GAAP measures of return on average equity and book value per common share. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented. Tangible Common Equity Ratio and September 30, December 31, September 30, Tangible Book Value Per Common Share 2025 2024 2024 (Dollars in thousands, except share and per share data) Shareholders’ equity $ 645,252 $ 573,072 $ 602,696 Less: Intangible assets 12,478 12,870 13,007 Tangible common equity $ 632,774 $ 560,202 $ 589,689 Total assets $ 5,629,867 $ 5,370,196 $ 5,418,132 Less: Intangible assets 12,478 12,870 13,007 Tangible assets $ 5,617,389 $ 5,357,326 $ 5,405,125 Tangible common equity ratio (1) 11.26 % 10.46 % 10.91 % Book value per common share (2) $ 894.43 $ 818.91 $ 816.67 Tangible book value per common share (3) $ 877.13 $ 800.52 $ 799.04 Common shares outstanding 721,411 699,798 737,995 (1) Tangible common equity divided by tangible assets. (2) Total common equity divided by common shares outstanding. (3) Tangible common equity divided by common shares outstanding. 38 Table of Contents Results of Operations The following discussion and analysis is intended to provide a better understanding of the Company’s performance during each of the three- and nine-month periods ended September 30, 2025 and 2024 and the material changes in financial condition, operating income, and expense of the Company and its subsidiaries as shown in the accompanying unaudited consolidated financial statements. Information related to the comparison of the results of operations for the years ended December 31, 2024, and 2023 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2024 Form 10-K. Factors that determine the level of net income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, fee income, non-interest expense, the level of non-performing loans and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income includes card processing fees, service charges on deposit accounts, bank-owned life insurance income, gains/losses on the sale of investment securities, and gains/losses on deferred compensation plan investments. Non-interest expense consists primarily of salaries and employee benefits, cost of deferred compensation benefits, occupancy, data processing, deposit insurance, marketing, professional services, and other expenses. Earnings Performance The following table presents performance metrics for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands, except share and per share amounts) 2025 2024 2025 2024 Earnings Summary: Interest income $ 70,592 $ 68,635 $ 207,791 $ 205,107 Interest expense 15,175 16,642 45,365 50,620 Net interest income 55,417 51,993 162,426 154,487 Provision for credit losses 700 - 2,400 - Non-interest income 6,867 6,280 17,407 16,122 Non-interest expense 28,948 27,755 81,108 78,698 Income before taxes 32,636 30,518 96,325 91,911 Income tax expense 8,918 8,397 26,543 25,300 Net Income $ 23,718 $ 22,121 $ 69,782 $ 66,611 Per Common Share Data: Basic earnings per common share $ 34.24 $ 29.96 $ 100.18 $ 89.91 Diluted earnings per common share $ 33.92 $ 29.96 $ 99.67 $ 89.91 Book value per common share $ 894.43 $ 816.67 $ 894.43 $ 816.67 Tangible book value per common share (1) $ 877.13 $ 799.04 $ 877.13 $ 799.04 Performance Ratios: Return on average assets 1.70 % 1.65 % 1.68 % 1.65 % Return on average equity 15.10 % 15.03 % 15.28 % 15.55 % Net interest margin (tax equivalent) 4.16 % 4.07 % 4.14 % 4.04 % Yield on average loans and leases (tax equivalent) 6.05 % 6.13 % 6.06 % 6.11 % Cost of average total deposits 1.22 % 1.39 % 1.24 % 1.39 % Efficiency ratio 46.48 % 47.63 % 45.10 % 46.13 % Loan-to-deposit ratio 74.16 % 78.87 % 74.16 % 78.87 % Percentage of checking deposits to total deposits 48.69 % 50.01 % 48.69 % 50.01 % Capital Ratios - Bancorp: Common equity tier 1 capital to risk-weighted assets 14.26 % 13.47 % 14.26 % 13.47 % Tier 1 capital to risk-weighted assets 14.48 % 13.70 % 14.48 % 13.70 % Risk-based capital to risk-weighted assets 15.74 % 14.95 % 15.74 % 14.95 % Tier 1 leverage capital ratio 11.59 % 11.32 % 11.59 % 11.32 % Tangible common equity ratio (1) 11.26 % 10.91 % 11.26 % 10.91 % (1) See “Non-GAAP Measurements” 39 Table of Contents Average Balance and Yields The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield, cost and net interest margin information for the periods presented. Average balances are derived from daily balances. For the Three Months Ended September 30, 2025 2024 (Dollars in thousands) Average Balance Interest Income / Expense Average Yield / Rate Average Balance Interest Income / Expense Average Yield / Rate ASSETS Interest earnings deposits in other banks and federal funds sold $ 274,506 $ 3,065 4.43 % $ 286,108 $ 3,893 5.41 % Investment securities: (1) Taxable securities 1,331,683 11,067 3.32 % 1,055,551 7,116 2.70 % Non-taxable securities (2) 66,137 1,173 7.10 % 62,021 767 4.95 % Total investment securities 1,397,820 12,240 3.50 % 1,117,572 7,883 2.82 % Loans: (3) Real estate: Commercial 1,412,052 19,638 5.52 % 1,343,844 18,118 5.36 % Agricultural 717,015 10,108 5.59 % 732,100 10,600 5.76 % Residential and home equity 401,365 5,153 5.09 % 404,014 4,979 4.90 % Construction 175,351 3,177 7.19 % 205,061 3,623 7.03 % Total real estate 2,705,783 38,076 5.58 % 2,685,019 37,320 5.53 % Commercial & industrial 483,192 8,862 7.28 % 507,504 9,693 7.60 % Agricultural 258,126 5,182 7.96 % 308,530 6,547 8.44 % Commercial leases 167,914 2,976 7.03 % 174,939 3,046 6.93 % Consumer and other 5,206 89 6.78 % 5,500 92 6.65 % Total loans and leases 3,620,221 55,185 6.05 % 3,681,492 56,698 6.13 % Non-marketable securities 15,549 334 8.52 % 15,549 317 8.11 % Total interest earning assets 5,308,096 70,824 5.29 % 5,100,721 68,791 5.37 % Allowance for credit losses (76,505 ) (75,488 ) Non-interest earning assets 356,589 350,420 Total average assets $ 5,588,180 $ 5,375,653 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest bearing deposits: Demand $ 794,683 695 0.35 % $ 877,985 776 0.35 % Savings and money market accounts 1,786,743 8,404 1.87 % 1,636,997 8,358 2.03 % Certificates of deposit greater than $250,000 393,222 3,431 3.46 % 404,988 4,231 4.16 % Certificates of deposit equal to or less than $250,000 343,364 2,451 2.83 % 354,311 3,056 3.43 % Total interest bearing deposits 3,318,012 14,981 1.79 % 3,274,281 16,421 2.00 % Subordinated debentures 10,310 194 7.47 % 10,310 221 8.53 % Total interest bearing liabilities 3,328,322 15,175 1.81 % 3,284,591 16,642 2.02 % Non-interest bearing deposits 1,539,835 1,410,025 Total funding 4,868,157 15,175 1.24 % 4,694,616 16,642 1.41 % Other non-interest bearing liabilities 91,883 92,147 Shareholders’ equity 628,140 588,890 Total average liabilities and shareholders’ equity $ 5,588,180 $ 5,375,653 Net interest income and margin (4) $ 55,649 4.16 % $ 52,149 4.07 % Interest rate spread 3.48 % 3.35 % Tax equivalent adjustment (232 ) (156 ) Net interest income $ 55,417 4.14 % $ 51,993 4.06 % (1) Excludes average unrealized losses of $17.2 million and $17.0 million for the three months ended September 30, 2025, and 2024, respectively, which are included in non-interest earning assets. (2) Yield and interest income are calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21%. (3) Loan interest income includes loan fees of $1.6 million and $1.3 million for the three months ended September 30, 2025 and 2024, respectively. (4) Net interest margin is computed by dividing net interest income by average interest earning assets. 40 Table of Contents For the Nine Months Ended September 30, 2025 2024 (Dollars in thousands) Average Balance Interest Income / Expense Average Yield / Rate Average Balance Interest Income / Expense Average Yield / Rate ASSETS Interest earnings deposits in other banks and federal funds sold $ 297,885 $ 9,892 4.44 % $ 358,180 $ 14,640 5.46 % Investment securities: (1) Taxable securities 1,264,605 30,601 3.23 % 1,012,943 19,309 2.54 % Non-taxable securities (2) 66,813 2,765 5.52 % 62,483 2,289 4.88 % Total investment securities 1,331,418 33,366 3.34 % 1,075,426 21,598 2.68 % Loans: (3) Real estate: Commercial 1,379,852 56,188 5.44 % 1,338,178 53,711 5.36 % Agricultural 729,365 31,494 5.77 % 727,478 31,361 5.76 % Residential and home equity 399,028 14,928 5.00 % 403,737 14,666 4.85 % Construction 180,147 9,329 6.92 % 217,368 11,502 7.07 % Total real estate 2,688,392 111,939 5.57 % 2,686,761 111,240 5.53 % Commercial & industrial 489,567 26,952 7.36 % 497,925 28,101 7.54 % Agricultural 262,733 15,647 7.96 % 313,596 19,606 8.35 % Commercial leases 170,801 9,256 7.25 % 173,474 9,064 6.98 % Consumer and other 5,155 265 6.87 % 5,614 285 6.78 % Total loans and leases 3,616,648 164,059 6.06 % 3,677,370 168,296 6.11 % Non-marketable securities 15,549 1,020 8.77 % 15,549 1,038 8.92 % Total interest earning assets 5,261,500 208,337 5.29 % 5,126,525 205,572 5.36 % Allowance for credit losses (76,202 ) (75,518 ) Non-interest earning assets 349,700 345,236 Total average assets $ 5,534,998 $ 5,396,243 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest bearing deposits: Demand $ 878,917 4,267 0.65 % $ 914,908 3,568 0.52 % Savings and money market accounts 1,723,405 23,160 1.80 % 1,623,784 23,253 1.91 % Certificates of deposit greater than $250,000 386,639 10,219 3.53 % 419,528 13,264 4.22 % Certificates of deposit equal to or less than $250,000 331,959 7,139 2.88 % 354,164 8,887 3.35 % Total interest bearing deposits 3,320,920 44,785 1.80 % 3,312,384 48,972 1.97 % Short-term borrowings 1 - 0.00 % 22,629 986 5.82 % Subordinated debentures 10,310 580 7.52 % 10,310 662 8.58 % Total interest bearing liabilities 3,331,231 45,365 1.82 % 3,345,323 50,620 2.02 % Non-interest bearing deposits 1,505,088 1,393,955 Total funding 4,836,319 45,365 1.25 % 4,739,278 50,620 1.43 % Other non-interest bearing liabilities 89,604 85,788 Shareholders’ equity 609,075 571,177 Total average liabilities and shareholders’ equity $ 5,534,998 $ 5,396,243 Net interest income and margin (4) $ 162,972 4.14 % $ 154,952 4.04 % Interest rate spread 3.47 % 3.34 % Tax equivalent adjustment (546 ) (465 ) Net interest income $ 162,426 4.13 % $ 154,487 4.03 % (1) Excludes average unrealized losses of $20.8 million and $19.6 million for the nine months ended September 30, 2025, and 2024, respectively, which are included in non-interest earning assets. (2) Yield and interest income are calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21%. (3) Loan interest income includes loan fees of $5.1 million and $4.1 million for the nine months ended September 30, 2025 and 2024, respectively. (4) Net interest margin is computed by dividing net interest income by average interest earning assets. 41 Table of Contents Third Quarter 2025 vs. Third Quarter 2024 Interest bearing deposits with banks and FRB balances are earning assets available to the Company. Average interest bearing deposits with banks consisted primarily of FRB deposits. Balances with the FRB earned an average interest rate of 4.43% and 5.41% for the third quarter of 2025 and 2024, respectively. The decrease was primarily the result of the Federal Open Market Committee (“FOMC”) decreasing rates by 125 basis points from September 2024 to September 2025. Average interest bearing deposits with banks were $274.5 million and $286.1 million for the quarter ended September 30, 2025 and 2024, respectively. Interest income on interest bearing deposits with banks was $3.1 million and $3.9 million for the quarter ended September 30, 2025 and 2024, respectively. The investment portfolio is also a component of the Company’s earning assets. Historically, the Company invested primarily in: (1) mortgage-backed securities issued by government-sponsored entities; (2) debt securities issued by the U.S. Treasury, government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, at certain times the Company has selectively added investment grade corporate securities (floating rate and fixed rate with maturities less than 7 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity. Since the risk factor for these types of investments is generally lower than that of loans and leases, the yield earned on investments is generally less than that of loans and leases. Average total investment securities were $1.4 billion and $1.1 billion for the quarter ended September 30, 2025 and 2024, respectively. The average yield on total investment securities was 3.50% and 2.82% for the quarter ended September 30, 2025 and 2024, respectively. The increase in the yield reflects the increase in yields on purchases in 2024 and during the nine months ended September 30, 2025. Average loans and leases held for investment were $3.6 billion and $3.7 billion for the quarter ended September 30, 2025 and 2024, respectively. The average yield on the loan and lease portfolio was 6.05% and 6.13% for the quarter ended September 30, 2025 and 2024, respectively. The decrease in the loan yield reflects the decrease in market interest rates compared to the same period in the prior year. Average interest bearing deposits were $3.3 billion for the quarters ended September 30, 2025 and 2024. The average rate paid on interest bearing deposits was 1.79% and 2.00% for the quarter ended September 30, 2025 and 2024, respectively. Total interest expense on interest bearing deposits was $15.0 million and $16.4 million for the quarter ended September 30, 2025 and 2024, respectively, with the decrease driven by decreases in short-term market interest rates compared to the same period in the prior year. The average rate paid on total funding costs was 1.24% and 1.41% for the quarter ended September 30, 2025 and 2024, respectively. Nine Months Ended September 30, 2025 vs. Nine Months Ended September 30, 2024 Average interest bearing deposits with banks consisted primarily of FRB deposits. Balances with the FRB earned an average interest rate of 4.44% and 5.46% for the first nine months of 2025 and 2024, respectively. The decrease was primarily the result of the FOMC decreasing rates by 125 basis points from September 2024 to September 2025. Average interest bearing deposits with banks was $297.9 million and $358.2 million for the nine months ended September 30, 2025 and 2024, respectively. Interest income on interest bearing deposits with banks was $9.9 million and $14.6 million for the nine months ended September 30, 2025 and 2024, respectively. Average total investment securities were $1.3 billion and $1.1 billion for the nine months ended September 30, 2025 and 2024, respectively. The average yield on total investment securities was 3.34% and 2.68% for the nine months ended September 30, 2025 and 2024, respectively. The increase in the yield reflects the increase in yields on purchases in 2024 and during the nine months ended September 30, 2025. Average loans and leases held for investment were $3.6 billion and $3.7 billion for the nine months ended September 30, 2025 and 2024, respectively. The average yield on the loan and lease portfolio was 6.06% and 6.11% for the nine months ended September 30, 2025 and 2024, respectively. The decrease in the loan yield reflects the decrease in market interest rates compared to the same period in the prior year. 42 Table of Contents Average interest bearing deposits were $3.3 billion for the nine months ended September 30, 2025 and 2024. The average rate paid on interest bearing deposits was 1.80% and 1.97% for the nine months ended September 30, 2025 and 2024, respectively. Total interest expense on interest bearing deposits was $44.8 million and $49.0 million for the nine months ended September 30, 2025 and 2024, respectively. The decrease was driven by decreases in short-term market interest rates compared to the same period in the prior year. The average rate paid on total funding costs was 1.25% and 1.43% for the nine months ended September 30, 2025 and 2024, respectively. Rate/Volume Analysis The following table shows the change in interest income and interest expense and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates. For purposes of this table, the change in interest due to both volume and rate has been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts of change in each. Three Months Ended September 30, 2025 compared with 2024 Nine Months Ended September 30, 2025 compared with 2024 Increase (Decrease) Due to: Increase (Decrease) Due to: (Dollars in thousands) Volume Rate Net Volume Rate Net Interest income: Interest earnings deposits in other banks and federal funds sold $ (151 ) $ (677 ) $ (828 ) $ (2,251 ) $ (2,497 ) $ (4,748 ) Investment securities: Taxable securities 2,091 1,860 3,951 5,417 5,875 11,292 Non-taxable securities 54 353 407 166 310 476 Total investment securities 2,145 2,213 4,358 5,583 6,185 11,768 Loans: Real estate: Commercial 971 549 1,520 1,655 822 2,477 Agricultural (204 ) (288 ) (492 ) 67 66 133 Residential and home equity (30 ) 204 174 (177 ) 439 262 Construction (527 ) 81 (446 ) (1,941 ) (232 ) (2,173 ) Total real estate 210 546 756 (396 ) 1,095 699 Commercial & industrial (441 ) (390 ) (831 ) (477 ) (672 ) (1,149 ) Agricultural (1,014 ) (351 ) (1,365 ) (3,076 ) (883 ) (3,959 ) Commercial leases (117 ) 47 (70 ) (144 ) 336 192 Consumer and other (5 ) 2 (3 ) (24 ) 4 (20 ) Total loans and leases (1,367 ) (146 ) (1,513 ) (4,117 ) (120 ) (4,237 ) Non-marketable securities - 17 17 - (18 ) (18 ) Total interest income 627 1,407 2,034 (785 ) 3,550 2,765 Interest expense: Interest bearing deposits: Demand (71 ) (10 ) (81 ) (146 ) 845 699 Savings and money market accounts 740 (694 ) 46 1,375 (1,468 ) (93 ) Certificates of deposit greater than $250,000 (118 ) (682 ) (800 ) (988 ) (2,057 ) (3,045 ) Certificates of deposit equal to or less than $250,000 (91 ) (514 ) (605 ) (535 ) (1,213 ) (1,748 ) Total interest bearing deposits 460 (1,900 ) (1,440 ) (294 ) (3,893 ) (4,187 ) Short-term borrowings - - - (986 ) - (986 ) Subordinated debentures - (27 ) (27 ) - (82 ) (82 ) Total interest expense 460 (1,927 ) (1,467 ) (1,280 ) (3,975 ) (5,255 ) Net interest income $ 167 $ 3,334 $ 3,501 $ 495 $ 7,525 $ 8,020 43 Table of Contents Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2025 and 2024 Three Months Ended September 30, $ Better / % Better / Nine Months Ended September 30, $ Better / % Better / (Dollars in thousands) 2025 2024 (Worse) (Worse) 2025 2024 (Worse) (Worse) Selected Income Statement Information: Interest income $ 70,592 $ 68,635 $ 1,957 2.85 % $ 207,791 $ 205,107 $ 2,684 1.31 % Interest expense 15,175 16,642 1,467 8.82 % 45,365 50,620 5,255 10.38 % Net interest income 55,417 51,993 3,424 6.59 % 162,426 154,487 7,939 5.14 % Provision for credit losses 700 - (700 ) N/A 2,400 - (2,400 ) N/A Net interest income after provision for credit losses 54,717 51,993 2,724 5.24 % 160,026 154,487 5,539 3.59 % Non-interest income 6,867 6,280 587 9.35 % 17,407 16,122 1,285 7.97 % Non-interest expense 28,948 27,755 (1,193 ) (4.30 %) 81,108 78,698 (2,410 ) (3.06 %) Income before income tax expense 32,636 30,518 2,118 6.94 % 96,325 91,911 4,414 4.80 % Income tax expense 8,918 8,397 (521 ) (6.20 %) 26,543 25,300 (1,243 ) (4.91 %) Net income $ 23,718 $ 22,121 $ 1,597 7.22 % $ 69,782 $ 66,611 $ 3,171 4.76 % For the three and nine months ended September 30, 2025, net income was $23.7 million and $69.8 million, respectively, compared to $22.1 million and $66.6 million for the same periods a year ago. For the three months ended September 30, 2025, the increase in net income was primarily the result of higher net interest income of $3.4 million and a $0.6 million increase in non-interest income. These increases were offset by a $0.7 million provision for credit losses during the third quarter of 2025, compared to no provision in 2024, and an increase of $1.2 million in non-interest expense during the three months ended September 30, 2025, compared to the same period in the prior year. For the nine months ended September 30, 2025, the increase in net income was primarily the result of higher net interest income of $7.9 million and a $1.3 million increase in non-interest income. These increases were offset by a $2.4 million provision for credit losses during the nine months ended September 30, 2025, compared to no provision during the same period in 2024, an increase of $2.4 million in non-interest expense and an increase in income tax expense of $1.2 million during the first nine months of 2025, compared to the same period in the prior year. Net Interest Income and Net Interest Margin For the quarter ended September 30, 2025 and 2024, net interest income was $55.4 million compared with $52.0 million, respectively. The increase in net interest income is primarily the result of the net interest margin (tax equivalent basis) increasing 9 basis points to 4.16% compared with 4.07% for the same period a year earlier. The increase in the net interest margin was primarily the result of a decrease in deposit costs of $1.4 million due to the interest rate environment, as the federal funds rate decreased 125 basis points from September 2024 to September 2025. The investment securities yield during the third quarter of 2025 increased 68 basis points from 2.82% to 3.50% compared to the third quarter of 2024. The loan yield decreased 8 basis points from 6.13% to 6.05% compared to the third quarter of 2024. The cost of interest bearing deposits decreased 21 basis points from 2.00% to 1.79% and outpaced the decrease in loan yield over the same period a year earlier. For the nine months ended September 30, 2025 and 2024, net interest income was $162.4 million compared with $154.5 million, respectively. The increase is primarily the result of the net interest margin (tax equivalent basis) increasing 10 basis points to 4.14% compared with 4.04% for the same period a year earlier. The increase in the net interest margin was primarily the result of a decrease in deposit costs of $4.2 million due to the interest rate environment, as the federal funds rate decreased 125 basis points from September 2024 to September 2025, and a decrease in short-term borrowing costs of $1.0 million. The investment securities yield increased 66 basis points from 2.68% to 3.34% compared to the first nine months of 2024. The loan yield decreased 5 basis points from 6.11% to 6.06% compared to the first nine months of 2024. The cost of interest bearing deposits decreased 17 basis points from 1.97% to 1.80% and outpaced the decrease in loan yield over the same period a year earlier. 44 Table of Contents Provision for Credit Losses The provision for credit losses in each period is a charge against earnings in that period. The provision is the amount required to maintain the allowance for credit losses at a level that, in management’s judgment, is adequate to absorb expected credit losses over the life of the loans and leases, unfunded loan commitments and HTM securities portfolios. Based on the Company’s evaluation of the credit quality of the loan and lease portfolio and the calculations of the allowance for credit losses under the current expected credit losses (“CECL”) methodology, the Company recorded a $0.7 million provision for credit losses during the three months ended September 30, 2025 compared to no provision for the same period a year ago. Net charge-offs during the three months ended September 30, 2025 were $906,000 compared to $216,000 for the same period a year earlier. The Company recorded a $2.4 million provision for credit losses during the first nine months of 2025 compared to no provision for credit losses during the first nine months of 2024. The increase in the provision was primarily due to higher net charge-offs in the first nine months of 2025 and an increase in economic qualitative risk factors beginning in the second quarter of 2025. Net charge-offs during the first nine months of 2025 were $1.6 million compared to net charge-offs of $149,000 in the first nine months of 2024. Non-interest Income Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2025 2024 $ Better / (Worse) % Better / (Worse) 2025 2024 $ Better / (Worse) % Better / (Worse) Non-interest income: Card processing $ 1,780 $ 1,777 $ 3 0.17 % $ 5,236 $ 5,170 $ 66 1.28 % Net gain on deferred compensation benefits 1,200 1,277 (77 ) (6.03 %) 2,797 2,849 (52 ) (1.83 %) Service charges on deposit accounts 779 794 (15 ) (1.89 %) 2,295 2,291 4 0.17 % Increase in cash surrender value of BOLI 639 606 33 5.45 % 1,869 1,803 66 3.66 % Net gain on sale of securities available-for-sale - 743 (743 ) N/A - 743 (743 ) N/A Other 2,469 1,083 1,386 127.98 % 5,210 3,266 1,944 59.52 % Total non-interest income $ 6,867 $ 6,280 $ 587 9.35 % $ 17,407 $ 16,122 $ 1,285 7.97 % Non-interest income increased $0.6 million, or 9.35%, to $6.9 million for the quarter ended September 30, 2025, compared with $6.3 million for the same period a year earlier. The year-over-year increase in non-interest income was primarily due to a $1.3 million gain on early payoff of leases, partially offset by a $0.7 million decrease in the gain on sale of investment securities. 45 Table of Contents The Company recorded net gains on deferred compensation plan investments of $1.2 million for the quarter ended September 30, 2025, compared with net gains of $1.3 million for the same respective period a year ago. See Note 10, “Employee Benefit Plans,” located in Item 8. “Financial Statements and Supplementary Data” in the Company’s 2024 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these investment gains/losses to be recorded in non-interest income, an offsetting entry is also required to be made to non-interest expense resulting in no net-effect on the Company’s net income. Non-interest income increased $1.3 million, or 7.97%, to $17.4 million for the nine months ended September 30, 2025, compared with $16.1 million for the same period of 2024. The year-over-year increase in non-interest income was primarily due to a $2.0 million increase in other non-interest income, partially offset by a $0.7 million decrease in the gain on sale of investment securities. The increase in other non-interest income was primarily due to a $1.3 million increase in the gain on early payoff of leases. The Company recorded net gains on deferred compensation plan investments of $2.8 million for the nine months ended September 30, 2025 and 2024. See Note 10, “Employee Benefit Plans,” located in Item 8. “Financial Statements and Supplementary Data” in the Company’s 2024 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these investment gains/losses to be recorded in non-interest income, an offsetting entry is also required to be made to non-interest expense resulting in no net-effect on the Company’s net income. Non-interest Expense Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2025 2024 $ Better / (Worse) % Better / (Worse) 2025 2024 $ Better / (Worse) % Better / (Worse) Non-interest expense: Salaries and employee benefits $ 18,912 $ 19,049 $ 137 0.72 % $ 54,488 $ 54,551 $ 63 0.12 % Data processing 1,764 1,513 (251 ) (16.59 %) 5,186 4,503 (683 ) (15.17 %) Occupancy 1,259 1,318 59 4.48 % 3,854 3,793 (61 ) (1.61 %) Net gain on deferred compensation benefits 1,200 1,277 77 6.03 % 2,797 2,849 52 1.83 % Deposit insurance 719 705 (14 ) (1.99 %) 2,217 2,119 (98 ) (4.62 %) Professional services 786 968 182 18.80 % 2,402 2,130 (272 ) (12.77 %) Marketing 478 504 26 5.16 % 1,397 1,546 149 9.64 % Other 3,830 2,421 (1,409 ) (58.20 %) 8,767 7,207 (1,560 ) (21.65 %) Total non-interest expense $ 28,948 $ 27,755 $ (1,193 ) (4.30 %) $ 81,108 $ 78,698 $ (2,410 ) (3.06 %) Non-interest expense increased $1.2 million, or 4.30%, to $28.9 million for the quarter ended September 30, 2025, compared with $27.8 million for the same period a year ago. This increase was primarily comprised of a $1.4 million increase in other non-interest expense. Net gains on deferred compensation plan obligations were $1.2 million for the quarter ended September 30, 2025, compared with net gains on deferred compensation plan investments of $1.3 million for the same respective period in 2024. See Note 10 “Employee Benefit Plans,” located in “Item 8. Financial Statements and Supplementary Data” in the Company’s 2024 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these gains/losses on obligations to be recorded in non-interest expense, an offsetting entry is also required to be made to non-interest income resulting in no net-effect on the Company’s net income. Non-interest expense increased $2.4 million, or 3.06%, to $81.1 million for the nine months ended September 30, 2025 compared with $78.7 million for the same period a year ago. This increase was primarily comprised of a $1.6 million increase in other non-interest expense and a $0.7 million increase in data processing. The Company recorded net gains on deferred compensation plan investments of $2.8 million for the nine months ended September 30, 2025 and $2.8 million for the nine months ended September 30, 2024. See Note 10 “Employee Benefit Plans,” located in “Item 8. Financial Statements and Supplementary Data” in the Company’s 2024 Form 10-K for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these gains/losses on obligations to be recorded in non-interest expense, an offsetting entry is also required to be made to non-interest income resulting in no net-effect on the Company’s net income. Income Tax Expense For the three and nine months ended September 30, 2025, income tax expense was $8.9 million and $26.5 million, respectively, compared to $8.4 million and $25.3 million for the same periods a year ago. The Company’s effective tax rate for the three and nine months ended September 30, 2025 was 27.33% and 27.56%, respectively, compared to 27.51% and 27.53% for the same periods in 2024. The Company’s effective tax rate can fluctuate from quarter to quarter due primarily to changes in the mix of taxable and tax-exempt earning assets. The effective rates were lower than the combined Federal and State statutory rate of 30% primarily due to credits associated with low income housing tax credit investments (“LIHTC”) and tax-exempt interest income on municipal securities and loans. The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. The Company’s 2020 through 2024 tax years remain subject to selection for examination as of September 30, 2025. The IRS is in the process of reviewing the Company’s 2023 tax return. This review includes inquiries related to certain investment tax credits, including one investment tax credit that was sold to a third party for which the investment tax credits are covered by a tax liability insurance company. 46 Table of Contents Balance Sheet Analysis Total assets were $5.6 billion at September 30, 2025, compared with $5.4 billion at December 31, 2024, an increase of $259.7 million, or 4.84%. Total cash and cash equivalents decreased $40.0 million from $212.6 million as of December 31, 2024 to $172.6 million as of September 30, 2025. The net investment portfolio increased by $371.0 million, or 30.07%, to $1.6 billion at September 30, 2025, compared to $1.2 billion at December 31, 2024. Gross loans and leases held for investment were $3.6 billion at September 30, 2025, compared with $3.7 billion at December 31, 2024, a decrease of $70.0 million, or 1.90%. Total deposits were $4.9 billion at September 30, 2025, compared with $4.7 billion at December 31, 2024, an increase of $185.9 million, or 3.96%. Our loan to deposit ratio was 74.16% and 78.53% as of September 30, 2025 and December 31, 2024, respectively. Cash and Cash Equivalents The Company’s cash and cash equivalents consist of interest bearing deposits with banks and overnight investments in Federal Reserve balances. Interest bearing deposits with banks consisted primarily of FRB deposits. Interest bearing deposits with banks totaled $102.1 million at September 30, 2025 and $141.5 million at December 31, 2024. The Company’s total cash and cash equivalents as of September 30, 2025 represented 3.1% of the Company’s total assets as compared to 4.0% of total assets as of December 31, 2024. Investment Securities The Company’s net investment portfolio increased by $371.0 million, or 30.07%, to $1.6 billion at September 30, 2025, compared to $1.2 billion at December 31, 2024. During the first nine months of 2025, the Company purchased $429.4 million of investment securities with an average yield of 5.03%. The Company uses its investment portfolio to manage interest rate and liquidity risks. The Company’s total investment portfolio as of September 30, 2025 represented 28.50% of the Company’s total assets as compared to 22.98% of total assets as of December 31, 2024. Available-for-sale securities are carried at fair value and held-to-maturity securities are carried at amortized cost under GAAP. The carrying value of our portfolio of investment securities for the dates indicated are as follows: (Dollars in thousands) September 30, 2025 December 31, 2024 Available-for-sale securities U.S. Government-sponsored securities $ 2,130 $ 2,644 Mortgage-backed securities (1) 746,463 439,858 Commercial mortgage-backed securities (1) 1,254 1,212 Collateralized mortgage obligations (1) 20,877 5,497 Municipal securities 69,486 - Corporate securities 29,641 14,856 Other 310 347 Total available-for-sale securities $ 870,161 $ 464,414 (1) All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government. 47 Table of Contents (Dollars in thousands) September 30, 2025 December 31, 2024 Held-to-maturity securities Mortgage-backed securities (1) $ 598,870 $ 626,427 Collateralized mortgage obligations (1) 63,635 68,377 Municipal securities 72,123 74,639 Total held-to-maturity securities $ 734,628 $ 769,443 Allowance for credit losses (450 ) (450 ) Total held-to-maturity securities $ 734,178 $ 768,993 (1) All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government. The following tables show the carrying value for final contractual maturities of investment securities and the weighted average yields of such securities, including the benefit of tax-exempt securities: As of September 30, 2025 Within One Year After One but Within Five Years After Five but Within Ten Years After Ten Years Total (Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Securities available-for-sale U.S. Government-sponsored securities $ - 0.00 % $ 5 5.30 % $ 314 6.28 % $ 1,811 5.30 % $ 2,130 5.44 % Mortgage-backed securities (1) 99 2.57 % 1,619 2.50 % 2,642 4.10 % 742,103 4.89 % 746,463 4.87 % Commercial mortgage-backed securities (1) - 0.00 % - 0.00 % - 0.00 % 1,254 5.83 % 1,254 5.83 % Collateralized mortgage obligations (1) - 0.00 % - 0.00 % - 0.00 % 20,877 4.80 % 20,877 4.80 % Municipal securities - 0.00 % - 0.00 % 19,930 4.71 % 49,556 4.77 % 69,486 4.75 % Corporate securities 4,993 4.34 % 24,648 4.74 % - 0.00 % - 0.00 % 29,641 4.67 % Other 310 7.54 % - 0.00 % - 0.00 % - 0.00 % 310 7.54 % Total securities available-for-sale $ 5,402 4.49 % $ 26,272 4.60 % $ 22,886 4.66 % $ 815,601 4.88 % $ 870,161 4.86 % (1) All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government. As of September 30, 2025 Within One Year After One but Within Five Years After Five but Within Ten Years After Ten Years Total (Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Securities held-to-maturity Mortgage-backed securities (1) $ - 0.00 % $ 2,510 0.86 % $ 7,299 1.69 % $ 589,061 1.91 % $ 598,870 1.90 % Collateralized mortgage obligations (1) - 0.00 % - 0.00 % - 0.00 % 63,635 1.78 % 63,635 1.77 % Municipal securities 1,502 3.61 % 20,376 4.74 % 13,025 4.09 % 37,220 5.28 % 72,123 4.88 % Total securities held-to-maturity $ 1,502 3.61 % $ 22,886 4.32 % $ 20,324 3.23 % $ 689,916 2.08 % $ 734,628 2.18 % (1) All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government. As of December 31, 2024 Within One Year After One but Within Five Years After Five but Within Ten Years After Ten Years Total (Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Securities available-for-sale U.S. Government-sponsored securities $ 2 3.00 % $ 33 5.64 % $ 279 6.15 % $ 2,330 5.89 % $ 2,644 5.92 % Mortgage-backed securities (1) 74 2.83 % 3,074 2.57 % 1,949 3.92 % 434,761 4.70 % 439,858 4.70 % Commercial mortgage-backed securities (1) - 0.00 % - 0.00 % - 0.00 % 1,212 6.01 % 1,212 6.01 % Collateralized mortgage obligations (1) - 0.00 % - 0.00 % - 0.00 % 5,497 6.01 % 5,497 6.01 % Corporate securities - 0.00 % 14,856 5.63 % - 0.00 % - 0.00 % 14,856 5.63 % Other 347 3.72 % - 0.00 % - 0.00 % - 0.00 % 347 3.72 % Total securities available-for-sale $ 423 3.56 % $ 17,963 5.10 % $ 2,228 4.20 % $ 443,800 4.72 % $ 464,414 4.75 % (1) All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government. 48 Table of Contents As of December 31, 2024 Within One Year After One but Within Five Years After Five but Within Ten Years After Ten Years Total (Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Securities held-to-maturity Mortgage-backed securities (1) $ - 0.00 % $ 3,426 0.82 % $ 7,756 1.66 % $ 615,245 1.89 % $ 626,427 1.88 % Collateralized mortgage obligations (1) - 0.00 % - 0.00 % - 0.00 % 68,377 1.75 % 68,377 1.75 % Municipal securities 1,180 3.86 % 18,365 4.79 % 6,733 4.34 % 48,361 5.01 % 74,639 4.88 % Total securities held-to-maturity $ 1,180 3.86 % $ 21,791 4.17 % $ 14,489 2.91 % $ 731,983 2.08 % $ 769,443 2.16 % (1) All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Expected maturities of mortgage-backed and CMO securities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without penalties. The Company evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Loans and Leases Loans and leases can be categorized by borrowing purpose and use of funds. For detailed descriptions of the various loan types offered by the Company see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2024 Form 10-K. The Company’s loan and lease portfolio at September 30, 2025 totaled $3.6 billion, a decrease of $67.6 million, or 1.83%, from December 31, 2024, due to lower loan production as the Company continued to prioritize appropriate loan pricing and loan structure over loan growth. The following table sets forth the distribution of the loan and lease portfolio by type and percent at the dates indicated: September 30, 2025 December 31, 2024 (Dollars in thousands) Dollars Percent of Total Dollars Percent of Total Gross loans and leases Real estate: Commercial $ 1,425,598 39.35 % $ 1,360,841 36.88 % Agricultural 710,789 19.62 % 751,026 20.35 % Residential and home equity 404,635 11.17 % 404,399 10.96 % Construction 170,681 4.71 % 194,903 5.28 % Total real estate 2,711,703 74.85 % 2,711,169 73.47 % Commercial & industrial 488,440 13.48 % 504,403 13.67 % Agricultural 251,958 6.96 % 289,847 7.85 % Commercial leases 165,754 4.58 % 179,718 4.87 % Consumer and other 4,727 0.13 % 5,084 0.14 % Total gross loans and leases $ 3,622,582 100.00 % $ 3,690,221 100.00 % 49 Table of Contents The following table shows the maturity distribution and interest rate sensitivity of the loan and lease portfolio of the Company at September 30, 2025. Loan Contractual Maturity (Dollars in thousands) One Year or Less After One But Within Five Years After Five Years But Within Fifteen Years After Fifteen Years Total Gross loan and leases: Real estate: Commercial $ 71,826 $ 558,927 $ 759,851 $ 34,994 $ 1,425,598 Agricultural 50,723 171,911 457,324 30,831 710,789 Residential and home equity 36 5,083 114,978 284,538 404,635 Construction 158,667 12,014 - - 170,681 Total real estate 281,252 747,935 1,332,153 350,363 2,711,703 Commercial & industrial 223,415 171,342 91,419 2,264 488,440 Agricultural 167,171 73,644 11,143 - 251,958 Commercial leases 2,776 81,281 81,697 - 165,754 Consumer and other 647 3,462 165 453 4,727 Total gross loans and leases $ 675,261 $ 1,077,664 $ 1,516,577 $ 353,080 $ 3,622,582 Rate structure for loans and leases Fixed rate $ 175,021 $ 808,886 $ 911,817 $ 195,616 $ 2,091,340 Adjustable rate 500,240 268,778 604,760 157,464 1,531,242 Total gross loans and leases $ 675,261 $ 1,077,664 $ 1,516,577 $ 353,080 $ 3,622,582 The following table summarizes the loans for which the accrual of interest has been discontinued and OREO (as hereinafter defined) at the dates indicated: (Dollars in thousands) September 30, 2025 December 31, 2024 Non-performing assets: Non-accrual loans and leases Real estate: Commercial $ 955 $ 170 Agricultural - - Residential and home equity - - Construction - - Total real estate 955 170 Commercial & industrial - 759 Agricultural - - Commercial leases - - Consumer and other - - Total non-performing loans and leases 955 929 Other real estate owned (“OREO”) 873 873 Total non-performing assets $ 1,828 $ 1,802 Selected ratios: Non-performing loans to total loans and leases 0.03 % 0.03 % Non-performing assets to total assets 0.03 % 0.03 % Non-Accrual Loans and Leases – Accrual of interest on loans and leases is generally discontinued when a loan or lease becomes contractually past due by 90 days or more with respect to interest or principal. When loans and leases are 90 days past due, but in management’s judgment are well secured and in the process of collection, they may not be classified as non-accrual. When a loan or lease is placed on non-accrual status, all interest previously accrued but not collected is reversed. Income on such loans and leases is then recognized only to the extent that cash is received and where the future collection of principal is probable. The Company had $955,000 in non-accrual loans at September 30, 2025 and $929,000 in non-accrual loans at December 31, 2024. 50 Table of Contents Although management believes that non-performing loans and leases are generally well-secured and that potential losses are provided for in the Company’s allowance for credit losses, there can be no assurance that future deterioration in economic conditions and/or collateral values will not result in future credit losses. Other Real Estate Owned – OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. The Company records all OREO properties at amounts equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs. The Company reported $873,000 of foreclosed OREO at September 30, 2025, and December 31, 2024, respectively. Loan Modifications to Borrowers Experiencing Financial Difficulties – In the normal course of business, the Company may execute loan modifications to borrowers experiencing financial difficulties. Some of these modifications include: term extension, principal forgiveness, rate reduction, other-than-insignificant payment delay, or any combination of those. ASU 2022-02 requires certain disclosure of loans and leases that have been modified within the past 12 months and the effects that those modifications had on the modified loans and leases. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses and because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness that is deemed to be uncollectable; therefore, the portion of the loan forgiven is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. The Company modified eight loans in the aggregate amount of $4.7 million, during the nine months ended September 30, 2025. There was one loan modified within the last twelve months that had a payment default and was charged off during the nine months ended September 30, 2025. The Company modified six loans, with two borrowers, in the aggregate amount of $13.2 million, during the year ended December 31, 2024. These loans were current as of December 31, 2024. Allowance for Credit Losses—Loans and Leases The Company maintains an allowance for credit losses (“ACL”) under ASC Topic 326, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“CECL”). The allowance is established through a provision for credit losses, which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan and lease growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of two primary components: specific reserves related to individually evaluated loans and leases and general reserves comprised of both quantitative and qualitative factors for current expected credit losses related to loans and leases that are not individually evaluated. The Company uses the Weighted Average Remaining Maturity (“WARM”) methodology to calculate the ACL, as this method is deemed the most appropriate given the Company’s size and complexity. See Note 1 “Summary of Significant Accounting Policies - Allowance for Credit Losses – Loans and Leases” in our 2024 Form 10-K. The allowance for credit losses is the combination of the allowance for credit losses on loan and lease losses and the allowance for credit losses on unfunded loan commitments. The ACL for unfunded loan commitments is included within “Interest payable and other liabilities” on the consolidated balance sheets. 51 Table of Contents The following table sets forth the activity in our ACL on loans and leases held for investment and unfunded loan commitments for the periods indicated: Nine Months Ended September 30, (Dollars in thousands) 2025 2024 Allowance for credit losses: Balance at beginning of year $ 77,973 $ 78,655 Provision for credit losses: Allowance for credit losses- loans and leases 2,290 1,000 Allowance for credit losses- unfunded loan commitments 110 (1,000 ) Total provision for credit losses 2,400 - Charge-offs: Real estate: Commercial (175 ) - Agricultural (1,119 ) - Residential and home equity - (29 ) Construction - - Total real estate (1,294 ) (29 ) Commercial & industrial (232 ) (200 ) Agricultural (234 ) - Commercial leases - - Consumer and other (44 ) (52 ) Total charge-offs (1,804 ) (281 ) Recoveries: Real estate: Commercial - - Agricultural 5 - Residential and home equity 6 19 Construction - - Total real estate 11 19 Commercial & industrial 142 51 Agricultural 24 16 Commercial leases - - Consumer and other 17 46 Total recoveries 194 132 Net (charge-offs) (1,610 ) (149 ) Balance at end of period $ 78,763 $ 78,506 Allowance for credit losses - loans and leases 75,963 75,816 Allowance for credit losses - unfunded loan commitments 2,800 2,690 Total allowance for credit losses $ 78,763 $ 78,506 Selected financial information: Net loans and leases held for investment $ 3,532,383 $ 3,628,293 Average loans and leases 3,616,648 3,677,370 Non-performing loans and leases 955 677 Allowance for credit losses to non-performing loans and leases N/M (1) N/M (1) Net (charge-offs) / recoveries to average loans and leases (0.04 %) (0.004 %) Provision for credit losses to average loans and leases 0.07 % 0.00 % Allowance for loan and lease losses to loans and leases held for investment 2.10 % 2.04 % (1) Not meaningful (N/M) 52 Table of Contents The following table indicates management’s allocation of the ACL for loans and leases by loan type as of each of the following dates: September 30, 2025 December 31, 2024 (Dollars in thousands) Dollars Percent of Each Loan Type to Total Loans Percent of ACL to Each Loan Type Dollars Percent of Each Loan Type to Total Loans Percent of ACL to Each Loan Type Allowance for credit losses: Real estate: Commercial $ 21,514 39.35 % 1.51 % $ 20,382 36.88 % 1.50 % Agricultural 24,347 19.62 % 3.43 % 23,615 20.35 % 3.14 % Residential and home equity 7,473 11.17 % 1.85 % 7,340 10.96 % 1.82 % Construction 2,820 4.71 % 1.65 % 3,055 5.28 % 1.57 % Total real estate 56,154 74.85 % 2.07 % 54,392 73.47 % 2.01 % Commercial & industrial 7,375 13.48 % 1.51 % 7,791 13.67 % 1.54 % Agricultural 6,631 6.96 % 2.63 % 6,725 7.85 % 2.32 % Commercial leases 5,583 4.58 % 3.37 % 6,153 4.87 % 3.42 % Consumer and other 220 0.13 % 4.65 % 222 0.14 % 4.37 % Total allowance for credit losses $ 75,963 100.00 % 2.10 % $ 75,283 100.00 % 2.04 % Deposits Total deposits were $4.9 billion and $4.7 billion as of September 30, 2025 and December 31, 2024, respectively, an increase of $185.9 million or 3.96%. Non-interest bearing demand deposits were $1.58 billion and $1.52 billion as of September 30, 2025 and December 31, 2024, respectively, an increase of $62.8 million or 4.14%. Non-interest bearing deposits were 32.37% of total deposits as of September 30, 2025 and 32.31% of total deposits as of December 31, 2024. Interest bearing deposits were $3.3 billion at September 30, 2025 and $3.2 million at December 31, 2024. Interest bearing deposits are comprised of interest bearing transaction accounts, money market accounts, regular savings accounts, and certificates of deposit. Interest bearing transaction accounts decreased $84.6 million, or 9.59%, to $797.5 million at September 30, 2025, compared with $882.1 million at December 31, 2024. Savings and money market accounts increased $174.7 million, or 11.03%, to $1.8 billion at September 30, 2025, compared with $1.6 billion at December 31, 2024. Certificates of deposit accounts increased $33.0 million, or 4.61%, to $748.5 million at September 30, 2025, compared with $715.5 million at December 31, 2024. The following table shows the average amount and average rate paid on the categories of deposits for each of the periods presented: Nine Months Ended September 30, 2025 2024 (Dollars in thousands) Average Balance Interest Expense Average Rate Average Balance Interest Expense Average Rate Total deposits: Interest bearing deposits: Demand $ 878,917 $ 4,267 0.65 % $ 914,908 $ 3,568 0.52 % Savings and money market 1,723,405 23,160 1.80 % 1,623,784 23,253 1.91 % Certificates of deposit greater than $250,000 386,639 10,219 3.53 % 419,528 13,264 4.22 % Certificates of deposit equal to or less than $250,000 331,959 7,139 2.88 % 354,164 8,887 3.35 % Total interest bearing deposits 3,320,920 44,785 1.80 % 3,312,384 48,972 1.97 % Non-interest bearing deposits 1,505,088 1,393,955 Total deposits $ 4,826,008 $ 44,785 1.24 % $ 4,706,339 $ 48,972 1.39 % Deposits are gathered from individuals and businesses in our market areas. The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. The Company reduced interest rates during the last four months of 2024 when the FOMC cut interest rates by 100 basis points between September and December 2024 and then another 25 basis points in September 2025, when the FOMC cut interest rates. The average cost of total deposits, including non-interest bearing deposits, decreased to 1.22% for the three months ended September 30, 2025, compared with 1.39% for the same period a year ago, and to 1.24% for the nine months ended September 30, 2025, compared with 1.39% for the nine months ended September 30, 2024. 53 Table of Contents The following table shows deposits with a balance greater than $250,000 at September 30, 2025 and December 31, 2024: September 30, December 31, (Dollars in thousands) 2025 2024 Non-maturity deposits greater than $250,000 $ 2,636,359 $ 2,486,450 Certificates of deposit greater than $250,000, by maturity: Less than 3 months 191,103 153,662 3 months to 6 months 117,937 146,341 6 months to 12 months 90,301 81,642 More than 12 months 1,210 3,427 Total certificates of deposit greater than $250,000 $ 400,551 $ 385,072 Total deposits greater than $250,000 $ 3,036,910 $ 2,871,522 The Bank participates in a program wherein the State of California places time deposits with the Bank at the Bank’s option. As of September 30, 2025 and December 31, 2024, the Bank had $3.0 million of such deposits. Total estimated uninsured deposits based on our regulatory reporting amounted to $2.5 billion at September 30, 2025 and $2.3 billion at December 31, 2024. Federal Home Loan Bank Advances and Federal Reserve Bank Borrowings Lines of Credit with the Federal Home Loan Bank and FRB are other key sources of funds to support earning assets and liquidity. These sources of funds are also used to manage the Company’s interest rate risk exposure and, as opportunities arise, to borrow and invest the proceeds at a positive spread through the investment portfolio. There were no FHLB advances at September 30, 2025 or December 31, 2024. There were no Federal Funds purchased or advances from the FRB at September 30, 2025 or December 31, 2024. Long-Term Subordinated Debentures On December 17, 2003, the Company raised $10.0 million through the sale of subordinated debentures to an off-balance-sheet trust and its sale of trust-preferred securities. See Note 9. “Long-term Subordinated Debentures” located in “Item 8. Financial Statements and Supplementary Data” in our 2024 Form 10-K. Although this amount is reflected as subordinated debt on the Company’s balance sheet, under current regulatory guidelines, our Trust Preferred Securities continue to qualify as regulatory capital. These securities accrue interest at a variable rate based upon 3-month SOFR plus 2.85%. Interest rates reset quarterly (the next reset is December 17, 2025), and the rate was 7.13% as of September 30, 2025 and 7.46% at December 31, 2024. The average rate paid for these securities was 7.52% for the first nine months of 2025 and 8.58% for the first nine months of 2024. Additionally, if the Company decided to defer interest on the subordinated debentures, the Company would be prohibited by the terms of the debentures, from paying cash dividends on the Company’s common stock. 54 Table of Contents Capital Resources The Company relies primarily on capital generated through the retention of earnings to satisfy its capital requirements. The Company engages in an ongoing assessment of its capital needs in order to support business growth and to insure depositor protection. Shareholders’ Equity totaled $645.3 million at September 30, 2025, an increase of $72.2 million, or 12.6%, from $573.1 million at December 31, 2024, due primarily to net income of $69.8 million during the first nine months of 2025. The Company and the Bank are subject to various regulatory capital adequacy guidelines as outlined under Part 324 of the FDIC Rules and Regulations. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Company and the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. As of September 30, 2025, the Company was in compliance with all of these capital requirements and there were no restrictions on the Company’s business activity. As of September 30, 2025, the Bank met the requirements to be categorized as “well-capitalized” under the FDIC regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” the Bank must maintain minimum Total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables as of September 30, 2025 and December 31, 2024. The Company’s and Bank’s actual and required capital amounts and ratios are as follows: September 30, 2025 Actual Required for Capital Adequacy Purposes Minimum to be Categorized as “Well Capitalized” Under Prompt Corrective Action Regulation (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Bancorp: CET1 capital to risk-weighted assets $ 639,030 14.26 % $ 201,655 4.50 % N/A N/A Tier 1 capital to risk-weighted assets 649,030 14.48 % 268,874 6.00 % N/A N/A Risk-based capital to risk-weighted assets 705,332 15.74 % 358,498 8.00 % N/A N/A Tier 1 leverage capital ratio 649,030 11.59 % 223,969 4.00 % N/A N/A Bank: CET1 capital to risk-weighted assets $ 626,414 13.98 % $ 201,612 4.50 % $ 291,217 6.50 % Tier 1 capital to risk-weighted assets 626,414 13.98 % 268,816 6.00 % 358,421 8.00 % Risk-based capital to risk-weighted assets 682,704 15.24 % 358,421 8.00 % 448,026 10.00 % Tier 1 leverage capital ratio 626,414 11.21 % 223,510 4.00 % 279,387 5.00 % 55 Table of Contents December 31, 2024 Actual Required for Capital Adequacy Purposes Minimum to be Categorized as “Well Capitalized” Under Prompt Corrective Action Regulation (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Bancorp: CET1 capital to risk-weighted assets $ 579,602 13.04 % $ 200,046 4.50 % N/A N/A Tier 1 capital to risk-weighted assets 589,602 13.26 % 266,728 6.00 % N/A N/A Risk-based capital to risk-weighted assets 645,453 14.52 % 355,637 8.00 % N/A N/A Tier 1 leverage capital ratio 589,602 10.95 % 215,379 4.00 % N/A N/A Bank: CET1 capital to risk-weighted assets $ 591,072 13.30 % $ 200,038 4.50 % $ 288,944 6.50 % Tier 1 capital to risk-weighted assets 591,072 13.30 % 266,718 6.00 % 355,624 8.00 % Risk-based capital to risk-weighted assets 646,920 14.55 % 355,624 8.00 % 444,530 10.00 % Tier 1 leverage capital ratio 591,072 10.99 % 215,213 4.00 % 269,016 5.00 % On September 10, 2024, the Board of Directors authorized a new share repurchase program (the “Repurchase Plan”) in which the Company may repurchase up to $55.0 million of the Company’s common stock, which represented approximately 9% of outstanding shareholders’ equity at the time of approval. On August 14, 2025, the Board of Directors authorized an increase of $45.0 million to the existing share repurchase program along with an extension of the program through December 31, 2027. Repurchases by the Company under the Repurchase Plan may be made from time to time at market prices through open market purchases, trading plans established in accordance with SEC rules, or privately negotiated transactions. In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. Among other things, the IRA imposes an excise tax equal to 1% of the fair market value of any stock repurchased by covered corporations during a taxable year, subject to certain limits and provisions. During the three months ended September 30, 2025, the Company repurchased 2,540 shares under the Repurchase Plan, for a total of $2.6 million, inclusive of the excise tax. During the nine months ended September 30, 2025, the Company repurchased 7,789 shares under the Repurchase Plan, for a total of $7.9 million, inclusive of the excise tax. As of September 30, 2025, there remains $57.1 million authorized for repurchases under the Repurchase Plan. On August 12, 2025, the Board of Directors announced that the Company was changing its dividend policy related to the frequency of cash dividend payments from semi-annually to quarterly and on the same date declared a third quarter cash dividend of $5.00 per share. The cash dividend totaling $3.6 million was paid on October 1, 2025, to shareholders of record on September 11, 2025. Off-Balance-Sheet Arrangements Off-balance-sheet arrangements are any contractual arrangement to which an unconsolidated entity is a party, under which the Company has: (1) any obligation under a guarantee contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity, or market risk support to that entity for such assets; (3) any obligation under certain derivative instruments; or (4) any obligation under a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company, or engages in leasing, hedging, or research and development services with the Company. 56 Table of Contents The following table sets forth our off-balance-sheet lending commitments as of September 30, 2025: Amount of Commitment Expiration per Period (Dollars in thousands) Total Committed Amount Less than One Year One to Three Years Three to Five Years After Five Years Off-balance sheet commitments Commitments to extend credit $ 1,057,402 $ 510,030 $ 363,448 $ 45,277 $ 138,647 Standby letters of credit 18,995 15,683 1,812 1,500 - Total off-balance sheet commitments $ 1,076,397 $ 525,713 $ 365,260 $ 46,777 $ 138,647 The Company’s exposure to credit loss in the event of nonperformance by the other party with regard to standby letters of credit, undisbursed loan commitments, and financial guarantees is represented by the contractual notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Company uses the same credit policies in making commitments and conditional obligations as it does for recorded balance sheet items. The Company may or may not require collateral or other security to support financial instruments with credit risk. Evaluations of each customer’s creditworthiness are performed on a case-by-case basis. Additionally, the Company maintains an allowance for credit losses for unfunded loan commitments, which amounted to $2.8 million at September 30, 2025 and $2.7 million at December 31, 2024. Standby letters of credit are conditional commitments issued by the Company to guarantee performance of or payment for a customer to a third-party. Outstanding standby letters of credit at September 30, 2025 had maturity dates ranging from 1 to 54 months with final expiration in some cases up to April 1, 2030. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Liquidity The ability to have readily available funds sufficient to repay maturing and non-maturing liabilities is of primary importance to depositors, creditors and regulators. In an effort to satisfy our liquidity needs, we actively manage our assets and liabilities. We have access to immediate liquid resources in the form of cash, which totaled $172.6 million, or 3.1% of total assets, as of September 30, 2025. The majority of cash is on deposit with the FRB and amounted to $102.1 million. Potential sources of liquidity also include our ability to sell or pledge our available-for-sale securities portfolio, our ability to pledge for borrowing purposes our held-to-maturity portfolio, our ability to sell loans in the secondary market, and our ability to borrow from the FRB and FHLB. Our diversified deposit portfolio has historically provided us with a long-term source of stable low-cost funding. Maturities and payments on outstanding loans and investment securities also provide a steady flow of funds. Our liquidity, represented by cash borrowing lines, federal funds and available-for-sale securities, is a result of our operating, investing and financing activities and related cash flows. In order to ensure funds are available at all times, we devote resources to projecting the amount of funds that will be required and we maintain relationships with a diversified client base. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets. We actively monitor our liquidity on a daily basis and manage our liquidity and overall balance sheet positions through both our management and Board-level Asset and Liability Management committees (“ALCO”), which meet regularly during the year. 57 Table of Contents We had the following borrowing lines available at September 30, 2025: September 30, 2025 (Dollars in thousands) Total Credit Line Limit Outstanding Amount Remaining Credit Line Available Value of Collateral Pledged Additional liquidity sources: Federal Reserve Bank BIC $ 1,127,174 $ - $ 1,127,174 $ 1,414,322 Federal Home Loan Bank 807,252 - 807,252 1,039,503 US Bank Fed Funds 65,000 - 65,000 - PCBB Fed Funds 50,000 - 50,000 - FHLB Fed Funds 18,000 - 18,000 - Total additional liquidity sources $ 2,067,426 $ - $ 2,067,426 $ 2,453,825 We continued our focus on maintaining a strong liquidity position throughout the first nine months of 2025, and we believe our liquid assets and short-term borrowing credit lines are adequate to meet our cash flow needs for loan and lease funding and deposit cash withdrawals for the foreseeable future. As of September 30, 2025, we had internal sources of liquidity comprised of $172.6 million in cash and $863.5 million of unencumbered investment securities, which represented in the aggregate 18.4% of total assets. We also had $2.1 billion in external sources of liquidity as outlined in the table above, bringing our total available liquidity to $3.1 billion as of September 30, 2025. Our pledged collateral on short-term borrowing lines was comprised of $2.5 billion in loans and $1.4 million in investment securities held at market value at September 30, 2025. We have the option of either borrowing on our credit lines or selling these investment securities for cash flow needs. On a long-term basis, we can, as needed, meet our liquidity needs by changing the relative distribution of our asset portfolios by reducing our investment or loan and lease volumes, or selling or encumbering assets. Further, we can increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from our correspondent banks as well as the Federal Reserve and FHLB. At the current time, our long-term liquidity needs primarily relate to funds required to support loan and lease originations and commitments and deposit withdrawals. We believe we can meet all of these needs from existing liquidity sources. Our liquidity is comprised of three primary classifications: cash flows from or used in operating activities; cash flows from or used in investing activities; and cash flows from or used in financing activities. Net cash provided by or used in operating activities has consisted primarily of net income adjusted for certain non-cash income and expense items such as the credit loss provision, investment and other amortization and depreciation. Our net cash provided by operating activities for the first nine months of 2025 was $90.5 million, driven by net income of $69.8 million. Our primary investing activities are the origination of loans and leases and purchases and sales of investment securities. Net cash used in investing activities was $298.1 million during the first nine months of 2025, driven by a net increase of purchases in our investment portfolio of $426.7 million in available-for-sale securities offset by a decrease in loans and leases of $68.5 million and proceeds from the sale, maturities, calls, and pay downs of investment securities of $83.3 million. As of September 30, 2025, we had unfunded loan commitments of $1.1 billion and unfunded letters of credit of $19.0 million. At September 30, 2025, we believe that we had sufficient sources of funds available to meet current loan commitments. Net cash provided by financing activities totaled $167.6 million in the first nine months of 2025, driven by an increase in deposits of $185.9 million, partially offset by $10.4 million of dividends paid and $7.9 million in stock repurchases. 58 Table of Contents