Farmers & Merchants Bancorp's record $25.1 million profit leans on a $5.0 million tax benefit

Farmers & Merchants Bancorp reported record third-quarter net income of $25.1 million, up 5.75% from a year earlier, but the increase came from the tax line: income tax expense fell $6.8 million on a $5.0 million benefit, income before income taxes dropped 16.53%, non-interest expense rose 23.79% and the efficiency ratio climbed to 55.49% from 46.48%.

A tax reversal carries the quarter

Farmers & Merchants Bancorp, the parent of F&M Bank of Central California, reported third-quarter net income of $25.1 million, up $1.4 million or 5.75% from $23.7 million a year earlier. Diluted earnings were $36.75 a common share, up 8.34% from $33.92, and net interest income of $58.3 million rose 5.25% from $55.4 million.

The tax line did much of the work. Income tax expense was $2.2 million, down $6.8 million from a year earlier, a move the release attributes to "a $5.0 million benefit recognized during the third quarter of 2026 from the reversal of amounts associated with items previously treated as non-deductible for income tax purposes." Income before income taxes fell 16.53%, so the $1.4 million increase in net income came from a smaller tax bill rather than from better operating results.

Expenses outrun a wider margin

The margin still widened. Net interest margin on a tax-equivalent basis was 4.24%, up from 4.16%, and over the first nine months it was 4.23% against 4.14%, helped by a 38 basis point rise in the investment securities yield to 3.72% and a 5 basis point fall in the cost of total deposits to 1.19%. Nine-month net interest income was $172.6 million, up 6.25% from the same period a year earlier.

Operating costs moved faster than revenue. Non-interest expense rose 23.79% to $35.8 million from $28.9 million, which the release traces mainly to salaries and employee benefits plus consulting and professional fees. Non-interest income slipped 8.97% to $6.3 million. The efficiency ratio climbed to 55.49% from 46.48%, meaning the bank spent roughly 55 cents for every dollar of revenue it booked. Net income for the first nine months was $73.9 million, up 5.88% from $69.8 million in the same period a year earlier.

Deposits fall as brokered balances go to zero

Total deposits were $5.0 billion at September 30, 2026, 1.74% higher than a year earlier. From June 30, 2026 they fell 2.41%, a sequential decline of about $123 million. Chief Executive Kent Steinwert said the bank had "no brokered deposits as of September 30, 2026 compared to $80 million as of June 30, 2026". Brokered balances account for about $80 million of that decline, leaving roughly $43 million of the sequential drop outside brokered deposits, an amount the release does not discuss.

Liquidity stayed ample, with $172.0 million of cash, $1.5 billion of investment securities of which $862.5 million were available-for-sale, no borrowings and access to $2.1 billion of borrowing capacity, according to his statement. Loans and leases held for investment grew 3.77% to $3.74 billion, including $40.5 million added during the quarter, and the loan-to-deposit ratio stood at 75.70% at September 30, 2026, up from 73.07% at June 30 and 74.16% a year earlier.

Capital ratios rise while unrealized losses widen

Shareholders' equity was $663.1 million, down $15.9 million from June 30 even though net income was $25.1 million, because accumulated other comprehensive loss grew $33.0 million as rising rates deepened unrealized losses on the securities portfolio. Tangible book value per common share, a non-GAAP measure, was $932.14, up 6.27% from $877.13 a year earlier but below $963.82 at June 30.

Regulatory ratios improved against December 31, 2025, with common equity tier 1 at 14.91% versus 13.81%, total risk-based capital at 16.39% versus 15.29% and a tier 1 leverage ratio of 12.05% versus 11.00%; the company labels them preliminary. It repurchased 4,714 shares for $6.7 million and has $23.4 million left under an authorization expiring December 31, 2027. Credit held up, with a $1.5 million provision against $700,000 a year earlier, net charge-offs of $1.4 million or 0.04% of average loans, an allowance at 2.06% of gross loans, $4.6 million of non-accrual loans and a 0.23% delinquency ratio.

The next document to read is the Form 10-Q for the quarter ended September 30, 2026, which will carry the full detail behind the preliminary capital ratios and the securities marks that drove the equity decline.