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FARMERS & MERCHANTS BANCORP (FMCB)·Q3 2025 Earnings Summary

Executive Summary

  • Record quarter: Net income $23.7M and diluted EPS $33.92, highest quarterly net income in company history; NIM (tax-equivalent) rose to 4.16% (+9 bps YoY), with ROAA 1.70% and ROAE 15.10% .
  • Margin expansion driven primarily by lower deposit costs; efficiency ratio 46.48% (up QoQ, down YoY); loan yield 6.05%, cost of deposits 1.22% .
  • Balance sheet strong: cash $172.6M, investments $1.60B (AFS $870.2M), no borrowings, $2.1B capacity; deposits up $185.9M YTD to $4.9B; loans $3.62B; L/D 74.16% .
  • Capital actions and dividends: authorization increased by $45M and extended through 2027; $57.1M remaining; first quarterly dividend paid Oct 1; 2,540 shares repurchased in Q3 .

What Went Well and What Went Wrong

What Went Well

  • Record profitability: “record third quarter net income of $23.7 million… ROAA of 1.70% and ROAE of 15.10%” with diluted EPS up 13.22% YoY to $33.92 .
  • Margin tailwinds: NIM increased vs prior year, “driven primarily by a decrease in deposit costs,” with disciplined loan pricing supporting yields .
  • Liquidity and capital strength: $172.6M cash, $1.6B securities, no borrowings, $2.1B capacity; CET1 14.28%, total risk-based 15.76%, TCE ratio 11.26% .

What Went Wrong

  • Loan growth constrained: Gross loans down $67.6M vs 12/31/24 and down $13.2M QoQ; management favored “lower risk government guaranteed securities rather than loans with duration” amid an “unprecedented length of the inverted yield curve” .
  • Higher provision: Provision for credit losses of $0.7M vs none in Q3 2024; allowance remains 2.10% of loans and leases .
  • Sequential operating efficiency softening: Efficiency ratio rose to 46.48% vs 44.88% in Q2 (though improved YoY vs 47.63%) amid higher noninterest expense .

Financial Results

Note: “Revenue” below is defined as Net Interest Income + Noninterest Income derived from reported figures.

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)$58.27 (= $51.99 + $6.28) $59.39 (= $53.87 + $5.52) $62.28 (= $55.42 + $6.87)
Net Interest Income ($USD Millions)$51.99 $53.87 $55.42
Noninterest Income ($USD Millions)$6.28 $5.52 $6.87
Net Income ($USD Millions)$22.12 $23.06 $23.72
Diluted EPS ($USD)$29.96 $32.94 $33.92
Net Interest Margin (tax-equivalent, %)4.07% 4.07% 4.16%
Efficiency Ratio (%)47.63% 44.88% 46.48%
ROAA (%)1.65% 1.65% 1.70%
ROAE (%)15.03% 15.09% 15.10%
Loan Yield (%)6.13% 6.08% 6.05%
Cost of Avg Total Deposits (%)1.39% 1.31% 1.22%
Effective Tax Rate (%)27.51% 26.43% 27.33%

Balance sheet and KPIs:

MetricQ3 2024Q2 2025Q3 2025
Total Assets ($USD Millions)$5,418.13 $5,478.77 $5,629.87
Cash & Cash Equivalents ($USD Millions)$293.25 $291.75 $172.57
Investment Securities - Total ($USD Millions)$1,182.07 $1,321.81 $1,604.79
of which Available-for-Sale ($USD Millions)$401.56 $572.95 $870.16
of which Held-to-Maturity ($USD Millions)$780.51 $748.86 $734.63
Gross Loans & Leases ($USD Millions)$3,713.74 $3,635.83 $3,622.58
Total Deposits ($USD Millions)$4,708.68 $4,760.36 $4,885.01
Loan-to-Deposit Ratio (%)78.87% 76.38% 74.16%
Tangible Book Value/Share ($USD)$799.04 $835.33 $877.13
CET1 (%)13.47% 13.87% 14.28%
Total Risk-Based Capital Ratio (%)14.95% 15.35% 15.76%
Tier 1 Leverage Ratio (%)11.32% 11.18% 11.60%

Credit metrics:

MetricQ3 2024Q2 2025Q3 2025
Non-accrual Loans & Leases Ratio (%)N/A0.00% 0.03%
Net Charge-off Ratio (Quarter, %)N/A0.02% 0.03%
Allowance for Credit Losses on Loans & Leases ($USD Millions)$75.82 $76.17 $75.96
ACL on Loans & Leases (%)N/A2.09% 2.10%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Cash dividend frequencyOngoingSemi-annualQuarterly (first quarterly declared Aug 12, paid Oct 1, 2025) Raised cadence
Share repurchase authorizationThrough 2027Prior levelIncreased by $45M; extended to Dec 31, 2027; $57.1M remaining Raised/extended
Share repurchases (quarter)Q3 2025N/A2,540 shares repurchased; shares outstanding 721,411 Activity update
Formal financial guidance (revenue, margins, EPS)Q3 2025None disclosedNone disclosed in filings/press materials reviewed Maintained (no guidance)

Earnings Call Themes & Trends

Note: No Q3 2025 earnings call transcript found; themes below reflect management commentary from press releases.

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Yield curve/investment vs loan mixConservative underwriting; inverted curve “does not price in duration risk” beyond 3 years; Q2 loan growth modest after Q1 decline Favor “lower risk government guaranteed securities rather than loans with duration”; loans flat QoQ, down vs YE Continued caution; tilt to securities
Deposit costs/NIMNIM up to 4.20% in Q1; “increase… driven by decrease in deposit costs”; Q2 NIM 4.07% NIM 4.16%; “increase… driven primarily by a decrease in deposit costs” Improving YoY; stable to slightly higher
Credit qualitySolid; negligible delinquencies; non-accrual $0.193M in Q1; no non-accrual in Q2 Resilient; non-accrual 0.03%; net charge-offs 0.03% Strong, modest normalization
Agriculture export headwindsWorking with borrowers; potential relief from tariffs/weak USD improving export opportunities (Q1) Continued challenges in “a few agricultural products adversely impacted by negative conditions in the export market” Persistent headwind
Liquidity and borrowingsHigh cash; brokered deposits added in Q1 then repaid in Q2; no borrowings Strong liquidity; $172.6M cash; no borrowings; $2.1B capacity Stable, ample
Capital managementStrengthening capital; dividends increased; repurchases active (Q2) Authorization increased $45M and extended; quarterly dividend cadence; TCE up More shareholder returns flexibility

Management Commentary

  • “We are very pleased with the Company’s financial performance in the third quarter of 2025, highlighted by record third quarter net income of $23.7 million, a return on average assets of 1.70%, and a return on average equity of 15.10%.” — Kent Steinwert, Chairman, President & CEO .
  • “Given the unprecedented length of the inverted yield curve… we have favored investing in lower risk government guaranteed securities rather than loans with duration.” .
  • “The Company’s net interest margin increased… driven primarily by a decrease in deposit costs.” .
  • “Credit quality remained resilient… particularly in a few agricultural products adversely impacted by negative conditions in the export market.” .

Q&A Highlights

  • No earnings call transcript was available in the filings/press materials reviewed for Q3 2025; Q&A highlights unavailable.

Estimates Context

  • Wall Street consensus (S&P Global) for EPS and revenue was not available for Q3 2025; the number of estimates fields were empty. As a result, we cannot assess beats/misses versus consensus. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Record profitability with disciplined balance sheet management and margin tailwinds from lower deposit costs; NIM expanded YoY to 4.16% while ROAA and ROAE remained strong .
  • Loan growth remains constrained by duration pricing under an inverted curve; management is prioritizing spread preservation by favoring government-guaranteed securities—expect continued conservatism on loan growth unless term structure normalizes .
  • Credit quality is robust with minimal non-accruals and low net charge-offs; allowance coverage is stable at ~2.10% of loans, providing cushion against macro/agriculture export pressures .
  • Shareholder returns flexibility increased: repurchase authorization expanded by $45M and extended to 2027, coupled with a shift to quarterly dividends—potential ongoing support for the stock .
  • Deposit growth and mix improvements underpin funding costs; continued focus on relationship deposits supports margin resilience in a competitive environment .
  • Efficiency ratio ticked up sequentially (46.48%) from Q2; watch expense trajectory as management balances investments with cost discipline .
  • With consensus estimates unavailable, trading reactions are likely driven by the narrative: record earnings, YoY margin expansion, capital actions, and conservative credit stance rather than a beat/miss print .