Farmers & Merchants Bank of Long Beach has completed a major balance sheet repositioning that included selling approximately $1 billion of low-yielding municipal bonds and redeploying capital toward substantially higher-yielding securities, debt reduction and new lending capacity.
The securities sold had been classified as held-to-maturity and carried a weighted average yield of only 1.43%, reflecting investments made during a much lower interest-rate environment.
F&M has redeployed a portion of the proceeds into securities producing an average yield of approximately 5.13% without increasing what the bank describes as its risk profile.
The bank also used proceeds to repay $300 million of higher-cost borrowings, reducing future funding expense.
Remaining liquidity will be available to support customer loans at yields meaningfully above those generated by the municipal securities.
F&M expects the repositioning to increase earning-asset yields, improve net interest margin and give its balance sheet greater flexibility as borrowing demand grows.
The strategy comes with a significant near-term accounting cost.
F&M expects to recognize an approximately $85 million pre-tax loss on the securities sale, resulting in a net loss for the third quarter of 2026.
However, management still expects the bank to report net income for full-year 2026.
The loss will also offset one-time gains recognized elsewhere during the year, including approximately $14 million recorded during the second quarter, improving the tax economics of the restructuring.
F&M has more than $11 billion in assets and operates 27 branches across Southern California.
Shareholders also approved all proposals at the bank’s 2026 annual meeting, including future share repurchases and reducing the supermajority vote requirement for certain significant corporate actions to 60% from 80%.
KEY QUOTES:
“The result is a more efficient balance sheet with greater capacity to support customer borrowing needs and future growth.”
W. Henry Walker, CEO Of Farmers & Merchants Bank Of Long Beach
“Because we entered this period with exceptional capital, we had the luxury of choosing when and how to act.”
Daniel K. Walker, Executive Chairman Of Farmers & Merchants Bank Of Long Beach
