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German American Bancorp

11/05/2025 | Press release | Distributed by Public on 11/05/2025 15:39

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

GERMAN AMERICAN BANCORP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

German American Bancorp, Inc. is a Nasdaq-listed (symbol: GABC) financial holding company based in Jasper, Indiana. German American, through its banking subsidiary German American Bank, operates 94 banking offices located throughout Indiana (central/southern), Kentucky (northern/central/western), and Ohio (central/southwest). In Columbus, Ohio and Greater Cincinnati, the Company does business as Heartland Bank, a Division of German American Bank. The Company also owns an investment brokerage subsidiary German American Investment Services, Inc.

Throughout this Management's Discussion and Analysis, as elsewhere in this Report, when we use the term "Company" and "German American", we will usually be referring to the business and affairs (financial and otherwise) of the Company and its subsidiaries and affiliates as a whole. Occasionally, we will refer to the term "German American Bancorp", "Bancorp", "parent company" or "holding company" when we mean to refer to only German American Bancorp, Inc., and the term "Bank" when we mean to refer to only the Company's bank subsidiary.

This section presents an analysis of the consolidated financial condition of the Company as of September 30, 2025 and December 31, 2024 and the consolidated results of operations for the three months ended September 30, 2025 and 2024. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management's Discussion and Analysis of Financial Condition and Results of Operations, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

MANAGEMENT OVERVIEW

This updated discussion should be read in conjunction with the Management Overview that was included in our Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

On February 1, 2025, German American Bancorp completed its acquisition of Heartland BancCorp ("Heartland") through the merger of Heartland with and into the Company. Immediately following completion of the Heartland holding company merger, Heartland's subsidiary bank, Heartland Bank, was merged with and into the Company's subsidiary bank, German American Bank. Heartland, headquartered in Whitehall, Ohio, operated 20 retail banking offices located in Columbus, Ohio and Greater Cincinnati. As of the closing of the transaction, Heartland had total assets of approximately $1.94 billion, total loans of approximately $1.58 billion, and total deposits of approximately $1.73 billion. German American Bancorp issued approximately 7.74 million shares of its common stock, and paid approximately $23.1 million in cash, in exchange for all of the issued and outstanding shares of common stock of Heartland and in cancellation of all options to acquire Heartland common stock outstanding as of the effective time of the merger.

On September 15, 2025, Bancorp redeemed the Heartland 5.0% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the "Heartland Notes"), outstanding in the aggregate principal amount of $24.3 million, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest.

For further information regarding the acquisition of Heartland, see Note 16 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.

During June and July 2024, the Company undertook a partial restructuring of its securities portfolio by selling available-for-sale securities totaling approximately $375.3 million in book value, at an after-tax loss of approximately $27.2 million. The tax-equivalent yield on the bonds sold was approximately 3.12% with a duration of approximately 7 years. The proceeds from the securities sold were reinvested in the securities portfolio by the end of the third quarter of 2024.

Effective June 1, 2024, German American Insurance, Inc. ("GAI"), a wholly-owned subsidiary of the Bank, sold substantially all of its assets to The Hilb Group of Indiana, LLC, a Delaware limited liability company ("Hilb"), for a purchase price of $40.0 million in cash. As part of the transaction, the Bank, as the parent of GAI, may receive payments for the referral of customers to Hilb, and the Company will refrain from conducting certain insurance activities, in each case, for a period of five (5) years following closing. Prior to the sale, GAI was a full-service agency offering personal and commercial insurance products. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this

Report.

Net income for the quarter ended September 30, 2025 totaled $35,074,000, or $0.94 per share, an increase of 32% on a per share basis compared with the third quarter 2024 net income of $21,048,000, or $0.71 per share. Net income for the nine months ended September 30, 2025 totaled $76,952,000, or $2.10 per share, an increase of 3% on a per share basis compared with the nine months ended September 30, 2024.

The third quarter of 2025 results of operations included Heartland acquisition-related expenses of $135,000 ($101,000, on an after-tax basis), and a $975,000 non-recurring gain on the redemption of the Heartland Notes ($731,000, on an after-tax basis). The first nine months of 2025 results of operations included Heartland acquisition-related expenses of $6,996,000 ($5,418,000, on an after-tax basis) and the "Day 2" provision for credit losses under the CECL model of $16,200,000 ($12,150,000, on an after-tax basis), as well as the gain on the redemption of the Heartland Notes.

The third quarter of 2024 included Heartland acquisition-related expenses of $747,000 ($609,000, on an after-tax basis) and the first nine months of 2024 included $1,172,000 ($928,000, on an after-tax basis). As indicated above, results of operations for the first nine months of 2024 also included the insurance sale transaction in the second quarter of 2024, which resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share, and the partial securities portfolio restructuring transaction resulting in an after-tax loss of $27,189,000, or $0.92 per share.

On an adjusted basis, net income for the third quarter of 2025 was $34,444,000, or $0.92 per share, compared with the adjusted third quarter 2024 net income of $21,722,000, or $0.73 per share. Net income, on an adjusted basis, for the nine months ended September 30, 2025, was $93,789,000, or $2.57 per share, compared with the adjusted nine months ended September 30, 2024 net income of $60,420,000, or $2.04 per share. Adjusted net income and adjusted earnings per share are non-GAAP financial measures. Refer to "Use of Non-GAAP Financial Measures" contained in this Management's Discussion and Analysis for additional information, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The financial condition and results of operations for the Company presented in the Consolidated Financial Statements, accompanying Notes to the Consolidated Financial Statements, and selected financial data appearing elsewhere within this Report, are, to a large degree, dependent upon the Company's accounting policies. The selection of and application of these policies involve estimates, judgments, and uncertainties that are subject to change. The critical accounting policies and estimates that the Company has determined to be the most susceptible to change in the near term relate to the determination of the allowance for credit losses, the valuation of securities available for sale, income tax expense, and the valuation of goodwill and other intangible assets.

Allowance for Credit Losses

The Company maintains an allowance for credit losses to cover the estimated expected credit losses over the expected contractual life of the loan portfolio. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. A provision for credit losses is charged to operations based on management's periodic evaluation of the necessary allowance balance. Evaluations are conducted at least quarterly and more often if deemed necessary. The ultimate recovery of all loans is susceptible to future market factors beyond the Company's control.

The Company has an established process to determine the adequacy of the allowance for credit losses. The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on individually analyzed loans, estimated losses on other classified loans and pools of homogeneous loans, and consideration of past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, reasonable and supportable forecasts and other factors, all of which may be susceptible to significant change. The allowance consists of two components of allocations, specific and general. These two components represent the total allowance for credit losses deemed adequate to cover expected credit losses over the expected life of the loan portfolio.

Management's estimate of the ACL for loans relies on the identification, stratification and separate estimates of loss for both loans collectively evaluated and loans individually evaluated for loss. The estimate of loss for loans collectively evaluated for loss in particular involves a significant level of estimation uncertainty due to its complexity and the quantity of relevant inputs,

including: management's determination of baseline loss rate multipliers based on a third party forecast of economic conditions, estimates of the reasonable and supportable forecast period, estimates of the baseline loss rate look back period, estimates of the reversion period from the reasonable and supportable forecast period to the baseline loss rate and estimates of the prepayment rate and related look back period. Additionally, management considers other qualitative risk factors to further adjust the estimated ACL on loans through a qualitative allowance.

Commercial and agricultural loans are subject to a standardized grading process administered by an internal loan review function. The need for specific reserves is considered for credits when: (a) the customer's cash flow or net worth appears insufficient to repay the loan; (b) the loan has been criticized in a regulatory examination; (c) the loan is on non-accrual; or (d) other reasons where the ultimate collectability of the loan is in question, or the loan characteristics require special monitoring.

Specific reserves on individually analyzed loans are determined by comparing the loan balance to the present value of expected cash flows or expected collateral proceeds. Allocations are also applied to categories of loans not individually analyzed but for which the rate of loss is expected to be greater than other similar type loans, including non-performing consumer or residential real estate loans. Such allocations are based on past loss experience, reasonable and supportable forecasts and information about specific borrower situations and estimated collateral values.

General allocations are made for commercial and agricultural loans that are graded as substandard and special mention, but are not individually analyzed for specific reserves as well as other pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss. General allocations of the allowance are primarily made based on historical averages for loan losses for these portfolios along with reasonable and supportable forecasts, judgmentally adjusted for economic, external and internal quantitative and qualitative factors and portfolio trends. Economic factors include evaluating changes in international, national, regional and local economic and business conditions that affect the collectability of the loan portfolio. Internal factors include evaluating changes in lending policies and procedures; changes in the nature and volume of the loan portfolio; existence and effect of concentrations of credit; changes in volume and severity of past due loans; and changes in experience, ability and depth of lending management and staff.

The allowance for credit losses for loans represents management's estimate of all expected credit losses over the expected contractual life of the loan portfolio. Determining the appropriateness and adequacy of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio may result in significant changes in the allowance for credit losses in future periods.

Under Accounting Standards Codification (ASC) 805, Business Combinations, in a transaction like the Heartland merger, the acquirer is required to recognize an allowance for credit losses in the period of acquisition for both purchased credit deterioration ("PCD") assets and non-PCD assets. The determination of PCD versus non-PCD determines how the allowance for credit loss flows through the financial statements. For PCD assets, the gross-up method includes the impact in the "Day 1" business combination entries with no impact to expense. For non-PCD assets, the impact is reflected outside of the business combination entries (sometimes referred to as "Day 2") and is reflected in expense.

At March 31, 2025, the Company changed its method for estimating the allowance for credit losses to the discounted cash flow model on a prospective basis. Prior to March 31, 2025, the Company utilized the static pool methodology in determining future credit losses. While both methodologies permit the Company to develop reasonable and supportable forecasts, by utilizing the discounted cash flow method, the Company has the ability to better evaluate multiple economic scenarios by capturing macroeconomic conditions within the model assumptions and calculations. This change in methodology had an insignificant impact on the allowance in 2025.

As previously stated, the Company now utilizes a discounted cash flow methodology to estimate the allowance for credit losses. Expected cash flows are estimated for each loan and discounted using the contractual terms of the loan, calculated probabilities of default, loss given default rates, and prepayment and curtailment estimates, as well as qualitative factors. The probability of default estimates are generated using a regression model that estimates the likelihood of a loan being charged-off during its life. The regression model uses combinations of variables to assess historical loss correlations to economic factors, and these variables become model forecast inputs for economic factors that are updated in the model each period. The Company uses an economic forecast provided by a third-party for these model inputs.

Securities Valuation

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale debt securities in an unrealized loss position, the Company assesses whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of

the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for sale debt securities that do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at September 30, 2025. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of September 30, 2025, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $5,799,000 and gross unrealized losses totaled approximately $236,243,000. The net amount of these two items, net of applicable taxes, is included in other comprehensive income (loss).

Equity securities that do not have readily determinable fair values are carried at cost, less impairment with observable price changes being recognized in earnings.

Income Tax Expense

Income tax expense involves estimates related to the valuation allowance on deferred tax assets and loss contingencies related to exposure from tax examinations presumed to occur.

A valuation allowance reduces deferred tax assets to the amount management believes is more likely than not to be realized. In evaluating the realization of deferred tax assets, management considers the likelihood that sufficient taxable income of appropriate character will be generated within carry-back and carry-forward periods, including consideration of available tax planning strategies. Tax-related loss contingencies, including assessments arising from tax examinations and tax strategies, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. In considering the likelihood of loss, management considers the nature of the contingency, the progress of any examination or related protest or appeal, the views of legal counsel and other advisors, experience of the Company or other enterprises in similar matters, if any, and management's intended response to any assessment.

Goodwill and Other Intangible Assets

Goodwill resulting from business combinations represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected December 31 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on the Company's balance sheet. No impairment to Goodwill was indicated based on year-end testing.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Other intangible assets consist of core deposit and acquired customer relationship intangible assets. They are initially measured at fair value and then are amortized over their estimated useful lives, which range from 6 to 10 years.

RESULTS OF OPERATIONS

the first nine months of 2024 also included the insurance sale transaction in the second quarter of 2024, which resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share, and the partial securities portfolio restructuring transaction resulting in an after-tax loss of $27,189,000, or $0.92 per share.

Net Interest Income:

The following table summarizes net interest income (on a tax-equivalent basis) for the three months ended September 30, 2025 and 2024. For tax-equivalent adjustments, an effective tax rate of 21% was used for both periods.(1)


	Average Balance Sheet (Tax-equivalent basis / dollars in thousands)
	Three Months Ended September 30, 2025						Three Months Ended September 30, 2024
	Principal Balance		Income / Expense		Yield / Rate		Principal Balance		Income / Expense		Yield / Rate
ASSETS
Federal Funds Sold and Other Short-term Investments	$	187,648	$	2,084	4.41	%	$	164,154	$	2,223	5.39	%
Securities:
Taxable	1,126,435		9,268		3.29	%	1,026,995		8,034		3.13	%
Non-taxable	457,826		4,354		3.80	%	463,812		4,123		3.55	%
Total Loans and Leases⁽²⁾	5,766,875		93,664		6.45	%	4,052,673		61,424		6.03	%
TOTAL INTEREST EARNING ASSETS	7,538,784		109,370		5.77	%	5,707,634		75,804		5.29	%
Other Assets	887,879						552,974
Less: Allowance for Credit Losses	(76,098)						(44,324)
TOTAL ASSETS	$	8,350,565					$	6,216,284

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Demand Deposits	$	1,868,343	$	7,475	1.59	%	$	1,673,806	$	7,621	1.81	%
Savings Deposits and Money Market Accounts	1,884,892		9,611		2.02	%	1,296,910		6,215		1.91	%
Time Deposits	1,330,944		12,330		3.68	%	888,639		9,539		4.27	%
FHLB Advances and Other Borrowings	216,460		2,956		5.42	%	191,548		2,684		5.57	%
TOTAL INTEREST-BEARING LIABILITIES	5,300,639		32,372		2.42	%	4,050,903		26,059		2.56	%
Demand Deposit Accounts	1,912,208						1,411,377
Other Liabilities	58,359						50,627
TOTAL LIABILITIES	7,271,206						5,512,907
Shareholders' Equity	1,079,359						703,377
TOTAL LIBABILITIES AND SHAREHOLDERS' EQUITY	$	8,350,565					$	6,216,284

COST OF FUNDS					1.71	%					1.82	%
NET INTEREST INCOME			$	76,998					$	49,745
NET INTEREST MARGIN(3)					4.06	%					3.47	%

(1)Effective tax rates were determined as though interest earned on the Company's investments in municipal bonds and loans was fully taxable.

(2)Loans held-for-sale and non-accruing loans have been included in average loans.

(3)Net interest income, on a tax-equivalent basis, represents a non-GAAP financial measure. Refer to "Use of Non-GAAP Financial Measures" contained in this Management's Discussion and Analysis for additional information, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.

The following table summarizes net interest income (on a tax-equivalent basis) for the nine months ended September 30, 2025 and 2024. For tax-equivalent adjustments, an effective tax rate of 21% was used for both periods.(1)


	Average Balance Sheet (Tax-equivalent basis / dollars in thousands)
	Nine Months Ended September 30, 2025						Nine Months Ended September 30, 2024
	Principal Balance		Income / Expense		Yield / Rate		Principal Balance		Income / Expense		Yield / Rate
ASSETS
Federal Funds Sold and Other Short-term Investments	$	247,212	$	8,232	4.45	%	$	122,703	$	4,905	5.34	%
Securities:
Taxable	1,118,585		27,528		3.28	%	905,901		18,111		2.67	%
Non-taxable	462,396		12,881		3.71	%	624,725		16,806		3.59	%
Total Loans and Leases⁽²⁾	5,529,532		265,969		6.43	%	4,015,973		178,988		5.95	%
TOTAL INTEREST EARNING ASSETS	7,357,725		314,610		5.71	%	5,669,302		218,810		5.16	%
Other Assets	852,114						558,066
Less: Allowance for Credit Losses	(72,628)						(44,137)
TOTAL ASSETS	$	8,137,211					$	6,183,231

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Demand Deposits	$	1,874,987	$	22,388	1.60	%	$	1,711,647	$	23,248	1.81	%
Savings Deposits and Money Market Accounts	1,826,452		27,744		2.03	%	1,284,919		17,418		1.81	%
Time Deposits	1,327,661		36,947		3.72	%	859,272		27,083		4.21	%
FHLB Advances and Other Borrowings	213,771		8,217		5.14	%	190,290		7,180		5.04	%
TOTAL INTEREST-BEARING LIABILITIES	5,242,871		95,296		2.43	%	4,046,128		74,929		2.47	%
Demand Deposit Accounts	1,819,351						1,419,745
Other Liabilities	54,789						47,222
TOTAL LIABILITIES	7,117,011						5,513,095
Shareholders' Equity	1,020,200						670,136
TOTAL LIBABILITIES AND SHAREHOLDERS' EQUITY	$	8,137,211					$	6,183,231

COST OF FUNDS					1.73	%					1.77	%
NET INTEREST INCOME			$	219,314					$	143,881
NET INTEREST MARGIN(3)					3.98	%					3.39	%

(1)Effective tax rates were determined as though interest earned on the Company's investments in municipal bonds and loans was fully taxable.

(2)Loans held-for-sale and non-accruing loans have been included in average loans.

During the third quarter of 2025, net interest income, on a non tax-equivalent basis, totaled $75,725,000, an increase of $27,131,000, or 56% compared to the third quarter of 2024 net interest income of $48,594,000. During the first nine months of 2025, net interest income, on a non tax-equivalent basis, totaled $215,452,000, an increase of $75,893,000, or 54%, compared to the first nine months of 2024 net interest income of $139,559,000. The increase in net interest income for both periods presented for 2025 compared with the same periods of 2024 was primarily attributable to a higher level of earning assets driven by the Heartland acquisition and an improvement of the Company's net interest margin.

The tax equivalent net interest margin for the quarter ended September 30, 2025 was 4.06% compared with 3.47% in the third quarter of 2024. The tax equivalent net interest margin for the nine months ended September 30, 2025 was 3.98% compared with 3.39% in the same period of 2024. The Company's net interest margin and net interest income in both periods presented were impacted by accretion of loan discounts on acquired loans. Accretion of discounts on acquired loans totaled $3,914,000 during the third quarter of 2025 and $236,000 during the third quarter of 2024. Accretion of discounts on acquired loans totaled $11,589,000 and $889,000 for the first nine months of 2025 and 2024, respectively. Accretion of discounts on acquired loans contributed approximately 21 basis points to the net interest margin in the third quarter of 2025 and 2 basis points in the third quarter of 2024. Accretion of loan discounts on acquired loans contributed approximately 21 basis points to the net interest margin in the first nine months of 2025 compared to 2 basis points for the same period of 2024.

The continued improvement in the net interest margin, excluding the accretion of discount on acquired loans, during the third quarter of 2025 compared with the third quarter of 2024 as well as the first nine months of 2025 compared with the first nine months of 2024 was largely driven by an improved yield on earning assets (including both loan and security yields) and a lower cost of deposits. The lower cost of deposits was driven by the Federal Reserve's lowering of the Federal Funds rates over the

last several months of 2024 and the Company's ability to correspondingly lower deposit costs. The Federal Funds rate cut in mid-September 2025 had minimal impact on the average earning asset yields or average cost of deposits during the third quarter of 2025.

Provision for Credit Losses:

The Company provides for credit losses through regular provisions to the allowance for credit losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations of the allowance. During the quarter ended September 30, 2025, the Company recorded a provision for credit losses of $700,000 compared with a provision for credit losses of $625,000 during the third quarter of 2024. During the nine months ended September 30, 2025, the Company recorded a provision for credit losses of $17,200,000 compared with a provision for credit losses of $2,150,000 for the first nine months of 2024. The first quarter of 2025 included a provision for credit losses of $16,200,000 related to the "Day 2" adjustment for the Heartland acquisition.

Net charge-offs totaled $748,000, or 5 basis points, on an annualized basis, of average loans outstanding during the third quarter of 2025 compared with $447,000, or 4 basis points, on an annualized basis, of average loans during the third quarter of 2024. Net charge-offs totaled $2,082,000, or 5 basis points, on an annualized basis, of average loans outstanding during the nine months ended September 30, 2025 compared with $1,791,000, or 6 basis points, on an annualized basis, of average loans during the same period of 2024.

The provision for credit losses made during the three and nine months ended September 30, 2025 was made at a level deemed necessary by management to absorb expected losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.

At March 31, 2025, the Company changed its method for estimating the allowance for credit losses to the discounted cash flow model on a prospective basis for all loan segments except for the credit card loan segment. Prior to March 31, 2025, the Company utilized the static pool methodology in determining future credit losses. This change in methodology has had an insignificant impact on the allowance in 2025.

Non-interest Income:

During the quarter ended September 30, 2025, non-interest income totaled $18,429,000, an increase of $4,628,000, or 34%, compared with the third quarter of 2024. The increase during the third quarter of 2025 compared to the same period of 2024 was largely the result of the Heartland acquisition, improvement of the Company's existing fee revenue generation and a $975,000 gain on the extinguishment of debt resulting from the redemption of the Heartland Notes. On an adjusted basis, non-interest income for the third quarter of 2025 was $17,454,000 compared to $13,731,000 for the third quarter of 2024. Adjusted non-interest income is a non-GAAP financial measure. Refer to "Use of Non-GAAP Financial Measures" section in this Management's Discussion and Analysis for additional information, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.


Non-interest Income (dollars in thousands)	Three Months Ended September 30,				Change From Prior Period
					Amount		Percent
	2025		2024		Change		Change
Wealth Management Fees	$	4,288	$	3,580	$	708	20	%
Service Charges on Deposit Accounts	3,927		3,330		597		18
Insurance Revenues	-		-		-		n/m (1)
Company Owned Life Insurance	630		476		154		32
Interchange Fee Income	5,087		4,390		697		16
Gain on Sale of Assets of German American Insurance	-		-		-		n/m (1)
Other Operating Income	3,308		1,251		2,057		164
Subtotal	17,240		13,027		4,213		32
Net Gains on Sales of Loans	1,189		704		485		69
Net Gains (Losses) on Securities	-		70		(70)		n/m (1)
Total Non-interest Income	$	18,429	$	13,801	$	4,628	34

(1)n/m= not meaningful

Wealth management fees increased $708,000, or 20%, during the third quarter of 2025 compared with the third quarter of 2024. The increase during the third quarter of 2025 compared with the third quarter of 2024 was largely attributable to increased assets under management, driven by healthy capital markets throughout 2024 and much of 2025, and continued strong new business results in addition to the Heartland acquisition.

Service charges on deposit accounts increased $597,000, or 18%, during the quarter ended September 30, 2025 compared with the same period of 2024. The increase during the third quarter of 2025 compared with the third quarter of 2024 was primarily driven by the Heartland acquisition in addition to increased customer utilization of deposit services.

No insurance revenues were recognized during the third quarter of 2025 or 2024 due to the sale of the GAI assets effective June 1, 2024. As previously discussed, the sale of substantially all of the assets of GAI in June 2024 resulted in $38,323,000 in net proceeds. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.

For the quarter ended September 30, 2025, interchange fees increased $697,000, or 16%, compared with the same quarter of 2024. The increase during the third quarter of 2025 compared with the third quarter of 2024 was largely attributable to the Heartland acquisition.

Other operating income increased $2,057,000, or 164%, in the third quarter of 2025 compared with the third quarter of 2024. The increase during the third quarter of 2025 compared with the third quarter of 2024 was largely attributable to a $975,000 gain on the extinguishment of debt resulting from the redemption of the Heartland Notes during the third quarter of 2025.

Net gains on sales of loans increased $485,000, or 69%, compared with the third quarter of 2024. The increase during the third quarter of 2025 compared with the third quarter of 2024 was largely related to the Heartland acquisition and a higher volume of loans sold. Loan sales totaled $55.5 million during the third quarter of 2025 compared with $40.3 million during the third quarter of 2024.

During the nine months ended September 30, 2025, non-interest income totaled $50,002,000, an increase of $1,456,000, or 3%, compared with the same period of 2024. The increase during the first nine months of 2025 compared to the same period of 2024 was largely the result of the Heartland acquisition, improvement of the Company's existing fee revenue generation and a $975,000 gain on the extinguishment of debt resulting from the redemption of the Heartland Notes. The first nine months of 2024 included the previously mentioned sale of the GAI assets and the securities portfolio restructuring transaction, which each occurred during the second quarter of 2024. On an adjusted basis, non-interest income for the first nine months of 2025 was $49,027,000 compared to $40,577,000 for the same period of 2024. Adjusted non-interest income is a non-GAAP financial measure. Refer to "Use of Non-GAAP Financial Measures" section in this Management's Discussion and Analysis for additional information, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.


Non-interest Income (dollars in thousands)	Nine Months Ended September 30,				Change From Prior Period
					Amount		Percent
	2025		2024		Change		Change
Wealth Management Fees	$	12,289	$	10,729	$	1,560	15	%
Service Charges on Deposit Accounts	11,127		9,325		1,802		19
Insurance Revenues	-		4,384		(4,384)		n/m (1)
Company Owned Life Insurance	1,908		1,442		466		32
Interchange Fee Income	14,565		12,881		1,684		13
Gain on Sale of Assets of German American Insurance	-		38,323		(38,323)		n/m (1)
Other Operating Income	6,712		3,826		2,886		75
Subtotal	46,601		80,910		(34,309)		(42)
Net Gains on Sales of Loans	3,401		2,424		977		40
Net Gains (Losses) on Securities	-		(34,788)		34,788		n/m (1)
Total Non-interest Income	$	50,002	$	48,546	$	1,456	3

(1)n/m= not meaningful

For the nine months ended September 30, 2025, wealth management fees increased $1,560,000, or 15%, compared with the same period of 2024. The increase during the first nine months of 2025 compared with the same period of 2024 was largely

attributable to increased assets under management, driven by healthy capital markets throughout 2024 and much of 2025, and continued strong new business results in addition to the Heartland acquisition.

Service charges on deposit accounts increased $1,802,000, or 19%, during the first nine months of 2025, compared with the first nine months of 2024. The increase during the first nine months of 2025 compared with the same period of 2024 was primarily driven by the Heartland acquisition in addition to increased customer utilization of deposit services.

No insurance revenues were recognized during the nine months ended September 30, 2025 due to the sale of the GAI assets effective June 1, 2024. As a result, insurance revenues declined $4,384,000 during the nine months ended September 30, 2025, compared with the same period of 2024. As previously discussed, the sale of substantially all of the assets of GAI in June 2024 resulted in $38,323,000 in net proceeds. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.

Interchange fees increased $1,684,000, or 13%, during the nine months ended September 30, 2025, compared with the nine months ended September 30, 2024. The increase during the first nine months of 2025 compared with the same period of 2024 was largely attributable to the Heartland acquisition.

During the nine months ended, September 30, 2025, other operating income increased $2,886,000, or 75%, compared with the same period of 2024. The increase during the nine months ended September 30, 2025 compared with the same period of 2024 was primarily attributable to the aforementioned gain on extinguishment of debt and the Heartland acquisition.

Net gains on sales of loans increased $977,000, or 40%, compared with the first nine months of 2024. The increase during the first nine months of 2025 compared with the same period of 2024 was largely related to the Heartland acquisition and a higher volume of loans sold. Loan sales totaled $145.0 million during the first nine months of 2025 compared with $97.3 million during the same period of 2024.

There were no securities transactions during the first nine months of 2025 that resulted in net gains or losses. The net loss on securities during the first nine months of 2024 included a loss of $34,858,000 which was related to the net loss recognized on the securities restructuring transaction previously discussed.

Non-interest Expense:

During the quarter ended September 30, 2025, non-interest expense totaled $49,700,000, an increase of $13,574,000, or 38%, compared with the third quarter of 2024. The primary drivers of the increased operating expenses in the third quarter of 2025 compared with the third quarter of 2024 were the Heartland operating costs.

Each period presented included Heartland acquisition-related expenses, with such amounts being $135,000 for the third quarter 2025 and $747,000 for the third quarter 2024.

On an adjusted basis, non-interest expense for the third quarter of 2025 was $49,565,000 compared to $35,292,000 for the third quarter of 2024. Adjusted non-interest expense is a non-GAAP financial measure. Refer to "Use of Non-GAAP Financial Measures" contained in this release for additional information including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.


Non-interest Expense (dollars in thousands)	Three Months Ended September 30,				Change From Prior Period
					Amount		Percent
	2025		2024		Change		Change
Salaries and Employee Benefits	$	25,444	$	19,718	$	5,726	29	%
Occupancy, Furniture and Equipment Expense	5,255		3,880		1,375		35
FDIC Premiums	1,059		755		304		40
Data Processing Fees	4,175		3,156		1,019		32
Professional Fees	1,960		1,912		48		3
Advertising and Promotion	1,321		941		380		40
Intangible Amortization	2,693		484		2,209		456
Other Operating Expenses	7,793		5,280		2,513		48
Total Non-interest Expense	$	49,700	$	36,126	$	13,574	38

Salaries and benefits increased $5,726,000, or 29%, during the third quarter of 2025 compared with the third quarter of 2024. The increase in the third quarter of 2025 compared with the third quarter of 2024 was due primarily to the salaries and benefits costs for the Heartland employee base.

Occupancy, furniture and equipment expense increased $1,375,000, or 35%, for the three months ended September 30, 2025, compared to the same period of 2024. The increase during the three months ended September 30, 2025 compared with the same period of 2024 was primarily attributable to the operating costs of the Heartland branch network.

During the third quarter of 2025, data processing fees increased $1,019,000, or 32%, compared with the third quarter of 2024. The increase during the third quarter of 2025 compared with the same period of 2024 was largely driven by operating costs associated with the Heartland acquisition and continued enhancements to existing data systems and processes.

Intangible amortization increased $2,209,000, or 456%, during the third quarter of 2025 compared with the third quarter of 2024. The increase was attributable to the Heartland acquisition.

Other operating expenses increased $2,513,000, or 48%, for the three months ended September 30, 2025 compared with the same period of 2024. The increase in the three months ended September 30, 2025 compared with the same period of 2024 was largely related the to operating costs of Heartland.

During the nine months ended September 30, 2025, non-interest expense totaled $151,999,000, an increase of $41,461,000, or 38%, compared with the same period of 2024. The primary drivers of the increased operating expenses in the nine months ended September 30, 2025 compared with the same period of 2024 were the Heartland operating costs and acquisition related costs.

Each period presented included Heartland acquisition-related expenses, with such amounts being $6,996,000 for the first nine months of 2025 and $1,172,000 for first nine months of 2024. The first nine months of 2024 also included non-recurring professional fees and other costs associated with the GAI asset sale that totaled approximately $1,816,000.

On an adjusted basis, non-interest expense for the first nine months of 2025 was $145,003,000 compared to $104,208,000 for the same period of 2024. Adjusted non-interest expense is a non-GAAP financial measure. Refer to "Use of Non-GAAP Financial Measures" contained in this release for additional information including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.


Non-interest Expense (dollars in thousands)	Nine Months Ended September 30,				Change From Prior Period
					Amount		Percent
	2025		2024		Change		Change
Salaries and Employee Benefits	$	80,122	$	61,853	$	18,269	30	%
Occupancy, Furniture and Equipment Expense	14,669		11,171		3,498		31
FDIC Premiums	2,847		2,194		653		30
Data Processing Fees	13,756		8,986		4,770		53
Professional Fees	8,256		6,969		1,287		18
Advertising and Promotion	4,075		2,988		1,087		36
Intangible Amortization	7,566		1,594		5,972		375
Other Operating Expenses	20,708		14,783		5,925		40
Total Non-interest Expense	$	151,999	$	110,538	$	41,461	38

Salaries and benefits increased $18,269,000, or 30%, for the first nine months of 2025 compared with the same period of 2024. The increase in the first nine months of 2025 compared with the same period of 2024 was due primarily to the salaries and benefits costs for the Heartland employee base.

During the nine months ended September 30, 2025, occupancy, furniture and equipment expense increased $3,498,000, or 31%, compared to the nine months ended September 30, 2024. The increase during the nine months ended September 30, 2025 compared with the same period of 2024 was primarily attributable to the operating costs of the Heartland branch network.

Data processing fees increased $4,770,000, or 53%, during the first nine months of 2025 compared with the same period of 2024. The increase during the first nine months of 2025 compared with the same period of 2024 was largely driven by operating costs of the existing Heartland systems and acquisition-related costs during the first nine months of 2025.

Professional fees increased $1,287,000, or 18%, during the nine months ended September 30, 2025 compared with the same period of 2024. The increase during the nine months ended September 30, 2025 compared to the same period of 2024 was due in large part to professional fees associated with the Heartland acquisition. Professional fees related to merger and acquisition activities totaled approximately $2,887,000 during the nine months ended September 30, 2025 and approximately $2,636,000 during the same period of 2024, with both periods being impacted by the Heartland acquisition and the nine months ended September 30, 2024, also being impacted by the GAI asset sale.

Intangible amortization increased $5,972,000, or 375%, during the first nine months of 2025 compared with the same period of 2024. The increase was attributable to the Heartland acquisition.

Other operating expenses increased $5,925,000, or 40%, during the first nine months of 2025 compared with the same period of 2024. The increase in the first nine months of 2025 compared with the same period of 2024 was largely attributable to the operating costs of Heartland.

Income Taxes:

The Company's effective income tax rate was 19.8% and 17.9%, respectively, during the three months ended September 30, 2025 and 2024. The Company's effective income tax rate was 20.1% and 19.7%, respectively, during the nine months ended September 30, 2025 and 2024. The effective tax rate in all periods presented was lower than the blended statutory rate resulting primarily from the Company's tax-exempt investment income on securities, loans and company-owned life insurance, income tax credits generated from affordable housing projects, and income generated by subsidiaries domiciled in a state with no state or local income tax.

FINANCIAL CONDITION

Total assets for the Company totaled $8.401 billion at September 30, 2025, representing an increase of $2.105 billion compared with December 31, 2024. The increase in total assets at September 30, 2025 compared with year-end 2024 was in large part attributable to the Heartland acquisition.

September 30, 2025 total loans increased $1.654 billion compared with December 31, 2024. The increase in total loans at September 30, 2025 compared with year-end 2024 was largely due to the acquisition of Heartland and to a lesser extent organic loan growth from throughout the Company's existing market areas.

Excluding loans acquired through the Heartland acquisition, total loans increased $150 million, or approximately 5% on an annualized basis, at September 30, 2025 compared with December 31, 2024. From December 31, 2024 to September 30, 2025, excluding the acquired Heartland loans, commercial and industrial loans increased approximately $5.3 million, or 1% on an annualized basis, commercial real estate loans increased $111.5 million, or 7% on an annualized basis, and retail loans increased $36.6 million, or 6% on an annualized basis, while agricultural loans declined $2.5 million, or 1% on an annualized basis.

The composition of the loan portfolio has remained relatively stable and diversified over the past several years. The addition of the Heartland loan portfolio resulted in only modest changes to the overall portfolio composition, most notably in the residential mortgage loan segment. The portfolio is most heavily weighted in commercial real estate loans at 54% of the portfolio, followed by commercial and industrial loans at 14% of the portfolio, residential mortgage loans at 14% of the portfolio (up from 9% at year-end 2024), agricultural loans at 8% of the portfolio, and home equity loans at 8% of the portfolio. The Company's commercial lending is extended to various industries, including multi-family housing and lodging, agribusiness and manufacturing, as well as health care, wholesale, and retail services.


End of Period Loan Balances: (dollars in thousands)	September 30, 2025		December 31, 2024		Current Period Change
Commercial and Industrial Loans and Leases	$	815,222	$	671,038	$	144,184
Commercial Real Estate Loans	3,103,181		2,224,872		878,309
Agricultural Loans	472,807		431,037		41,770
Home Equity and Consumer Loans	603,742		448,872		154,870
Residential Mortgage Loans	792,670		357,448		435,222
Total Loans	$	5,787,622	$	4,133,267	$	1,654,355

The Company's commercial real estate portfolio is well-diversified over numerous property types. The table below provides property type detail for the most significant segments of the Company's commercial real estate loan portfolio.


	September 30, 2025				December 31, 2024
	% of Commercial Real Estate Portfolio		% of Total Loan Portfolio		% of Commercial Real Estate Portfolio		% of Total Loan Portfolio
Multi-Family Dwellings	21	%	11	%	20	%	11	%
Retail Space	13	%	7	%	15	%	8	%
Industrial, Manufacturing, Warehousing Properties	10	%	5	%	10	%	5	%
1-4 Family Investment Properties	9	%	5	%	11	%	6	%
Lodging	8	%	5	%	6	%	3	%
Office Real Estate	8	%	4	%	9	%	5	%
Healthcare Facilities	8	%	4	%	7	%	4	%
Land Development and Construction	6	%	3	%	7	%	4	%

The Company's commercial real estate loan portfolio is further diversified by occupancy type, with approximately 76% of the CRE portfolio being non-owner occupied at September 30, 2025 (which is 41% of the Company's overall loan portfolio), and 24% of the CRE portfolio being owner occupied (which is 13% of the Company's total loan portfolio). At December 31, 2024, the Company's commercial real estate loan portfolio was diversified by occupancy type, with approximately 77% of the CRE portfolio being non-owner occupied (which was 42% of the Company's overall loan portfolio), and 23% of the CRE portfolio being owner occupied (which was 12% of the Company's total loan portfolio).

Commercial real estate loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business. Like much of the Bank's lending activities, the underwriting standards for commercial real estate are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower's management possesses sound ethics and solid business acumen, our management examines market conditions and current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. As discussed above, the properties securing our commercial real estate portfolio are diverse in terms of property type, occupancy type, and geographic location. This diversity helps reduce the Bank's exposure to adverse economic events that affect any single market or industry. Management will continue to monitor and evaluate commercial real estate loans based on collateral, geography and risk grade criteria.

The following table indicates the breakdown of the allowance for credit losses for the periods indicated (dollars in thousands):


	September 30, 2025		December 31, 2024
Commercial and Industrial Loans and Leases	$	18,809	$	7,456
Commercial Real Estate Loans	39,132		25,818
Agricultural Loans	3,228		4,917
Home Equity and Consumer Loans	5,673		3,443
Residential Mortgage Loans	9,215		2,802
Unallocated	-		-
Total Allowance for Credit Losses	$	76,057	$	44,436

The Company's allowance for credit losses totaled $76.1 million at September 30, 2025 compared to $44.4 million at December 31, 2024. The allowance for credit losses represented 1.32% of period-end loans at September 30, 2025 compared with 1.08% at December 31, 2024. At March 31, 2025, the Company changed its estimate methodology for the allowance for credit losses from the static pool to the discounted cash flow method which resulted in minimal impact to the allowance.

The Company added $32.7 million to the allowance for credit losses in conjunction with the closing of the Heartland acquisition on February 1, 2025, related to the Heartland loan portfolio. Of the increase in the allowance for credit losses for the Heartland portfolio, $16.2 million was recorded through the provision for credit losses for the "Day 2" Adjustment under the CECL model.

Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses. As of September 30, 2025, the Company held net discounts on acquired loans of $56.9 million, which included $54.7 million related to the Heartland loan portfolio.

The following is an analysis of the Company's non-performing assets at September 30, 2025 and December 31, 2024:


Non-performing Assets: (dollars in thousands)	September 30, 2025			December 31, 2024
Non-accrual Loans	$	23,676		$	10,934
Past Due Loans (90 days or more)	-			188
Total Non-performing Loans	23,676			11,122
Other Real Estate	48			-
Total Non-performing Assets	$	23,724		$	11,122

Restructured Loans	$	-		$	-

Non-performing Loans to Total Loans	0.41		%	0.27		%
Non-performing Assets to Period End Assets	0.28		%	0.18		%
Allowance for Credit Loss to Non-performing Loans	321.24		%	399.53		%

The following table presents non-accrual loans and loans past due 90 days or more still on accrual by class of loans:


	Non-Accrual Loans				Loans Past Due 90 Days or More & Still Accruing
	September 30, 2025		December 31, 2024		September 30, 2025		December 31, 2024
Commercial and Industrial Loans and Leases	$	8,789	$	5,018	$	-	$	-
Commercial Real Estate Loans	7,481		1,745		-		183
Agricultural Loans	2,393		765		-		5
Home Equity Loans	885		1,087		-		-
Consumer Loans	115		117		-		-
Residential Mortgage Loans	4,013		2,202		-		-
Total	$	23,676	$	10,934	$	-	$	188

Non-performing assets totaled $23.7 million at September 30, 2025 compared to $11.1 million at December 31, 2024. Non-performing assets represented 0.28% of total assets at September 30, 2025 compared with 0.18% at year-end 2024. Non-performing loans totaled $23.7 million at September 30, 2025 compared to $11.1 million at December 31, 2024. Non-performing loans represented 0.41% of total loans at September 30, 2025 compared to 0.27% at December 31, 2024.

The overall increase in non-performing assets at September 30, 2025 compared to December 31, 2024 was largely attributable to the Heartland acquisition. As of September 30, 2025, non-performing assets from the Heartland acquisition totaled approximately $11.6 million.

September 30, 2025 total deposits increased $1.685 billion compared to year-end 2024. The increase in total deposits at September 30, 2025 compared with year-end 2024 was largely attributable to the Heartland acquisition. As of September 30, 2025, deposits from the Heartland acquisition totaled $1.615 billion. Excluding the deposits related to the acquisition, total deposits were relatively stable with an increase of $70.9 million, or approximately 2% on an annualized basis, at September 30, 2025 compared with year-end 2024.

The addition of the Heartland deposit portfolio did not result in significant changes to the overall deposit portfolio composition. Notably, non-interest bearing deposits have remained relatively stable as a percent of total deposits with September 30, 2025 non-interest deposits totaling 28% of total deposits while non-interest deposits totaled 26% at year-end 2024.


End of Period Deposit Balances: (dollars in thousands)	September 30, 2025		December 31, 2024		Current Period Change
Non-interest-bearing Demand Deposits	$	1,938,522	$	1,399,270	$	539,252
Interest-bearing Demand, Savings, & Money Market Accounts	3,714,191		3,013,204		700,987
Time Deposits < $100,000	502,548		327,080		175,468
Time Deposits of $100,000 or more	859,241		589,521		269,720
Total Deposits	$	7,014,502	$	5,329,075	$	1,685,427

Capital Resources:

As of September 30, 2025, shareholders' equity increased by $404.7 million to $1.120 billion compared with $715.1 million at year-end 2024. The increase in shareholders' equity was primarily attributable to the issuance of approximately 7.7 million shares of the Bancorp's common stock in the acquisition of Heartland, resulting in an increase to shareholders' equity of $320.0 million.

Shareholders' equity represented 13.3% of total assets at September 30, 2025 and 11.4% of total assets at December 31, 2024. Shareholders' equity included $411.7 million of goodwill and other intangible assets at September 30, 2025 compared to $183.0 million of goodwill and other intangible assets at December 31, 2024.

The Company's Board of Directors previously approved a plan to repurchase up to 1.0 million shares of the Company's outstanding common stock. On a share basis, the amount of common stock subject to the repurchase plan represented approximately 3% of the Company's outstanding shares on the date it was approved. The Company is not obligated to purchase any shares under the plan, and the plan may be discontinued at any time. The actual timing, number and share price of shares purchased under the repurchase plan will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements. The Company has not repurchased any shares of common stock under the repurchase plan.

Federal banking regulations provide guidelines for determining the capital adequacy of bank holding companies and banks. These guidelines provide for a more narrow definition of core capital and assign a measure of risk to the various categories of assets. The Company is required to maintain minimum levels of capital in proportion to total risk-weighted assets and off-balance sheet exposures.

The current risk-based capital rules, as adopted by federal banking regulators, are based upon guidelines developed by the Basel Committee on Banking Supervision and reflect various requirements of the Dodd-Frank Act (the "Basel III Rules"). The Basel III Rules require banking organizations to, among other things, maintain a minimum ratio of Total Capital to risk-weighted assets, a minimum ratio of Tier 1 Capital to risk-weighted assets, a minimum ratio of "Common Equity Tier 1 Capital" to risk-weighted assets, and a minimum leverage ratio (calculated as the ratio of Tier 1 Capital to adjusted average consolidated assets). In addition, under the Basel III Rules, in order to avoid limitations on capital distributions, including dividend payments, the Company is required to maintain a 2.5% capital conservation buffer above the adequately capitalized regulatory capital ratios. At September 30, 2025, the capital levels for the Company and its subsidiary bank remained well in excess of the minimum amounts needed for capital adequacy purposes and the Bank's capital levels met the necessary requirements to be considered well-capitalized.

On September 15, 2025, the Company redeemed the Heartland Notes, outstanding in the aggregate principal amount of $24.3 million, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest. While a portion of the Heartland Notes qualified as Tier 2 capital for regulatory capital purposes, the redemption did not have a material impact on the capital ratios of the Company or the Bank.

The table below presents the Company's consolidated and the subsidiary bank's capital ratios under regulatory guidelines:


	9/30/2025 Ratio		12/31/2024 Ratio		Minimum for Capital Adequacy Purposes ⁽¹⁾		Well-Capitalized Guidelines
Total Capital (to Risk Weighted Assets)
Consolidated	15.07	%	17.15	%	8.00	%	N/A
Bank	14.00	%	15.02	%	8.00	%	10.00	%
Tier 1 (Core) Capital (to Risk Weighted Assets)
Consolidated	13.83	%	15.72	%	6.00	%	N/A
Bank	13.10	%	14.23	%	6.00	%	8.00	%
Common Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets)
Consolidated	13.30	%	15.02	%	4.50	%	N/A
Bank	13.10	%	14.23	%	4.50	%	6.50	%
Tier 1 Capital (to Average Assets)
Consolidated	11.40	%	12.28	%	4.00	%	N/A
Bank	10.80	%	11.12	%	4.00	%	5.00	%

(1)Excludes capital conservation buffer.

The Company adopted the CECL accounting standard under GAAP effective January 1, 2020. The regulatory capital rules applicable to the Company provided an optional three-year phase-in period for the day-one adverse regulatory capital effects of adopting CECL. In addition, as part of pandemic-related legislation enacted during 2020, banking organizations were further permitted to mitigate the estimated cumulative regulatory capital effects of CECL for up to an additional two years. As a result, on January 1, 2022, the Company began the required three-year phase-in by reflecting 25% of the previously deferred estimated capital impact of CECL in its regulatory capital. An additional 25% was phased in on each of January 1, 2023 and January 1, 2024, and January 1, 2025. As of January 1, 2025, the adverse cumulative effects of adopting CECL have been fully phased into our regulatory capital.

Liquidity:

The Consolidated Statement of Cash Flows details the elements of changes in the Company's consolidated cash and cash equivalents. Total cash and cash equivalents increased $66.9 million during the nine months ended September 30, 2025 ending at $255.6 million. During the nine months ended September 30, 2025, operating activities resulted in net cash inflows of $116.6 million. Investing activities resulted in net cash inflows of $55.3 million during the nine months ended September 30, 2025. Financing activities resulted in net cash outflows for the nine months ended September 30, 2025 of $105.1 million.

The Company's primary source of funding is its customer deposits, supplemented by reciprocal deposits. The bank subsidiary of the Company also utilizes short-term funding sources from time to time. These sources consist of overnight federal funds purchased from other financial institutions, secured repurchase agreements that generally mature within one day of the transaction date, and secured overnight variable rate borrowings from the FHLB and the Federal Reserve Bank. These borrowings represent an important source of short-term liquidity for the Company's bank subsidiary. In addition, the Company, as a separate and distinct corporation from its bank and other subsidiaries, also has the ability to borrow funds from other financial institutions and to raise debt or equity capital from the capital markets and other sources.

The Company's bank subsidiary is authorized by its Board to borrow up to $1.66 billion at the FHLB, but availability at September 30, 2025 was limited to approximately $592 million based on the then pledged collateral and outstanding borrowings. In addition, the Company had a borrowing capacity of approximately $734 million at the Federal Reserve Bank as of September 30, 2025, based on the then pledged collateral. The capacity for borrowings from the FHLB and the Federal Reserve Bank could be increased, in each case, by the Company pledging additional available collateral. The Company's Asset/Liability Committee closely monitors the availability of these sources as part of its overall oversight and management of the bank subsidiary's liquidity.

The parent company is a corporation separate and distinct from its bank and other subsidiaries. The Company uses funds at the parent-company level to pay dividends to its shareholders, to acquire or make other investments in other businesses or their securities or assets, to repurchase its stock from time to time, and for other general corporate purposes including debt service. The parent company does not have access at the parent-company level to the deposits and certain other sources of funds that are available to its bank subsidiary to support its operations. Instead, the parent company has historically derived most of its revenues from dividends paid to the parent company by its bank subsidiary. The Company's banking subsidiary is subject to statutory restrictions on its ability to pay dividends to the parent company. The parent company has, from time-to-time, supplemented the dividends received from its subsidiaries with borrowings. As of September 30, 2025, the parent company had approximately $68.0 million of cash and cash equivalents available to meet its cash flow needs.

USE OF NON-GAAP FINANCIAL MEASURES

The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Company has provided certain, non-GAAP financial measures, which it believes are useful because they assist investors in assessing the Company's operating performance. Specifically, the Company has presented its net income, earnings per share, provision for credit losses, non-interest expense, non-interest income, efficiency ratio, and net interest margin on an as adjusted basis for the periods set forth below to reflect the exclusion of the following items: (1) the CECL "Day 2" provision expense for acquired loans that have only insignificant credit deterioration (i.e., non-PCD loans) related to the Heartland merger; (2) non-recurring expenses related to the Heartland merger; (3) the gain on the extinguishment of debt resulting from the redemption of certain subordinated notes on September 15, 2025; (4) the operating results for GAI, whose assets were sold effective June 1, 2024; (5) the gain on the sale of GAI assets; and (6) the loss related to the securities portfolio restructuring transaction that occurred in the second quarter of 2024. Management believes excluding such items from these financial measures may be useful in assessing the Company's underlying operational performance since the applicable transactions do not pertain to its core business operations and exclusion may facilitate better comparability between periods. In addition, management believes that by excluding such items the measures are useful to the Company, as well as analysts and

investors, in assessing operating performance. Management also believes excluding these items may enhance comparability for peer comparison purposes.

Management believes that it is standard practice in the banking industry to present the efficiency ratio and net interest margin on a fully tax-equivalent basis and that, by doing so, it may enhance comparability for peer comparison purposes. The tax-equivalent adjustment to net interest income (for purposes of the efficiency ratio) and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%.

Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.


Non-GAAP Reconciliation - Net Income and Earnings Per Share	Three Months Ended				Nine Months Ended
(Dollars in Thousands, except per share amounts)	09/30/2025		09/30/2024		09/30/2025		09/30/2024
Net Income, as reported	$	35,074	$	21,048	$	76,952	$	60,600
Adjustments:
Plus: CECL Day 2 non-PCD provision	-		-		12,150		-
Plus: Non-recurring merger-related expenses	101		609		5,418		928
Less: Gain on debt extinguishment	731		-		731		-
Less: Loss on securities restructuring	-		-		-		(27,189)
Less: Income from GAI operations	-		(65)		-		821
Less: Gain on sale of GAI assets	-		-		-		27,476
Adjusted Net Income	$	34,444	$	21,722	$	93,789	$	60,420

Weighted Average Shares Outstanding	37,493,028		29,679,464		36,561,331		29,649,020

Earnings Per Share, as reported	$	0.94	$	0.71	$	2.10	$	2.04
Earnings Per Share, as adjusted	$	0.92	$	0.73	$	2.57	$	2.04


Non-GAAP Reconciliation - Non-Interest Income and Non-Interest Expense	Three Months Ended				Nine Months Ended
(Dollars in Thousands)	09/30/2025		09/30/2024		09/30/2025		09/30/2024

Non-Interest Income	$	18,429	$	13,801	$	50,002	$	48,546
Less: Gains (Losses) on securities	-		70		-		105
Less: Loss on securities restructuring	-		-		-		(34,893)
Less: Gain on debt extinguishment	975		-		975		-
Less: Revenue from GAI operations	-		-		-		4,434
Less: Gain on sale of GAI assets	-		-		-		38,323
Adjusted Non-Interest Income	$	17,454	$	13,731	$	49,027	$	40,577

Non-Interest Expense	$	49,700	$	36,126	$	151,999	$	110,538
Less: Non-recurring merger-related expenses	135		747		6,996		1,172
Less: Expense from GAI operations	-		87		-		3,342
Less: Expense from sale of GAI assets	-		-		-		1,816
Adjusted Non-Interest Expense	$	49,565	$	35,292	$	145,003	$	104,208


Non-GAAP Reconciliation - Efficiency Ratio	Three Months Ended						Nine Months Ended
(Dollars in Thousands)	09/30/2025			09/30/2024			09/30/2025			09/30/2024

Adjusted Non-Interest Expense (from above)	$	49,565		$	35,292		$	145,003		$	104,208
Less: Intangible Amortization	2,693			484			7,566			1,594
Adjusted Non-Interest Expense excluding Intangible Amortization	$	46,872		$	34,808		$	137,437		$	102,614

Net Interest Income	$	75,725		$	48,594		$	215,452		$	139,559
Add: FTE Adjustment	1,273			1,151			3,862			4,322
Net Interest Income (FTE)	76,998			49,745			219,314			143,881

Adjusted Non-Interest Income (from above)	17,454			13,731			49,027			40,577

Total Adjusted Total Revenue	$	94,452		$	63,476		$	268,341		$	184,458

Efficiency Ratio	49.26		%	56.15		%	53.63		%	47.95		%
Adjusted Efficiency Ratio	49.63		%	54.84		%	51.22		%	55.63		%


Non-GAAP Reconciliation - Net Interest Margin	Three Months Ended						Nine Months Ended
(Dollars in Thousands)	09/30/2025			09/30/2024			09/30/2025			09/30/2024

Net Interest Income (FTE) from above	$	76,998		$	49,745		$	219,314		$	143,881
Less: Accretion of Discount on Acquired Loans	3,914			236			11,589			889
Adjusted Net Interest Income (FTE)	$	73,084		$	49,509		$	207,725		$	142,992
Average Earning Assets	$	7,538,784		$	5,707,634		$	7,357,725		$	5,669,302
Net Interest Margin (FTE)	4.06		%	3.47		%	3.98		%	3.39		%
Adjusted Net Interest Margin (FTE)	3.85		%	3.45		%	3.77		%	3.37		%

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

The Company from time to time in its oral and written communications makes statements relating to its expectations regarding the future. These types of statements are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company may include forward-looking statements in filings with the Securities and Exchange Commission ("SEC"), such as this Form 10-Q, in other written materials, and in oral statements made by senior management to analysts, investors, representatives of the media, and others. Such forward looking statements can include statements about the Company's net interest income or net interest margin; its adequacy of allowance for credit losses, levels of provisions for credit losses, and the quality of the Company's loans, investment securities and other assets; simulations of changes in interest rates; expected results from mergers with or acquisitions of other businesses; litigation results; tax estimates and recognition; dividend policy; parent company cash resources and cash requirements, and parent company capital resources; estimated cost savings, plans and objectives for future operations; and expectations about the Company's financial and business performance and other business matters as well as economic and market conditions and trends. They often can be identified by the use of words like "plan," "expect," "can," "might," "may," "will," "would," "could," "should," "intend," "project," "estimate," "believe" or "anticipate," or similar expressions.

Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the forward-looking statement is made.

Readers are cautioned that, by their nature, all forward-looking statements are based on assumptions and are subject to risks, uncertainties, and other factors. Actual results may differ materially and adversely from the expectations of the Company that are expressed or implied by any forward-looking statement. The discussions in this Item 2 list some of the factors that could cause the Company's actual results to vary materially from those expressed or implied by any forward-looking statements. Other risks, uncertainties, and factors that could cause the Company's actual results to vary materially from those expressed or implied by any forward-looking statement include:

•changes in interest rates and the timing and magnitude of any such changes;

•unfavorable economic conditions, including a prolonged period of inflation, and the resulting adverse impact on, among other things, credit quality;

•the soundness of other financial institutions and general investor sentiment regarding the stability of financial institutions;

•changes in our liquidity position;

•the impacts of epidemics, pandemics or other infectious disease outbreaks;

•changes in competitive conditions;

•the introduction, withdrawal, success and timing of asset/liability management strategies or of mergers and acquisitions and other business initiatives and strategies;

•changes in customer borrowing, repayment, investment and deposit practices;

•changes in fiscal, monetary and tax policies;

•changes in financial and capital markets;

•capital management activities, including possible future sales of new securities, or possible repurchases or redemptions by the Company of outstanding debt or equity securities;

•risks of expansion through acquisitions and mergers, including the possibility that the anticipated cost savings and strategic gains are not realized when expected or at all as a result of unexpected credit quality problems of the acquired loans or other assets, unexpected attrition of the customer base or employee base of the acquired institution or branches, and difficulties in integration of the acquired operations;

•factors driving credit losses on investments;

•the impact, extent and timing of technological changes;

•potential cyber-attacks, information security breaches and other criminal activities;

•litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future;

•actions of the Federal Reserve Board;

•the potential for increases to, and volatility in, the balance of our allowance for credit losses and related provision expense due to the current expected credit loss (CECL) standard;

•changes in accounting principles and interpretations;

•potential increases of federal deposit insurance premium expense, and possible future special assessments of FDIC premiums, either industry wide or specific to the Company's banking subsidiary;

•actions of the regulatory authorities under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and the Federal Deposit Insurance Act and other possible legislative and regulatory actions and reforms;

•impacts resulting from possible amendments or revisions to the Dodd-Frank Act and the regulations promulgated thereunder, or to Consumer Financial Protection Bureau rules and regulations;

•changes to the fair value estimates used by German American in accounting for its acquisition of Heartland, which preliminary valuations must be finalized no later than January 31, 2026; and

•the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends.

Such statements reflect our views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements.

Investors should consider these risks, uncertainties, and other factors, in addition to those mentioned by the Company in its Annual Report on Form 10-K for its fiscal year ended December 31, 2024, this Quarterly Report on Form 10-Q, and other SEC filings from time to time, when considering any forward-looking statement.

German American Bancorp published this content on November 05, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 05, 2025 at 21:39 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]