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German American Bancorp

11/06/2026 | Press release | Distributed by Public on 11/06/2026 10:49

Quarterly Report for Quarter Ending September 30, 2026 (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 93 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, 2026 and December 31, 2025 and the consolidated results of operations for the three and nine months ended September 30, 2026 and 2025. 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, 2025.

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, 2025.

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.

Net income for the quarter ended September 30, 2026 totaled $38,637,000, or $1.03 per share, an increase of 10% on a per share basis compared with the third quarter 2025 net income of $35,074,000, or $0.94 per share. Net income for the nine months ended September 30, 2026 totaled $109,961,000, or $2.93 per share, an increase of 40% on a per share basis compared with the first nine months of 2025 net income of $76,952,000, or $2.10 per share.

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 a "Day 2" adjustment to the 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.

On an adjusted basis, net income for the third quarter of 2025 was $34,444,000, or $0.92 per share, and for the nine months ended September 30, 2025, was $93,789,000, or $2.57 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: an allowance assessed on a collective basis for pools of loans that share similar risk characteristics and an allowance assessed on individual loans that do not share similar risk characteristics with other loans. 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.

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. The Heartland merger was completed prior to the Company's early adoption of ASU 2025-08, "Financial Instruments - Credit Losses (Topic 326): Purchased Loans" at March 31, 2026. The Company expects that ASU 2025-08 will primarily affect the accounting for loans acquired in future business combinations or asset acquisitions; as such, there was no impact in the current year.

The Company 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 evaluates and utilizes multiple economic forecast scenarios provided by a third-party for these model inputs. These multiple economic forecast scenarios are weighted to arrive at the quantitative reserve. Changes in the economic forecast or weighting could impact the estimated credit losses which could lead to significantly different allowance levels from one reporting period to the next.

In calculating the adequacy of the allowance at September 30, 2026, management weighted different scenarios, including a baseline scenario as well as two additional alternative scenarios. To create hypothetical sensitivity analyses, management calculated a quantitative allowance using a 100% weighting applied to a baseline scenario and a quantitative allowance using a 100% weighting applied to an adverse scenario. Excluding the consideration of qualitative adjustments, the sensitivity analysis utilizing the adverse scenario would result in a hypothetical increase in the Company's allowance of $4,000,000. Excluding consideration of qualitative adjustments, a corresponding $4,700,000 decrease in the Company's allowance would occur in a hypothetical scenario if only the baseline scenario was used. The sensitivity and related range of impact is a hypothetical analysis and is not intended to represent management's estimation of the adequacy of the allowance for credit losses at September 30, 2026.

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, 2026. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of September 30, 2026, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $72,000 and gross unrealized losses totaled approximately $317,253,000. 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 7 to 8 years.

RESULTS OF OPERATIONS

Net Interest Income:

The following table summarizes net interest income (on a tax-equivalent basis) for the three months ended September 30, 2026 and 2025. 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, 2026						Three Months Ended September 30, 2025
	Principal Balance		Income / Expense		Yield / Rate		Principal Balance		Income / Expense		Yield / Rate
ASSETS
Federal Funds Sold and Other Short-term Investments	$	18,043	$	160	3.53	%	$	187,648	$	2,084	4.41	%
Securities:
Taxable	1,182,486		10,216		3.46	%	1,126,435		9,268		3.29	%
Non-taxable	491,338		4,548		3.70	%	457,826		4,354		3.80	%
Total Loans and Leases⁽²⁾	5,953,933		97,376		6.50	%	5,766,875		93,664		6.45	%
TOTAL INTEREST EARNING ASSETS	7,645,800		112,300		5.84	%	7,538,784		109,370		5.77	%
Other Assets	860,756						887,879
Less: Allowance for Credit Losses	(80,816)						(76,098)
TOTAL ASSETS	$	8,425,740					$	8,350,565

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Demand Deposits	$	1,801,139	$	5,817	1.28	%	$	1,868,343	$	7,475	1.59	%
Savings Deposits and Money Market Accounts	1,843,583		7,814		1.68	%	1,884,892		9,611		2.02	%
Time Deposits	1,351,504		11,277		3.31	%	1,330,944		12,330		3.68	%
FHLB Advances and Other Borrowings	232,802		2,408		4.10	%	216,460		2,956		5.42	%
TOTAL INTEREST-BEARING LIABILITIES	5,229,028		27,316		2.07	%	5,300,639		32,372		2.42	%
Demand Deposit Accounts	1,938,073						1,912,208
Other Liabilities	54,437						58,359
TOTAL LIABILITIES	7,221,538						7,271,206
Shareholders' Equity	1,204,202						1,079,359
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	8,425,740					$	8,350,565

COST OF FUNDS					1.42	%					1.71	%
NET INTEREST INCOME			$	84,984					$	76,998
NET INTEREST MARGIN (3)					4.42	%					4.06	%

(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, 2026 and 2025. 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, 2026						Nine Months Ended September 30, 2025
	Principal Balance		Income / Expense		Yield / Rate		Principal Balance		Income / Expense		Yield / Rate
ASSETS
Federal Funds Sold and Other Short-term Investments	$	60,560	$	1,658	3.66	%	$	247,212	$	8,232	4.45	%
Securities:
Taxable	1,187,479		29,811		3.35	%	1,118,585		27,528		3.28	%
Non-taxable	496,699		13,423		3.60	%	462,396		12,881		3.71	%
Total Loans and Leases⁽²⁾	5,902,182		284,037		6.43	%	5,529,532		265,969		6.43	%
TOTAL INTEREST EARNING ASSETS	7,646,920		328,929		5.75	%	7,357,725		314,610		5.71	%
Other Assets	862,500						852,114
Less: Allowance for Credit Losses	(79,816)						(72,628)
TOTAL ASSETS	$	8,429,604					$	8,137,211

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Demand Deposits	$	1,845,142	$	17,787	1.29	%	$	1,874,987	$	22,388	1.60	%
Savings Deposits and Money Market Accounts	1,867,006		23,446		1.68	%	1,826,452		27,744		2.03	%
Time Deposits	1,328,658		33,549		3.38	%	1,327,661		36,947		3.72	%
FHLB Advances and Other Borrowings	206,814		6,365		4.12	%	213,771		8,217		5.14	%
TOTAL INTEREST-BEARING LIABILITIES	5,247,620		81,147		2.07	%	5,242,871		95,296		2.43	%
Demand Deposit Accounts	1,932,058						1,819,351
Other Liabilities	56,594						54,789
TOTAL LIABILITIES	7,236,272						7,117,011
Shareholders' Equity	1,193,332						1,020,200
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	8,429,604					$	8,137,211

COST OF FUNDS					1.42	%					1.73	%
NET INTEREST INCOME			$	247,782					$	219,314
NET INTEREST MARGIN (3)					4.33	%					3.98	%

(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 2026, net interest income, on a non tax-equivalent basis, totaled $83,518,000, an increase of $7,793,000, or 10%, compared to the third quarter of 2025 net interest income of $75,725,000. During the first nine months of 2026, net interest income, on a non tax-equivalent basis, totaled $243,577,000, an increase of $28,125,000, or 13%, compared to the first nine months of 2025 net interest income of $215,452,000. The improvement in net interest income for both periods in 2026 was the result of improved net interest margin, driven in large part by a lower cost of funds and a higher level of average earning assets.

The tax equivalent net interest margin for the quarter ended September 30, 2026 was 4.42% compared with 4.06% in the third quarter of 2025. The tax equivalent net interest margin for the nine months ended September 30, 2026, was 4.33% compared with 3.98% for the nine months ended September 30, 2025. The continued improvement in the net interest margin for both periods in 2026 was driven by a lower cost of funds primarily attributable to lower deposit costs and improved yields on earning assets. The lower cost of deposits was driven by the Federal Reserve's lowering of the Federal Funds rates over the last several months of 2025 and the Company's ability to correspondingly lower deposit costs. To a lesser degree, the repayment of subordinated debt in 2025 also contributed to lower cost of funds.

The Company's net interest margin and net interest income in all periods presented were impacted by accretion of loan discounts on acquired loans. Accretion of discounts on acquired loans totaled $3,020,000 during the third quarter of 2026 and $3,915,000 during the third quarter of 2025. Accretion of discounts on acquired loans contributed approximately 16 basis points to the net interest margin in the third quarter of 2026 and 21 basis points in the third quarter of 2025. Accretion of discounts on acquired loans totaled $9,711,000 during the nine months ended September 30, 2026 compared to $11,590,000

during the nine months ended September 30, 2025. Accretion of discounts on acquired loans contributed approximately 17 basis points to the net interest margin for the first nine months of 2026 and 21 basis points in the first nine months 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, 2026, the Company recorded a provision for credit losses of $500,000 compared with a provision for credit losses of $700,000 during the third quarter of 2025. During the nine months ended September 30, 2026, the Company recorded a provision for credit losses of $4,000,000 compared with a provision for credit losses of $17,200,000 for the first nine months of 2025. The first nine months of 2025 included a provision for credit losses of $16,200,000 related to the "Day 2" adjustment for the Heartland acquisition.

In a transaction like the Heartland merger, the accounting rules in effect prior to adoption of ASU 2025-08 required the acquirer 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.

Net charge-offs totaled $581,000, or 4 basis points, on an annualized basis, of average loans outstanding during the third quarter of 2026 compared with $748,000, or 5 basis points, on an annualized basis, of average loans during the third quarter of 2025. Net charge-offs totaled $2,401,000, or 5 basis points, on an annualized basis, of average loans for the nine months ended September 30, 2026 compared with $2,082,000, or 5 basis points, on an annualized basis, of average loans for the same period of 2025.

The provision for credit losses for the three and nine months ended September 30, 2026 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.

Non-interest Income:

During the quarter ended September 30, 2026, non-interest income totaled $18,699,000, an increase of $270,000, or 1.5%, compared with the third quarter of 2025. The third quarter of 2025 was positively impacted by 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.

Adjusted non-interest income is 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.


Non-interest Income (dollars in thousands)	Three Months Ended September 30,				Change From Prior Period
					Amount		Percent
	2026		2025		Change		Change
Wealth Management Fees	$	5,007	$	4,288	$	719	17	%
Service Charges on Deposit Accounts	4,280		3,927		353		9
Company Owned Life Insurance	652		630		22		3
Interchange Fee Income	5,306		5,087		219		4
Other Operating Income	2,095		3,308		(1,213)		(37)
Subtotal	17,340		17,240		100		1
Net Gains on Sales of Loans	1,359		1,189		170		14
Net Gains (Losses) on Securities	-		-		-		n/m (1)
Total Non-interest Income	$	18,699	$	18,429	$	270	1

(1) n/m= not meaningful

Wealth management fees increased $719,000, or 17%, during the third quarter of 2026 compared with the third quarter of 2025.

The increase during the third quarter of 2026 compared with the third quarter of 2025 was largely attributable to increased assets under management driven by healthy capital markets throughout the past year and continued strong new business results.

Service charges on deposit accounts increased $353,000, or 9%, during the quarter ended September 30, 2026 compared with the same period of 2025. The increase during the third quarter of 2026 compared with the third quarter of 2025 was primarily driven by a continuation of increased customer utilization of deposit services.

For the quarter ended September 30, 2026, interchange fees increased $219,000, or 4%, compared with the same quarter of 2025. The increase during the third quarter of 2026 compared with the third quarter of 2025 was largely related to a higher level of customer transaction volume.

Other operating income declined $1,213,000, or 37%, for the quarter ended September 30, 2026, compared with the third quarter of 2025. The decline during the third quarter of 2026 compared with the third quarter of 2025 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 $170,000, or 14%, in the third quarter of 2026 compared with the third quarter of 2025. The increase during the third quarter of 2026 compared with the third quarter of 2025 was driven by a higher pricing on loans sold. Loan sales totaled $52.4 million during the third quarter of 2026 compared with $55.5 million during the third quarter of 2025.

During the nine months ended September 30, 2026, non-interest income totaled $54,671,000, an increase of $4,669,000, or 9%, compared with the nine months ended September 30, 2025. The increase during the first nine months of 2026 compared to the same period of 2025 was primarily attributable to increased wealth management fees, improvement of the Company's existing fee revenue generation and increased gains on sales of loans, which were partially offset by the $975,000 gain on the extinguishment of debt resulting from the redemption of the Heartland Notes that occurred in the third quarter of 2025. On an adjusted basis, non-interest income for the first nine months of 2025 was $49,027,000.


Non-interest Income (dollars in thousands)	Nine Months Ended September 30,				Change From Prior Period
					Amount		Percent
	2026		2025		Change		Change
Wealth Management Fees	$	14,524	$	12,289	$	2,235	18	%
Service Charges on Deposit Accounts	12,094		11,127		967		9
Company Owned Life Insurance	1,956		1,908		48		3
Interchange Fee Income	15,410		14,565		845		6
Other Operating Income	6,296		6,712		(416)		(6)
Subtotal	50,280		46,601		3,679		8
Net Gains on Sales of Loans	4,391		3,401		990		29
Net Gains (Losses) on Securities	-		-		-		n/m (1)
Total Non-interest Income	$	54,671	$	50,002	$	4,669	9

(1) n/m= not meaningful

Wealth management fees increased $2,235,000, or 18%, during the first nine months of 2026 compared with the same period of 2025. The increase during the first nine months of 2026 compared with the same period of 2025 was largely attributable to increased assets under management driven by healthy capital markets and continued strong new business results.

Service charges on deposit accounts increased $967,000, or 9%, during the nine months ended September 30, 2026 compared with the same period of 2025. The increase during the first nine months of 2026 compared with the same period of 2025 was primarily driven by the Heartland acquisition in addition to increased customer utilization of deposit services.

For the nine months ended September 30, 2026, interchange fees increased $845,000, or 6%, compared with the same period of 2025. The increase during the first nine months of 2026 compared with the same period of 2025 was largely related to a higher level of customer transaction volume and the Heartland acquisition.

Other operating income declined $416,000, or 6%, in the first nine months of 2026 compared with the same period of 2025. The decline during the nine months ended September 30, 2026, compared with the same period of 2025 was primarily attributable to the aforementioned gain on extinguishment of debt during 2025.

Net gains on sales of loans increased $990,000, or 29%, during the nine months ended September 30, 2026 compared with the nine months ended September 30, 2025. The increase during the first nine months of 2026 compared with the same period of 2025 was driven by a higher volume of loans sold. Loan sales totaled $175.3 million during the first nine months of 2026 compared with $145.0 million during the first nine months of 2025.

Non-interest Expense:

During the quarter ended September 30, 2026, non-interest expense totaled $53,108,000, an increase of $3,408,000, or 7%, compared with the third quarter of 2025. The third quarter of 2025 non-interest expenses included approximately $135,000 of non-recurring acquisition-related expenses associated with the Heartland acquisition. On an adjusted basis, non-interest expense for the third quarter of 2025 was $49,565,000.

Adjusted non-interest expense is 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.


Non-interest Expense (dollars in thousands)	Three Months Ended September 30,				Change From Prior Period
					Amount		Percent
	2026		2025		Change		Change
Salaries and Employee Benefits	$	28,169	$	25,444	$	2,725	11	%
Occupancy, Furniture and Equipment Expense	5,557		5,255		302		6
FDIC Premiums	984		1,059		(75)		(7)
Data Processing Fees	4,495		4,175		320		8
Professional Fees	2,209		1,960		249		13
Advertising and Promotion	1,730		1,321		409		31
Intangible Amortization	2,254		2,693		(439)		(16)
Other Operating Expenses	7,710		7,793		(83)		(1)
Total Non-interest Expense	$	53,108	$	49,700	$	3,408	7

Salaries and benefits increased $2,725,000, or 11%, during the third quarter of 2026 compared with the third quarter of 2025. The increase during the third quarter of 2026 compared to the third quarter of 2025 was primarily due to an increased level of full-time equivalent employees, increased health insurance costs and higher incentive compensation.

Occupancy, furniture and equipment expense increased $302,000, or 6%, for the three months ended September 30, 2026, compared to the same period of 2025. The increase during the third quarter of 2026 compared with the third quarter of 2025 was largely attributable to increased levels of repairs and maintenance costs.

Data processing fees increased $320,000, or 8%, during the third quarter of 2026 compared with the third quarter of 2025. The increase during the third quarter of 2026 compared with the same period of 2025 was largely driven by continued enhancements to existing data systems and processes.

Advertising and promotion expense increased $409,000, or 31%, compared with the third quarter of 2025. The increase during the third quarter of 2026 compared with the same period of 2025 was primarily attributable to increased levels of donations and sponsorships.

Intangible amortization declined $439,000, or 16%, compared with the third quarter of 2025. The decline during the third quarter of 2026 compared to the third quarter of 2025 was primarily attributable to the accelerated method under which intangibles are amortized.

For the nine months ended September 30, 2026, non-interest expense totaled $155,858,000, an increase of $3,859,000, or 3%, compared with the first nine months of 2025. The first nine months of 2025 non-interest expenses included approximately $6,996,000 of non-recurring acquisition-related expenses associated with the Heartland acquisition. On an adjusted basis, non-interest expense for the first nine months of 2025 was $145,003,000.


Non-interest Expense (dollars in thousands)	Nine Months Ended September 30,				Change From Prior Period
					Amount		Percent
	2026		2025		Change		Change
Salaries and Employee Benefits	$	83,623	$	80,122	$	3,501	4	%
Occupancy, Furniture and Equipment Expense	16,071		14,669		1,402		10
FDIC Premiums	2,921		2,847		74		3
Data Processing Fees	13,121		13,756		(635)		(5)
Professional Fees	6,344		8,256		(1,912)		(23)
Advertising and Promotion	4,586		4,075		511		13
Intangible Amortization	7,087		7,566		(479)		(6)
Other Operating Expenses	22,105		20,708		1,397		7
Total Non-interest Expense	$	155,858	$	151,999	$	3,859	3

Salaries and benefits increased $3,501,000, or 4%, during the first nine months of 2026 compared with the same period of 2025. The first nine months of 2025 included approximately $1,850,000 of acquisition-related salary and benefit costs of a non-recurring nature. On an adjusted basis, salaries and benefits expense for the first nine months of 2025 totaled $78,272,000. The increase of $5,351,000 comparing the nine months of 2026 to the adjusted first nine months of 2025 was primarily driven by an additional month of expense for the acquisition of Heartland in the first quarter of 2026 and a higher level of incentive compensation.

Occupancy, furniture and equipment expense increased $1,402,000, or 10%, for the nine months ended September 30, 2026, compared to the same period of 2025. The increase during the nine months ended September 30, 2026 compared with the same period of 2025 was largely attributable to the operating costs of the Heartland branch network.

During the first nine months of 2026, data processing fees declined $635,000, or 5%, compared with the same period of 2025. The decline in the first nine months of 2026 compared with the same period of 2025 was a result of acquisition-related costs, which totaled approximately $1,686,000 during the first nine months of 2025. Data processing fees otherwise increased by $1,051,000, or 9%, for the first nine months of 2026 compared with the same period of 2025 as a result of continued enhancements to existing data systems and processes.

Professional fees declined $1,912,000, or 23%, during the first nine months of 2026 compared with the first nine months of 2025. This decline was attributable to acquisition related costs included in the first nine months of 2025, which totaled approximately $2,887,000.

Advertising and promotion expense increased $511,000, or 13%, during the nine months ended September 30, 2026 compared with the same period of 2025. The increase during the first nine months of 2026 compared with the same period of 2025 was primarily attributable to increased levels of donations and sponsorships.

Other operating expenses increased $1,397,000, or 7%, for the nine months ended September 30, 2026 compared with the same period of 2025. The increase during the nine months ended September 30, 2026 compared with the same period of 2025 was primarily attributable to an increase in the Ohio financial institution tax, expenses related to interchange income, and expenses for external risk events, as well as the operating costs of Heartland for a full nine months in 2026.

Income Taxes:

The Company's effective income tax rate was 20.6% and 19.8%, respectively, during the three months ended September 30, 2026 and 2025. The Company's effective income tax rate was 20.5% and 20.1%, respectively, during the nine months ended September 30, 2026 and 2025. 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

At September 30, 2026, total assets for the Company remained relatively stable compared with year end 2025 at $8.4 billion. During the first nine months of 2026, increases in loans were somewhat offset by a decline in cash and cash equivalents and in the fair value of securities available-for-sale.

September 30, 2026 total loans increased $114.0 million, or 3% on an annualized basis, compared with December 31, 2025. The increase during the first nine months of 2026 compared with December 31, 2025 was largely driven by growth in commercial real estate and home equity lines of credit. Commercial real estate loans increased $124.7 million, or 5% on an annualized basis, and home equity lines of credit increased $53.4 million, or 15% on an annualized basis. These increases were partially mitigated by declines in commercial and industrial loans and leases of $18.3 million, or 3% on an annualized basis, agricultural loans of $20.9 million, or 6% on an annualized basis, residential mortgage loans of $16.1 million, or 3% on an annualized basis, and other consumer loans of $8.7 million, or 8% 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 during the first quarter of 2025 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 13% of the portfolio, home equity loans at 9% of the portfolio and agricultural 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, 2026		December 31, 2025		Current Period Change
Commercial and Industrial Loans and Leases	$	829,950	$	848,240	$	(18,290)
Commercial Real Estate Loans	3,267,130		3,142,472		124,658
Agricultural Loans	468,241		489,168		(20,927)
Home Equity and Consumer Loans	674,645		630,015		44,630
Residential Mortgage Loans	758,463		774,553		(16,090)
Total Loans	$	5,998,429	$	5,884,448	$	113,981

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, 2026				December 31, 2025
	% of Commercial Real Estate Portfolio		% of Total Loan Portfolio		% of Commercial Real Estate Portfolio		% of Total Loan Portfolio
Multi-Family Dwellings	22	%	12	%	21	%	11	%
Retail Space	14	%	8	%	14	%	7	%
Industrial, Manufacturing, Warehousing Properties	9	%	5	%	9	%	5	%
Healthcare Facilities	9	%	5	%	8	%	4	%
Lodging	9	%	5	%	9	%	5	%
1-4 Family Investment Properties	8	%	4	%	8	%	4	%
Office Real Estate	7	%	4	%	8	%	4	%
Land Development and Construction	5	%	3	%	6	%	3	%

The Company's commercial real estate ("CRE") loan portfolio is further diversified by occupancy type, with approximately 76% of the CRE portfolio being non-owner occupied at September 30, 2026 (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, 2025, the Company's commercial real estate loan portfolio was diversified by occupancy type, with approximately 76% of the CRE portfolio being non-owner occupied (which was 40% of the Company's overall loan portfolio), and 24% of the CRE portfolio being owner occupied (which was 13% 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, 2026		December 31, 2025
Commercial and Industrial Loans and Leases	$	17,371	$	20,754
Commercial Real Estate Loans	44,572		40,626
Agricultural Loans	3,574		3,324
Home Equity and Consumer Loans	5,949		5,352
Residential Mortgage Loans	7,827		7,638
Unallocated	-		-
Total Allowance for Credit Losses	$	79,293	$	77,694

The Company's allowance for credit losses totaled $79.2 million at September 30, 2026 compared to $77.7 million at December 31, 2025. The allowance for credit losses represented 1.32% of period-end loans at September 30, 2026 and December 31, 2025.

Under the CECL model, certain previously acquired loans continue to carry fair value discounts or premiums attributable to both credit and noncredit components. These discounts or premiums are reflected as a reduction to gross loans on the balance sheet, with the accretable portion recognized in interest income over the remaining lives of the underlying loans. As of September 30, 2026, the Company held net discounts on acquired loans of $43.3 million, including $41.5 million related to the Heartland loan portfolio.

The following is an analysis of the Company's non-performing assets at September 30, 2026 and December 31, 2025:


Non-performing Assets: (dollars in thousands)	September 30, 2026			December 31, 2025
Non-accrual Loans	$	23,672		$	29,319
Past Due Loans (90 days or more and accruing)	303			92
Total Non-performing Loans	23,975			29,411
Other Real Estate	-			68
Total Non-performing Assets	$	23,975		$	29,479

Loan Modifications	$	-		$	-

Non-performing Loans to Total Loans	0.40		%	0.50		%
Non-performing Assets to Period End Assets	0.29		%	0.35		%
Allowance for Credit Loss to Non-performing Loans	330.73		%	264.17		%

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, 2026		December 31, 2025		September 30, 2026		December 31, 2025
Commercial and Industrial Loans and Leases	$	11,080	$	16,549	$	303	$	-
Commercial Real Estate Loans	5,874		6,303		-		92
Agricultural Loans	2,533		3,123		-		-
Home Equity Loans	647		776		-		-
Consumer Loans	715		181		-		-
Residential Mortgage Loans	2,823		2,387		-		-
Total	$	23,672	$	29,319	$	303	$	92

Non-performing assets totaled $24.0 million at September 30, 2026 compared to $29.5 million at December 31, 2025. The decline in non-performing assets of $5.5 million was partially attributable to an acquired adversely classified commercial loan that was resolved without loss during the third quarter of 2026. Non-performing assets represented 0.29% of total assets at September 30, 2026 compared to 0.35% at December 31, 2025. Non-performing loans totaled $24.0 million at September 30, 2026 compared to $29.4 million at December 31, 2025. The decline in non-performing loans of $5.4 million was largely attributable to the aforementioned classified commercial loan. Non-performing loans represented 0.40% of total loans at September 30, 2026 compared to 0.50% at December 31, 2025. Total non-performing assets from the Heartland acquisition were approximately $14.8 million at September 30, 2026.

September 30, 2026 total deposits declined slightly to $6.9 billion compared to year-end 2025 at $7.0 billion. Non-interest bearing deposits have remained relatively stable as a percent of total deposits at approximately 28% at both September 30, 2026 and December 31, 2025. The addition of the Heartland deposit portfolio did not result in significant changes to the overall deposit portfolio composition.


End of Period Deposit Balances: (dollars in thousands)	September 30, 2026		December 31, 2025		Current Period Change
Non-interest-bearing Demand Deposits	$	1,963,427	$	1,944,831	$	18,596
Interest-bearing Demand, Savings, & Money Market Accounts	3,625,827		3,755,374		(129,547)
Time Deposits < $100,000	441,531		475,943		(34,412)
Time Deposits of $100,000 or more	905,722		813,594		92,128
Total Deposits	$	6,936,507	$	6,989,742	$	(53,235)

Capital Resources:

As of September 30, 2026, shareholders' equity declined by $8.5 million to $1.154 billion compared with $1.162 billion at year-end 2025. The decline in shareholders' equity was primarily attributable to a decline in accumulated other comprehensive income of $85.8 million, driven by an increase in unrealized losses on available-for-sale securities. This decline was mostly offset by increased retained earnings of $75.2 million due to net income of $110.0 million, which was partially offset by shareholder dividends totaling $34.8 million.

Shareholders' equity represented 13.7% of total assets at September 30, 2026 and 13.9% of total assets at December 31, 2025. Shareholders' equity included $402.1 million of goodwill and other intangible assets at September 30, 2026 compared to $409.3 million of goodwill and other intangible assets at December 31, 2025.

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 narrower 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, 2026, 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.

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


	9/30/2026 Ratio		12/31/2025 Ratio		Minimum for Capital Adequacy Purposes ⁽¹⁾		Well-Capitalized Guidelines
Total Capital (to Risk Weighted Assets)
Consolidated	15.74	%	14.93	%	8.00	%	N/A
Bank	14.38	%	13.80	%	8.00	%	10.00	%
Tier 1 (Core) Capital (to Risk Weighted Assets)
Consolidated	14.77	%	14.04	%	6.00	%	N/A
Bank	13.41	%	12.91	%	6.00	%	8.00	%
Common Equity Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets)
Consolidated	14.26	%	13.52	%	4.50	%	N/A
Bank	13.41	%	12.91	%	4.50	%	6.50	%
Tier 1 Capital (to Average Assets)
Consolidated	12.66	%	11.54	%	4.00	%	N/A
Bank	11.50	%	10.61	%	4.00	%	5.00	%

(1) Excludes capital conservation buffer.

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 decreased $41.0 million during the nine months ended September 30, 2026 ending at $77.3 million. During the nine months ended September 30, 2026, operating activities resulted in net cash inflows of $128.4 million. Investing activities resulted in net cash outflows of $166.5 million during the nine months ended September 30, 2026. Financing activities resulted in net cash outflows for the nine months ended September 30, 2026 of $3.0 million.

The Company's bank subsidiary'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 $1.68 billion at the FHLB, but availability at September 30, 2026 was limited to approximately $703 million based on the then pledged collateral and outstanding borrowings. In addition, the Company had a borrowing capacity of approximately $583 million at the Federal Reserve Bank as of September 30, 2026, 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, 2026, the parent company had approximately $73.6 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 German American Bancorp, Inc. (the "Company") conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. As a supplement to GAAP, the Company has provided certain non-GAAP financial measures in this Report, which it believes are useful because they assist investors in assessing the Company's operating performance. Specifically, the Company has presented its efficiency ratio, net interest margin, tangible common equity ratio, and return on average tangible common equity. A reconciliation of these non-GAAP measures to comparable GAAP financial measures is set forth in the tables below.

The Company also presents its net income, earnings per share, non-interest income, non-interest expense, efficiency ratio, return on average assets, return on average equity, and return on average tangible common equity on an as adjusted basis for the periods set forth below to reflect the exclusion of the following items: (1) the Current Expected Credit Losses ("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; and (3) the gain on the extinguishment of debt, resulting from the redemption of certain subordinated notes on September 15, 2025. 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%. The Company also presents its core net interest margin excluding discount accretion on acquired loans (a non-recurring increase in interest income arising when a loan portfolio is acquired below face value in a merger or acquisition). Management believes that excluding such accretion helps the Company, analysts, and investors evaluate the core spread between earning assets and funding costs.

In management's view, tangible common equity measures are capital adequacy metrics that are meaningful to the Company, as well as to analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from shareholders' equity but retain the effect of accumulated other comprehensive income (loss).

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)	09/30/2026		09/30/2025		09/30/2026		09/30/2025
Net Income, as reported	$	38,637	$	35,074	$	109,961	$	76,952
Adjustments (net of tax):
Plus: CECL Day 2 non-PCD provision	-		-		-		12,150
Plus: Non-recurring merger-related expenses	-		101		-		5,418
Less: Gain on debt extinguishment	-		731		-		731
Adjusted Net Income	$	38,637	$	34,444	$	109,961	$	93,789

Weighted Average Shares Outstanding	37,578,441		37,493,028		37,553,745		36,561,331

Earnings Per Share, as reported	$	1.03	$	0.94	$	2.93	$	2.10
Earnings Per Share, as adjusted	$	1.03	$	0.92	$	2.93	$	2.57


Non-GAAP Reconciliation - Non-Interest Income and Non-Interest Expense	Three Months Ended				Nine Months Ended
(Dollars in Thousands)	09/30/2026		09/30/2025		09/30/2026		09/30/2025
Non-Interest Income	$	18,699	$	18,429	$	54,671	$	50,002
Less: Gain on debt extinguishment	-		975		-		975
Adjusted Non-Interest Income	$	18,699	$	17,454	$	54,671	$	49,027

Non-Interest Expense	$	53,108	$	49,700	$	155,858	$	151,999
Less: Non-recurring merger-related expenses	-		135		-		6,996
Adjusted Non-Interest Expense	$	53,108	$	49,565	$	155,858	$	145,003


Non-GAAP Reconciliation - Efficiency Ratio	Three Months Ended						Nine Months Ended
(Dollars in Thousands)	09/30/2026			09/30/2025			09/30/2026			09/30/2025

Adjusted Non-Interest Expense (from above)	$	53,108		$	49,565		$	155,858		$	145,003
Less: Intangible Amortization	2,254			2,693			7,087			7,566
Adjusted Non-Interest Expense excluding Intangible Amortization	$	50,854		$	46,872		$	148,771		$	137,437

Net Interest Income	$	83,518		$	75,725		$	243,577		$	215,452
Add: FTE Adjustment	1,466			1,273			4,205			3,862
Net Interest Income (FTE)	84,984			76,998			247,782			219,314

Adjusted Non-Interest Income (from above)	18,699			17,454			54,671			49,027

Total Adjusted Total Revenue	$	103,683		$	94,452		$	302,453		$	268,341

Efficiency Ratio	49.05		%	49.26		%	49.19		%	53.63		%
Adjusted Efficiency Ratio	49.05		%	49.63		%	49.19		%	51.22		%


Non-GAAP Reconciliation - Net Interest Margin	Three Months Ended						Nine Months Ended
(Dollars in Thousands)	09/30/2026			09/30/2025			09/30/2026			09/30/2025

Net Interest Income (FTE) from above	$	84,984		$	76,998		$	247,782		$	219,314
Less: Accretion of Discount on Acquired Loans	3,020			3,914			9,711			11,589
Adjusted Net Interest Income (FTE)	$	81,964		$	73,084		$	238,071		$	207,725
Average Earning Assets	$	7,645,800		$	7,538,784		$	7,646,920		$	7,357,725
Net Interest Margin (FTE)	4.42		%	4.06		%	4.33		%	3.98		%
Core Net Interest Margin (FTE)	4.26		%	3.85		%	4.16		%	3.77		%


Non-GAAP Reconciliation - Return on Average Assets	Three Months Ended						Nine Months Ended
(Dollars in Thousands)	09/30/2026			09/30/2025			09/30/2026			09/30/2025
Adjusted Net Income	$	38,637		$	34,444		$	109,961		$	93,789

Average Assets	$	8,425,740		$	8,350,565		$	8,429,604		$	8,137,211

Return on Average Assets, as reported	1.83		%	1.68		%	1.74		%	1.26		%
Return on Average Assets, as adjusted	1.83		%	1.65		%	1.74		%	1.54		%


Non-GAAP Reconciliation - Return on Average Equity	Three Months Ended						Nine Months Ended
(Dollars in Thousands)	09/30/2026			09/30/2025			09/30/2026			09/30/2025
Adjusted Net Income	$	38,637		$	34,444		$	109,961		$	93,789

Average Equity	$	1,204,202		$	1,079,359		$	1,193,332		$	1,020,200

Return on Average Equity, as reported	12.83		%	13.00		%	12.29		%	10.06		%
Return on Average Equity, as adjusted	12.83		%	12.76		%	12.29		%	12.26		%


Non-GAAP Reconciliation - Tangible Common Equity Ratio	Three Months Ended
(Dollars in Thousands)	09/30/2026			09/30/2025
Equity, as reported	$	1,153,871		$	1,119,723
Intangibles, as reported	402,075			411,656
Tangible Common Equity	$	751,796		$	708,067

Assets, as reported	$	8,411,291		$	8,401,248
Intangibles, as reported	402,075			411,656
Assets less Intangibles	$	8,009,216		$	7,989,592

Tangible Common Equity Ratio	9.39		%	8.86		%


Non-GAAP Reconciliation - Return on Average Tangible Common Equity	Three Months Ended						Nine Months Ended
(Dollars in Thousands)	09/30/2026			09/30/2025			09/30/2026			09/30/2025
Net Income, as reported	$	38,637		$	35,074		$	109,961		$	76,952
Total Adjustments (from above)	-			(630)			-			16,837
Adjusted Net Income	$	38,637		$	34,444		$	109,961		$	93,789

Average Equity, as reported	$	1,204,202		$	1,079,359		$	1,193,332		$	1,020,200
Average Intangibles, as reported	403,104			415,666			405,485			390,701
Average Tangible Common Equity	$	801,098		$	663,693		$	787,847		$	629,499

Return on Average Tangible Common Equity, as reported	19.29		%	21.14		%	18.61		%	16.30		%
Return on Average Tangible Common Equity, as adjusted	19.29		%	20.76		%	18.61		%	19.87		%

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 prolonged periods 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 trade policies of, and other activities undertaken by, governments, including tariffs, which could have a material adverse effect on our customers and, as a result, our business;

•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 impairment charges 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 regulatory and financial impacts associated with exceeding $10 billion in total assets;

•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; 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, 2025, 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 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 16:49 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]