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Item 7. Management’s Discussion and Analysis

2026-02-27 compared with 2025-03-03 · 268 added, 159 removed, 556 unchanged (43% of the section changed)

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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”, “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.

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 Management’s Discussion and Analysis includes an analysis of the major components of the Company’s operations for the years 2023 through 2025 and its financial condition as of December 31, 2024 and 2025.

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Heartland, headquartered in Whitehall, Ohio, operated 20 retail banking offices located in Columbus, Ohio and Greater Cincinnati.

As of December 31, 2024, Heartland had total assets of approximately $1.97 billion (unaudited), total loans of approximately $1.56 billion (unaudited), and total deposits of approximately $1.75 billion (unaudited).

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.

For further information regarding this merger and acquisition transaction, see Note 21 (Subsequent Events) in the Notes to the

Consolidated Financial Statements included in Item 8 of this Report, which Note 21 is incorporated into this Item 1 by reference.

For further information regarding this merger and acquisition transaction, see Note 20 (Business Combinations, Goodwill and Intangible Assets) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note 20 is incorporated into this Item 7 by reference.

On September 15, 2025, Bancorp redeemed the Heartland 5.0% Fixed-to-Floating Rate Subordinated Notes due 2030, 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.

On December 30, 2025, the Company redeemed its 4.5% Fixed-to-Floating Rate Subordinated Notes due 2029, outstanding in the aggregate principal amount of $40.0 million, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest.

For further information regarding these redemptions, see Note 8 (FHLB Advances and Other Borrowings) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note 8 is incorporated into this Item 7 by reference.

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.

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Prior to the sale, GAI was a full-service agency offering personal and commercial insurance products.

On January 1, 2022, German American Bancorp completed the acquisition of Citizens Union Bancorp of Shelbyville, Inc.

(“CUB”) through the merger of CUB with and into the Bancorp.

Immediately following completion of the CUB holding company merger, CUB’s subsidiary bank, Citizen Union Bank of Shelbyville, Inc., was merged with and into the Bancorp’s subsidiary bank, German American Bank.

CUB, headquartered in Shelbyville, Kentucky, operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through Citizens Union Bank of Shelbyville, Inc.

As of the closing of the transaction, CUB had total assets of approximately $1.109 billion, total loans of approximately $683.8 million, and total deposits of approximately $930.5 million.

German American Bancorp issued approximately 2.9 million shares of its common stock, and paid approximately $50.8 million in cash, in exchange for all of the issued and outstanding shares of common stock of CUB.

For further information regarding this merger and acquisition transaction, see Note 19 (Business Combinations, Goodwill and Intangible Assets) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report.

For further information regarding this transaction, see Note 2 (Sale of Insurance Assets) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report.

Financial Overview

Net income for the year ended December 31, 2025 totaled $112,635,000, or $3.06 per share, an increase of $28,824,000, or approximately 8% on a per share basis, from the year ended December 31, 2024 net income of $83,811,000, or $2.83 per share.

The year ended December 31, 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 methodology of $16,200,000 ($12,150,000, on an after-tax basis), as well as a net gain on the redemption of subordinated debentures.

Net income for the year ended December 31, 2024 totaled $83,811,000, or $2.83 per share, a decline of $2,077,000, or approximately 3% on a per share basis, from the year ended December 31, 2023 net income of $85,888,000, or $2.91 per share.

Net income for the year ended December 31, 2024 included merger-related transaction costs associated with the Company’s merger with Heartland that totaled approximately $1,370,000, $1,082,000 after-tax, or $0.04 per share.

Net income for the year end December 31, 2024 was impacted by the sale of substantially all of the assets of GAI during the second quarter of 2024.

Net income for the year ended December 31, 2024 was impacted by the sale of substantially all of the assets of GAI during the second quarter of 2024.

The all-cash sale price totaled $40.0 million and resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share.

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The proceeds from the securities sold were reinvested in the securities portfolio by the end of the third quarter of 2024.

Net income for the year ended December 31, 2023 totaled $85,888,000, or $2.91 per share, an increase of $4,063,000, or approximately 5% on a per share basis, from the year ended December 31, 2022 net income of $81,825,000, or $2.78 per share.

The increase in net income during 2023, compared with 2022, was primarily attributable to increased non-interest income, a decline in non-interest expenses (which was driven by higher expenses in 2022 as a result of the January 1, 2022 acquisition of CUB), and a lower provision for credit losses.

The positive impact of those items was partially offset by a decline in net interest income resulting primarily from a reduced level of earning assets, which was somewhat mitigated by an improved net interest margin.

On an adjusted basis, net income for the year ended December 31, 2025 was $129,684,000, or $3.52 per share, compared with adjusted net income of $83,839,000, or $2.83 per share, for the year ended December 31, 2024.

Adjusted net income and adjusted earnings per share are non-GAAP financial measures.

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.

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.

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

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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.

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.

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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;

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.

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Subsequent evaluations of the loan portfolio may result in significant changes in the allowance for credit losses in future periods.

The Company uses a number of economic variables in its scenarios to estimate the allowance for credit losses, with the most significant drivers being unemployment rate forecast, gross domestic product and agricultural producer price index as well as qualitative adjustments.

Historical loss rates from periods where the average unemployment rate, gross domestic product and agricultural producer pricing index matches the forecast range are considered when calculating the forecast period loss rate.

Based on sensitivity analysis of all portfolios, a 0.050% change (slight improvement or decline on the Company’s scale) in all ten qualitative risk factors would have a $1,900,000 impact on the reserve allocation.

The sensitivity and related range of impact is a hypothetical analysis and is not intended to represent management’s judgements or assumptions of qualitative loss

factors that were utilized at December 31, 2024 in estimation of the allowance for credit losses on loans recognized on the Consolidated Balance Sheets.

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 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 December 31, 2025, 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 $28,500,000.

Excluding consideration of qualitative adjustments, a corresponding $3,700,000 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 December, 31, 2025.

SECURITIES VALUATION

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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.

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.

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No impairment to Goodwill was indicated based on year-end testing.

Goodwill decreased $1,332,000 in 2024.

This decrease was attributable to sale of substantially all of the assets of German American Insurance, Inc.

For more information regarding goodwill and intangible assets, see Note 19 (Business Combinations, Goodwill and Intangible Assets) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

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RESULTS OF OPERATIONS

Net income for the year end December 31, 2024 was impacted by the sale of substantially all of the assets of GAI during the second quarter of 2024.

Net income for the year ended December 31, 2024 was impacted by the sale of substantially all of the assets of GAI during the second quarter of 2024.

The all-cash sale price totaled $40.0 million and resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share.

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The proceeds from the securities sold were reinvested in the securities portfolio by the end of the third quarter of 2024.

Adjusted net income and adjusted earnings per share are non-GAAP financial measures.

NET INTEREST INCOME

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Many factors affecting net interest income are subject to control by management policies and actions.

Factors beyond the control of management include the general level of credit and deposit demand, Federal Reserve Board monetary policy, and changes in tax laws.

Factors beyond the

control of management include the general level of credit and deposit demand, Federal Reserve Board monetary policy, and changes in tax laws.

During the year ended December 31, 2025, net interest income, on a non tax-equivalent basis, totaled $294,132,000, an increase of $103,541,000, or 54%, compared to the year ended December 31, 2024 net interest income of $190,591,000.

The increase in net interest income for 2025 compared with 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.

During the year ended December 31, 2024, net interest income, on a non tax-equivalent basis, totaled $190,591,000, which was relatively stable compared to the year ended December 31, 2023 net interest income of $190,433,000.

During the year ended December 31, 2023, net interest income, on a non tax-equivalent basis, totaled $190,433,000, a decline of $10,151,000, or 5%, compared to the year ended December 31, 2022 net interest income of $200,584,000.

The decline in net interest income during 2023 compared with 2022 was primarily attributable to a decline in average earning assets, driven by a reduced level of deposits which was somewhat offset by an improved net interest margin resulting from the rise in market interest rates.

The net interest margin represents tax-equivalent net interest income expressed as a percentage of average earning assets.

The net interest margin for the year ended December 31, 2025 was 4.02%, compared to 3.43% in 2024 and 3.58% in 2023.

The improvement in the net interest margin, excluding the accretion of discount on acquired loans, during 2025 compared with 2024 was the result of improved yields on earning assets (including both loan and security yields) and a lower cost of deposits.

The lower cost of deposits was largely driven by the Federal Reserve’s lowering of the Federal Funds rates over the last several months of 2024 and again in the latter months of 2025, and the Company’s ability to correspondingly lower deposit costs.

The decline in the net interest margin in 2024 compared with 2023 was largely driven by an increased cost of funds and a lower level of accretion of loan discounts on acquired loans.

The cost of funds increased 56 basis points year over year.

The improvement in the Company’s net interest margin during 2023 compared to 2022 of 13 basis points was primarily the result of a shift in the earning assets from the securities portfolio to higher yielding loans, which was somewhat reduced by the increasing cost of deposits as a result of the higher market interest rates.

The Company’s net interest margin for all periods presented was impacted by the accretion of discounts on acquired loans.

Accretion of discounts on acquired loans contributed approximately 3 basis point to the net interest margin in 2024, 5 basis

points in 2023 and 7 basis points during 2022.

Accretion of discounts on acquired loans contributed approximately 21 basis point to the net interest margin in 2025, 3 basis points in 2024 and 5 basis points in 2023.

Accretion of discounts on acquired loans totaled $15,556,000 during 2025, $1,507,000 during 2024, and $2,814,000 during 2023.

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The Company realized net charge-offs of $2,670,000 or 3 basis points of average loans during 2025.

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.

During 2024, the provision for credit losses represented approximately 7 basis points of average loans.

The lower provision recorded during 2023, as compared to 2022, was largely related to the resolution during the fourth quarter of 2023 of a single commercial borrowing relationship with minimal loss recognition for which the Company had established a significant reserve in previous periods.

The Company realized net charge-offs of $2,104,000 or 5 basis points of average loans during 2024.

During 2023, the provision for credit losses represented approximately 7 basis points of average loans.

The provision for credit losses in 2022 included $6,300,000 for the Day 1 CECL addition to the allocation for credit loss related to the CUB acquisition for the non-PCD loans.

The Company realized net charge-offs of $2,953,000 or 8 basis points of average loans during 2023.

The provision for credit losses made during 2024 was made at a level deemed necessary by management to absorb expected losses in the loan portfolio.

The provision for credit losses during 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.

Refer also to the sections entitled “CRITICAL ACCOUNTING POLICIES AND

ESTIMATES” and “RISK MANAGEMENT - Lending and Loan Administration” for further discussion of the provision and allowance for credit losses.

Refer also to the sections entitled “CRITICAL ACCOUNTING POLICIES AND ESTIMATES” and “RISK MANAGEMENT - Lending and Loan Administration” for further discussion of the provision and allowance for credit losses.

NON-INTEREST INCOME

During the year ended December 31, 2025, non-interest income increased $4,652,000, or 7%, compared with the year ended December 31, 2024.

The increase during 2025 compared to 2024 was largely the result of the Heartland acquisition combined with an improvement in the Company’s existing fee revenue sources.

The year ended December 31, 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 year ended December 31, 2025 was $66,620,000 compared to $54,691,000 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.

During the year ended December 31, 2024, non-interest income increased $2,399,000, or 4%, compared with the year ended December 31, 2023.

The year ended December 31, 2024 non-interest income was positively impacted by the net proceeds of the sale of the GAI assets that totaled approximately $38,323,000 and was negatively impacted by $34,893,000 related to the net loss recognized on the securities restructuring transaction.

During the year ended December 31, 2023, non-interest income increased $1,128,000 or 2% from the year ended December 31, 2022.

Non-interest Income

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Service Charges on Deposit Accounts 15,083 12,669 11,538 19 10

Insurance Revenues 4,384 9,596 10,020 (54) (4)

Insurance Revenues — 4,384 9,596 n/m (1)

Company Owned Life Insurance 2,555 2,058 1,731 24 19

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(1) n/m = not meaningful

Wealth management fees increased $2,705,000, or 23%, during 2024 compared with 2023 and increased $1,635,000, or 16%, during 2023 compared with 2022.

The increase in both periods was largely attributable to continued increases in assets under management due to healthy capital markets and strong new business results, as compared to the year ended December 31, 2023.

Wealth management fees increased $2,392,000, or 17%, during 2025 compared with 2024.

Insurance revenues declined $5,212,000, or 54%, during 2024 compared with 2023, as a result of the sale of the assets of GAI effective June 1, 2024, with only five months of revenue being recognized by the Company during 2024.

The year ended December 31, 2024 included $38,323,000 in net proceeds for the sale of the GAI assets.

Insurance revenues declined $424,000, or 4%, during 2023 compared with 2022, which was primarily attributable to decreased contingency revenue.

Contingency revenue during 2023 totaled $955,000 compared with $1,641,000 during 2022.

Contingency revenue is reflective of claims and loss experience with insurance carriers that the Company represents through its property and casualty insurance agency.

The increase during the year ended December 31, 2025 compared with the same period of 2024 was largely attributable to increased assets under management, driven by healthy capital markets throughout 2024 and 2025, and continued strong new business results in addition to the Heartland acquisition.

Wealth management fees increased $2,705,000, or 23%, during 2024 compared with 2023.

The increase was largely attributable to continued increases in assets under management due to healthy capital markets and strong new business results, as compared to the year ended December 31, 2023.

Service charges on deposit accounts increased $2,414,000, or 19%, during the year ended December 31, 2025, compared with the same period of 2024.

The increase during 2025 compared with 2024 was primarily driven by the Heartland acquisition in addition to increased customer utilization of deposit services.

No insurance revenues were recognized during the year ended December 31, 2025 due to the sale of the GAI assets effective June 1, 2024.

As a result, insurance revenues declined $4,384,000 during 2025, compared with 2024.

As previously discussed, the sale of substantially all of the assets of GAI in June 2024 resulted in net proceeds of $38,323,000.

Interchange fees increased $2,473,000, or 14%, during the year ended December 31, 2025, compared with the same period of 2024.

The increase during 2025 compared with 2024 was largely attributable to the Heartland acquisition.

Net gains on sales of loans increased $1,456,000, or 48%, during the year ended December 31, 2025 compared with the year ended December 31, 2024.

The increase during 2025 compared with 2024 was related to the Heartland acquisition and a higher volume of loans sold.

Net gains on sales of loans increased $691,000, or 29%, during the year ended December 31, 2024 compared with the year ended December 31, 2023.

The increase during 2024 compared with 2023 was related to both a higher volume of loans sold and improved pricing levels.

Net gains on sales of loans declined $1,455,000, or 38%, during the year ended December 31, 2023 compared with 2022.

The decline during 2023 compared with 2022 was related to both a lower volume of loans sold and lower pricing levels.

Loan sales totaled $193.2 million during 2025, $130.7 million during 2024, and $109.0 million during 2023.

The net loss on securities during the year ended December 31, 2024 totaled $34,788,000 and was primarily related to the net loss recognized on the securities restructuring transaction previously discussed.

There were no securities transactions during 2025 that resulted in net gains or losses.

The net loss on securities during 2024 totaled $34,788,000 which was primarily related to the net loss recognized on the securities restructuring transaction previously discussed.

The approximate loss on the transaction totaled $34,893,000, $27,189,000 after tax, or $0.92, per share and was included in earnings for the second quarter of 2024.

The proceeds from the securities sold were reinvested in the securities portfolio by the end of the third quarter of 2024.

The Company realized $40,000 in gains on sales of securities during 2023 compared with $562,000 during 2022.

The net gains on sales of securities in 2023 and 2022 were completed as part of adjustments in allocations within the normal course of business of securities portfolio management.

NON-INTEREST EXPENSE

During the year ended December 31, 2025, non-interest expense totaled $201,949,000, an increase of $55,572,000, or 38%, compared with the same period of 2024.

The primary drivers of the increased operating expenses in 2025 compared with 2024 were the Heartland operating costs and acquisition-related costs, with such amounts being $6,996,000 for the year ended December 31, 2025 and $1,370,000 for the same period of 2024.

The year ended December 31, 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 year ended December 31, 2025 was $194,953,000 compared to $139,777,000 for the same period of 2024.

Adjusted non-interest expense is a non-GAAP financial measure.

During the year ended December 31, 2024, non-interest expense totaled $146,377,000, an increase of $1,880,000, or 1%, compared to the year ended December 31, 2023.

The increase in non-interest expenses during the year ended 2024 was in large part the result of professional fees related to the previously mentioned GAI asset sale and the merger transaction with Heartland, which totaled approximately $2,759,000.

During the year ended December 31, 2023, non-interest expense totaled $144,497,000, a decrease of $9,694,000, or 6%, compared with the year ended December 31, 2022.

The 2022 non-interest expenses included approximately $12,323,000 of non-recurring acquisition-related expenses for the acquisition of CUB.

Non-interest Expense

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TOTAL NON-INTEREST EXPENSE $ 201,949 $ 146,377 $ 144,497 38 1

Salaries and benefits increased $25,485,000, or 31%, during the year ended December 31, 2025 compared with the year ended December 31, 2024.

The increase in 2025 compared with 2024 was due primarily to the salaries and benefits costs for the Heartland employee base.

Salaries and benefits declined $987,000, or 1%, during the year ended December 31, 2024 compared with the year ended December 31, 2023.

The decline in salaries and benefits during 2024 compared with 2023 was largely related to the GAI asset sale.

Salaries and benefits declined $901,000, or 1%, during the year ended December 31, 2023 compared with 2022.

The decline in salaries and benefits during 2023 compared with 2022 was largely related to approximately $1,480,000 of acquisition-related salary and benefit costs of a non-recurring nature in 2022 related to the CUB acquisition.

FDIC Premiums increased $79,000, or 3%, during the year ended December 31, 2024 compared with 2023.

FDIC premiums increased $969,000, or 52%, during the year ended December 31, 2023 compared with 2022.

The increase during 2023 compared with 2022 was primarily related to an industry-wide 2 basis point increase in the base FDIC premium assessment effective January 1, 2023.

Occupancy, furniture and equipment expense increased $4,690,000, or 31%, during the year ended December 31, 2025 compared to the year ended December 31, 2024.

The increase during 2025 compared with 2024 was primarily attributable to the operating costs of the Heartland branch network.

Occupancy, furniture and equipment expense increased $477,000 or 3%, during the year ended December 31, 2024 compared with 2023.

Data processing fees increased $5,336,000, or 44%, during the year ended December 31, 2025 compared with the year ended December 31, 2024.

The increase during 2025 compared with 2024 was largely driven by the Heartland acquisition including operating costs of the existing Heartland systems and acquisition-related costs.

Data processing fees increased $1,131,000, or 10%, during the year ended December 31, 2024 compared with the year ended December 31, 2023.

The increase during 2024 compared with 2023 was largely driven by costs associated with enhancements to the Company’s digital banking and data systems.

Data processing fees declined $4,294,000, or 28%, during the year ended December 31, 2023 compared with the year ended December 31, 2022.

The decline during 2023 compared with 2022 was largely driven by acquisition-related costs associated with the CUB transaction, which totaled approximately $4,982,000 during 2022.

Professional fees increased $2,271,000, or 28%, during the year ended December 31, 2025 compared with 2024.

The increase during 2024 compared with 2023 was attributable to the professional fees associated with the sale of assets of GAI and the merger with Heartland, which totaled $2,759,000 for the two transactions.

Professional fees declined $720,000, or 11%, during the year ended December 31, 2023 compared with the year ended December 31, 2022.

The decline during 2023 compared with 2022 was primarily due to merger-related professional fees associated with the CUB acquisition that totaled approximately $1,802,000 in 2022, which were partially mitigated by increased legal and other professional fees during 2023.

Advertising and promotion expense declined $918,000, or 19%, during 2024 compared with 2023 as the Company employed a more targeted focus for sponsorships and contributions during 2024.

Advertising and promotion expense increased $441,000, or 10%, during 2023 as compared with 2022.

The increase during 2025 compared with 2024 was primarily attributable to the Heartland acquisition and technology support services.

Professional fees increased $2,572,000, or 46%, during the year ended December 31, 2024 compared with 2023.

during 2024 compared with 2023 was attributable to the professional fees associated with the sale of assets of GAI and the merger with Heartland, which totaled $2,759,000 for the two transactions.

Intangible amortization expense consists primarily of amortization associated with the core deposit intangible of acquired deposit portfolios.

Intangible amortization decreased $808,000, or 28%, during 2024 compared with 2023 and decreased $871,000, or 23%, during 2023 compared with 2022.

The decreases in both years were largely related to the accelerated method for which the intangible assets are amortized.

Intangible amortization increased $8,116,000, or 399%, during the year ended December 31, 2025 compared with the same period of 2024.

The increase was attributable to the Heartland acquisition.

Intangible amortization decreased $808,000, or 28%, during 2024 compared with 2023 largely related to the accelerated method for which the intangible assets are amortized.

Other operating expenses increased $7,568,000, or 38%, during the year ended December 31, 2025 compared with the same period of 2024.

The increase was largely attributable to the operating costs of Heartland.

Other operating expenses increased $334,000, or 2%, during the year ended December 31, 2024 compared to the year ended December 31, 2023.

Other operating expenses declined $3,864,000, or 16%, during the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decline during 2023 compared with 2022 was attributable to acquisition-

related costs that totaled approximately $3,862,000 in 2022.

The acquisition-related costs were primarily vendor contract termination costs.

PROVISION FOR INCOME TAXES

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The Company’s effective tax rate was 19.6%, 19.5%, and 17.1%, respectively, in 2025, 2024, and 2023.

The increase in effective tax rate for the year ended December 31, 2024 as compared to the same period of the prior year was primarily attributable to the previously mentioned sale of GAI assets and the securities restructuring transaction.

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.

1 unchanged sentence

CAPITAL RESOURCES

As of December 31, 2024, shareholders’ equity increased by $51.5 million to $715.1 million compared with $663.6 million at year-end 2023.

The increase in shareholders’ equity was primarily attributable to the increase in retained earnings of $52.0 million due to net income of $83.8 million during 2024, which was partially offset by the payment of $31.8 million in shareholder dividends.

As of December 31, 2025, shareholders’ equity increased by $447.3 million to $1.162 billion compared with $715.1 million at year-end 2024.

The increase in shareholders’ equity was primarily attributable to the Heartland acquisition, which resulted in an increase of $319.5 million in equity.

The increase in shareholders’ equity was also driven by an increase in retained earnings of $69.4 million due to net income of $112.6 million, which was partially offset by the payment of $43.2 million in shareholder dividends.

Shareholders’ equity represented 13.9% of total assets at December 31, 2025 and 11.4% of total assets at December 31, 2024.

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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 new repurchase plan represented approximately 3% of the Company’s outstanding shares on the date it was approved.

On a share basis, the amount of common stock subject to the repurchase plan represented approximately 3.4% of the Company’s outstanding shares on January 31, 2022 (the date it was approved), and currently represents 2.7% of shares outstanding.

The Company is not obligated to purchase any shares under the plan, and the plan may be discontinued at any time.

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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).

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.

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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 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), banking organizations were further permitted to mitigate the estimated cumulative regulatory capital effects of CECL for up to an additional two years.

In addition, as part of the 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.

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USES OF FUNDS

December 31, 2025 total loans increased $1.7 billion, or 42% on an annualized basis, compared with December 31, 2024.

The increase at December 31, 2025 compared with December 31, 2024 was largely due to the acquisition of Heartland in addition to continued organic loan growth throughout the Company’s existing market areas.

Excluding loans acquired through the Heartland acquisition, total loans increased $261.9 million, or 6%, during 2025.

December 31, 2024 total loans increased $155.4 million, or 4%, compared with December 31, 2023.

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Commercial and industrial loans increased $9.5 million, or 1%, commercial real estate loans grew $103.0 million, or 5%, agricultural loans increased $7.2 million, or 2%, and retail loans increased $35.6 million, or 18%.

December 31, 2023 total loans increased $189.3 million, or 5%, compared with December 31, 2022.

The increase in total loans at December 31, 2023 compared with year-end 2022 was broad-based across most segments of the portfolio.

Commercial real estate loans increased $155.0 million, or 8%, agricultural loans grew $6.4 million, or 2%, and retail loans increased $42.9 million, or 6%.

Partially offsetting these increases was a modest decline in commercial and industrial loans of $15.0 million, or 2%, as line of credit utilization remains muted.

The Bank has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk.

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Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

As reflected in the table below, over the past several years (including 2024), the composition of the loan portfolio has remained relatively stable and diversified.

The portfolio is most heavily concentrated in commercial real estate loans at 54% of the portfolio in 2024, followed by commercial and industrial loans at 16% of the portfolio, and agricultural loans at 10% of the portfolio.

As reflected in the table below, over the past several years (including 2025), the composition of the loan portfolio has remained relatively stable.

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 13% of the portfolio (up from 9% at December 31, 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.

Loan Portfolio December 31,

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Agricultural Loans 489,168 431,037 423,803 417,413 358,150

Home Equity and Consumer Loans 448,872 407,889 377,164 307,184 297,702

Home Equity, Consumer Loans and Credit Cards 630,015 448,872 407,889 377,164 307,184

Residential Mortgage Loans 774,553 357,448 362,844 350,682 263,565

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Agricultural Loans 8 % 10 % 11 % 11 % 12 %

Home Equity and Consumer Loans 11 % 10 % 10 % 10 % 10 %

Home Equity, Consumer Loans and Credit Cards 11 % 11 % 10 % 10 % 10 %

Residential Mortgage Loans 13 % 9 % 9 % 9 % 9 %

Total Loans 100 % 100 % 100 % 100 % 100 %

The Company’s policy is generally to extend credit to consumer and commercial borrowers in its primary geographic market area in southern Indiana and central and western Kentucky.

The Company’s policy is generally to extend credit to consumer and commercial borrowers in its primary geographic market area in Indiana (central/southern), Kentucky (northern/central/western), and Ohio (central/ southwest).

Commercial extensions of credit outside this market area are generally concentrated in real estate loans within a reasonable proximity of the Company’s primary market and are granted on a selective basis.

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Retail Space 14 % 7 % 15 % 8 %

1-4 Family Investment Properties 11 % 6 % 12 % 7 %

Industrial, Manufacturing, Warehousing Properties 9 % 5 % 10 % 5 %

Lodging 9 % 5 % 6 % 3 %

1-4 Family Investment Properties 8 % 4 % 11 % 6 %

Office Real Estate 8 % 4 % 9 % 5 %

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Land Development and Construction 6 % 3 % 7 % 4 %

Lodging 6 % 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 December 31, 2025 (which is 40% 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, 2023, 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 41% 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.

The Company’s CRE loan portfolio was comprised of approximately 77% of non-owner occupied CRE at December 31, 2024 (which was 42% of the Company’s overall loan portfolio), and 23% owner occupied CRE (which was 12% of the Company’s total loan portfolio).

CRE 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 CRE 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.

CRE 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.

Management will continue to monitor and evaluate CRE loans based on collateral, geography and risk grade criteria.

The following table indicates the amounts of loans (excluding residential mortgages on 1-4 family residences and consumer loans) outstanding as of December 31, 2025, which, based on remaining scheduled repayments of principal, are due in the periods indicated (dollars in thousands).

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(1) n/m = not meaningful

The amortized cost of investment securities, including federal funds sold and short-term investments, increased $7.8 million, or less than 1%, at year-end 2024 compared to year-end 2023 and decreased $229.0 million, or 11%, at year-end 2023.

The amortized cost of investment securities, including federal funds sold and short-term investments, declined $2.9 million, or less than 1%, at year-end 2025 compared to year-end 2024.

The amortized cost of the investment securities increased $69.7 million during 2025 partially attributable to the acquisition of Heartland Bank and reinvestment of principal and interest cash flows back into the investment portfolio over the course of the year.

The decline in federal funds sold and short-term investments totaling $72.6 million was impacted by the aforementioned redemption of sub-debt totaling $64.3 million.

The amortized cost of investment securities, including federal funds sold and short-term investments, increased $7.8 million, or less than 1%, at year-end 2024 compared to year-end 2023.

As previously discussed, 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.

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The proceeds from the securities sold were reinvested in the securities portfolio by the end of the third quarter of 2024.

The decline in the available for sale portfolio during 2023 compared with 2022 was primarily the result of the Company’s utilization of cash flows of approximately $171 million from the securities portfolio to fund loan growth and overall modest deposit declines.

The decline in 2023 was broad-based across all areas of the investment portfolio.

Mortgage related securities declined $85.5 million, or 10%, obligations of state and political subdivisions declined $49.3 million, or 5%, and US treasuries declined $64 million, or 100%, as compared to 2022.

As mentioned above, the Company undertook a partial restructuring of its securities portfolio in mid-2024, with the proceeds from the sales of securities being reinvested back into the securities portfolio.

After the restructuring, the investment portfolio continues to be relatively balanced with agency issued mortgage related securities and collateralized and uncollateralized federal agency securities totaling $1.097 billion, or 57% of the total securities portfolio at December 31, 2024.

The Company’s

level of obligations of state and political subdivisions decreased to $588.0 million, or 31% of the portfolio at December 31, 2024.

After the restructuring, the investment portfolio continues to be relatively balanced with agency issued mortgage-related securities and collateralized and uncollateralized federal agency securities totaling 58% and 57% of the total securities portfolio at December 31, 2025 and 2024, respectively.

The Company’s level of obligations of state and political subdivisions decreased to 32% and 31% of the portfolio at December 31, 2025 and 2024, respectively.

Investment Securities, at Carrying Value

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Total Securities $ 1,657,394 $ 1,517,287 $ 1,596,832

In 2023, the Company utilized cash flows from the available for sale portfolio to fund loan growth and an overall modest decline in deposits.

This cash flow utilization drove the decline in carrying value in the available for sale portfolio from 2023 to 2022, which was slightly offset by the fair value adjustments in the portfolio due to the change in interest rates.

The Company’s $1.657 billion available-for-sale investment portfolio provides an additional funding source for the liquidity needs of the Company’s subsidiaries and for asset/liability management requirements.

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In the normal course of business, the Company makes commitments to extend credit and commitments to sell loans, which are not reflected in its consolidated financial statements.

For further information about such commitments, see Note 15

(Commitments and Off-balance Sheet Items) in Notes to the Consolidated Financial Statements included in Item 8 of this Report.

For further information about such commitments, see Note 15 (Commitments and Off-balance Sheet Items) in Notes to the Consolidated Financial Statements included in Item 8 of this Report.

SOURCES OF FUNDS

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Core deposits consist of demand deposits, savings, interest-bearing checking, money market accounts, and certificates of deposit of less than $100,000.

Other deposit sources include certificates of deposit of $100,000 or more.

Other deposit sources include certificates of deposit of $100,000 or more and brokered deposits.

The deposit base remains diverse with stable and manageable exposure to uninsured and uncollateralized deposits of approximately 25% of total deposits.

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Total Core Deposits 5,999,923 4,767,443 4,865,242 26 (2)

Certificates of Deposits of $100,000 or more 537,471 330,406 211,645 63 56

Certificates of Deposits of $100,000 or more and Brokered Deposits 915,196 537,471 331,233 70 62

FHLB Advances and Other Borrowings 215,334 196,480 210,837 10 (7)

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CORE DEPOSITS

The Company’s overall level of average core deposits declined approximately $98.6 million, or 2%, during 2024 compared with 2023.

The Company’s overall level of average core deposits increased approximately $1.2 billion, or 26%, during 2025 compared with 2024.

This increase was largely attributable to the Heartland acquisition.

As of December 31, 2025, average core deposits from the Heartland acquisition totaled approximately $1.2 billion.

The Company’s overall level of average core deposits declined approximately $98.6 million, or 2%, during 2024 compared with 2023.

Competitive deposit pricing in the marketplace as well as customers actively looking for yield opportunities within and outside the banking industry are contributing factors to the decline in total deposits over the course of the past year.

Throughout 2023, a meaningful level of the outflow of deposits experienced during the past year was captured within the Company’s wealth management group.

Competitive deposit pricing in the marketplace as well as customers actively looking for yield opportunities within and outside the banking industry were contributing factors to the decline in total deposits throughout 2024.

The Company’s ability to attract core deposits continues to be influenced by competition and the interest rate environment, as well as the availability of alternative investment products.

The Company has continued to see customer movement from both interest bearing and non-interest bearing transactional accounts to time deposits due primarily to a higher interest rate environment.

Core deposits continue to represent a significant funding source for the Company’s operations and represented 90% of average total funding sources during 2024 compared with 90% during 2023 and 94% during 2022.

Core deposits continue to represent a significant funding source for the Company’s operations and represented 84% of average funding sources during 2025 compared with 87% during 2024 and 90% during 2023.

Demand, savings, and money market deposits have provided a growing source of funding for the Company in each of the periods reported.

Average demand, savings, and money market deposits declined 4% during 2024 and 12% in 2023.

Average demand, savings, and money market deposits totaled $4.432 billion or 93% of core deposits (81% of total funding sources) in 2024 compared with $4.608 billion or 95% of core deposits (85% of total funding sources) in 2023 and $5.226 billion or 95%

of core deposits (89% of total funding sources) in 2022.

Average demand, savings, and money market deposits increased 26% during 2025 and declined 4% during 2024.

Average demand, savings, and money market deposits totaled $5.585 billion or 93% of core deposits (78% of total funding sources) in 2025 compared with $4.432 billion or 93% of core deposits (81% of total funding sources) in 2024 and $4.608 billion or 95% of core deposits (85% of total funding sources) in 2023.

Notably, non-interest deposits have remained relatively stable as a percent of average total core deposits at approximately 31% during 2025 compared to 30% in 2024 and 32% in 2023.

Other time deposits consist of certificates of deposits in denominations of less than $100,000.

These average deposits increased by 30% in 2024 following a decline of 2% during 2023.

Other time deposits comprised 7% of core deposits in all periods presented.

These average deposits increased by 44% in 2025 following an increase of 30% during 2024.

Other time deposits comprised of 8% of core deposits in 2025 compared to 7% in 2024 and 5% in 2023.

OTHER FUNDING SOURCES

Certificates of deposits in denominations of $100,000 or more are an additional source of other funding for the Company’s bank subsidiary and are used as both long-term and short-term funding sources.

On an average basis, large denomination certificates increased $207.1 million, or 63%, during 2024.

Certificates of deposits in denominations of $100,000 or more and brokered deposits are an additional source of other funding for the Company’s bank subsidiary and are used as both long-term and short-term funding sources.

On an average basis, large denomination and brokered certificates increased $377.7 million, or 70%, during 2025.

This follows an increase of $206.2 million, or 62%, during 2024.

Large certificate deposits comprised approximately 10% of average total funding sources in 2024 compared with 6% in 2023 and 4% in 2022.

On an end of period basis, certificates of deposits in denominations of $100,000 or more increased $111.6 million, or 23%, during 2024 following an increase of $284.7 million, or 147%, during 2023.

As previously discussed, customers seeking higher yield opportunities were a contributing factor to growth in this category of the Company’s funding sources.

The Company had no brokered deposits as of December 31, 2024 and 2023.

The Company participates in a reciprocal deposit program.

Large certificate deposits and brokered deposits comprised approximately 13% of average total funding sources in 2025 compared with 10% in 2024 and 6% in 2023.

At December 31, 2025, the Company had brokered deposits totaling $36.2 million compared to no brokered deposits at December 31, 2024 and 2023.

The Company also participates in a reciprocal deposit program.

Reciprocal Deposits totaled $153.1 million at December 31, 2025 and $96.8 million at December 31, 2024.

FHLB advances and other borrowings represent an important source of other funding for the Company.

Average borrowed funds decreased $14.4 million, or 7%, during 2024 following an increase of $51.8 million, or 33%, during 2023.

Borrowings comprised approximately 4% of average total funding sources during 2024 and 2023 compared with 3% in 2022.

FHLB advances and other borrowings represent another source of other funding for the Company.

Average borrowed funds increased $18.9 million, or 10%, during 2025 following a decrease of $14.4 million, or 7%, during 2024.

Borrowings comprised approximately 3% of average total funding sources during 2025 compared with 4% in each of 2024 and 2023.

The bank subsidiary of the Company also utilizes short-term funding sources from time to time.

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Borrowings are available for general working capital purposes.

Interest is payable quarterly at a floating rate based upon term SOFR rate plus a margin payable in respect of any principal amounts advanced under the revolving line of credit.

Interest is payable quarterly at a floating rate based

upon term SOFR rate plus a margin payable in respect of any principal amounts advanced under the revolving line of credit.

There was no outstanding balance as of December 31, 2025.

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The committee provides valuable input to lending personnel, acts as an approval body, and monitors the overall quality of the Bank’s loan portfolio.

The Corporate Credit Risk Management Committee comprised of members of the Company’s and its subsidiary Bank’s executive officers and board of directors, strives to ensure a consistent application of the Company’s lending policies.

The Credit Risk Management Committee, comprised of members of the executive and senior management team, strives to ensure a consistent application of the Company’s lending policies.

The Company also maintains a comprehensive risk-grading and loan review program, which includes quarterly reviews of problem loans, delinquencies and charge-offs.

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Balance of Allowance for Expected Credit Losses at Beginning of Period $ 44,436 $ 43,765 $ 44,168 $ 37,017 $ 46,859

Impact of adopting ASC 326 — — — — 8,767

Impact of adopting ASC 326 - PCD loans — — — — 6,886

Impact of Change in Accounting Method (7) — — — —

Loans Charged-off:

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Agricultural Loans — 8 27 — —

Home Equity and Consumer Loans 2,362 1,858 1,598 1,003 942

Home Equity, Consumer Loans and Credit Cards 2,668 2,362 1,858 1,598 1,003

Residential Mortgage Loans 114 — 58 24 45

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Agricultural Loans — 2 — — —

Home Equity and Consumer Loans 657 605 479 359 358

Home Equity, Consumer Loans and Credit Cards 832 657 605 479 359

Residential Mortgage Loans 21 — 3 5 33

1 unchanged sentence

Net Loans Recovered (Charged-off) (2,670) (2,104) (2,953) (2,316) (3,342)

Acquisition of Citizens Union Bank of Shelbyville, KY - PCD Loans — — 3,117 — —

Acquisitions (Day 1 and Day 2 Impact) 32,703 — — 3,117 —

Additions to Allowance Charged to Expense 3,232 2,775 2,550 6,350 (6,500)

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Agricultural Loans 3,324 4,917 3,837 4,188 4,505

Home Equity and Consumer Loans 3,443 2,976 2,196 1,808 1,636

Home Equity, Consumer Loans and Credit Cards 5,352 3,443 2,976 2,196 1,808

Residential Mortgage Loans 7,638 2,802 2,762 2,228 1,705

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The allowance for credit losses represented 1.32% of period-end loans at December 31, 2025 compared with 1.08% of period-end loans at December 31, 2024.

The Company adopted ASU No.

2016-13, Financial instruments - Credit Losses (Topic 326) on January 1, 2020.

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 “Day 2” provision for credit losses under the CECL methodology.

In a transaction like the Heartland merger, the current accounting rules require 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.

Under the CECL methodology, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses.

As of December 31, 2025, the Company held net discounts on acquired loans of $52.8 million, which included $50.7 million related to the Heartland loan portfolio.

The Company added $9.4 million to the allowance for credit losses in conjunction with the closing of the CUB acquisition on January 1, 2022 related to the CUB loan portfolio.

Of the increase in allowance for credit losses for the CUB portfolio, $6.3 million was recorded through the provision for credit losses on “Day 1” under the CECL model for non-PCD loans.

Of the increase in allowance for credit losses for the CUB portfolio, $6.3 million was recorded through the provision for credit losses on “Day 2” under the CECL methodology for non-PCD loans.

The Company also acquired $29.9 million in PCD loans (at time of acquisition) for which the company recorded a credit adjustment of $3.1 million which was included in the allowance for credit losses.

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Home Equity Loans 776 1,087 1,033 310 24

Consumer Loans 117 253 400 82 170

Consumer Loans and Credit Cards 181 117 253 400 82

Residential Mortgage Loans 2,387 2,202 1,375 1,230 587

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Home Equity Loans — — — — —

Consumer Loans — — — — —

Consumer Loans and Credit Cards — — — — —

Residential Mortgage Loans — — — — —

1 unchanged sentence

Non-performing assets totaled $29.5 million, or 0.35% of total assets, at December 31, 2025 compared to $11.1 million, or 0.18% of total assets, at December 31, 2024 and compared to $9.2 million, or 0.15% of total assets, at December 31, 2023.

Non-performing loans totaled $11.1 million, or 0.27% of total loans, at December 31, 2024 compared with $9.2 million, or 0.23% of total loans, at December 31, 2023 and compared with $14.3 million, or 0.38% of total loans, at December 31, 2022.

Non-performing loans totaled $29.4 million, or 0.50% of total loans, at December 31, 2025 compared to $11.1 million, or 0.27% of total loans, at December 31, 2024 and compared with $9.2 million, or 0.23% of total loans, at December 31, 2023.

The increase in non-performing assets at December 31, 2025 compared with year-end 2024 is largely attributable to the Heartland acquisition with non-performing assets from the Heartland acquisition totaling approximately $18.6 million at year-end 2025.

Total non-performing loans increased in 2024 as compared to 2023;

however, there is no significant loss exposure on this increase.

The decline in the level of non-performing commercial and industrial loans and leases during 2023 was primarily attributable to the resolution of a single commercial borrowing relationship with minimal loss recognition for which the Company had established a significant reserve in previous periods.

however, there was no significant loss exposure on this increase.

For additional detail on individually analyzed loans, see Note 5 (Loans) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report.

Interest income recognized on non-performing loans for 2024 was $724,000.

During the period in which loans were non-performing, interest income recognized on non-performing loans for 2025 was $581,000.

The gross interest income that would have been recognized in 2025 on non-performing loans if the loans had been current in accordance with their original terms was $3,220,000.

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In an effort to estimate the impact of sustained interest rate movements to the Company’s earnings, the Company monitors interest rate risk through computer-assisted simulation modeling of its net interest income.

The Company’s simulation modeling monitors the potential impact to net interest income under various interest rate scenarios.

The Company’s simulation modeling monitors the

potential impact to net interest income under various interest rate scenarios.

The Company’s objective is to actively manage its asset/liability position within a one-year interval and to limit the risk in any of the interest rate scenarios to a reasonable level of tax-equivalent net interest income within that interval.

1 unchanged sentence

Quantitative and Qualitative Disclosures About Market Risk section for further discussion regarding interest rate risk.

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, 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, return on average assets, return on average equity, return on tangible equity, 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 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;

(3) the net gain on the extinguishment of debt resulting from the redemption of certain subordinated notes on September 15, 2025 and December 30, 2025;

(4) the operating results for German American Insurance, Inc.

(“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 RECONCILIATIONS

Non-GAAP Reconciliation – Net Income and Earnings Per Share Year Ended

(Dollars in Thousands, except per share amounts) 12/31/2025 12/31/2024 12/31/2023

Net Income, as reported $ 112,635 $ 83,811 $ 85,888

CECL Day 2 non-PCD provision 12,150 — —

Non-recurring merger-related expenses 5,418 1,082 —

Gain (loss) on debt extinguishment 519 — —

Loss on securities restructuring — (27,189) —

Income from GAI operations — 767 —

Gain on sale of GAI assets — 27,476 —

Adjusted Net Income $ 129,684 $ 83,839 $ 85,888

Weighted Average Shares Outstanding 36,796,342 29,656,416 29,557,567

Earnings Per Share, as reported $ 3.06 $ 2.83 $ 2.91

Earnings Per Share, as adjusted $ 3.52 $ 2.83 $ 2.91

Non-GAAP Reconciliation – Non-Interest Income and Non-Interest Expense Year Ended

(Dollars in Thousands) 12/31/2025 12/31/2024 12/31/2023

Non-Interest Income $ 67,312 $ 62,660 $ 60,261

Gains (Losses) on securities — 105 —

Loss on securities restructuring — (34,893) —

Gain (loss) on debt extinguishment 692 — —

Revenue from GAI operations — 4,434 —

Gain on sale of GAI assets — 38,323 —

Adjusted Non-Interest Income $ 66,620 $ 54,691 $ 60,261

Non-Interest Expense $ 201,949 $ 146,377 $ 144,497

Non-recurring merger-related expenses 6,996 1,370 —

Expense from GAI operations — 3,414 —

Expense from sale of GAI assets — 1,816 —

Adjusted Non-Interest Expense $ 194,953 $ 139,777 $ 144,497

Non-GAAP Reconciliation – Efficiency Ratio Year Ended

(Dollars in Thousands) 12/31/2025 12/31/2024 12/31/2023

Adjusted Non-Interest Expense (from above) $ 194,953 $ 139,777 $ 144,497

Intangible Amortization 10,148 2,032 2,840

Adjusted Non-Interest Expense excluding Intangible Amortization $ 184,805 $ 137,745 $ 141,657

Net Interest Income $ 294,132 $ 190,591 $ 190,433

FTE Adjustment 5,437 5,494 6,486

Net Interest Income (FTE) 299,569 196,085 196,919

Adjusted Non-Interest Income (from above) 66,620 54,691 60,261

Total Adjusted Total Revenue $ 366,189 $ 250,776 $ 257,180

Efficiency Ratio 52.28 % 49.18 % 55.09 %

Adjusted Efficiency Ratio 50.47 % 54.93 % 55.09 %

Non-GAAP Reconciliation – Net Interest Margin Year Ended

(Dollars in Thousands) 12/31/2025 12/31/2024 12/31/2023

Net Interest Income (FTE) from above $ 299,569 $ 196,085 $ 196,919

Accretion of Discount on Acquired Loans 15,556 1,507 —

Adjusted Net Interest Income (FTE) $ 284,013 $ 194,578 $ 196,919

Average Earning Assets $ 7,453,650 $ 5,722,010 $ 5,504,219

Net Interest Margin (FTE) 4.02 % 3.43 % 3.58 %

Adjusted Net Interest Margin (FTE) 3.81 % 3.40 % 3.58 %

Non-GAAP Reconciliation – Return on Average Assets Year Ended

(Dollars in Thousands) 12/31/2025 12/31/2024 12/31/2023

Adjusted Net Income $ 129,684 $ 83,839 $ 85,888

Average Assets $ 8,237,194 $ 6,233,753 $ 6,037,874

Return on Average Assets, as reported 1.37 % 1.34 % 1.42 %

Return on Average Assets, as adjusted 1.57 % 1.34 % 1.42 %

Non-GAAP Reconciliation – Return on Average Equity Year Ended

(Dollars in Thousands) 12/31/2025 12/31/2024 12/31/2023

Adjusted Net Income $ 129,684 $ 83,839 $ 85,888

Average Equity $ 1,050,990 $ 685,862 $ 584,106

Return on Average Equity, as reported 10.72 % 12.22 % 14.70 %

Return on Average Equity, as adjusted 12.34 % 12.22 % 14.70 %

Non-GAAP Reconciliation – Return on Tangible Equity Year Ended

(Dollars in Thousands) 12/31/2025 12/31/2024 12/31/2023

Adjusted Net Income $ 129,684 $ 83,839 $ 85,888

Average Equity, as reported $ 1,050,990 $ 685,862 $ 584,106

Average Intangibles, as reported 395,603 184,664 188,144

Average Tangible Equity $ 655,387 $ 501,198 $ 395,962

Return on Tangible Equity, as reported 17.19 % 16.72 % 21.69 %

Return on Tangible Equity, as adjusted 19.79 % 16.73 % 21.69 %

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis