GABC 10-K & 10-Q changes, risk factors and insider trading

While recent higher inflation levels have moderated, currentCurrent economic conditions continue to be impacted by inflation rates that persistently remain above the Federal Reserve’s target rate and by elevated interest rates. A prolonged period of higher inflation may impact our profitability by negatively impacting our fixed costs and expenses. Economic and inflationary pressure on consumers and uncertainty regarding economic improvement could have direct or indirect material adverse impacts on us, on our customers or on the financial institutions with whom we deal as counterparties to financial transactions. Such pressures could negatively impact customers’ ability to obtain new loans or to repay existing loans, diminish the values of any collateral securing such loans and could cause increases in the number of the Company’s customers experiencing financial distress and in the levels of the Company’s delinquencies, non-performing loans and other problem assets, charge-offs and provision for credit losses, all of which could materially adversely affect our financial condition and results of operations. The underwriting and credit monitoring policies and procedures that we have adopted cannot eliminate the risk that we might incur losses on account of factors relating to the economy like those identified above, and those losses could have a material adverse effect on our business, financial condition, results of operations and cash flows.

As market interest rates have increased, we have experienced significant unrealized losses on our available-for-sale securities portfolio. Unrealized losses related to available-for-sale securities are reflected in accumulated other comprehensive income in our consolidated balance sheets and reduce the level of our book capital and tangible common equity. However, such unrealized losses do not affect our regulatory capital ratios. We actively monitor our available-for-securitiesavailable-for-sale securities portfolio and we do not currently anticipate the need to realize material losses from the sale of securities for liquidity purposes. Furthermore, we believe it is unlikely that we would be required to sell any such securities before recovery of their amortized cost bases, which may be at maturity. Nonetheless, significant unrealized losses could negatively impact market and/or customer perceptions of the Bank, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.

Since the Deposit Insurance Fund is funded by premiums and assessments paid by insured banks, our FDIC insurance premium could increase in future years depending upon the FDIC’s actual loss experience, changes in our Bank’s financial condition or capital strength, and future conditions in the banking industry. In addition, the method that the FDIC uses to determine the amount of our deposit insurance premium will change once our total consolidated assets exceed $10 billion, which we expect may happen as early as 2027. Any such increases in our FDIC insurance premiums and assessment fees may have a materially adverse effect on our results of operations and financial condition.

We operate in many different businesses in diverse markets and rely on the ability of our employees and systems to process transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions, errors relating to transaction processing and technology, breaches of our internal control systems or failures of those of our suppliers or counterparties, compliance failures, cyber-attacks or unforeseen problems encountered while implementing new computer systems or upgrades to existing systems, business continuation and disaster recovery issues, and other external events. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. The occurrence of any of these events could cause us to suffer financial loss, face regulatory action and suffer damage to our reputation.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan, and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our information systems, we cannot completely ensure that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

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.

On February 1, 2025, German American Bancorp completed its previously announced acquisition of Heartland BancCorp (“Heartland”) through the merger of Heartland with and into the Bancorp. Immediately following completion of the Heartland holding company merger, Heartland’s subsidiary bank, Heartland Bank, was merged with and into the Bancorp’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 Decemberthe 31,closing 2024,of the transaction, Heartland had total assets of approximately $1.97$1.94 billion (unaudited),billion, total loans of approximately $1.56$1.58 billion (unaudited),billion, and total deposits of approximately $1.75$1.73 billion (unaudited).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 2120 (SubsequentBusiness EventsCombinations, Goodwill and Intangible Assets) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note 2120 is incorporated into this Item 17 by reference.

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

Net income for the year endended 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. GAI net income, excluding the after-tax gain, contributed approximately $767,000, or $0.03 per share, during 2024 compared with net income of $1,639,000, or $0.06 per share, during the full year of 2023.

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,allocations: specifican allowance assessed on a collective basis for pools of loans that share similar risk characteristics and general.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.

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.

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. 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.

Net income for the year endended 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. GAI net income, excluding the after-tax gain, contributed approximately $767,000, or $0.03 per share, during 2024 compared with net income of $1,639,000, or $0.06 per share, during the full year of 2023.

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, 20242025 was 3.43%,4.02%, compared to 3.43% in 2024 and 3.58% in 20232023. 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 3.45%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 2022.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 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 321 basis point to the net interest margin in 2024,2025, 3 basis points in 2024 and 5 basis points in 2023 and 7 basis points during 2022.2023. Accretion of discounts on acquired loans totaled $15,556,000 during 2025, $1,507,000 during 2024, and $2,814,000 during 2023, and $4,341,000 during 2022.2023.

During 2022,2023, the provision for credit losses represented approximately 177 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 $2,316,000$2,953,000 or 68 basis points of average loans during 2022.2023.

The provision for credit losses made during 20242025 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.

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.

Wealth management fees increased $2,392,000, or 17%, during 2025 compared with 2024. 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 and increased $1,635,000, or 16%, during 2023 compared with 2022.2023. 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 $1,635,000, or 16%, during 2023 compared with 2022.

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, and $168.1 million during 2022.2023.

There were no securities transactions during 2025 that resulted in net gains or losses. The net loss on securities during the year ended December 31, 2024 totaled $34,788,000 andwhich 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.

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.

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

The Company records a provision for current income taxes payable, along with a provision for deferred taxes payable in the future. Deferred taxes arise from temporary differences, which are items recorded for financial statement purposes in a different period than for income tax returns. The Company’s effective tax rate was 19.6%, 19.5%, 17.1%, and 17.5%,17.1%, respectively, in 2025, 2024, 2023, and 2022. 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.2023. 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.

As of December 31, 2024,2025, shareholders’ equity increased by $51.5$447.3 million to $715.1$1.162 millionbillion compared with $663.6$715.1 million at year-end 2023.2024. 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 $52.0$69.4 million due to net income of $83.8$112.6 million during 2024,million, which was partially offset by the payment of $31.8$43.2 million in shareholder dividends.

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%3.4% of the Company’s outstanding shares on January 31, 2022 (the date it was approved.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. 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.

This section presents an analysis of the consolidated financial condition of the Company as of MarchJune 31,30, 2026 and December 31, 2025 and the consolidated results of operations for the three and six months ended MarchJune 31,30, 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.

NetThe income for thesecond quarter endedof March2025 31,results 2026of totaledoperations $33,152,000,included orHeartland $0.88acquisition-related perexpenses share,of $929,000 ($697,000, on an increaseafter of 193% on a per sharetax basis compared with the first quarter 2025 net income of $10,517,000, or $0.30 per share.). The first quartersix months of 2025 results of operations included acquisition-related expenses of $5,932,000$6,860,000 ($4,620,000,$5,316,000, 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), in connectioneach withcase, related to the Heartland merger. On an adjusted basis, net income for the firstsecond quarter of 2025 was $27,287,000,$32,058,000, or $0.79$0.86 per share, and for the six months ended June 30, 2025, was $59,345,000, or $1.64 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.

In calculating the adequacy of the allowance at MarchJune 31,30, 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 $5,000,000.$5,300,000. Excluding consideration of qualitative adjustments, a corresponding $3,900,000$4,200,000 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 MarchJune 31,30, 2026.

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 MarchJune 31,30, 2026. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of MarchJune 31,30, 2026, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $4,205,000$2,760,000 and gross unrealized losses totaled approximately $224,977,000.$211,412,000. 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 impairmentimpairment, with observable price changes being recognized in earnings.

NetThe income for thesecond quarter endedof March2025 31,results 2026of totaledoperations $33,152,000,included orHeartland $0.88acquisition-related perexpenses share,of $929,000 ($697,000, on an increaseafter of 193% on a per sharetax basis compared with the first quarter 2025 net income of $10,517,000, or $0.30 per share.). The first quartersix months of 2025 results of operations included acquisition-related expenses of $5,932,000$6,860,000 ($4,620,000,$5,316,000, 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), in connectioneach withcase, related to the Heartland merger. On an adjusted basis, net income for the firstsecond quarter of 2025 was $27,287,000,$32,058,000, or $0.79$0.86 per share, and for the six months ended June 30, 2025, was $59,345,000, or $1.64 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.

The following table summarizes net interest income (on a tax-equivalent basis) for the three months ended MarchJune 31,30, 2026 and 2025. For tax-equivalent adjustments, an effective tax rate of 21% was used for both periods.(1)

During the firstsecond quarter of 2026, net interest income, on a non tax-equivalent basis, totaled $78,851,000,$81,208,000, an increase of $12,279,000,$8,053,000, or 18%,11%, compared to the firstsecond quarter of 2025 net interest income of $66,572,000.$73,155,000. During the first six months of 2026, net interest income, on a non tax-equivalent basis, totaled $160,059,000, an increase of $20,332,000, or 15%, compared to the first six months of 2025 net interest income of $139,727,000. The increaseimprovement in net interest income during the firstsecond quarter of 2026 compared with the firstsecond quarter of 2025 and six months ended June 30, 2026 compared with the same period of 2025 was primarilythe attributableresult toof an improved net interest margin and a higher level of average earning assets driven in large part by the Heartland acquisition and improvement of the Company’s net interest margin.assets.

The tax equivalent net interest margin for the quarter ended MarchJune 31,30, 2026 was 4.26%4.30% compared with 3.96%3.92% in the firstsecond quarter of 2025. The tax equivalent net interest margin for the six months ended June 30, 2026, was 4.28% compared with 3.94% for the six months ended June 30, 2025. The continued improvement in the net interest margin duringfor theboth firstperiods quarter ofin 2026 compared with the first quarter of 2025 was driven by a lower cost of funds primarily attributable to lower deposit costs.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.

The Company’s net interest margin and net interest income in bothall periods presented were impacted by accretion of loan discounts on acquired loans. Accretion of discounts on acquired loans totaled $3,456,000$3,235,000 during the firstsecond quarter of 2026 and $4,192,000$3,483,000 during the firstsecond quarter of 2025. Accretion of discounts on acquired loans contributed approximately 1817 basis points to the net interest margin in the firstsecond quarter of 2026 and 2418 basis points in the second quarter of 2025. Accretion of discounts on acquired loans totaled $6,691,000 during the six months ended June 30, 2026 compared to $7,675,000 during the six months ended June 30, 2025. Accretion of discounts on acquired loans contributed approximately 17 basis points to the net interest margin for the first six months of 2026 and 21 basis points in the first quartersix months of 2025.

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 MarchJune 31,30, 2026, the Company recorded a provision for credit losses of $2,000,000$1,500,000 compared with a provision for credit losses of $15,300,000$1,200,000 during the second quarter of 2025. During the six months ended June 30, 2026, the Company recorded a provision for credit losses of $3,500,000 compared with a provision for credit losses of $16,500,000 for the first quartersix months of 2025. The first quartersix 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 $1,147,000,$673,000, or 85 basis points, on an annualized basis, of average loans outstanding during the firstsecond quarter of 2026 compared with $486,000,$848,000, or 46 basis points, on an annualized basis, of average loans during the firstsecond quarter of 2025. Net charge-offs totaled $1,820,000, or 6 basis points, on an annualized basis, of average loans for the six months ended June 30, 2026 compared with $1,334,000, 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 six months ended MarchJune 31,30, 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.

During the quarter ended MarchJune 31,30, 2026, non-interest income totaled $17,226,000,$18,746,000, an increase of $2,386,000,$2,013,000, or 16%,12%, compared with the firstsecond quarter of 2025. The increase during the firstsecond quarter of 2026 compared to the same period of 2025 was inprimarily partattributable the result of the Heartland acquisition on February 1, 2025 andto improvement of the Company’s existing fee revenue generation.generation and increased gains on sales of loans.

Wealth management fees increased $673,000,$845,000, or 18%,20%, during the firstsecond quarter of 2026 compared with the firstsecond quarter of 2025. The increase during the firstsecond quarter of 2026 compared with the firstsecond quarter of 2025 was largely attributable to increased assets under management,management driven by healthy capital markets throughout muchthe ofpast 2025year and continued strong new business results.

Service charges on deposit accounts increased $340,000,$274,000, or 10%,7%, during the quarter ended MarchJune 31,30, 2026 compared with the same period of 2025. The increase during the firstsecond quarter of 2026 compared with the firstsecond quarter of 2025 was primarily driven by thecontinued Heartland acquisitionincreases in addition to increased customer utilization of deposit services.

For the quarter ended MarchJune 31,30, 2026, interchange fees increased $355,000,$271,000, or 8%,5%, compared with the same quarter of 2025. The increase during the firstsecond quarter of 2026 compared with the firstsecond quarter of 2025 was largely attributablerelated to increaseda cardhigher utilizationlevel byof customerscustomer andtransaction the Heartland acquisition.volume.

Net gains on sales of loans increased $550,000,$270,000, or 59%,21%, in the second quarter of 2026 compared with the firstsecond quarter of 2025. The increase during the firstsecond quarter of 2026 compared with the firstsecond quarter of 2025 was driven by a higher volume of loans sold and improved pricing on loans sold. Loan sales totaled $52.1$70.8 million during the firstsecond quarter of 2026 compared with $39.3$50.2 million during the firstsecond quarter of 2025.

During the quarter ended MarchJune 31,30, 2026, non-interest expense totaled $52,368,000,$50,382,000, aan declineincrease of $414,000,$865,000, or 1%,2%, compared with the firstsecond quarter of 2025. The firstsecond quarter of 2025 non-interest expenses included approximately $5,932,000$929,000 of non-recurring acquisition-related expenses associated with the Heartland acquisition. On an adjusted basis, non-interest expense for the firstsecond quarter of 2025 was $46,850,000.$48,588,000.

IntangibleSalaries amortizationand benefits increased $401,000,$504,000, or 19%,2%, during the firstsecond quarter of 2026 compared with the firstsecond quarter of 2025. The increase during the firstsecond quarter of 2026 compared withto the samesecond periodquarter of 2025 was attributableprimarily todriven theby Heartlandstandard acquisition.merit increases and higher levels of incentive compensation.

OtherOccupancy, operatingfurniture expensesand equipment expense increased $1,397,000,$427,000, or 23%,9%, for the three months ended MarchJune 31,30, 20262026, compared withto the same period of 2025. The increase during the firstsecond quarter of 2026 compared with the samesecond periodquarter of 2025 was primarilylargely attributable to anincreased increaselevels inof reservesreal relatedestate totaxes, unfunded loan commitments, an increase in the Ohio financial institution taxdepreciation and increasedrepairs amortizationand expensemaintenance for residential mortgage servicing rights as well as the operating costs of Heartland for a full quarter in 2026.costs.

The Company’s effective income tax rate was 20.5%20.6% and 21.1%,19.9%, respectively, during the three months ended MarchJune 31,30, 2026 and 2025. The Company's effective income tax rate was 20.6% and 20.2%, respectively, during the six months ended June 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.

At MarchJune 31,30, 2026, total assets for the Company remained relatively stable compared with year end 2025 at $8.4 billion. ModestDuring the first six months of 2026, increases in cashloans and cash equivalents, securities available-for-sale andwere loans held for sale, weresomewhat offset by a decline in thecash Company’sand loancash portfolio.equivalents.

MarchJune 31,30, 2026 total loans declinedincreased $25.8$57.0 million, or 2% on an annualized basis, compared with December 31, 2025. The declineincrease during the first quarterhalf of 2026 compared with December 31, 2025 was largely driven by seasonal declinesgrowth in agricultural lines of credit and a decline in commercial and industrial loans, partially mitigated by increased commercial real estate loans and retail loans. AgriculturalCommercial real estate loans declinedincreased $22.0$77.0 million, or 18%5% on an annualized basis, and home equity lines of credit increased $38.1 million, or 16% on an annualized basis. These increases were partially mitigated by declines in commercial and industrial loans declinedand $15.3leases of $14.4 million, or 7%3% on an annualized basis, while commercial real estateagricultural loans increasedof $9.9$12.6 million, or 1% on an annualized basis. Retail loans grew by $1.6 million, or 0.5%5% on an annualized basis, due in large part to strong home equity loan originations, which were partially offset by a reduced level of residential mortgage loans of $13.9 million, or 4% on an annualized basis, and other consumer loans.loans of $17.3 million, or 24% on an annualized basis.

The Company’s commercial real estate (“CRE”) loan portfolio is further diversified by occupancy type, with approximately 76%75% of the CRE portfolio being non-owner occupied at MarchJune 31,30, 2026 (which is 41% of the Company’s overall loan portfolio), and 24%25% 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).

The Company’s allowance for credit losses totaled $78.5$79.4 million at MarchJune 31,30, 2026 compared to $77.7 million at December 31, 2025. The allowance for credit losses represented 1.34% of period-end loans at MarchJune 31,30, 2026 compared with 1.32% at December 31, 2025.

Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses. As of MarchJune 31,30, 2026, the Company held net discounts on acquired loans of $49.5$46.3 million, which included $47.6$44.6 million related to the Heartland loan portfolio.

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

Non-performing assets totaled $29.6$26.8 million at MarchJune 31,30, 2026 compared to $29.4$29.5 million at December 31, 2025. Non-performing assets represented 0.35%0.32% of total assets at MarchJune 31,30, 2026 andcompared to 0.35% at December 31, 2025. Non-performing loans totaled $29.6$26.8 million at MarchJune 31,30, 2026 compared to $29.4 million at December 31, 2025. Non-performing loans represented 0.51%0.45% of total loans at MarchJune 31,30, 2026 compared to 0.50% at December 31, 2025. Total non-performing assets from the Heartland acquisition were approximately $18.7$17.7 million at MarchJune 31,30, 2026.

MarchJune 31,30, 2026 total deposits remained relatively stable 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 MarchJune 31,30, 2026 and December 31, 2025. The addition of the Heartland deposit portfolio did not result in significant changes to the overall deposit portfolio composition.

As of MarchJune 31,30, 2026, shareholders’ equity increased by $12.3$49.2 million to $1.175$1.212 billion compared with $1.162 billion at year-end 2025. The increase in shareholders’ equity was primarily attributable to increased retained earnings of $21.6$48.2 million due to net income of $33.2$71.3 million. Partially offsetting the increase in retained earnings was the payment of $11.6$23.2 million in shareholder dividends.

Shareholders’ equity represented 14.0%14.4% of total assets at MarchJune 31,30, 2026 and 13.9% of total assets at December 31, 2025. Shareholders’ equity included $406.8$404.4 million of goodwill and other intangible assets at MarchJune 31,30, 2026 compared to $409.3 million of goodwill and other intangible assets at December 31, 2025.

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 MarchJune 31,30, 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 Consolidated Statement of Cash Flows details the elements of changes in the Company’s consolidated cash and cash equivalents. Total cash and cash equivalents increaseddecreased $5.5$24.2 million during the threesix months ended MarchJune 31,30, 2026 ending at $123.9$94.2 million. During the threesix months ended MarchJune 31,30, 2026, operating activities resulted in net cash inflows of $37.0$95.2 million. Investing activities resulted in net cash inflowsoutflows of $2.5$88.3 million during the threesix months ended MarchJune 31,30, 2026. Financing activities resulted in net cash outflows for the threesix months ended MarchJune 31,30, 2026 of $34.0$31.1 million.