GERMAN AMERICAN BANCORP, INC.

Previous wording

German American Bancorp, Inc. is a Nasdaq-listed (symbol: GABC) financial holding company based in Jasper, Indiana. German American, through its banking subsidiary German American Bank, operates 74 banking offices in 20 contiguous southern Indiana counties and 14 Kentucky counties.

Current wording

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

Previous wording

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

Current wording

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.

Previous wording

This section presents an analysis of the consolidated financial condition of the Company as of September 30, 2024 and December 31, 2023 and the consolidated results of operations for the three and nine months ended September 30, 2024 and 2023. 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, 2023.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

During June 2024, the Company commenced a securities portfolio restructuring transaction whereby available-for-sale securities totaling approximately $375 million in book value were identified to be sold. As of June 30, 2024, $175 million of securities had been sold with the remaining $200 million sold during early July 2024. The tax-equivalent yield on the bonds sold was approximately 3.12% with a duration of approximately 7 years. Approximately $80 million of the proceeds of the securities sold were reinvested into the securities portfolio as of June 30, 2024 with the remainder reinvested during the third quarter of 2024.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale debt securities in an unrealized loss position, the Company assesses whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for sale debt securities that do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at September 30, 2024. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of September 30, 2024, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $6,633,000 and gross unrealized losses totaled approximately $227,813,000. The net amount of these two items, net of applicable taxes, is included in other comprehensive income (loss).

Current wording

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 March 31, 2025. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of March 31, 2025, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $7,702,000 and gross unrealized losses totaled approximately $267,767,000. The net amount of these two items, net of applicable taxes, is included in other comprehensive income (loss).

Previous wording

The following table summarizes net interest income (on a tax-equivalent basis) for the three months ended September 30, 2024 and 2023. For tax-equivalent adjustments, an effective tax rate of 21% was used for both periods(1).

Current wording

The following table summarizes net interest income (on a tax-equivalent basis) for the three months ended March 31, 2025 and 2024. For tax-equivalent adjustments, an effective tax rate of 21% was used for both periods.(1)

Previous wording

During the third quarter of 2024, net interest income, on a non tax-equivalent basis, totaled $48,594,000, an increase of $1,035,000, or 2%, compared to the third quarter of 2023 net interest income of $47,559,000. The improvement in net interest income during the third quarter of 2024 compared with the third quarter of 2023 was primarily attributable to a higher level of earning assets, most notably an increased loan portfolio, partially offset by a lower net interest margin. During the first nine months of 2024, net interest income, on a non tax-equivalent basis, totaled $139,559,000, a decrease of $5,267,000, or 4%, compared to the first nine months of 2023 net interest income of $144,826,000. The decline in net interest income for the first nine months of 2024 compared to the same period of 2023 was primarily attributable to a decline in the Company’s net interest margin.

Current wording

During the first quarter of 2025, net interest income, on a non tax-equivalent basis, totaled $66,572,000, an increase of $21,578,000, or 48%, compared to the first quarter of 2024 net interest income of $44,994,000. The increase in net interest income during the first quarter of 2025 compared with the first quarter of 2024 was primarily attributable to a higher level of earning assets driven by the Heartland acquisition and expansion of the Company’s net interest margin.

Previous wording

The Company’s net interest margin and net interest income have been impacted by accretion of loan discounts on acquired loans. Accretion of discounts on acquired loans totaled $237,000 during the third quarter of 2024 and $1,288,000 during the third quarter of 2023. Accretion of discounts on acquired loans totaled $889,000 and $2,533,000 for the first nine months of 2024 and 2023, respectively. Accretion of loan discounts on acquired loans contributed approximately 2 basis points to the net interest margin in the third quarter of 2024 and 9 basis points in the third quarter of 2023. Accretion of loan discounts on acquired loans contributed approximately 2 basis points to the net interest margin in the first nine months of 2024 compared to 6 basis points in the first nine months of 2023.

Current wording

The tax equivalent net interest margin for the quarter ended March 31, 2025 was 3.96% compared with 3.35% in the first quarter of 2024. The Company’s net interest margin and net interest income in both periods presented were impacted by accretion of loan discounts on acquired loans. Accretion of discounts on acquired loans totaled $4,192,000 during the first quarter of 2025 and $360,000 during the first quarter of 2024. Accretion of discounts on acquired loans contributed approximately 24 basis points to the net interest margin in the first quarter of 2025 and 3 basis points in the first quarter of 2024.

Previous wording

The Company provides for credit losses through regular provisions to the allowance for credit losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations of the allowance. During the quarter ended September 30, 2024, the Company recorded a provision for credit losses of $625,000 compared with a provision for credit losses of $900,000 during the third quarter of 2023. During the nine months ended September 30, 2024, the Company recorded a provision for credit losses of $2,150,000 compared with a provision for credit losses of $2,550,000 for the first half of 2023.

Current wording

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 March 31, 2025, the Company recorded a provision for credit losses of $15,300,000 compared with a provision for credit losses of $900,000 during the first quarter of 2024. During the first quarter of 2025, the provision for credit losses included $16,200,000 for the Day 2 CECL addition to the allowance for credit loss related to the Heartland acquisition.

Previous wording

Net charge-offs totaled $447,000, or 4 basis points, on an annualized basis, of average loans outstanding during the third quarter of 2024 compared with $520,000, or 5 basis points, on an annualized basis, of average loans during the third quarter of 2023. Net charge-offs totaled $1,791,000, or 6 basis points, on an annualized basis, of average loans outstanding during the nine months ended September 30, 2024 compared with $2,072,000, or 7 basis points, on an annualized basis, of average loans outstanding during the same period of 2023.

Current wording

Net charge-offs totaled $486,000, or 4 basis points, on an annualized basis, of average loans outstanding during the first quarter of 2025 compared with $911,000, or 9 basis points, on an annualized basis, of average loans during the first quarter of 2024.

Previous wording

The provision for credit losses made during the three and nine months ended September 30, 2024 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.

Current wording

The provision for credit losses made during the three months ended March 31, 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.

Previous wording

Wealth management fees increased $623,000, or 21%, during the third quarter of 2024 compared with the third quarter of 2023. The increase during the third quarter of 2024 compared with the third quarter of 2023 was driven by increased assets under management due to healthy capital markets and continued strong new business results.

Current wording

Wealth management fees increased $470,000, or 14%, compared with the first quarter of 2024. The increase during the first quarter of 2025 compared with the first quarter of 2024 was largely attributable to increased assets under management driven by healthy capital markets throughout 2024 and continued strong new business growth in addition to the Heartland acquisition.

Previous wording

Insurance revenues declined $2,065,000, during the quarter ended September 30, 2024, compared with the third quarter of 2023. The decline in insurance revenues was the result of the sale of the assets of GAI effective June 1, 2024, with no revenue recognized in the third quarter of 2024. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.

Current wording

No insurance revenues were recognized during the first quarter of 2025 as a result of the the sale of the assets of GAI effective June 1, 2024. Insurance revenues declined $2,878,000 during the first quarter of 2025, compared with the first quarter of 2024, due to the sale. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.

Previous wording

Data processing fees increased $437,000, or 16%, during the third quarter of 2024 compared with the third quarter of 2023. The increase during the third quarter of 2024 compared with the third quarter of 2023 was largely driven by costs associated with enhancements to the Company’s digital banking systems.

Current wording

Data processing fees increased $2,684,000, or 95%, during the first quarter of 2025 compared with the first quarter of 2024. The increase during the first quarter of 2025 compared with the first quarter of 2024 was largely driven by operating costs of the existing Heartland systems and acquisition-related costs totaling approximately $1,323,000 during the first quarter of 2025.

Previous wording

The Company’s effective income tax rate was 17.9% and 17.6%, respectively, during the three months ended September 30, 2024 and 2023. The Company’s effective income tax rate was 19.6% and 17.7%, respectively, during the nine months ended September 30, 2024 and 2023. The increase in effective tax rate for the nine months ended September 30, 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.

Current wording

The Company’s effective income tax rate was 21.1% and 17.9%, respectively, during the three months ended March 31, 2025 and 2024. The increase in effective tax rate for the three months ended March 31, 2025 as compared to the same period of the prior year was primarily attributable to a lower level of tax-exempt investment income in the first quarter of 2025 compared to the same period of 2024 which was driven by the previously discussed securities restructuring that occurred in the second quarter of 2024. The effective tax rate in all periods presented was lower than the blended statutory rate resulting primarily from the Company’s tax-exempt investment income on securities, loans and company-owned life insurance, income tax credits generated from affordable housing projects, and income generated by subsidiaries domiciled in a state with no state or local income tax.

Previous wording

Total assets for the Company totaled $6.261 billion at September 30, 2024, representing an increase of $108.7 million compared with December 31, 2023. The increase in total assets at September 30, 2024 compared with December 31, 2023 was largely related to an increase in total loans and federal funds sold and other short-term investments, partially offset by a decline in the securities portfolio.

Current wording

Total assets for the Company totaled $8.420 billion at March 31, 2025, representing an increase of $2.124 billion compared with December 31, 2024. The increase in total assets at March 31, 2025 compared with year-end 2024 was in large part attributable to the Heartland acquisition.

Previous wording

The composition of the loan portfolio has remained relatively stable and diversified over the past several years, including 2024. The portfolio is most heavily concentrated in commercial real estate loans at 54% of the portfolio, followed by commercial and industrial loans at 16% of the portfolio, and agricultural loans at 10% of the portfolio.

Current wording

The composition of the loan portfolio has remained relatively stable and diversified over the past several years. The addition of the Heartland loan portfolio resulted in only modest changes to the overall portfolio composition, most notably in the residential mortgage loan segment. The portfolio is most heavily weighted in commercial real estate loans at 54% of the portfolio, followed by commercial and industrial loans at 14% of the portfolio, residential mortgage loans at 14% of the portfolio (up from 9% at year-end 2024), agricultural loans at 8% of the portfolio, and home equity loans at 7% 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.

Previous wording

The Company’s commercial real estate loan portfolio is further diversified by occupancy type, with approximately 77% of the CRE portfolio being non-owner occupied at September 30, 2024 (which is 41% of the Company’s overall loan portfolio), and 23% of the CRE portfolio being owner occupied (which is 12% 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).

Current wording

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

Previous wording

The Company’s allowance for credit losses totaled $44.1 million at September 30, 2024 compared to $43.8 million at December 31, 2023. The allowance for credit losses represented 1.09% of period-end loans at September 30, 2024 compared with 1.10% at December 31, 2023. Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses. As of September 30, 2024, the Company held net discounts on acquired loans of $3.1 million.

Current wording

Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses. As of March 31, 2025, the Company held net discounts on acquired loans of $64.3 million, which included $61.8 million related to the Heartland loan portfolio.

Previous wording

Non-performing assets totaled $9.7 million at September 30, 2024 compared to $9.2 million at December 31, 2023. Non-performing assets represented 0.15% of total assets at September 30, 2024 consistent with 0.15% at year-end 2023. Non-performing loans totaled $9.7 million at September 30, 2024 compared to $9.2 million at December 31, 2023. Non-performing loans represented 0.24% of total loans at September 30, 2024 compared to 0.23% at December 31, 2023.

Current wording

Non-performing assets totaled $18.6 million at March 31, 2025 compared to $11.1 million at December 31, 2024. Non-performing assets represented 0.22% of total assets at March 31, 2025 compared with 0.18% at year-end 2024. Non-performing loans totaled $18.6 million at March 31, 2025 compared to $11.1 million at December 31, 2024. Non-performing loans represented 0.33% of total loans at March 31, 2025 compared to 0.27% at December 31, 2024. The increase in non-performing assets was primarily attributable to the Heartland acquisition. As of March 31, 2025, non-performing assets from the Heartland acquisition totaled $5.4 million.

Previous wording

September 30, 2024 total deposits increased $18.3 million, or approximately 1% on an annualized basis, compared to December 31, 2023. 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. Non-interest bearing deposits have remained relatively stable as a percent of total deposits with September 30, 2024 non-interest deposits totaling 27% of total deposits while non-interest deposits totaled 28% of total deposits at December 31, 2023. The deposit base remains diverse with stable and manageable exposure to uninsured and uncollaterized deposits of approximately 22% of total deposits.

Current wording

The addition of the Heartland deposit portfolio did not result in significant changes to the overall deposit portfolio composition. Notably, non-interest bearing deposits have remained relatively stable as a percent of total deposits with March 31, 2025 non-interest deposits totaling 27% of total deposits while non-interest deposits totaled 26% at year-end 2024.

Previous wording

As of September 30, 2024, shareholders’ equity increased by $81.0 million to $744.6 million compared with $663.6 million at year-end 2023. The increase in shareholders’ equity was primarily attributable to increased retained earnings of $36.7 million due to net income of $60.6 million. Partially offsetting the increase in retained earnings was the payment of $23.9 million in shareholder dividends.

Current wording

As of March 31, 2025, shareholders’ equity increased by $331.0 million to $1.046 billion compared with $715.1 million at year-end 2024. The increase in shareholders’ equity was primarily attributable to the issuance of the Bancorp’s common shares in the acquisition of Heartland. Approximately 7.7 million shares were issued to Heartland shareholders, resulting in an increase to shareholders’ equity of $320.0 million.

Previous wording

Shareholders’ equity represented 12% of total assets at September 30, 2024 and 11.0% of total assets at December 31, 2023. Shareholders’ equity included $183.5 million of goodwill and other intangible assets at September 30, 2024 compared to $186.7 million of goodwill and other intangible assets at December 31, 2023.

Current wording

Shareholders’ equity represented 12.4% of total assets at March 31, 2025 and 11.4% of total assets at December 31, 2024. Shareholders’ equity included $418.5 million of goodwill and other intangible assets at March 31, 2025 compared to $183.0 million of goodwill and other intangible assets at December 31, 2024.

Previous wording

In January 2022, the Company’s Board of Directors approved a plan to repurchase up to 1.0 million shares of the Company’s outstanding common stock. On a share basis, the amount of common stock subject to the repurchase plan represented approximately 3% of the Company’s outstanding shares on the date it was approved. The Company is not obligated to purchase any shares under the plan, and the plan may be discontinued at any time. The actual timing, number and share price of shares purchased under the repurchase plan will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements. The Company has not repurchased any shares of common stock under the repurchase plan.

Current wording

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

Previous wording

The Company adopted the CECL accounting standard under GAAP effective January 1, 2020. The regulatory capital rules applicable to the Company provided an optional three-year phase-in period for the day-one adverse regulatory capital effects of adopting CECL. In addition, as part of pandemic-related legislation enacted during 2020, banking organizations were further permitted to mitigate the estimated cumulative regulatory capital effects of CECL for up to an additional two years. As a result, on January 1, 2022, the Company began the required three-year phase-in by reflecting 25% of the previously deferred estimated capital impact of CECL in its regulatory capital. An additional 25% was phased in on each of January 1, 2023 and January 1, 2024, and another 25% will be phased in on January 1, 2025 (at which time the cumulative effects of adopting CECL will have been fully phased into our regulatory capital). Under the five-year transition option, the amount of adjustments to regulatory capital that could be deferred until the phase-in period began included both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021.

Current wording

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

Previous wording

The Consolidated Statement of Cash Flows details the elements of changes in the Company’s consolidated cash and cash equivalents. Total cash and cash equivalents increased $80.2 million during the nine months ended September 30, 2024 ending at $195.6 million. During the nine months ended September 30, 2024, operating activities resulted in net cash inflows of $67.1 million. Investing activities resulted in net cash inflows of $8.8 million during the nine months ended September 30, 2024. Financing activities resulted in net cash inflows for the nine months ended September 30, 2024 of $4.4 million.

Current wording

The Consolidated Statement of Cash Flows details the elements of changes in the Company’s consolidated cash and cash equivalents. Total cash and cash equivalents increased $253.5 million during the three months ended March 31, 2025 ending at $442.3 million. During the three months ended March 31, 2025, operating activities resulted in net cash inflows of $36.6 million. Investing activities resulted in net cash inflows of $213.0 million during the three months ended March 31, 2025. Financing activities resulted in net cash inflows for the three months ended March 31, 2025 of $3.9 million.

Previous wording

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

Current wording

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

Previous wording

The Company’s bank subsidiary is authorized by its Board to borrow up to 15% of total assets or approximately $936 million at the FHLB, but availability at September 30, 2024 was limited to approximately $457 million based on the then pledged collateral and outstanding borrowings. In addition, the Company had a borrowing capacity of approximately $291 million at the Federal Reserve Bank as of September 30, 2024, based on the then pledged collateral. The capacity for borrowings from the FHLB and the Federal Reserve Bank could be increased, in each case, by the Company pledging additional available collateral. The Company’s Asset/Liability Committee closely monitors the availability of these sources as part of its overall oversight and management of the bank subsidiary’s liquidity.

Current wording

The Company’s bank subsidiary is authorized by its Board to borrow up to $1.68 billion at the FHLB, but availability at March 31, 2025 was limited to approximately $389 million based on the then pledged collateral and outstanding borrowings. In addition, the Company had a borrowing capacity of approximately $649 million at the Federal Reserve Bank as of March 31, 2025, based on the then pledged collateral. The capacity for borrowings from the FHLB and the Federal Reserve Bank could be increased, in each case, by the Company pledging additional available collateral. The Company’s Asset/Liability Committee closely monitors the availability of these sources as part of its overall oversight and management of the bank subsidiary’s liquidity.

Previous wording

The parent company is a corporation separate and distinct from its bank and other subsidiaries. The Company uses funds at the parent-company level to pay dividends to its shareholders, to acquire or make other investments in other businesses or their securities or assets, to repurchase its stock from time to time, and for other general corporate purposes including debt service. The parent company does not have access at the parent-company level to the deposits and certain other sources of funds that are available to its bank subsidiary to support its operations. Instead, the parent company has historically derived most of its revenues from dividends paid to the parent company by its bank subsidiary. The Company’s banking subsidiary is subject to statutory restrictions on its ability to pay dividends to the parent company. The parent company has, from time-to-time, supplemented the dividends received from its subsidiaries with borrowings. As of September 30, 2024, the parent company had approximately $84.4 million of cash and cash equivalents available to meet its cash flow needs.

Current wording

The parent company is a corporation separate and distinct from its bank and other subsidiaries. The Company uses funds at the parent-company level to pay dividends to its shareholders, to acquire or make other investments in other businesses or their securities or assets, to repurchase its stock from time to time, and for other general corporate purposes including debt service. The parent company does not have access at the parent-company level to the deposits and certain other sources of funds that are available to its bank subsidiary to support its operations. Instead, the parent company has historically derived most of its revenues from dividends paid to the parent company by its bank subsidiary. The Company’s banking subsidiary is subject to statutory restrictions on its ability to pay dividends to the parent company. The parent company has, from time-to-time, supplemented the dividends received from its subsidiaries with borrowings. As of March 31, 2025, the parent company had approximately $88.7 million of cash and cash equivalents available to meet its cash flow needs.

Previous wording

•risks of expansion through acquisitions and mergers, such as unexpected credit quality problems of the acquired loans or other assets, unexpected attrition of the customer base or employee base of the acquired institution or branches, and difficulties in integration of the acquired operations;

Current wording

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

Previous wording

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

Current wording

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