German American(GABC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the unaudited consolidated financial statements and management's discussion and analysis for German American Bancorp, Inc Unaudited Financial Statements Presents the unaudited consolidated financial statements for German American Bancorp, Inc. as of June 30, 2025, reflecting significant growth from the Heartland BancCorp acquisition Consolidated Balance Sheets Total assets increased by 31.5% to $8.28 billion at June 30, 2025, primarily due to the Heartland BancCorp acquisition Consolidated Balance Sheet Highlights (in $ thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $8,280,142 | $6,295,910 | | Loans, Net | $5,663,918 | $4,080,466 | | Goodwill | $377,976 | $179,025 | | Total Liabilities | $7,210,638 | $5,580,843 | | Total Deposits | $6,954,686 | $5,329,075 | | Total Shareholders' Equity | $1,069,504 | $715,067 | Consolidated Statements of Income Net income for Q2 2025 rose to $31.4 million, driven by a 59% increase in net interest income following the Heartland acquisition Income Statement Highlights - Q2 (in $ thousands, except EPS) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Interest Income | $73,155 | $45,971 | | Provision for Credit Losses | $1,200 | $625 | | Non-interest Income | $16,733 | $18,923 | | Non-interest Expense | $49,517 | $37,674 | | Net Income | $31,361 | $20,530 | | Diluted EPS | $0.84 | $0.69 | Income Statement Highlights - Six Months (in $ thousands, except EPS) | Metric | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | | Net Interest Income | $139,727 | $90,965 | | Provision for Credit Losses | $16,500 | $1,525 | | Non-interest Income | $31,573 | $34,745 | | Non-interest Expense | $102,299 | $74,412 | | Net Income | $41,878 | $39,552 | | Diluted EPS | $1.16 | $1.33 | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for Q2 2025 was $33.5 million, with H1 2025 at $54.8 million, influenced by net income and securities valuation changes Comprehensive Income (Loss) Summary (in $ thousands) | Period | Net Income | Other Comprehensive Income (Loss) | Comprehensive Income (Loss) | | :--- | :--- | :--- | :--- | | Q2 2025 | $31,361 | $2,121 | $33,482 | | Q2 2024 | $20,530 | $19,086 | $39,616 | | H1 2025 | $41,878 | $12,904 | $54,782 | | H1 2024 | $39,552 | $(809) | $38,743 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $1.07 billion at June 30, 2025, primarily due to the $320.0 million stock issuance for the Heartland acquisition - The acquisition of Heartland BancCorp was the main contributor to the increase in shareholders' equity, with the issuance of 7,742,723 shares adding $320.0 million[26] - The company declared and paid cash dividends of $0.29 per share in both Q1 and Q2 2025, totaling $21.6 million for the six-month period[26] Consolidated Statements of Cash Flows Cash and cash equivalents increased by $11.4 million in H1 2025, driven by operating and investing activities, offset by financing outflows Cash Flow Summary - Six Months Ended June 30 (in $ thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $64,844 | $42,562 | | Net Cash from Investing Activities | $110,540 | $154,205 | | Net Cash from Financing Activities | $(164,028) | $17,222 | | Net Change in Cash and Cash Equivalents | $11,356 | $213,989 | Notes to Consolidated Financial Statements Provides detailed explanations of accounting policies and financial figures, including the insurance business sale, securities, loans, segments, and the Heartland acquisition Note 3 – Sale of Insurance Assets Details the June 1, 2024, sale of German American Insurance, Inc. for $40.0 million cash, resulting in a $36.5 million pre-tax gain Gain on Sale of Insurance Assets (in $ thousands) | Description | Amount | | :--- | :--- | | Gross Purchase Price | $40,000 | | Write-off of Goodwill and Intangibles | $(1,332) | | Working Capital Adjustment | $(345) | | Net Purchase Price | $38,323 | | Transaction Costs | $(1,816) | | Pre-tax Gain on Sale | $36,507 | | After-tax Gain on Sale | $27,476 | Note 5 – Securities Details the $1.57 billion available-for-sale securities portfolio, which had a net unrealized loss of $262.4 million as of June 30, 2025 - In June/July 2024, the company restructured its securities portfolio, selling $375.3 million in securities for a pre-tax loss of approximately $34.9 million[46] - As of June 30, 2025, securities with a fair value of $1.13 billion were in a continuous unrealized loss position, totaling $266.3 million in losses, primarily due to market interest rate fluctuations[49] Note 7 – Loans Total loans grew to $5.75 billion at June 30, 2025, largely due to the Heartland acquisition, with ACL increasing to $75.5 million Loan Portfolio Composition (in $ thousands) | Loan Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial and Industrial | $734,551 | $591,785 | | Commercial Real Estate | $3,096,728 | $2,224,872 | | Agricultural | $461,420 | $431,037 | | Residential Mortgage | $798,343 | $357,448 | | Retail (Home Equity, Consumer, etc.) | $574,324 | $448,872 | | Total Loans | $5,748,360 | $4,133,267 | - The company acquired loans with a fair value of $1.50 billion in the Heartland acquisition on February 1, 2025[59][60] - The Allowance for Credit Losses (ACL) increased from $44.4 million at year-end 2024 to $75.5 million at June 30, 2025, including a $15.9 million allowance for acquired PCD loans and a $16.2 million 'Day 2' CECL provision related to the Heartland acquisition[64] Note 9 – Segment Information Details the company's two primary segments, Core Banking and Wealth Management Services, following the June 2024 insurance operations sale - The company ceased insurance-related activities after selling the assets of its insurance subsidiary, German American Insurance, Inc. (GAI), on June 1, 2024[105] Segment Profit and Assets - Q2 2025 (in $ thousands) | Segment | Segment Profit (Loss) Before Taxes | Segment Assets | | :--- | :--- | :--- | | Core Banking | $40,408 | $8,252,469 | | Wealth Management Services | $1,500 | $15,829 | | Insurance | $— | $— | | Other / Eliminations | $(2,737) | $11,844 | | Consolidated Total | $39,171 | $8,280,142 | Note 16 – Business Combinations Details the February 1, 2025, acquisition of Heartland BancCorp for $343.1 million, adding $1.94 billion in assets and $199.0 million in goodwill Heartland Acquisition Summary (in $ thousands) | Item | Value | | :--- | :--- | | Fair Value of Total Consideration | $343,109 | | Cash Paid | $23,102 | | Equity Instruments Issued | $320,007 | | Total Identifiable Net Assets Acquired | $144,158 | | Goodwill Recognized | $198,951 | - The acquisition is consistent with the company's strategy to build a regional presence in Southern Indiana, Kentucky, and Ohio[176] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant impact of the Heartland BancCorp acquisition on financial condition and results, highlighting growth, margin expansion, and stable credit quality Management Overview The first half of 2025 was marked by the Heartland BancCorp acquisition, contributing to Q2 net income of $31.4 million and adjusted EPS of $0.86 - Completed the acquisition of Heartland BancCorp on February 1, 2025, adding 20 banking offices in Columbus, Ohio, and Greater Cincinnati[188] Q2 2025 Performance vs. Q2 2024 | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Income (as reported) | $31,361,000 | $20,530,000 | | EPS (as reported) | $0.84 | $0.69 | | Adjusted Net Income (Non-GAAP) | $32,058,000 | $20,351,000 | | Adjusted EPS (Non-GAAP) | $0.86 | $0.69 | Critical Accounting Policies and Estimates Identifies critical accounting policies including ACL, securities valuation, income tax, and goodwill, noting a Q1 2025 shift in ACL estimation method - The determination of the Allowance for Credit Losses (ACL) is inherently subjective and requires significant estimates regarding future cash flows, economic conditions, and other factors[197][198] - On March 31, 2025, the company changed its ACL estimation method to a discounted cash flow model to better evaluate multiple economic scenarios[206] - Goodwill is not amortized but is tested for impairment annually on December 31, with no impairment indicated at the last testing date[211] Results of Operations Operating results for Q2 and H1 2025 were significantly boosted by the Heartland acquisition, driving net interest income growth and margin expansion Net Interest Margin (Tax-Equivalent) | Period | Net Interest Margin | | :--- | :--- | | Q2 2025 | 3.92% | | Q2 2024 | 3.34% | | H1 2025 | 3.94% | | H1 2024 | 3.34% | - Accretion of discounts on acquired loans contributed 18 basis points to the net interest margin in Q2 2025[219] - Q2 2025 non-interest expense increased 31% YoY to $49.5 million, primarily driven by operating costs from the Heartland acquisition[241] Financial Condition Total assets grew to $8.28 billion, loans to $5.75 billion, and deposits to $6.95 billion, primarily due to the Heartland acquisition - Total assets increased to $8.28 billion at June 30, 2025, largely due to the Heartland acquisition[259] - Excluding acquired loans, organic loan growth was approximately 5% on an annualized basis in H1 2025[261] - Non-performing assets rose to $25.1 million (0.30% of assets) from $11.1 million (0.18% of assets), with the increase largely attributable to the Heartland acquisition, including a single adversely classified commercial relationship[270][271] Capital Resources and Liquidity The company maintains a strong capital and liquidity position, with shareholders' equity at $1.07 billion and regulatory capital ratios exceeding minimums Regulatory Capital Ratios (Consolidated) | Ratio | 6/30/2025 | Minimum for Capital Adequacy | | :--- | :--- | :--- | | Total Capital (to RWA) | 15.21% | 8.00% | | Tier 1 Capital (to RWA) | 13.53% | 6.00% | | Common Equity Tier 1 (to RWA) | 13.00% | 4.50% | | Tier 1 Capital (to Average Assets) | 10.93% | 4.00% | - The company plans to redeem the $24.3 million of outstanding Heartland Notes on September 15, 2025, funded from cash on hand[280][288] - The company has not repurchased any shares under its 1.0 million share repurchase plan[277] Use of Non-GAAP Financial Measures Provides reconciliations of GAAP to non-GAAP financial measures, excluding specific non-recurring items to assess core operational performance Non-GAAP Reconciliation - Net Income and EPS (in $ thousands) | Metric | Q2 2025 | H1 2025 | | :--- | :--- | :--- | | Net Income, as reported | $31,361 | $41,878 | | Adjustments (Merger costs, CECL Day 2) | $697 | $17,467 | | Adjusted Net Income | $32,058 | $59,345 | | EPS, as reported | $0.84 | $1.16 | | Adjusted EPS | $0.86 | $1.64 | Quantitative and Qualitative Disclosures About Market Risk Discusses primary market risks, liquidity and interest rate risk, with net interest income projected to increase by 0.70% in a +200 bps rate shock Interest Rate Sensitivity of Net Interest Income (Next 12 Months) | Rate Change Scenario | % Change in Net Interest Income | | :--- | :--- | | +200 bps | +0.70% | | +100 bps | +0.34% | | -100 bps | -1.11% | | -200 bps | -3.33% | Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[310] - No material changes in internal control over financial reporting occurred during the second fiscal quarter of 2025[311] PART II. OTHER INFORMATION Presents other required information, including legal proceedings, risk factors, equity sales, defaults, and exhibits Legal Proceedings Reports no pending legal proceedings beyond routine litigation incidental to business operations - There are no pending legal proceedings, other than routine litigation incidental to the business[312] Risk Factors No material changes to risk factors have occurred since the 2024 Annual Report on Form 10-K - No material changes to risk factors have occurred since the 2024 Annual Report on Form 10-K[313] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any equity securities during the quarter, with 1.0 million shares remaining available under the plan - The company has a board-approved plan to repurchase up to 1.0 million shares of its common stock, but no shares were repurchased during the second quarter of 2025[319] Defaults Upon Senior Securities Reports no defaults upon senior securities - None[320] Mine Safety Disclosures This item is not applicable to the company - Not applicable[321] Other Information Reports no undisclosed Form 8-K information or Rule 10b5-1 trading arrangement adoptions or terminations by directors or officers - During Q2 2025, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement[326] Exhibits Lists all exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and XBRL data files - The exhibits include the Agreement and Plan of Reorganization for the Heartland acquisition (incorporated by reference), articles of incorporation, bylaws, and Sarbanes-Oxley certifications[328]