UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)One)
I X I Quarterly Report Pursuant to Section 13 or 15(d)
of theThe Securities Exchange Act of 1934 for the Quarterly
Period Ended September 30, 1995March 31, 1996
Or
I I Transition Report Pursuant to Section 13 or 15(d) of theThe Securities
Exchange Act of 1934 for the Transition Period From to
--------------- -------------------------- ----------
Commission File Number 0-11244
GERMAN AMERICAN BANCORPGerman American Bancorp
(Exact name of registrant as specified in its charter)
INDIANA 35-1547518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 Main Street, Box 810, Jasper, Indiana 47546
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code:(812) 482-1314
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------------------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at NovemberMay 10, 19951996
Common Stock, $10.00 par value 1,738,8631,827,546
GERMAN AMERICAN BANCORP
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets -- September 30, 1995March 31, 1996 and
December 31, 19941995
Consolidated Statements of Income -- Three Months Ended
September 30,March 31, 1996 and 1995 and 1994
Consolidated Statements of Income -- Nine Months Ended
September 30, 1995 and 1994
Consolidated Statements of Cash Flows -- NineThree Months
Ended September 30,March 31, 1996 and 1995 and 1994
Notes to Consolidated Financial Statements --
September 30, 1995March 31, 1996
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of OperationOperations
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Form of Incentive Stock Option Agreement
executed January 9, 1996 between the Registrant and
George W. Astrike (2,940) shares.
10.2 Schedule of Incentive Stock Option
Agreements between the Registrant and its executive
officers dated January 9, 1996.
27. Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any
reports on Form 8-K during the quarter ended
March 31, 1996.
SIGNATURES
PART 1. FINANCIAL1.FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
GERMAN AMERICAN BANCORP
ITEM 1.: FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETSSHEET
(dollar references in thousands except share data)
September 30,March 31, December 31,
1996 1995
1994
ASSETS
Cash and Due from Banks................................... 11,665 $14,636Banks $13,270 $15,421
Federal Funds Sold........................................ 7,950
7,650Sold 12,600 12,550
Cash and Cash Equivalents ............................... 19,615
22,28625,870 27,971
Interest-bearing Balances with Banks...................... 496 1,192Banks 899 897
Other Short-term Investments.............................. 7,906 13,415Investments 3,979 5,929
Securities Available-for-Sale,
at Market Value (Note 3)... 34,541 22,043 79,007 78,908
Securities Held-to-Maturity, at cost
(Market Value of $48,240$11,298 and $50,316$11,237
on September 30, 1995March 31, 1996 and December 31,
1994,1995, respectively) .................... 47,039 51,273(Note 3) 10,794 10,607
Loans (Note 4)............................................ 235,238 224,650 235,730 231,127
Less: Unearned Income .................................... (616) (840 )(459) (537)
Allowance for Loan Losses
(Note 6) .................... (5,834)
(5,669)5) (5,984) (5,933)
Loans, Net................................................ 228,788 218,141Net 229,287 224,657
Premises, Furniture and Equipment, Net.................... 9,685 9,407Net 9,601 9,624
Other Real Estate......................................... 498 497Estate 273 286
Intangible Assets......................................... 2,046 2,235Assets 1,935 1,990
Accrued Interest Receivable and
Other Assets.............. 6,747
6,037Assets 7,057 6,894
TOTAL ASSETS ............................................ $357,361 $346,526$368,702 $367,763
LIABILITIES
Noninterest-bearing Deposits.............................. $31,695 $36,448Deposits $37,046 $40,855
Interest-bearing Deposits................................. 283,302 265,842Deposits 289,262 286,724
Total Deposits .......................................... 314,997 302,290326,308 327,579
Short-term Borrowings..................................... 3,504 9,169Borrowings 1,546 ---
Accrued Interest Payable and
Other Liabilities............ 3,430
2,142Liabilities 3,526 3,228
TOTAL LIABILITIES ....................................... 321,931 313,601
Commitments and Contingent Liabilities331,380 330,807
SHAREHOLDERS' EQUITY
Common Stock, $10 par value; 5,000,000
shares authorized, 1,738,863 and 1,739,9941,827,460 and
1,825,040 issued and outstanding
in 1996 and 1995, and 1994, respectively .......................... 17,389 17,40018,275 18,250
Preferred Stock, $10 par value; 500,000
shares authorized, no shares issued ........................................ ----- -------- ---
Additional Paid-in Capital................................ 3,596 3,542Capital 5,508 5,449
Retained Earnings......................................... 14,489 12,641Earnings 13,045 12,398
Unrealized DepreciationAppreciation /
(Depreciation) on Securities
Available-for-Sale (Net of tax of $28$324
and $431$571 in 1996and 1995,
and 1994, respectively) (44)......................................... (658 )494 859
TOTAL SHAREHOLDERS' EQUITY .............................. 35,430
32,92537,322 36,956
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY .............. $357,361 $346,526$368,702 $367,763
See accompanying notes to consolidated financial statementsstatements.
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(dollar references in thousands except per share data)
Three Months Ended
September 30,March 31,
1996 1995
1994
INTEREST INCOME
Interest and Fees on Loans................................ $5,424 $4,350Loans $5,411 $4,953
Interest on Federal Funds Sold............................ 159 84Sold 180 163
Interest on Short-term Investments........................ 181 72Investments 85 231
Interest and Dividends on Securities...................... 1,159 960Securities 1,285 1,060
TOTAL INTEREST INCOME ................................... 6,923 5,4666,961 6,407
INTEREST EXPENSE
Interest on Deposits...................................... 3,277 2,315Deposits 3,296 2,755
Interest on Short-term Borrowings......................... 36
32Borrowings 11 74
TOTAL INTEREST EXPENSE .................................. 3,313 2,3473,307 2,829
NET INTEREST INCOME ..................................... 3,610 3,1193,654 3,578
Provision for Loan Losses................................. (213)
105Losses 10 114
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ....................................... 3,823 3,0143,644 3,464
NONINTEREST INCOME
Income from Fiduciary Activities.......................... 37 48Activities 50 60
Service Charges on Deposit Accounts....................... 161 151Accounts 163 147
Investment Services Income................................ 55 90Income 102 48
Other Charges, Commissions, and Fees...................... 100 106
Gains from LoanFees 77 129
Gain on Sales of Loans and ORE Sales............................. ----- 58
Security Gains............................................ -----
25Other
Real Estate 2 16
Gain on Sales of Securities --- ---
TOTAL NONINTEREST INCOME ................................ 353
478394 400
NONINTEREST EXPENSE
Salaries and Employee Benefits............................ 1,350 1,142Benefits 1,402 1,274
Occupancy Expense......................................... 207 173Expense 202 202
Furniture and Equipment Expense........................... 187 155Expense 185 177
FDIC Premiums............................................. 3 155Premiums 16 174
Computer Processing Fees.................................. 103 88Fees 106 95
Professional Fees......................................... 44 50Fees 57 40
Other Operating Expenses.................................. 524
345Expenses 483 474
TOTAL NONINTEREST EXPENSE ............................... 2,418 2,1082,451 2,436
Income before Income Taxes................................ 1,758 1,384Taxes 1,587 1,428
Income Tax Expense........................................ 598
390Expense 496 470
Net Income................................................ $1,160 $994Income $1,091 $958
Earnings perPer Share (Note 2)............................... $0.67 $0.57 $0.60 $0.52
Dividends Paid per Share..................................Per Share $0.20 $0.18$0.19
See accompanying notes to consolidated financial statements
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(dollar references in thousands except per share data)
Nine Months Ended
September 30,
1995
1994
INTEREST INCOME
Interest and Fees on Loans................................ $15,680 $12,576
Interest on Federal Funds Sold............................ 535 189
Interest on Short-term Investments........................ 610 248
Interest and Dividends on Securities...................... 3,323
3,037
TOTAL INTEREST INCOME ................................... 20,148
16,050
INTEREST EXPENSE
Interest on Deposits...................................... 9,226 6,844
Interest on Short-term Borrowings......................... 168
84
TOTAL INTEREST EXPENSE .................................. 9,394 6,928
NET INTEREST INCOME ..................................... 10,754 9,122
Provision for Loan Losses................................. 15
462
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ....................................... 10,739 8,660
NONINTEREST INCOME
Income from Fiduciary Activities.......................... 142 139
Service Charges on Deposit Accounts....................... 456 410
Investment Services Income................................ 155 328
Other Charges, Commissions, and Fees...................... 133 277
Gains from Loan and ORE Sales............................. 21 84
Security Gains............................................ -----
81
TOTAL NONINTEREST INCOME ................................ 1,107
1,319
NONINTEREST EXPENSE
Salaries and Employee Benefits............................ 3,963 3,299
Occupancy Expense......................................... 606 500
Furniture and Equipment Expense........................... 541 445
FDIC Premiums............................................. 351 477
Computer Processing Fees.................................. 297 257
Professional Fees......................................... 121 205
Other Operating Expenses.................................. 1,484
1,044
TOTAL NONINTEREST EXPENSE ............................... 7,363
6,227
Income before Income Taxes................................ 4,483 3,752
Income Tax Expense........................................ 1,460
1,163
Net Income................................................ $3,023
$2,589
Earnings per Share (Note 2)............................... $1.74 $1.49
Dividends Paid per Share.................................. $0.60 $0.53
See accompanying notes to consolidated financial statementsstatements.
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar references in thousands)
NineThree Months Ended
September 30,March 31,
1996 1995
1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $3,023 $2,589Income $1,091 $958
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities:
Amortization and Accretion onof Investments ............... (567) 138(49) (224)
Depreciation and Amortization ........................... 707 448232 248
Provision for Loan Losses ............................... 15 462
Gains10 114
Gain on Sales of Securities ............................ ----- (81 )
Gains--- ---
Gain on Sales of Loans and Other
Real Estate ..................... (21) (84 )(2) (16)
Change in Assets and Liabilities:
Unearned Income ........................................ (224) (328 )(78) (77)
Interest Receivable ..................................... (377) 92257 206
Other Assets ............................................ (248) (114 )(281) 50
Interest Payable ........................................ 362 (57 )93 108
Deferred Loan Fees ...................................... 64 148
Income Taxes Payable .................................... 177 318(1) 11
Deferred Taxes .......................................... (489) (65 )109 (219)
Other Liabilities ....................................... 749
(202.....................................................)205 502
Total Adjustments ...................................... 148
675.......................................................495 703
Net Cash from Operating Activities................................. 3,171
3,264.....................................................Activities 1,586 1,661
CASH FLOWS FROM INVESTING ACTIVITIES
Change in Interest-bearing Balances
with Banks .......... 696 4,973(2) 99
Proceeds from Maturities of Other
Short-term Investments 46,632 18,5523,000 22,499
Purchase of Other Short-term Investments ................ (40,549) (19,298 )(979) (22,677)
Proceeds from Maturities of Securities
Available-for-Sale 3,553 7,2397,893 515
Proceeds from Sales of Securities
Available-for-Sale .... ----- 5,007--- ---
Purchase of Securities Available-for-Sale ............... (15,044) (396 )Available-
for-Sale (8,626) (3,000)
Proceeds from Maturities of Securities
Held-to-Maturity . 6,975 9,614154 3,948
Proceeds from Sales of Securities
Held-to-Maturity ...... ----- -------- ---
Purchase of Securities Held-to-Maturity ................. (2,737) (10,721 )(342) (808)
Purchase of Loans ....................................... (3,509) (2,523 )
Proceeds from Sales of Loans ............................ 500 3,600(24) ---
Loans Made to Customers net of
Payments Received ........ (7,620) (15,851 )(4,537) 1,415
Property and Equipment Expenditures ..................... (796) (432 )(154) (433)
Proceeds from Sales of Other
Real Estate ................ 147
328.......................................................15 84
Net Cash from Investing Activities................................. (11,752)
92........................................................Activities (3,602) 1,642
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits ...................................... 12,707 (10,232 )(1,271) (3,622)
Change in Short-term Borrowings ......................... (5,665) 1,4021,546 3,380
Dividends Paid .......................................... (1,044) (919 )(366) (347)
Exercise of Stock Options .............................. 22 -----
Purchase and Retire Common Stock ....................... (110)
- - -----.....................................................Option 6 ---
Net Cash from Financing Activities................................. 5,910
(9,749...................................................)Activities (85) (589)
Net Change in Cash and Cash Equivalents................... (2,671) (6,393 )Equivalents (2,101) 2,714
Cash and Cash Equivalents at
Beginning of Period ........Year 27,971 22,286
19,400....................................................
Cash and Cash Equivalents at
End of Period......................... $19,615 $13,007
.......................................................Year $25,870 $25,000
Cash Paid During the PeriodYear for:
Interest ................................................ $9,032 $6,985$3,214 $2,721
Income Taxes ............................................ 1,371 1,485160 120
See accompanying notes to consolidated financial statementsstatements.
GERMAN AMERICAN BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995March 31, 1996
Note 1 -- Basis of Presentation
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with Generally Accepted Accounting Principles
have been condensed or omitted. All adjustments made by management to these
unaudited statements were of a normal recurring nature. It is suggested that
these consolidated financial statements and notes be read in conjunction with
the financial statements and notes thereto in the German American Bancorp's
December 31, 19941995 Annual Report to shareholders.Shareholders.
German American Bancorp (the `Company'``Company'') is a multi-bank holding company
based in Jasper, Indiana. Its four affiliate banks conduct business in fifteenfourteen
offices in Dubois, Martin, Pike, Perry and Spencer Counties, Indiana.
On April 1, 1994, German American Bancorp acquired Otwell State Bank of
Otwell, Indiana in exchange for 113,286 shares of German American Bancorp Common
Stock. This transaction was accounted for utilizing the pooling of interests
method of accounting. Accordingly, the consolidated financial statements for
all periods presented were retroactively restated to include the assets,
liabilities, equity, revenues and expenses of Otwell on a combined basis with
the Company. Otwell State Bank and another affiliate, Southwestern Indiana,
were immediately merged into Community Trust Bank, a combined banking
institution operating in the Pike County, Indiana market through offices in
Otwell, Petersburg, and Winslow, Indiana.
On October 28, 1994, German American Bancorp acquired the branches of
Regional Federal Savings Bank in the towns of Huntingburg, Rockport and Tell
City, Indiana. This transaction, resulting in the acquisition of approximately
$25,000,000 in assets, was recorded utilizing the purchase method of accounting.
As a result of the Regional acquisition, German American Bancorp recorded
approximately $1,670,000 of intangible assets consisting of $1,353,000 of
goodwill and $317,000 of core deposit intangible. Intangible assets are being
amortized to expense on a straight line basis over a 15 year period in the case
of goodwill and 10 years on an accelerated basis for the core deposit
intangible. Following the Regional branch acquisition, the Huntingburg office
was combined into German American Bancorp's lead bank, The German American Bank.
The Tell City and Rockport offices were combined into German American Bancorp's
newly formed subsidiary bank, First State Bank, Southwest Indiana.
Note 2 -- Per Share Data
The weighted average number of shares used in calculating earnings and
dividends per share amounts were 1,739,169$1,827,247 and 1,738,876$1,826,171 at March 31, 1996 and
1995, respectively. The March 31, 1995 weighted average amount has been
retroactively restated for the third quarterseffect of 1995 and 1994, respectively. The weighted average number of shares for the
first nine months of 1995 and 1994 were 1,739,667 and 1,738,876, respectively.a 5% stock declared in December 1995.
Note 3 -- Securities
On January 1, 1994, the Company adopted Financial Accounting Standard No.
115 (FAS 115), `Accounting for Certain Investments in DebtAt March 31, 1996 and Equity
Securities.'' Upon adoptionDecember 31, 1995, U.S. Government Agency structured
notes with an amortized cost of FAS 115, securities were classified by
management as available-for-sale or held-to-maturity, as discussed below. This
classification resulted in the transfer$6,800 and $9,250, respectively and fair value
of $32,732$6,718 and $9,201, respectively, are included in securities to available-
for-sale. The adoptionavailable-for-
sale, consisting primarily of FAS 115 in 1994 had no effect on net income, earnings
per share or retained earnings, but did increase shareholders' equity by $274 on
January 1, 1994, whichstep-up and single-index bonds.
Information regarding collateralized mortgage obligations (CMO's) and real
estate mortgage investment conduits (REMIC's) is a market adjustment of $454 less $180 in deferred
taxes. Prior to the adoption of FAS 115, investment securities were carried at
amortized cost, and securities held-for-sale were carried at the lower of cost
or fair market value.
Securities classified as available-for-sale are securities that the Company
intends to hold for an indefinite period of time, but not necessarily until
maturity, and includes securities that management might use as part of its
asset-liability strategy or that may be sold in response to changes in the
interest rates, changes in prepayment risk, or for similar reasons. Such
securities are classified at the time of purchase and are carried at market
value. It is difficult to predict whether changes such as the above will occur
or the degree or specific nature of such changes. The amount of securities
reported as available-for-sale include securities that might be sold if a
condition changes in a given way, whereas those securities might not be sold if
the condition does not change or if it changes in a different way. Accordingly,
many securities reported as available-for-sale may not be sold and thus the
amount reported does not necessarily represent anticipated sales and resulting
cash receipts. Securities available-for-sale are reported at fair market value
with unrealized gains or losses included as a separate component of equity, net
of tax.
Securities classified as held-to-maturity are securities that the Company
has both the ability and positive intent to hold to maturity. Securities held-
to-maturity are carried at amortized cost.
The cost of securities sold is computed on the identified securities
method. Premium amortization is deducted from and discount accretion is added
to interest income.follows:
March 31, December 31,
1996 1995
Amortized Cost $31,661 $29,429
Fair Value 31,650 29,474
Fixed Rate 30,220 28,041
Variable Rate 1,429 1,433
Note 4 -- Loans
Loans, as presented on the balance sheet, are comprised of the following
classifications:
September 30,March 31, December 31,
1996 1995 1994
(dollar references in thousands)
Real Estate Loans Secured by 1-4
Family Residential Properties.................................. $68,774 $67,737Properties $68,358 $68,826
Loans to Finance Poultry Production
and Otherother Related Operations................................ 25,525 25,599Operations 21,287 23,784
Loans to Finance Agricultural
Production and Other Loans
to Farmers.............................. 28,539 31,959Farmers 27,930 27,310
Commercial and Industrial Loans........................... 77,612 67,662Loans 81,498 74,612
Loans to Individuals for Household,
Family and Other Personal
Expenditures.................. 32,762 29,248Expenditures 34,981 34,685
Economic Development Commission Bonds..................... 606 625Bonds 600 608
Lease Financing........................................... 1,420 1,820Financing 1,076 1,302
Total Loans............................................. $235,238 $224,650Loans $235,730 $231,127
Information regarding impaired loans is as follows at March 31, 1996 and
December 31, 1995:
March 31, December 31,
1996 1995
Balance of impaired loans $4,506 $6,244
Less: Portion for which no
allowance for loan loss is
allocated 198 215
Portion of impaired loan balance for
which an allowance
for credit losses is allocated $4,308 $6,029
Portion of allowance for loan losses
allocated to the impaired loan balance $662 $898
Note 5 -- Allowance for Loan Losses
A summary of the activity in the Allowance for Loan Losses is as follows:
1996 1995
1994
(dollar references in thousands)
Balance at January 1......................................1 $5,933 $5,669 $4,935
Provision for Loan Losses................................. 15 462Losses 10 114
Recoveries of Prior Loan Losses........................... 430 155Losses 101 36
Loan Losses Charged to Allowance.......................... (280)
(215.....................................................)the Allowance (60) (125)
Balance at September 30................................... $5,834 $5,337March 31 $5,984 $5,694
Note 6 -- Stock Options
As of January 1, 1996 Statement of Financial Accounting Standards No. 123
(FAS123), `Accounting for Stock-Based Compensation'' is applicable to the
Company. FAS123 encourages, but does not require, the use of a `fair value
based method''to account for stock-based compensation plans. The Company has
elected not to change its accounting for stock options to a fair value based
method, and no compensation expense was recorded for stock options granted
during the three months ended March 31, 1996.
ITEM 2.
GERMAN AMERICAN BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
German American Bancorp (``the Company'') is a multi-bank holding company
based in Jasper, Indiana. Its four affiliate banks conduct business in fourteen
offices in Dubois, Martin, Pike, Perry and Spencer Counties, Indiana. The banks
provide a wide range of financial services, including accepting deposits; making
commercial, mortgage and consumer loans; issuing credit life, accident and
health insurance; providing trust services for personal and corporate customers;
providing safe deposit facilities; and providing investment advisory and
brokerage services.
This section presents an analysis of the consolidated financial condition of
German American Bancorp (the `Company'')the Company as of September 30, 1995March 31, 1996 and December 31, 19941995 and the consolidated
results of operations for the quarters ended September 30, 1995March 31, 1996 and 1994 and year-to-date September 30, 1995 and 1994.1995. This
review 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 and the Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the Company's
December 31, 1995 Annual Report to shareholders and Annual Report on Form 10-K for the
year ended December 31, 1994.
As disclosed in Note 1, German American Bancorp acquired Otwell State Bank
of Otwell, Indiana on April 1, 1994 in exchange for 113,286 shares of German
American Bancorp Common Stock. This transaction was accounted for utilizing the
pooling of interests method of accounting. Accordingly, the consolidated
financial statements for all periods presented were retroactively restated to
include the assets, liabilities, equity, revenues and expenses of Otwell on a
combined basis with the Company. Otwell and another affiliate, Southwestern
Indiana, were then immediately merged into Community Trust Bank, a combined
banking institution operating in the Pike County, Indiana market through offices
in Otwell, Petersburg and Winslow, Indiana.
Also as disclosed in Note 1, on October 28, 1994, German American Bancorp
acquired the branches of Regional Federal Savings in Huntingburg, Rockport and
Tell City, Indiana. This transaction, resulting in the acquisition of
approximately $25,000,000 in assets, was recorded utilizing the purchase method
of accounting. As a result of the Regional acquisition, German American Bancorp
recorded approximately $1,670,000 of intangible assets consisting of $1,353,000
of goodwill and $317,000 of core deposit intangible. Intangible assets are
being amortized to expense on a straight line basis over a 15 year period in the
case of goodwill and 10 years on an accelerated basis for the core deposit
intangible. Following the Regional branch acquisition, the Huntingburg office
was combined into German American Bancorp's lead bank, The German American Bank.
The Tell City and Rockport offices were combined into German American Bancorp's
newly formed subsidiary bank, First State Bank, Southwest Indiana.Shareholders.
RESULTS OF OPERATIONS
Net Income: Earnings for the third quarter of 1995 were $1,160,000 or $.67
per share as compared to $994,000 or $.57 per share for the same period a year
earlier. Net incomeIncome for the first nine monthsquarter of 19951996 was $3,023,000$1,091,000 or $1.74$0.60 per share,
which was $434,000an increase of 13.9 percent over the $958,000 or 16.8 percent greater than the $2,589,000 or
$1.49$0.52 per share recorded duringreported in
1995. The increase in 1996 earnings relative to those of the same periodquarter of
the prior year was impacted by an increase in 1994. The earnings gains
for both three month and the nine month periods reflect the after-tax impact of
improved net interest income, combined with a significant reductiondecline in
FDIC
insurance premiums as well as a materially lowerthe level of provision for loan loss.losses, an increase in Investment Services
Income and a significant decline in FDIC Premiums. Partially offsetting these
factors wasearnings improvements were an increase in operating expenses largely
associated with the Company's newest affiliate, First State Bank, Southwest
Indiana.Salaries and Benefits and a decline in
Other Charges, Commissions and Fees.
Net Interest Income:
Net interest incomeInterest Income is the Company's largest component of income and
represents the difference between interest and fees earned on loans and
investments and the interest paid on interest-bearing liabilities. In this
discussion net interest income is presented on a `tax-equivalent'' basis
whereby tax exempt income, such as interest on non-taxable securities of state and political
subdivisions, has been increased to the amount that would have been earned on a
comparable taxable basis. This adjustment places taxable and non-taxable income
on a common basis and allows anand accurate comparison of rates and yields.
The following table summarizes German American Bancorp's net interest income
(on a tax-equivalent basis) for each of the periods presented herein. An
effective tax rate of 34 percent is used on each period presented.
NineThree Months Change Fromfrom
Ended September 30,March 31, Prior Period
1996 1995 1994 Amount Percent
(dollar references in thousands)
Interest Income......................... $ 20,739 $16,529 $ 4,210 25.5%Income $7,178 $6,599 $579 8.8%
Interest Expense........................ 9,394 6,928 2,466 35.6%Expense 3,307 2,829 478 16.9%
Net Interest Income................ $ 11,345$ 9,601 $ 1,744 18.2%
Nine Months Change From
Ended September 30, Prior
Period
1995 1994 Amount
Percent
Interest Income......................... $ 7,126 $ 5,622 $ 1,504 26.8%
Interest Expense........................ 3,313 2,347 966 41.2%
Net Interest Income................ $ 3,813 $ 3,275 $ 538 16.4%Income $3,871 $3,770 $101 2.7%
For the first ninethree months of 1995, the tax-equivalent1996, tax equivalent net interest income of
$11,345,000 exceeded the 1994 amount$3,871,000 increased by $1,744,000$101,000 or 18.2%. Operating results
for 1994 do not include First State Bank prior to its October 28, 1994 purchase
date. First State Bank's net interest income for 1995 was $659,000 or 37.8% of2.7% from the 1995 increase.
For the third quarter of 1995, tax-equivalent net interest income of
$3,813,000 increased by $538,000 or 16.4% from the 1994 level. First State Bank
contributed $223,000 or 41.4% of this increase.
The annualized tax-equivalent net interest
margin was 4.55% for 1996 versus 4.65% for 1995. The increase in the first three
quarterslevel of
1995 was 4.61% versus 4.30% for 1994.higher yielding assets, such as loans, which occurred during the period in 1996
resulted in a corresponding increase in net interest income. The decrease in
net interest margin reflects the effect of the decline in general interest rates
which occurred during the last half of 1995. This increasedecrease occurred as a result
of the impact of increases inon the average yields on loans and short-term investments which
react more quickly to a risechanges in general short-term interest rates than the
average rateyields on investment securities and the average rates paid on interest-bearing liabilities. The higher
level in short-term interest rates which occurred throughout most of 1995,
therefore, resulted in a corresponding increase in both net interest income and
net interest margin.interest-
bearing deposits.
Provision forFor Loan Losses:
The provisionCompany provides for loan losses is a charge against current income which
provides a reserve (the allowance for loan losses)through regular provisions to which future loan losses
are charged as those losses become identifiable. The adequacy of the
allowance for loan losseslosses. These provisions are made at a level which is
reviewed and evaluated quarterlyconsidered necessary by Senior Management.
During the third quarter of 1995 it became evident that a single credit
which was previously charged-offmanagement to absorb estimated losses in the amount of $326,000 had returned to
performing status. Accordingly, the full amount of this credit was recognized
as a recovery of prior loan
losses, resulting in a negative charge to the
provision for loan loss for the third quarter of 1995. This action was taken in
light of Management'sportfolio. A detailed evaluation of the adequacy of allowance forthis loan losses.
As a result of this action, theloss reserve is
completed quarterly by management.
The consolidated provision for loan losses was $10,000 in 1996 and $114,000
in 1995. The $104,000 decline in provision during 1996 resulted from a $57,000
negative provision for loan losses at Union Bank and a significant decline in
first quarter 1996 charge-offs. The negative provision at Union Bank was due to
collections of previous years' charged-off loans combined with management's
determination that an adequate level of loan loss reserve existed prior to the
first nine
monthsloan recoveries. Because of 1995 was only $15,000 versus $462,000the adequacy of the existing reserve, the
recoveries resulted in the recording of a negative provision.
The amount of future years' provision for loan loss will be subject to
adjustment based on the same periodfindings of 1994.future evaluations of the adequacy of the
loan loss reserve.
Net recoveries were $150,000$41,000 or .070.02 percent of average loans for the first
ninethree months of 1995.1996. For the same period of 1994,1995, net charge-offs were
$60,000.$89,000. Underperforming loans, as a percentage of total loans were .511.27 and
.711.51 percent on September 30, 1995March 31, 1996 and December 31, 1994,1995, respectively. See
discussion headed `Financial Condition'' for more information regarding
underperforming assets.
Noninterest Income:
Operating noninterest income, exclusive of gains realized from asseton the sales of
Loans and Other Real Estate, for the first ninethree months of 19951996 was $1,086,000.$392,000.
This was a $68,000$8,000 or 5.9%
decrease from2.1 percent greater than the $1,154,000 of operating noninterest income$384,000 posted for the same
quarter of 1995. Investment Services Income for 1996 rebounded upward after a
period of 1994. This decrease wasdecline while Other Charges and Fees for 1996 declined sharply
primarily a resultin the area of a $173,000 decline in
investment services income. Other charges, commissions and fees for the first
nine months of 1995 rose $56,000 or 20.2% from the $277,000 posted for the same
period of 1994. First State Bank accounted for much of these increases.
Third quarter operating noninterest income, exclusive of asset gains,
decreased by $42,000 in 1995 primarily as a result of a $35,000 decline in
investment services income.
The Company had no security gains during 1995. The 1994 level of security
gains resulted primarily from securities called by the issuers due to the
historically low interest rate environment. The gains on sales of loans and
other real estate were attributable mainly to German American Bank's sale of a
portion of excess real estate adjacent to one of its branch facilities.insurance commissions.
Noninterest Expense:
Total noninterest expense for the first three quartersmonths of 19951996 was $7,363,000$2,451,000
which translates to a $1,136,000$15,000 or 18.2%less than one percent increase over the
$6,227,000$2,436,000 posted for the same period in 1994. First State Bank's total
noninterest expense for 1995 was $725,000, or 63.8 percent of the increase. In
the absence of First State, total noninterest expenses would have risen 6.6
percent.1995.
The largest single component of noninterest expense, salariesSalaries and employee
benefits,Employee
Benefits, represents 53.8%57.2% of total noninterest expenses for 1995.1996. This expense
category was $3,963,000$1,402,000 during the first nine monthsquarter of 1995,1996, an increase of
$664,000$128,000 or 20.1%ten percent from the 19941995 level of $3,299,000. Occupancy expense
including furniture$1,274,000. A significant
portion of this increase is attributable to effects of changes in the Company's
organizational structure which occurred in mid 1995. Prior to July 1995, the
Company's executive officers and equipment expense, forsupport functions served both the first nine months of 1995
totaled $1,147,000, increasing by $202,000 or 21.4% from the $945,000 recorded
for the first three quarters of 1994. Again, the opening of First State Bank
accounted for much of these increases.
GoodwillCompany and
Core Deposit Intangible Amortization expense, which is
reflected in Other Operating Expense on the income statement, was $109,000
greater during the first nine months of 1995, as compared to the same periodits lead affiliate bank, German American Bank. In recognition of the prior year. The difference was againincreased
management and administrative demands existing under a multi-bank holding
company environment, the management and administrative support functions of
German American Bank and the Company were segmented into distinct groups with
additional staffing implemented as deemed appropriate. Although this
organizational change did result in an increased level of Salaries & Benefits,
Company management believes the increased management focus at both the Bank and
Bancorp level will result in increased operating efficiency.
During 1995, the FDIC reduced the commercial bank deposit insurance premium
rates as a result of the Regional branch
purchases.
The Federal Deposit Insurance Corporation (FDIC) assessment declined by
$126,000 in 1995 from $477,000 in 1994 to $351,000 in 1995. This reduction was
achieved in connection with the lowering of the assessment rate on insured
deposits covered in the Bank Insurance Fund (BIF)(`BIF'') reaching full
capitalization of its congressionally mandated level. The full impact of this
rate reduction became evident in 1996. Additional assessments or premiums may
arise in 1996 from proposals before Congress which resultedwould result in a decline in
third quarter premium assessment and a refundthe
recapitalization of a portion of the previously
expensed second quarter premium. The BIF premium dropped from 23 cents per
$100.00 of insured deposits to four cents per $100.00 of insured deposits on
approximately 91 percent of the Company's deposits. The remaining nine percent
of deposits are connected to the Company's purchase of former deposits of
Regional Federal Savings Bank, which are insured under a separate fund of the
FDIC called Savings Association Insurance Fund (SAIF)(`SAIF''). The lowering ofUnder
this proposal, institutions holding deposits insured by SAIF premium rates as occurredwould be subject to
a one-time assessment followed by a reduction in theongoing FDIC premiums similar
to that currently in place for BIF fund is unlikely.
Total noninterest expense for the third quarter of 1995 was $2,418,000
which represents a $310,000 or 14.7% increase over the $2,108,000 posted for the
same period in 1994. First State Bank's total noninterest expense for the third
quarter of 1995 was $235,000, or 75.8%insured deposits. All of the increase. In the absence of First
State, total noninterest expenses would have risen 3.6%.
Salaries and employee benefits were $1,350,000 during the third quarter of
1995, an increase of $208,000 or 18.2% from the 1994 level of $1,142,000.
Occupancy expense including furniture and equipment expense, for the third
quarter of 1995 totaled $394,000, increasing by $66,000 or 20.1% from the
$328,000 recorded for the same period of 1994. Again, the openingdeposits of
First State Bank, accounteda newly-formed affiliate are insured under SAIF. Therefore,
the implementation of this proposal would increase 1996 total FDIC premiums by
approximately $150,000 to an estimated $210,000 for much1996. Subsequent years
premiums following any such SAIF assessment are anticipated to be $2,000 per
affiliate bank or a total of these increases.$8,000. The statements in this paragraph relating
to FDIC premiums and assessments for 1996 and future years are forward-looking
statements which may or may not be accurate due to the impossibility of
predicting future Congressional or regulatory actions or the future
capitalization levels of BIF and SAIF.
FINANCIAL CONDITION
As of September 30, 1995,March 31, 1996, total assets increased to $357,361,000$368,702,000 compared to
$346,526,000$367,763,000 at December 31, 1994.1995. Deposits rose $12,707,000fell $1,271,000 in 1995 over
that1996 reflecting
normal seasonal fluctuations in the Company's deposit base and the customers
continued utilization of year-end 1994.other investment alternatives. Total loans rose by
$10,588,000$4,681,000 or 4.7%roughly two percent from the year-
endyear-end mark of $224,650,000.$230,590,000.
The following analyzes German American Bancorp's underperforming assets at
September 30, 1995March 31, 1996 and December 31, 1994.
September 30,1995.
March 31, 1996 December 31, 1995
1994
(dollar references in thousands)
Loans which are contractually
past due 90 days or more........................ $663 $601more $2,470 $803
Nonaccrual Loans..................................... 526 983Loans 535 2,683
Renegotiated Loans................................... ------ ------Loans --- ---
Total Underperforming Loans..................... 1,189 1,584Loans 3,005 3,486
Other Real Estate.................................... 498 497Estate 273 286
Total Underperforming Assets.................... $ 1,687 $ 2,081Assets $3,278 $3,772
Allowance for Loan Loss to
Underperforming Loans 199.13% 170.20%
Underperforming Loans to
Total Loans 1.27% 1.51%
Underperforming loans at September 30, 1995March 31, 1996 were 24.9%13.8% less than the $1,584,000$3,486,000
of underperforming loans at December 31, 1994.1995. This decline is attributable to
the overall improvement of the loan portfolio and to the reduction in the
balance of an individual credit in the nonaccrual category. Stated as a
percentage of total loans, underperforming loans were .51%1.27% and .71%1.51% for September 30, 1995March
31, 1996 and December 31, 1994,1995, respectively. The allowance for loan loss
stated as a percentage of underperforming loans equaled 490.7%199.13% and 357.9%170.20% for
the same two dates respectively.
Underperforming loans include $2,454 and $2,646 of impaired loans at March
31, 1996 and December 31, 1995 (See Note 4 to the consolidated financial
statements).
The overall loan portfolio is diversified among a variety of individual
borrowers, with a substantial portion of debtors' ability to honor their
contracts dependent on the agricultural, poultry and wood manufacturing
industries. Although wood manufacturers employ a significant number of people
in the Company's market area, the Company does not have a concentration of
credit to companies engaged in that industry.
Capital Resources:
Capital ratios are used byIndustry regulations provide guidelines for determining the capital adequacy
of bank regulatorsholding companies and throughout the industry asbanks. These guidelines provide for a more narrow
definition of core capital and assign a measure of an institution's financial strength. The Federal Reserve imposesrisk to the various
categories of assets. Minimum levels of capital leverage guidelines.are required to be maintained
in proportion to total risk-weighted assets and off-balance sheet exposures such
as loan commitments and standby letters of credit.
Tier 1, or core capital, consists of shareholders' equity less goodwill, core
deposit intangibles, and certain tax receivables defined by bank regulations.
Tier 2 capital is defined as the amount of the allowance for loan losses which
does not exceed 1.25% of gross risk adjusted assets. Total capital is the sum
of Tier 1 and Tier 2 capital.
The minimum guideline isrequirements under these standards are a 3.0% leverage ratio,
defined as corewhich is Tier 1 capital (shareholders' equity, qualifying perpetual preferred
stock, and minority interest in the equity accounts of consolidated
subsidiaries) less goodwill, divided by total assets. The Company had a 9.13%
leverage ratio at September 30, 1995. The minimumdefined `total assets'', 4.0% Tier 1
capital to risk-adjusted assets and 8.0% total capital to risk-
weightedrisk-adjusted assets
ratio is eight percent.ratios. Under these guidelines, the Company, on a consolidated basis, and each
of its affiliate banks individually, have capital ratios that substantially
exceed the regulatory minimums. The Company had a tier onetable below presents the Company's
consolidated capital to
risk-weighted assets ratio of 14.01% and a 15.26% total capital to risk-weighted
asset ratio at September 30, 1995.ratios under the regulatory guidelines.
At September 30, 1995,March 31, 1996, management is not aware of any current recommendations by
banking regulatory authorities which, if they were to be implemented, would
have, or are reasonably likely to have, a material effect on the Company's
liquidity, capital resources or operations.
RISK BASED CAPITAL STRUCTURE ($ in thousands)
March 31, December 31,
1996 1995
Tier 1 Capital:
Shareholders' Equity as presented
on Balance Sheet $37,322 $36,956
Add / (Subtract): Unrealized
Depreciation / Appreciation on
Securities Available-for-Sale (494) (859)
Less: Intangible Assets and
Ineligible Deferred Tax Assets (2,129) (2,140)
Total 34,699 33,957
Tier 2 Capital:
Qualifying Allowance for Loan Loss 2,998 2,943
Total Capital $37,697 $36,900
Risk-adjusted Assets $236,871 $232,272
Tier 1 Capital to Total Assets
(leverage ratio) 9.49% 9.29%
Tier 1 Capital to Risk-adjusted Assets 14.65% 14.62%
Total Capital to Risk-adjusted Assets 15.91% 15.89%
LIQUIDITY
A review of theThe Consolidated Statement of Cash Flows presented in another section of this
report analyzesdetails the elements of change in the Company's cash and cash
equivalents. During the first three quartersquarter of 1995,1996, the major sources ofnet cash provided werefrom operating
activities, including net income of $3,023,000, an$1,091,000 provided $1,586,000 of available
cash. The proceeds from the maturities of securities and short-term investments
(net of purchases) provided more cash of $1,098,000. An increase of $12,707,000 in the
level of deposits and a $6,779,000 decrease in the level of Short-term
Investments. A less significant source came in the form of $148,000 from
various operating activities all of which yieldedshort-term
borrowings made available $1,546,000 for a total cash inflow of $22,657,000.$4,230,000.
Major cash outflows experienced during the first nine monthsquarter of 1995 consisted1996 include
dividends of $10,629,000$366,000, property and equipment purchases of loan extensions exceeding customer repayments$154,000 and $7,253,000the net
funding outlay of security purchases exceeding security maturities. Short-term borrowings
declinedloans and deposits in the amount of $5,832,000. Total cash
outflows for the period exceeded inflows by $5,665,000. Other cash flows such as dividends to shareholders and
fixed asset purchases utilized an additional $1,781,000 of cash for$2,101,000 leaving a total cash
outlay $25,328,000. As a net result of this activity, cash and cash
equivalents
declined by $2,671,000 during 1995.equivalent balance of $25,870,000 at March 31, 1996.
PART II. OTHER INFORMATION
Item 5. Other Information
The Board of Directors of German American Bancorp has authorized the
officers of the Company to purchase shares of the Company's common stock from
time to time for the purpose of funding the Company's obligation to deliver
shares to person's holding options under the Company's 1992 Stock Option Plan.
During the nine months ended September 30, 1995, the Company has acquired an
aggregate of 3,600 shares pursuant to this authorization for an aggregate
purchase price of $110,700.00. At September 30, 1995, options to purchase an
aggregate of 21,913 shares had been granted and had not yet been exercised. An
aggregate of 3,587 shares, net of shares surrendered by persons exercising
options as payment for exercise price, have been issued upon exercise of options
granted under the 1992 Stock Option Plan since its inception.
The Board of Directors of the Company in October 1995 declared a 5 percent
stock dividend to shareholders of record of the Company as of November 24, 1995,
payable on or by December 22, 1995. In a News Release dated October 13, 1995,
George Astrike, Chairman of German American Bancorp, stated `the institution of
a systematic stock dividend plan represents the latest in a series of
initiatives undertaken during the past several years designed to enhance the
liquidity of our Company's stock. It is our intention to maintain, following
the stock dividend, the current quarterly cash dividend payout of $.20 per share
which will effectively result in a 5 percent increase in cash dividends received
by current shareholders.'' The October 13, 1995, News Release further stated
that the Company's Board of Directors presently intends to consider declaring
and issuing a stock dividend of 5 percent on an annual basis.
Effective November 16, 1995, the Company's registrar and transfer agent for
its common stock will be changed to Fifth Third Bank, Cincinnati, Ohio.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.Exhibits
Exhibit No. Description
10.1 Incentive Stock Option Agreement executed July 10, 1995January 9,
1996 between the Registrant and Mark A. Schroeder (1,000George W. Astrike (2,940 shares).
10.2 Schedule of Incentive Stock Option Agreements between
the Registrant and its executive officers dated July 10, 1995.January 9, 1996.
27 Financial Data Schedule for the period ended September 30, 1995.March 31,
1996.
(b) Reports on Form 8-K.8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended September 30, 1995.March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GERMAN AMERICAN BANCORP
Date May 14, 1996 By/S/s/George W. Astrike
------------------------------------------- ------------------------
George W. Astrike
Chairman
Date May 14, 1996 By/S/s/John M. Gutgsell
------------------------------------------- -------------------------
John M. Gutgsell
Controller and Principal
Accounting Officer