UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Quarterly Period Ended June 30, 2004.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Transition Period from ______________ to ______________.
Commission File Number: 0-11244
GERMAN AMERICAN BANCORP
(Exact name of registrant as specified in its charter)
| INDIANA | 35-1547518 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
| 711 Main Street, Jasper, Indiana 47546 (Address of Principal Executive Offices and Zip Code) | ||
Registrant's telephone number, including area code: (812) 482-1314
Indicate by check mark 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 August 2, 2004 |
| Common Stock, | |
| No par value | 10,898,241 |
1
GERMAN AMERICAN BANCORP
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| Consolidated Balance Sheets - June 30, 2004 and December 31, 2003 Consolidated Statements of Income and Comprehensive Income — Three and Six months Ended June 30, 2004 and 2003 Consolidated Statements of Cash Flows — Six months Ended June 30, 2004 and 2003 Notes to Consolidated Financial Statements — June 30, 2004 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Item 4. Controls and Procedures.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
2
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GERMAN AMERICAN BANCORP
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share data)
| June 30, 2004 | December 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and Due from Banks | $ | 25,978 | $ | 28,729 | ||||
| Federal Funds Sold and Other Short-term Investments | 6,684 | 3,804 | ||||||
| Cash and Cash Equivalents | 32,662 | 32,533 | ||||||
| Securities Available-for-Sale, at Fair Value | 192,776 | 195,793 | ||||||
| Securities Held-to-Maturity, at Cost | 14,789 | 17,417 | ||||||
| Loans Held-for-Sale | 4,839 | 1,416 | ||||||
| Total Loans | 622,576 | 613,255 | ||||||
| Less: Unearned Income | (1,360 | ) | (1,389 | ) | ||||
| Allowance for Loan Losses | (8,957 | ) | (8,265 | ) | ||||
| Loans, Net | 612,259 | 603,601 | ||||||
| Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost | 13,252 | 12,944 | ||||||
| Premises, Furniture and Equipment, Net | 20,913 | 21,605 | ||||||
| Other Real Estate | 108 | 749 | ||||||
| Goodwill | 1,794 | 1,794 | ||||||
| Intangible Assets | 2,591 | 2,804 | ||||||
| Company Owned Life Insurance | 18,216 | 17,831 | ||||||
| Accrued Interest Receivable and Other Assets | 16,260 | 17,459 | ||||||
| TOTAL ASSETS | $ | 930,459 | $ | 925,946 | ||||
| LIABILITIES | ||||||||
| Non-interest-bearing Demand Deposits | $ | 114,545 | $ | 112,689 | ||||
| Interest-bearing Demand, Savings, and Money Market Accounts | 282,725 | 266,652 | ||||||
| Time Deposits under $100,000 | 267,665 | 283,959 | ||||||
| Time Deposits $100,000 or more and Brokered Deposits | 57,123 | 53,833 | ||||||
| Total Deposits | 722,058 | 717,133 | ||||||
| FHLB Advances and Other Borrowings | 114,918 | 112,559 | ||||||
| Accrued Interest Payable and Other Liabilities | 12,959 | 13,128 | ||||||
| TOTAL LIABILITIES | 849,935 | 842,820 | ||||||
| SHAREHOLDERS' EQUITY | ||||||||
| Common Stock, no par value, $1 stated value; | ||||||||
| 20,000,000 shares authorized | 10,898 | 10,933 | ||||||
| Preferred Stock, $10 par value; 500,000 | ||||||||
| shares authorized, no shares issued | --- | --- | ||||||
| Additional Paid-in Capital | 67,118 | 67,532 | ||||||
| Retained Earnings | 5,636 | 4,653 | ||||||
| Accumulated Other Comprehensive Income / (Loss) | (3,128 | ) | 8 | |||||
| TOTAL SHAREHOLDERS' EQUITY | 80,524 | 83,126 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 930,459 | $ | 925,946 | ||||
| End of period shares issued and outstanding | 10,898,241 | 10,932,882 | ||||||
See accompanying notes to consolidated financial statements.
3
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(unaudited, dollars in thousands except per share data)
| Three Months Ended June 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| INTEREST INCOME | ||||||||
| Interest and Fees on Loans | $ | 9,742 | $ | 10,641 | ||||
| Interest on Federal Funds Sold and Other Short-term Investments | 20 | 82 | ||||||
| Interest and Dividends on Securities: | ||||||||
| Taxable | 1,397 | 1,247 | ||||||
| Non-taxable | 729 | 887 | ||||||
| TOTAL INTEREST INCOME | 11,888 | 12,857 | ||||||
| INTEREST EXPENSE | ||||||||
| Interest on Deposits | 2,986 | 3,606 | ||||||
| Interest on FHLB Advances and Other Borrowings | 1,167 | 1,916 | ||||||
| TOTAL INTEREST EXPENSE | 4,153 | 5,522 | ||||||
| NET INTEREST INCOME | 7,735 | 7,335 | ||||||
| Provision for Loan Losses | 838 | 265 | ||||||
| NET INTEREST INCOME AFTER PROVISION | ||||||||
| FOR LOAN LOSSES | 6,897 | 7,070 | ||||||
| NON-INTEREST INCOME | ||||||||
| Trust and Investment Product Fees | 520 | 448 | ||||||
| Service Charges on Deposit Accounts | 895 | 864 | ||||||
| Insurance Revenues | 1,228 | 807 | ||||||
| Other Operating Income | 861 | (64 | ) | |||||
| Gain on Sales of Loans and Related Assets | 363 | 769 | ||||||
| Gain on Sales of Securities | --- | --- | ||||||
| TOTAL NON-INTEREST INCOME | 3,867 | 2,824 | ||||||
| NON-INTEREST EXPENSE | ||||||||
| Salaries and Employee Benefits | 4,495 | 4,419 | ||||||
| Occupancy Expense | 618 | 600 | ||||||
| Furniture and Equipment Expense | 547 | 560 | ||||||
| Data Processing Fees | 299 | 280 | ||||||
| Professional Fees | 485 | 324 | ||||||
| Advertising and Promotions | 195 | 191 | ||||||
| Supplies | 150 | 157 | ||||||
| Other Operating Expenses | 1,072 | 984 | ||||||
| TOTAL NON-INTEREST EXPENSE | 7,861 | 7,515 | ||||||
| Income before Income Taxes | 2,903 | 2,379 | ||||||
| Income Tax Expense | 571 | 336 | ||||||
| NET INCOME | $ | 2,332 | $ | 2,043 | ||||
| COMPREHENSIVE INCOME (LOSS) | $ | (1,432 | ) | $ | 1,217 | |||
| Earnings Per Share and Diluted Earnings Per Share | $ | 0.21 | $ | 0.19 | ||||
| Dividends Per Share | $ | 0.14 | $ | 0.13 | ||||
See accompanying notes to consolidated financial statements.
4
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(unaudited, dollars in thousands except per share data)
| Six Months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||||
| INTEREST INCOME | |||||||||||
| Interest and Fees on Loans | $ | 19,447 | $ | 21,529 | |||||||
| Interest on Federal Funds Sold and Other Short-term Investments | 48 | 138 | |||||||||
| Interest and Dividends on Securities: | |||||||||||
| Taxable | 2,681 | 2,781 | |||||||||
| Non-taxable | 1,488 | 1,858 | |||||||||
| TOTAL INTEREST INCOME | 23,664 | 26,306 | |||||||||
| INTEREST EXPENSE | |||||||||||
| Interest on Deposits | 6,119 | 7,370 | |||||||||
| Interest on FHLB Advances and Other Borrowings | 2,332 | 3,816 | |||||||||
| TOTAL INTEREST EXPENSE | 8,451 | 11,186 | |||||||||
| NET INTEREST INCOME | 15,213 | 15,120 | |||||||||
| Provision for Loan Losses | 1,240 | 229 | |||||||||
| NET INTEREST INCOME AFTER PROVISION | |||||||||||
| FOR LOAN LOSSES | 13,973 | 14,891 | |||||||||
| NON-INTEREST INCOME | |||||||||||
| Trust and Investment Product Fees | 976 | 804 | |||||||||
| Service Charges on Deposit Accounts | 1,728 | 1,512 | |||||||||
| Insurance Revenues | 2,272 | 1,600 | |||||||||
| Other Operating Income | 1,296 | 112 | |||||||||
| Gain on Sales of Loans and Related Assets | 545 | 1,306 | |||||||||
| Gain on Sales of Securities | 5 | 23 | |||||||||
| TOTAL NON-INTEREST INCOME | 6,822 | 5,357 | |||||||||
| NON-INTEREST EXPENSE | |||||||||||
| Salaries and Employee Benefits | 9,110 | 8,841 | |||||||||
| Occupancy Expense | 1,238 | 1,217 | |||||||||
| Furniture and Equipment Expense | 1,110 | 1,111 | |||||||||
| Data Processing Fees | 605 | 557 | |||||||||
| Professional Fees | 852 | 609 | |||||||||
| Advertising and Promotions | 424 | 416 | |||||||||
| Supplies | 289 | 310 | |||||||||
| Other Operating Expenses | 1,990 | 1,777 | |||||||||
| TOTAL NON-INTEREST EXPENSE | 15,618 | 14,838 | |||||||||
| Income before Income Taxes | 5,177 | 5,410 | |||||||||
| Income Tax Expense | 893 | 929 | |||||||||
| NET INCOME | $ | 4,284 | $ | 4,481 | |||||||
| COMPREHENSIVE INCOME | $ | 1,148 | $ | 3,248 | |||||||
| Earnings Per Share and Diluted Earnings Per Share | $ | 0.39 | $ | 0.39 | |||||||
| Dividends Per Share | $ | 0.28 | $ | 0.27 | |||||||
See accompanying notes to consolidated financial statements.
5
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
| Six Months Ended June 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | 4,284 | $ | 4,481 | ||||
| Adjustments to Reconcile Net Income to Net Cash from Operating Activities: | ||||||||
| Net Amortization on Securities | 635 | 1,206 | ||||||
| Depreciation and Amortization | 1,402 | 1,282 | ||||||
| Amortization and Impairment of Mortgage Servicing Rights | 40 | 875 | ||||||
| Net Change in Loans Held for Sale | (3,729 | ) | 8,715 | |||||
| Loss on Investment in Limited Partnership | 44 | 87 | ||||||
| Provision for Loan Losses | 1,240 | 229 | ||||||
| Gain on Sale of Securities, net | (5 | ) | (23 | ) | ||||
| Loss / (Gain) on Sale of Other Real Estate and Repossessed Assets | (64 | ) | 131 | |||||
| Gain on Disposition and Impairment of Premises and Equipment | (3 | ) | (4 | ) | ||||
| Director Stock Awards | --- | 304 | ||||||
| Increase in Cash Surrender Value of Company Owned Life Insurance | ||||||||
| (COLI) | (385 | ) | (116 | ) | ||||
| Change in Assets and Liabilities: | ||||||||
| Interest Receivable and Other Assets | 1,736 | 387 | ||||||
| Interest Payable and Other Liabilities | (169 | ) | 5 | |||||
| Net Cash from Operating Activities | 5,026 | 17,559 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from Maturities of Securities Available-for-Sale | 15,521 | 80,014 | ||||||
| Proceeds from Sales of Securities Available-for-Sale | 1,986 | 786 | ||||||
| Purchase of Securities Available-for-Sale | (18,878 | ) | (63,756 | ) | ||||
| Proceeds from Maturities of Securities Held-to-Maturity | 2,627 | 1,927 | ||||||
| Purchase of Loans | (1,001 | ) | (3,850 | ) | ||||
| Proceeds from Sales of Loans | 1,250 | 633 | ||||||
| Loans Made to Customers, net of Payments Received | (10,457 | ) | 5,007 | |||||
| Proceeds from Sales of Other Real Estate | 1,015 | 1,203 | ||||||
| Property and Equipment Expenditures | (854 | ) | (1,324 | ) | ||||
| Proceeds from the Sale of Property and Equipment | 360 | 4 | ||||||
| Net Cash from Investing Activities | (8,431 | ) | 20,644 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Change in Deposits | 4,925 | 301 | ||||||
| Change in Short-term Borrowings | (35 | ) | 2,722 | |||||
| Advances of Long-term Debt | 2,500 | 8,000 | ||||||
| Repayments of Long-term Debt | (106 | ) | (10,857 | ) | ||||
| Issuance of Common Stock | 20 | 20 | ||||||
| Purchase / Retire Common Stock | (708 | ) | (21,447 | ) | ||||
| Dividends Paid | (3,062 | ) | (3,063 | ) | ||||
| Net Cash from Financing Activities | 3,534 | (24,324 | ) | |||||
| Net Change in Cash and Cash Equivalents | 129 | 13,879 | ||||||
| Cash and Cash Equivalents at Beginning of Year | 32,533 | 35,745 | ||||||
| Cash and Cash Equivalents at End of Period | $ | 32,662 | $ | 49,624 | ||||
See accompanying notes to consolidated financial statements.
6
Note 1 — Basis of Presentation
German American Bancorp operates primarily in the banking industry. The accounting and reporting policies of German American Bancorp and its subsidiaries conform to U.S. generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included in the accompanying unaudited consolidated financial statements, and all such adjustments are 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 December 31, 2003 Annual Report on Form 10-K.
Note 2 — Per Share Data
Earnings and dividends per share have been retroactively computed as though shares issued for stock dividends had been outstanding for all periods presented. The computation of Earnings per Share and Diluted Earnings per Share are as follows:
| Three Months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||||
| Earnings per Share: | |||||||||||
| Net Income | $ | 2,332 | $ | 2,043 | |||||||
| Weighted Average Shares Outstanding | 10,925,569 | 10,942,415 | |||||||||
| Earnings per Share: | $ | 0.21 | $ | 0.19 | |||||||
| Diluted Earnings per Share: | |||||||||||
| Net Income | $ | 2,332 | $ | 2,043 | |||||||
| Weighted Average Shares Outstanding | 10,925,569 | 10,942,415 | |||||||||
| Stock Options, Net | 29,811 | 43,688 | |||||||||
| Diluted Weighted Average Shares Outstanding | 10,955,380 | 10,986,103 | |||||||||
| Diluted Earnings per Share | $ | 0.21 | $ | 0.19 | |||||||
| Six Months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||||
| Earnings per Share: | |||||||||||
| Net Income | $ | 4,284 | $ | 4,481 | |||||||
| Weighted Average Shares Outstanding | 10,931,184 | 11,403,503 | |||||||||
| Earnings per Share: | $ | 0.39 | $ | 0.39 | |||||||
| Diluted Earnings per Share: | |||||||||||
| Net Income | $ | 4,284 | $ | 4,481 | |||||||
| Weighted Average Shares Outstanding | 10,931,184 | 11,403,503 | |||||||||
| Stock Options, Net | 35,153 | 43,953 | |||||||||
| Diluted Weighted Average Shares Outstanding | 10,966,337 | 11,447,456 | |||||||||
| Diluted Earnings per Share | $ | 0.39 | $ | 0.39 | |||||||
7
Note 3 — Securities
The fair values of Securities Available-for-Sale are as follows (dollars in thousands):
| June 30, 2004 | December 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| U.S. Treasury Securities and Obligations of | ||||||||
| U.S. Government Corporations and Agencies | $ | 6,972 | $ | 4,090 | ||||
| Obligations of State and Political Subdivisions | 32,477 | 38,579 | ||||||
| Asset-/Mortgage-backed Securities | 137,333 | 136,585 | ||||||
| Corporate Securities | 508 | 515 | ||||||
| Equity Securities | 15,486 | 16,024 | ||||||
| Total | $ | 192,776 | $ | 195,793 | ||||
The total carrying values and fair values of Securities Held-to-Maturity are as follows (dollars in thousands):
| Carrying Value | Fair Value | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2004: | ||||||||
| Obligations of State and Political Subdivisions | $ | 14,789 | $ | 15,112 | ||||
| December 31, 2003: | ||||||||
| Obligations of State and Political Subdivisions | $ | 17,417 | $ | 17,964 | ||||
Note 4 — Segment Information
The Company’s operations include four primary segments: core banking, mortgage banking, financial services, and insurance operations. The core banking segment involves attracting deposits from the general public and using such funds to originate consumer, commercial, commercial real estate, and residential mortgage loans, primarily in the affiliate banks’ local markets. The mortgage banking segment involves the origination and purchase of single-family residential mortgage loans; the sale of such loans in the secondary market; the servicing of mortgage loans for investors; and the operation of a title insurance company. The financial services segment involves providing trust, investment advisory, and brokerage services to customers. The insurance segment offers a full range of personal and corporate property and casualty insurance products, primarily in the affiliate banks’ local markets.
The core banking segment is comprised of five community banks with 27 retail banking offices. Net interest income from loans and investments funded by deposits and borrowings is the primary revenue of the five affiliate community banks comprising the core-banking segment. Revenues for the mortgage-banking segment consist of net interest income from a residential real estate loan portfolio and investment securities portfolio funded primarily by wholesale sources, gains on sales of loans and gains on sales of and capitalization of mortgage servicing rights (MSR), loan servicing income, title insurance commissions and loan closing fees. The financial services segment’s revenues are comprised primarily of fees generated by German American Financial Advisors & Trust Company (GAFA). These fees are derived by providing trust, investment advisory, and brokerage services to its customers. The insurance segment consists of The Doty Agency, Inc., which provides a full line of personal and corporate insurance products as agent under five distinctive insurance agency names from five offices; and German American Reinsurance Company, Ltd. (GARC), which reinsures credit insurance products sold by the Company’s five affiliate banks. Commissions derived from the sale of insurance products are the primary source of revenue for the insurance segment.
The following segment financial information has been derived from the internal financial statements of German American Bancorp, which are used by management to monitor and manage the financial performance of the Company. The accounting policies of the four segments are the same as those of the Company. The evaluation process for segments does not include holding company income and expense. Holding company amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the Other column below, along with minor amounts to eliminate transactions between segments.
8
| Three Months Ended June 30, 2004 | Core Banking | Mortgage Banking | Financial Services | Insurance | Other | Consolidated Totals | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Interest Income | $ | 7,704 | $ | 91 | $ | 7 | $ | 2 | $ | (69 | ) | $ | 7,735 | |||||||
| Gain on Sales of Loans and | ||||||||||||||||||||
| Related Assets | 239 | 124 | --- | --- | --- | 363 | ||||||||||||||
| Servicing Income | --- | 229 | --- | --- | (40 | ) | 189 | |||||||||||||
| Trust and Investment Product | ||||||||||||||||||||
| Fees | 1 | --- | 541 | --- | (22 | ) | 520 | |||||||||||||
| Insurance Revenues | 33 | 20 | 6 | 1,204 | (35 | ) | 1,228 | |||||||||||||
| Noncash Items: | ||||||||||||||||||||
| Provision for Loan Losses | 838 | --- | --- | --- | 838 | |||||||||||||||
| MSR Amortization & Valuation | --- | (187 | ) | --- | --- | --- | (187 | ) | ||||||||||||
| Provision for Income Taxes | 1,080 | 115 | 23 | 100 | (747 | ) | 571 | |||||||||||||
| Segment Profit | 2,796 | 175 | 34 | 182 | (855 | ) | 2,332 | |||||||||||||
| Segment Assets | 887,721 | 27,243 | 2,178 | 7,788 | 5,529 | 930,459 | ||||||||||||||
| Three Months Ended June 30, 2003 | Core Banking | Mortgage Banking | Financial Services | Insurance | Other | Consolidated Totals | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Interest Income | $ | 7,570 | $ | (196 | ) | $ | 4 | $ | 2 | $ | (45 | ) | $ | 7,335 | ||||||
| Gain on Sales of Loans and | ||||||||||||||||||||
| Related Assets | 412 | 357 | --- | --- | --- | 769 | ||||||||||||||
| Servicing Income | --- | 220 | --- | --- | (49 | ) | 171 | |||||||||||||
| Trust and Investment Product | ||||||||||||||||||||
| Fees | 1 | --- | 470 | --- | (23 | ) | 448 | |||||||||||||
| Insurance Revenues | 38 | 52 | 4 | 744 | (31 | ) | 807 | |||||||||||||
| Noncash Items: | ||||||||||||||||||||
| Provision for Loan Losses | 390 | (125 | ) | --- | --- | --- | 265 | |||||||||||||
| MSR Amortization & Valuation | --- | 554 | --- | --- | --- | 554 | ||||||||||||||
| Provision for Income Taxes | 1,139 | (151 | ) | 15 | 29 | (696 | ) | 336 | ||||||||||||
| Segment Profit | 2,859 | (231 | ) | 22 | 153 | (760 | ) | 2,043 | ||||||||||||
| Segment Assets | 870,493 | 67,992 | 2,127 | 4,986 | (9,360 | ) | 936,238 | |||||||||||||
| Six Months Ended June 30, 2004 | Core Banking | Mortgage Banking | Financial Services | Insurance | Other | Consolidated Totals | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Interest Income | $ | 15,165 | $ | 175 | $ | 15 | $ | (3 | ) | $ | (139 | ) | $ | 15,213 | ||||||
| Gain on Sales of Loans and | ||||||||||||||||||||
| Related Assets | 333 | 212 | --- | --- | --- | 545 | ||||||||||||||
| Servicing Income | --- | 460 | --- | --- | (80 | ) | 380 | |||||||||||||
| Trust and Investment Product | ||||||||||||||||||||
| Fees | 2 | --- | 1,019 | --- | (45 | ) | 976 | |||||||||||||
| Insurance Revenues | 53 | 27 | 14 | 2,240 | (62 | ) | 2,272 | |||||||||||||
| Noncash Items: | ||||||||||||||||||||
| Provision for Loan Losses | 1,300 | (60 | ) | --- | --- | --- | 1,240 | |||||||||||||
| MSR Amortization & Valuation | --- | 40 | --- | --- | --- | 40 | ||||||||||||||
| Provision for Income Taxes | 2,067 | 41 | 30 | 173 | (1,418 | ) | 893 | |||||||||||||
| Segment Profit | 5,452 | 62 | 44 | 289 | (1,563 | ) | 4,284 | |||||||||||||
| Segment Assets | 887,721 | 27,243 | 2,178 | 7,788 | 5,529 | 930,459 | ||||||||||||||
9
| Six Months Ended June 30, 2003 | Core Banking | Mortgage Banking | Financial Services | Insurance | Other | Consolidated Totals | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Interest Income | $ | 15,382 | $ | (277 | ) | $ | 6 | $ | 5 | $ | 4 | $ | 15,120 | |||||||
| Gain on Sales of Loans and | ||||||||||||||||||||
| Related Assets | 770 | 536 | --- | --- | --- | 1,306 | ||||||||||||||
| Servicing Income | --- | 438 | --- | --- | (102 | ) | 336 | |||||||||||||
| Trust and Investment Product | ||||||||||||||||||||
| Fees | 2 | --- | 849 | --- | (47 | ) | 804 | |||||||||||||
| Insurance Revenues | 86 | 93 | 4 | 1,481 | (64 | ) | 1,600 | |||||||||||||
| Noncash Items: | ||||||||||||||||||||
| Provision for Loan Losses | 670 | (441 | ) | --- | --- | --- | 229 | |||||||||||||
| MSR Amortization & Valuation | --- | 875 | --- | --- | --- | 875 | ||||||||||||||
| Provision for Income Taxes | 2,242 | (158 | ) | 13 | 113 | (1,281 | ) | 929 | ||||||||||||
| Segment Profit | 5,740 | (241 | ) | 19 | 280 | (1,317 | ) | 4,481 | ||||||||||||
| Segment Assets | 870,493 | 67,992 | 2,127 | 4,986 | (9,360 | ) | 936,238 | |||||||||||||
Note 5 — Stock Repurchase Plan
On April 26, 2001 the Company announced that its Board of Directors approved a stock repurchase program for up to 607,754 of the outstanding Common Shares of the Company. Shares may be purchased from time to time in the open market and in large block privately negotiated transactions. The Company is not obligated to purchase any shares under the program, and the program may be discontinued at any time before the maximum number of shares specified by the program are purchased. As of June 30, 2004, the Company had purchased 251,965 shares under the program including 44,000 shares during the quarter ended June 30, 2004.
Note 6 — Self Tender Offer
On February 7, 2003 the Company commenced a self-tender offer for up to 1.05 million of its common shares, or approximately 9% of its then outstanding shares, at a purchase price of $19.05 per share. On March 20, 2003, the Company purchased 1,110,444 shares under the offer, including 60,444 shares that the Company purchased in accordance with the optional purchase provision of the offer. The Company’s total cost in purchasing the shares, including fees and expenses incurred in connection with the offer, was approximately $21,442,000.
Note 7 — Stock Compensation
Compensation expense under stock options is reported, if applicable, using the intrinsic value method. No compensation expense has been recognized in net income. Financial Accounting Standard No. 123 requires pro forma disclosures for companies that do not adopt its fair value accounting method for stock-based employee compensation. Accordingly, the following pro forma information presents net income and earnings per share had the Standard’s fair value method been used to measure compensation cost for stock option plans.
| Three months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||||
| Net Income as Reported | $ | 2,332 | $ | 2,043 | |||||||
| Compensation Expense Under Fair Value Method, Net of Tax | 79 | 88 | |||||||||
| Pro forma Net Income | $ | 2,253 | $ | 1,955 | |||||||
| Pro forma Earnings per Share | $ | 0.21 | $ | 0.18 | |||||||
| Pro forma Diluted Earnings per Share | $ | 0.21 | $ | 0.18 | |||||||
| Earnings per Share as Reported | $ | 0.21 | $ | 0.19 | |||||||
| Diluted Earnings per Share as Reported | $ | 0.21 | $ | 0.19 | |||||||
10
| Six months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||||
| Net Income as Reported | $ | 4,284 | $ | 4,481 | |||||||
| Compensation Expense Under Fair Value Method, Net of Tax | 139 | 149 | |||||||||
| Pro forma Net Income | $ | 4,145 | $ | 4,332 | |||||||
| Pro forma Earnings per Share | $ | 0.38 | $ | 0.38 | |||||||
| Pro forma Diluted Earnings per Share | $ | 0.38 | $ | 0.38 | |||||||
| Earnings per Share as Reported | $ | 0.39 | $ | 0.39 | |||||||
| Diluted Earnings per Share as Reported | $ | 0.39 | $ | 0.39 | |||||||
Note 8 — Employee Benefit Plans
The Company acquired through previous bank mergers a noncontributory defined benefit pension plan with benefits based on years of service and compensation prior to retirement. The benefits under the plan were suspended in 1998. The following table represents the components of net periodic benefit cost for the periods presented:
| Three Months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||||
| Service Cost | $ | --- | $ | --- | |||||||
| Interest Cost | 14 | 15 | |||||||||
| Expected Return on Assets | 9 | 9 | |||||||||
| Amortization of Transition Amount | --- | --- | |||||||||
| Amortization of Prior Service Cost | (1 | ) | (1 | ) | |||||||
| Recognition of Net Loss | 7 | 8 | |||||||||
| Net Periodic Benefit Cost | $ | 11 | $ | 13 | |||||||
| Loss on Settlements and Curtailments | 52 | None | |||||||||
| Six Months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||||
| Service Cost | $ | --- | $ | --- | |||||||
| Interest Cost | 28 | 30 | |||||||||
| Expected Return on Assets | 18 | 19 | |||||||||
| Amortization of Transition Amount | (1 | ) | (1 | ) | |||||||
| Amortization of Prior Service Cost | (1 | ) | (1 | ) | |||||||
| Recognition of Net Loss | 14 | 17 | |||||||||
| Net Periodic Benefit Cost | $ | 22 | $ | 26 | |||||||
| Loss on Settlements and Curtailments | 52 | None | |||||||||
The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to make no contributions to its pension plan in 2004. As of June 30, 2004, no contributions have been made nor does the Company presently anticipate making any additional contributions to fund its pension plan in 2004.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
German American Bancorp (“the Company”) is a financial services holding company based in Jasper, Indiana. The Company’s Common Stock is traded on NASDAQ’s National Market System under the symbol GABC. The Company operates five affiliated community banks with 27 retail banking offices in the eight contiguous Southwestern Indiana counties of Daviess, Dubois, Gibson, Knox, Martin, Perry, Pike, and Spencer. The Company also operates a trust, brokerage and financial planning subsidiary which operates from the banking offices of the bank subsidiaries, and two insurance agencies with five insurance agency offices throughout its market area. The Company’s lines of business include retail and commercial banking, mortgage banking, comprehensive financial planning, full service brokerage and trust administration, title insurance, and a full range of personal and corporate insurance products.
This section presents an analysis of the consolidated financial condition of the Company as of June 30, 2004 and December 31, 2003 and the consolidated results of operations for the three and six month periods ended June 30, 2004 and 2003. 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 December 31, 2003 Annual Report on Form 10-K.
MANAGEMENT OVERVIEW
This updated discussion should be read in conjunction with the Management Overview that was included in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s December 31, 2003 Annual Report on Form 10-K and in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.
The Company’s level of net income increased 14% and declined by 4% during the quarter ended and six months ended June 30, 2004 compared with 2003. Net interest income continues to be the most significant component of earnings and increased net interest income in 2004 positively impacted earnings by $400,000 or 5% for the second quarter 2004 and $93,000 or 1% for the first half of 2004, in each case compared with 2003. Net interest income for the second quarter exceeded the net interest income of the immediately preceding quarterly period for the third consecutive quarter. Also positively contributing to the Company’s earnings performance in the second quarter and the first half of 2004 compared with 2003 were significant increases in the levels of non-interest income. Increased insurance revenues from the Company’s property and casualty insurance operations, attributable principally to insurance acquisitions in 2003, and recoveries of impairment reserves on mortgage servicing rights were principally responsible for the growth of $1,043,000, or 37%, and $1,465,000 or 27% in the Company’s non-interest income in the quarter ended and six months ended June 30, 2004 from that recorded in the same periods of 2003.
Partially mitigating the positive influences on performance provided by net interest income and non-interest income were increases in the level of provision for loan losses in both the three and six months ended June 30, 2004 compared with 2003. Provision for loan losses increased $573,000 and $1,011,000 in the quarter and six months ended June 30, 2004 compared with the prior year. The increased level of provision for loan losses recorded during the second quarter and first half of 2004 was attributable to increased allocations on a limited number of previously identified credits. While management believes that, with this addition to the allowance, the Company can return to a more normal level of provision for loan losses going forward, the Company continues to closely monitor specific individual credits, within the real estate development, manufacturing and lodging industry segments, that have not as yet benefited from the improving economic climate.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The financial condition and results of operations for German American Bancorp presented in the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements, and selected financial data appearing elsewhere within this report, are to a large degree, dependent upon the Company’s accounting policies. The selection of and application of these policies involve estimates, judgments and uncertainties that are subject to change. The critical accounting policies and estimates that the Company has determined to be the most susceptible to change in the near term relate to the determination of the allowance for loan losses and the valuation of mortgage servicing rights.
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Allowance for Loan Losses
The Company maintains an allowance for loan losses to cover probable incurred credit losses at the balance sheet date. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. A provision for loan losses is charged to operations based on management’s periodic evaluation of the necessary allowance balance. Evaluations are conducted at least quarterly and more often if deemed necessary. The ultimate recovery of all loans is susceptible to future market factors beyond the Company’s control.
The Company has an established process to determine the adequacy of the allowance for loan losses. The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on other classified loans and pools of homogeneous loans, and consideration of past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors, all of which may be susceptible to significant change. The allowance consists of two components of allocations, specific and general. These two components represent the total allowance for loan losses deemed adequate to cover losses inherent in the loan portfolio.
Commercial, agricultural and poultry loans are subject to a standardized grading process administered by an internal loan review function. The need for specific reserves is considered for credits when graded substandard or special mention, or when: (a) the customer’s cash flow or net worth appears insufficient to repay the loan; (b) the loan has been criticized in a regulatory examination; (c) the loan is on non-accrual; or, (d) other reasons where the ultimate collectibility of the loan is in question, or the loan characteristics require special monitoring. Specific allowances are established in cases where management has identified significant conditions or circumstances related to an individual credit that we believe indicates the loan is impaired. Specific allocations on impaired loans are determined by comparing the loan balance to the present value of expected cash flows or expected collateral proceeds. Allocations are also applied to categories of loans not considered individually impaired but for which the rate of loss is expected to be greater than historical averages, including those graded substandard or special mention and non-performing consumer or residential real estate loans. Such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values.
General allocations are made for 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 a five-year historical average for loan losses for these portfolios, judgmentally adjusted for economic factors and portfolio trends.
Due to the imprecise nature of estimating the allowance for loan losses, the Company’s allowance for loan losses includes a minor unallocated component. The unallocated component of the allowance for loan losses incorporates the Company’s judgmental determination of inherent losses that may not be fully reflected in other allocations, including factors such as economic uncertainties, lending staff quality, industry trends impacting specific portfolio segments, and broad portfolio quality trends. Therefore, the ratio of allocated to unallocated components within the total allowance may fluctuate from period to period.
Mortgage Servicing Rights Valuation
Mortgage servicing rights (MSRs) are recognized and included with other assets for the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to type and age. Fair value is determined based upon discounted cash flows using market-based assumptions.
To determine the fair value of MSRs, the Company uses a valuation model that calculates the present value of estimated future net servicing income. In using this valuation method, the Company incorporates assumptions that market participants would use in estimating future net servicing income, which include estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, late fees, and float income. The Company periodically validates its valuation model by obtaining an independent valuation of its MSRs.
13
The most significant assumption used to value MSRs is prepayment rate. In general, during periods of declining interest rates, the value of MSRs decline due to increasing prepayment speeds attributable to increased mortgage refinancing activity. Prepayment rates are estimated based on published industry consensus prepayment rates. Prepayments will increase or decrease in correlation with market interest rates, and actual prepayments generally differ from initial estimates. If actual prepayment rates are different than originally estimated, the Company may receive less mortgage servicing income, which could reduce the value of the MSRs. Other assumptions used in estimating the fair value of MSRs do not generally fluctuate to the same degree as prepayment rates, and therefore the fair value of MSRs is less sensitive to changes in these other assumptions.
On a quarterly basis, the Company evaluates the possible impairment of MSRs based on the difference between the carrying amount and the current fair value of MSRs. For purposes of evaluating and measuring impairment, the Company stratifies its portfolios on the basis of certain risk characteristics, including loan type and age. If temporary impairment exists, a valuation allowance is established for any excess of amortized cost over the current fair value, by risk stratification, through a charge to income. If the Company later determines that all or a portion of the temporary impairment no longer exists for a particular strata, a reduction of the valuation allowance may be recorded as an increase to income.
The Company annually reviews MSRs for other-than-temporary impairment and recognizes a direct write-down when the recoverability of a recorded valuation allowance is determined to be remote. In determining whether other-than-temporary impairment has occurred, the Company considers both historical and projected trends in interest rates, prepayment activity within the strata, and the potential for impairment recovery through interest rate increases. Unlike a valuation allowance, a direct-write down permanently reduces the carrying value of the MSRs and the valuation allowance, precluding subsequent recoveries.
As of June 30, 2004 the Company analyzed the sensitivity of its MSRs to changes in prepayment rates. In estimating the changes in prepayment rates, market interest rates were assumed to be increased and decreased by 1.0%. At June 30, 2004 the Company’s MSRs had a fair value of $3,164,000 using a weighted average prepayment rate of 13%. Assuming a 1.0% increase in market interest rates the estimated fair value of MSRs would be $3,619,000 with a weighted average prepayment rate of 9%. Assuming a 1.0% decline in market interest rates the estimated fair value of MSRs would be $2,096,000 with a weighted average prepayment rate of 29%.
RESULTS OF OPERATIONS
Net Income:
Net income increased $289,000 or 14% to $2,332,000 or $0.21 per share for the quarter ended June 30, 2004 compared to $2,043,000 or $0.19 per share for the second quarter of 2003. The increase in net income during the second quarter of 2004 compared with 2003 was attributable principally to an increase in net interest income of $400,000 and a recovery of mortgage servicing rights impairment of $300,000 compared with an impairment charge of $456,000 in the second quarter of 2003. These increases were partially mitigated by an increase of $573,000 in the level of provision for loan losses.
Net income declined $197,000 or 4% to $4,284,000 for the six months ended June 30, 2004 compared to $4,481,000 for the same period of 2003. Earnings per share totaled $0.39 for the six month period ended June 30, 2004 and the six month period ended June 30, 2003. Earnings per share remained stable during the first half of 2004 compared with 2003 despite a modestly lower level of earnings due to the reduced average number of shares outstanding during 2004 as a result of the March 20, 2003 stock purchase. The decrease in net income during the six months ended June 30, 2004 compared with 2003 was primarily the result of an increased provision for loan losses of $1,011,000, a lower level of gains from the sale of loans and related assets of $761,000, and increased professional fees of $243,000. Partially offsetting these declines was a recovery of mortgage servicing rights impairment of $183,000 during the first half of 2004 compared with a mortgage servicing rights charge of $693,000 during the same period of 2003.
14
Net Interest Income:
Net interest income is the Company’s single largest source of earnings, and represents the difference between interest and fees realized on earning assets, less interest paid on deposits and borrowed funds. The following table summarizes German American Bancorp’s net interest income (on a tax-equivalent basis, at an effective tax rate of 34%) for each of the periods presented herein (dollars in thousands):
| Three Months Ended June 30, | Change from Prior Period | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | Amount | Percent | |||||||||||
| Interest Income (T/E) | $ | 12,297 | $ | 13,353 | $ | (1,056 | ) | -7.9% | ||||||
| Interest Expense | 4,153 | 5,522 | (1,369 | ) | -24.8% | |||||||||
| Net Interest Income (T/E) | $ | 8,144 | $ | 7,831 | $ | 313 | 4.0% | |||||||
| Net interest income increased $400,000 or 5.5% ($313,000 or 4.0% on a tax-equivalent basis) for the quarter ended June 30, 2004 compared with the same quarter of 2003. Net interest margin is tax-equivalent net interest income expressed as a percentage of average earning assets. For the second quarter of 2004, the net interest margin increased to 3.86% compared to 3.58% for the same period of 2003. | ||||||||||||||
| Six Months Ended June 30, | Change from Prior Period | |||||||||||||
| 2004 | 2003 | Amount | Percent | |||||||||||
| Interest Income (T/E) | $ | 24,496 | $ | 27,343 | $ | (2,847 | ) | -10.4% | ||||||
| Interest Expense | 8,451 | 11,186 | (2,735 | ) | -24.5% | |||||||||
| Net Interest Income (T/E) | $ | 16,045 | $ | 16,157 | $ | (112 | ) | -0.7% | ||||||
Net interest income increased $93,000 or 1% (a decline of $112,000 or 1% on a tax-equivalent basis) for the six months ended June 30, 2004 compared with the six months ended June 30, 2003. For the first half of 2004, the net interest margin increased to 3.82% compared to 3.67% for the same period of 2003.
The Company’s increase in net interest income was largely attributable to an increase in the net interest margin that has been fueled by a decline in the Company’s cost of funds. The Company’s cost of funds has been lowered due to the historically low interest rate environment experienced throughout 2003 and 2004 and through the repayment of higher costing FHLB advances during 2003 in the Company’s mortgage banking segment.
As illustrated in Note 4 to the consolidated financial statements, the Company’s core banking segment net interest income increased by $134,000 during the second quarter 2004 compared with 2003. This increase was largely attributable to an increased level of earning assets driven by commercial loan growth and a stable net interest margin. The Company’s core banking segment net interest income declined by $217,000 for the six months ended June 30, 2004 compared with 2003. This decline was largely attributable to the continued historically low interest rate environment which resulted in a decline in overall earning asset yields including both the loan and securities portfolios. The Company’s cost of funds has lowered significantly but has not sufficiently mitigated the decline in earning asset yield. The decline in net interest income was partially mitigated in the core banking segment by an increased level of earning assets driven by commercial loan growth.
In the second quarter of 2003, the Company’s mortgage banking segment repaid a maturing FHLB advance in the amount of $10.0 million with a rate of 7.27%. Late in the third quarter of 2003, the mortgage banking segment prepaid $20.0 million of FHLB advances with an average rate of 5.99%. These advances had stated maturities in the third quarter of 2004. Late in the fourth quarter of 2003, the Company’s mortgage banking segment prepaid an additional $20.0 million of FHLB advances with an average rate of 6.19%. These advances had stated maturities in the first quarter of 2005. During 2003, these advances were carried at negative interest rate spreads ranging from approximately 3% to 5% compared to the short-term investments that had been internally matched to the contractual repayment of these advances. The extinguishment of these borrowings positively impacted the net interest margin and net interest income during the three and six month periods ended June 30, 2004 compared with the same periods of 2003. As illustrated in Note 4 to the consolidated financial statements, the increase in net interest income for the mortgage banking segment totaled $287,000 and $452,000 for the quarter and six months ended June 30, 2004 as compared with 2003.
15
Earning assets declined by $28.6 million during the second quarter of 2004 and $35.9 million during the six months ended June 30, 2004 compared with the same periods in 2003. These declines were largely attributable to a decreased residential mortgage loan portfolio and the repayment of FHLB advances within the mortgage banking segment. The decline in interest earning assets was also attributable, to a lesser degree, to the previously discussed self-tender offer and the purchase of Company Owned Life Insurance (COLI) during mid-2003.
Average loans increased by $4.8 million during the quarter ended June 30, 2004 compared with 2003. This increase was due in large part to commercial loan growth and a slowing of the refinance activity within the Company’s residential loan portfolio in 2004 compared with the refinance activity during 2003. Average loans declined during the six months ended June 30, 2004 compared with 2003 by $3.6 million. The reduction in loans was attributable to the refinance activity in the residential loan industry throughout 2003 that was fueled by a historically low interest rate environment and the Company’s sale of a majority of residential loan production in the secondary markets.
Average residential mortgage loans declined $39.1 million or 26% and $45.3 million or 29% in the three and six month periods ended June 30, 2004 compared with the same periods of 2003. Partially mitigating the decline in average residential mortgage loans was growth in the commercial loan portfolio. Average commercial loans increased by $39.3 million or 11% and during both the three and six months ended June 30, 2004 compared with the same periods of 2003.
The Company purchased $10.0 million of COLI during July 2003. COLI is an earning asset, however, for financial statement purposes is not considered an interest-earning asset. The increase in cash value on COLI is reported in the non-interest income section of the consolidated statements of income. Because this $10.0 million consisted of funds that were previously invested in interest bearing assets, this purchase had a detrimental effect on net interest income, but not necessarily on net income.
Provision For Loan Losses:
The Company provides for loan losses through regular provisions to the allowance for loan losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations of the allowance. Provisions for loan losses totaled $838,000 during the quarter ended June 30, 2004 compared with $265,000 in the second quarter of 2003. Provisions for loan losses totaled $1,240,000 during the six months ended June 30, 2004 compared with $229,000 during the same period of 2003. The increased level of provision for loan losses was primarily the result of increased specific allocations on individual credits classified as substandard in previous quarters.
The provisions for loan losses made during the quarter and six month periods ended June 30, 2004 were made at a level deemed necessary by management to absorb estimated, probable incurred losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for loan losses is completed quarterly by management, the results of which are used to determine provisions for loan 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 other factors.
The Company’s allowance for loan losses and subsequent provisions for loan losses are typically analyzed at the individual affiliate bank level, the segment level, and finally at the consolidated level. During the second quarter of 2004, the core banking segment’s provision for loan losses totaled $838,000 while the mortgage banking segment had no provision for loan losses. These levels compare with a provision in the core banking segment of $390,000 and a negative provision of $125,000 in the mortgage banking segment during the quarter ended June 30, 2003. For the six months ended June 30, 2004 the core banking segment’s provision for loan losses totaled $1,300,000 while the mortgage banking had a negative $60,000 provision for loan losses. These levels compare with a provision in the core banking segment of $670,000 and a negative provision of $441,000 in the mortgage banking segment during the six months ended June 30, 2003.
Net charge-offs totaled $318,000 or 0.20% of average loans outstanding during the second quarter of 2004 compared with $154,000 or 0.10% during the same period of 2003. Net charge-offs totaled $548,000 or 0.18% of average loans outstanding during the six months ended June 30, 2004 compared with a net recovery of $9,000 during the same period of 2003. Non-performing loans increased to $3,596,000 or 0.58% of total loans at June 30, 2004 compared with $2,779,000 or 0.45% of total loans at year-end 2003 and $3,160,000 or 0.52% of total loans at June 30, 2003.
The composition of the loan portfolio changed during the first half of 2004 compared with the same period of 2003, continuing a trend toward a greater concentration in commercial and agricultural loans and less concentration in residential mortgage loans. Commercial and agricultural loans represented 65% of the total loan portfolio as of June 30, 2004 compared with 63% at year-end 2003 and 59% at June 30, 2003. This trend has also contributed to the increased level of provision for loan losses.
16
Non-interest Income:
Non-interest income increased for both the three and six month periods ended June 30, 2004 compared with the same periods of the prior year. Non-interest income increased $1,043,000 or 37% and $1,465,000 or 27% during the quarter and six months ended June 30, 2004 compared to the same periods of 2003. The increases in Trust and Investment Product Fees, Service Charges on Deposit Accounts, Insurance Revenues, and Other Operating Income were offset by a decline in Net Gains on Sales of Loans and Related Assets.
Trust and Investment Product Fees increased $72,000 or 16% and $172,000 or 21% during the three and six month periods ended June 30, 2004 compared to the same periods of 2003. The increases were the result of the expansion of the sales generated by the Company’s financial services subsidiary. Service Charges on Deposit Accounts increased $31,000 or 4% and $216,000 or 14% for the quarter and six months June 30, 2004. The increases were primarily attributable to the introduction of an overdraft protection service program during the second quarter of 2003.
Insurance Revenues increased $421,000 or 52% and $672,000 or 42% during the three and six months ended June 30, 2004 compared to the same periods of 2003. The increased insurance revenues were primarily the result of property and casualty insurance agency acquisitions completed late in the third quarter of 2003.
Other Operating Income increased $925,000 and $1,184,000 for the quarter and six months June 30, 2004. The increase in Other Operating Income was predominately due to a recovery of mortgage servicing right impairment. The recovery of mortgage servicing right impairment totaled $300,000 and $183,000 for the three and six month periods ended June 30, 2004 compared with impairment charges of $456,000 and $693,000 for the same periods of 2003. Also contributing to the increase in Other Operating Income was the purchase of $10.0 million of Company Owned Life Insurance during the third quarter of 2003. The cash surrender value income on COLI increased $134,000 and $269,000 during the three and six months ended June 30, 2004 compared with the same periods of 2003.
Net Gains on Sales of Loans and Related Assets decreased $406,000 or 53% and $761,000 or 58% for the three and six month periods ended June 30, 2004 compared with the same periods of 2003. The decline was primarily attributable to lower levels of loan originations and sales of loans to the secondary market as compared to 2003. Loan sales totaled $17.5 million and $28.0 million during the three and six month periods ended June 30, 2004 compared with $54.4 million and $101.5 million in 2003.
Non-interest Expense:
Non-interest expense increased $346,000 or 5% and $780,000 or 5% during the three and six month periods ended June 30, 2004 compared to the same periods of 2003. For both time periods the increase was primarily the result of increased Salaries and Employee Benefits, Professional Fees and Other Operating Expenses.
Salaries and Employee Benefits Expense increased $76,000 or 2% and $269,000 or 3% during the quarter and six months ended June 30, 2004 compared with 2003. The increase in Salaries and Employee Benefits Expense was primarily in the insurance and financial services segments. These increases were due to an increase in employees resulting from the acquisition of property and casualty insurance agencies completed late in the third quarter of 2003 and increased sales-related incentives from increased trust and investment product fees and increased property and casualty insurance revenues. These increases were mitigated by declines in the level of employees and corresponding salaries and benefits expense in the Company’s other segments during 2004 compared with 2003.
During the three and six months ended June 30, 2004, Professional Fees Expense increased $161,000 or 50% and $243,000 or 40% compared with the same periods of 2003. The increase was primarily attributable to expenses associated with ensuring the Company’s compliance with the provisions of the Sarbanes-Oxley Act.
Other Operating Expense increased $88,000 or 9% and $213,000 or 12% during the quarter and six months ended June 30, 2004 compared with 2003. The increase in Other Operating Expense was primarily due to an increased level of intangible amortization resulting from the previously mentioned property and casualty insurance agency acquisitions.
17
Income Taxes:
The Company’s effective income tax rate approximated 20% and 17% of pre-tax income during the three and six months ended June 30, 2004 and 14% and 17% during the three and six months ended June 30, 2003. The higher effective tax rate during the quarter ended June 30, 2004 compared with the same period of 2003 was the result of a higher level of before tax net income and a lower level of tax-exempt investment income. The effective tax rate in all periods is lower than the blended statutory rate of 39.6%. The lower effective rates in both 2004 and 2003 primarily resulted from the Company’s tax-exempt investment income on securities and loans, income tax credits generated from investments in affordable housing projects, and income generated by subsidiaries domiciled in a state with no state or local income tax.
FINANCIAL CONDITION
Total assets at June 30, 2004 increased $5.4 million to $930.5 million compared with $925.9 million in total assets at December 31, 2003. Investment Securities decreased $5.6 million to $207.6 million at June 30, 2004 compared with $213.2 million at year-end. Loans, net of unearned income and allowance for loan losses, increased $8.7 million during the six months ended June 30, 2004 primarily due to commercial and agricultural loan growth.
Total Deposits at June 30, 2004 increased $4.9 million to $722.1 million compared with $717.1 in total deposits at December 31, 2003. Demand, savings, and money market accounts increased $17.9 million while time deposits declined $13.0 million. FHLB Advances and Other Borrowings increased $2.4 million to $114.9 million at June 30, 2004 compared with $112.6 million at year-end. The increase in borrowings was the result of increased usage of short-term variable rate FHLB advances and federal funds purchased.
Non-performing Assets:
The following is an analysis of the Company’s non-performing assets at June 30, 2004 and December 31, 2003 (dollars in thousands):
| June 30, 2004 | December 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| Non-accrual Loans | $ | 2,381 | $ | 1,817 | ||||
| Past Due Loans (90 days or more) | 1,215 | 962 | ||||||
| Restructured Loans | --- | --- | ||||||
| Total Non-performing Loans | 3,596 | 2,779 | ||||||
| Other Real Estate | 108 | 749 | ||||||
| Total Non-performing Assets | $ | 3,704 | $ | 3,528 | ||||
| Allowance for Loan Loss to Non-performing Loans | 249.08 | % | 297.41 | % | ||||
| Non-performing Loans to Total Loans | 0.58 | % | 0.45 | % | ||||
Capital Resources:
Federal banking regulations provide guidelines for determining the capital adequacy of bank holding companies and banks. These guidelines provide for a more narrow definition of core capital and assign a measure of risk to the various categories of assets. The Company is required to maintain minimum levels of capital 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 deferred tax assets defined by bank regulations. Tier 2 capital currently consists of the amount of the allowance for loan losses which does not exceed a defined maximum allowance limit of 1.25 percent of gross risk adjusted assets. Total capital is the sum of Tier 1 and Tier 2 capital.
The minimum requirements under these standards are generally at least a 4.0 percent leverage ratio, which is Tier 1 capital divided by defined “total assets”; 4.0 percent Tier 1 capital to risk-adjusted assets; and, an 8.0 percent total capital to risk-adjusted assets ratios. Under these guidelines, the Company, on a consolidated basis, and each of its affiliate banks individually, have capital ratios that exceed the regulatory minimums.
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The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires federal regulatory agencies to define capital tiers. These are: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized. Under these regulations, a “well-capitalized” entity must achieve a Tier 1 Risk-based capital ratio of at least 6.0 percent; a total capital ratio of at least 10.0 percent; and, a leverage ratio of at least 5.0 percent, and not be under a capital directive. All of the Company’s affiliate banks are categorized as well-capitalized as of June 30, 2004.
At June 30, 2004, management is not under such a capital directive, nor is it 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.
The table below presents the Company’s consolidated capital ratios under regulatory guidelines:
| Minimum for Capital Adequacy Purposes | To be Well Capitalized Under Prompt Corrective Action Provisions (FDICIA) | At June 30, 2004 | At December 31, 2003 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Leverage Ratio | 4 | .00% | 5 | .00% | 8 | .30% | 8 | .40% | |
| Tier 1 Capital to Risk-adjusted Assets | 4 | .00% | 6 | .00% | 10 | .59% | 11 | .11% | |
| Total Capital to Risk-adjusted Assets | 8 | .00% | 10 | .00% | 11 | .82% | 12 | .30% | |
Shareholders’ equity totaled $80.5 million at June 30, 2004 or 8.7% of total assets, a decrease of $2.6 million from December 31, 2003. This decline was primarily attributable to a change in accumulated other comprehensive income related the change in market value of the Company’s available for sale investment security portfolio.
Liquidity:
The Consolidated Statement of Cash Flows details the elements of change in the Company’s cash and cash equivalents. During the six months ended June 30, 2004, operating activities provided $5.0 million of available cash, which included net income of $4.3 million. In addition, cash outflows included $3.1 million in dividends paid to shareholders. The cash inflows from the maturities and sales of securities exceeded the cash outflows from purchases of securities by approximately $1.3 million. Total cash and cash equivalents remained relatively stable during the six months ended June 30, 2004 ending at $32.7 million compared with $32.5 at year-end 2003.
The Company does not have access at the parent-company level to the sources of funds that are available to its bank subsidiaries to support their operations. The Company derives most of its parent-company revenues from dividends paid to the parent company by its bank subsidiaries. These subsidiaries are subject to statutory restrictions on their ability to pay dividends to the parent company. Therefore, in conjunction with the closing of the purchase by the Company of its stock under the tender offer, the parent company on March 20, 2003, established a two-year $15.0 million revolving line of credit with Bank One, N.A., Chicago, Illinois. The parent company may borrow funds under this line of credit for the purpose of funding stock repurchases and parent company working capital needs. The Company drew $8.0 million on the line of credit on the date of establishment and an additional $1.5 million during the first quarter of 2004 and an additional $1.0 million during the second quarter of 2004. In the near-term, the Company plans to refinance this line of credit at maturity, while the Company’s longer-term plans continue to be to repay the credit line through dividends from its subsidiary banks.
FORWARD-LOOKING STATEMENTS
The Company from time to time in its oral and written communications makes statements relating to its expectations regarding the future. These types of statements are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company may include forward-looking statements in filings with the Securities and Exchange Commission (“SEC”), such as this Form 10-Q, in other written materials, and in oral statements made by senior management to analysts, investors, representatives of the media, and others. Such forward looking statements can include statements about the Company’s net interest income or net interest margin; adequacy of allowance for loan losses and the quality of the Company’s loans and other assets; simulations of changes in interest rates; litigation results; dividend policy; estimated cost savings, plans and objectives for future operations; and expectations about the Company’s financial and business performance and other business matters as well as economic and market conditions and trends. They often can be identified by the use of words like “expect,” “may,” “will,” “would,” “could,” “should,” “intend,” “project,” “estimate,” “believe” or “anticipate,” or similar expressions. In Item 2 of this Quarterly Report, forward looking statements include, but are not limited to, the statements in Management Overview regarding expectations with respect to future provisions for loan losses, and the statement in Liquidity that the Company’s long term plan is to utilize dividends from its subsidiary banks to repay amounts borrowed by the parent company from Bank One under its line of credit.
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It is intended that these forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the forward-looking statement is made. Readers are cautioned that, by their nature, forward-looking statements are based on assumptions and are subject to risks, uncertainties, and other factors. Actual results may differ materially from the expectations of the Company that are expressed or implied by any forward-looking statement.
The discussion elsewhere in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” lists some of the factors that could cause the Company’s actual results or experience to vary materially from those expressed or implied by any forward-looking statements. Other risks, uncertainties, and factors that could cause the Company’s actual results or experience to vary materially from those expressed or implied by any forward-looking statement include the unknown future direction of interest rates and the timing and magnitude of any changes in interest rates; effects of changes in competitive conditions; acquisitions of other businesses by the Company and costs of integrations of such acquired businesses; the introduction, withdrawal, success and timing of business initiatives and strategies; changes in customer borrowing, repayment, investment and deposit practices; changes in fiscal, monetary and tax policies; changes in financial and capital markets; changes in general economic conditions, either nationally or regionally, resulting in, among other things, credit quality deterioration; the impact, extent and timing of technological changes; capital management activities; actions of the Federal Reserve Board and legislative and regulatory actions and reforms; and the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends by the Company and by its subsidiaries. Investors should consider these risks, uncertainties, and other factors, in addition to those mentioned by the Company in its Annual Report on Form 10-K for its fiscal year ended December 31, 2003, and other SEC filings from time to time, when considering any forward-looking statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s exposure to market risk is reviewed on a regular basis by the Asset/Liability Committees and Boards of Directors of the holding company and its affiliate banks. Primary market risks which impact the Company’s operations are liquidity risk and interest rate risk.
The liquidity of the parent company is dependent upon the receipt of dividends from its bank subsidiaries, which are subject to certain regulatory limitations. The affiliate banks’ source of funding is predominately core deposits, maturities of securities, repayments of loan principal and interest, federal funds purchased, securities sold under agreements to repurchase and borrowings from the Federal Home Loan Bank.
The Company monitors interest rate risk by the use of computer simulation modeling to estimate the potential impact on its net interest income under various interest rate scenarios, and by estimating its static interest rate sensitivity position. Another method by which the Company’s interest rate risk position can be estimated is by computing estimated changes in its net portfolio value (“NPV”). This method estimates interest rate risk exposure from movements in interest rates by using interest rate sensitivity analysis to determine the change in the NPV of discounted cash flows from assets and liabilities.
NPV represents the market value of portfolio equity and is equal to the estimated market value of assets minus the estimated market value of liabilities. Computations are based on a number of assumptions, including the relative levels of market interest rates and prepayments in mortgage loans and certain types of investments. These computations do not contemplate any actions management may undertake in response to changes in interest rates, and should not be relied upon as indicative of actual results. In addition, certain shortcomings are inherent in the method of computing NPV. Should interest rates remain or decrease below current levels, the proportion of adjustable rate loans could decrease in future periods due to refinancing activity. In the event of an interest rate change, prepayment levels would likely be different from those assumed in the table. Lastly, the ability of many borrowers to repay their adjustable rate debt may decline during a rising interest rate environment.
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The table below provides an assessment of the risk to NPV in the event of a sudden and sustained 2% increase and decrease in prevailing interest rates (dollars in thousands).
| Interest Rate Sensitivity as of June 30, 2004 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Net Portfolio Value | Net Portfolio Value as a % of Present Value of Assets | ||||||||
| Changes In rates | $ Amount | % Change | NPV Ratio | Change | |||||
| +2% | $110,010 | 2 | .02% | 12 | .10% | 54 b.p. | |||
| Base | 107,833 | --- | 11 | .56 | --- | ||||
| -2% | 94,976 | (11 | .92) | 10 | .00 | (155) b.p. | |||
Item 3 includes forward-looking statements. See “Forward-looking Statements” included in Part I Item 2 of this Report for a discussion of certain factors that could cause the Company’s actual exposure to market risk to vary materially from that expressed or implied above. These factors include possible changes in economic conditions; interest rate fluctuations, competitive product and pricing pressures within the Company’s markets; and equity and fixed income market fluctuations. Actual experience may also vary materially to the extent that the Company’s assumptions described above prove to be inaccurate.
Item 4. Controls and Procedures.
As of June 30, 2004, the Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic reports filed with the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s second fiscal quarter of 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(e) The following table sets forth information regarding the Company’s purchases of its common shares during each of the three months ended June 30, 2004.
| Period | Total Number Of Shares (or Units) Purchased | Average Price Paid Per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| April 2004 | --- | --- | --- | 399,789 | ||||||||||
| May 2004 | 26,000 | $15.91 | 26,000 | 373,789 | ||||||||||
| June 2004 | 19,144(2) | $16.36 | 18,000 | 355,789 | ||||||||||
1. On April 26, 2001, the Company announced that its Board of Directors had approved a stock repurchase program for up to 607,754 of its outstanding common shares, of which the Company had purchased 251,965 common shares through June 30, 2004. The Board of Directors established no expiration date for this program. The Company purchased 44,000 shares under this program during the quarter ended June 30, 2004.
2. During June 2004, 1,144 of the shares purchased were acquired by the Company from certain persons who held options (“optionees”) to acquire the Company’s common shares under its 1999 Long-Term Equity Incentive Plan (“Plan”) in connection with the exercises by such optionees of their options during June 2004. Under the terms of the Plan, optionees are generally entitled to pay some or all of the exercise price of their options by delivering to the Company common shares that the optionee may already own, subject to certain conditions. The Company is generally obligated to purchase any such common shares delivered to it by such optionees for this purpose and to apply the market value of those tendered shares as of the date of exercise of the options toward the exercise prices due upon exercise of the options. Shares acquired by the Company pursuant to option exercises under the Plan are not made pursuant to the repurchase program described by Note 1 and do not reduce the number of shares available for purchase under that program.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on April 23, 2004. At the Annual Meeting, the shareholders elected the following Directors for three-year terms expiring in the year 2007:
| Nominee | Votes Cast for | Votes Withheld/Abstained | Broker Non-Votes |
|---|---|---|---|
| William R. Hoffman | 8,334,929 | 432,774 | 0 |
| J. David Lett | 8,384,149 | 383,554 | 0 |
| Chet Thompson | 8,336,532 | 431,171 | 0 |
Item 5. Other Information
On June 30, 2004, the Company signed agreements to purchase up to 9.9% of the common stock of Bank of Evansville, N.A. Under one of the agreements, the company purchased 73,285 shares from existing shareholders on June 30, 2004 at $13.25 per share. Under a separate agreement, the Company agreed (subject to regulatory approval) to purchase directly from the Bank of Evansville (or its proposed new holding company, American Community Bancorp, Inc.) 83,375 newly issued shares for $12.625 per share. Closing of the purchase of the new shares is expected to occur promptly upon the receipt of all necessary regulatory approvals and the expiration of all applicable waiting periods. These contingencies are expected to be satisfied by late August or early September, 2004.
As a part of the latter agreement, the Company has certain rights, subject to certain conditions including closing of the additional investment, to designate a representative on the Board of Directors of Bank of Evansville and American Community Bancorp, Inc. The Company intends to designate its President and Chief Executive Officer Mark Schroeder, as its representative.
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Bank of Evansville, N.A. is a full service commercial bank that opened on July 2, 2001, to provide community banking for businesses and consumers in Evansville, Indiana. At June 30, 2004, Bank of Evansville had total assets of approximately $147 million.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
| 3.1 | Restatement of Articles of Incorporation of the Registrant is incorporated by reference to Exhibit 3.01 to the Registrant’s Current Report on Form 8-K filed May 5, 2000. |
| 3.2 | Restated Bylaws of the Registrant, as amended through April 22, 2004. |
| 4.1 | Rights Agreement dated April 27, 2000 is incorporated by reference to Exhibit 4.01 to Registrant’s Current Report on Form 8-K filed May 5, 2000. |
| 4.2 | No long-term debt instrument issued by the Registrant exceeds 10% of consolidated total assets. In accordance with paragraph 4 (iii) of Item 601(b) of Regulation S-K, the Registrant will furnish the Securities and Exchange Commission copies of long-term debt instruments and related agreements upon requests. |
| 4.3 | Terms of Common Shares and Preferred Shares of German American Bancorp found in Restatement of Articles of Incorporation are incorporated by reference to Exhibit 3.01 to Registrant’s Current Report on From 8-K filed May 5, 2000. |
| 31.1 | Sarbanes-Oxley Act of 2002, Section 302 Certification for President and Chief Executive Officer |
| 31.2 | Sarbanes-Oxley Act of 2002, Section 302 Certification for Senior Vice President (Principal Financial Officer) |
| 32.1 | Sarbanes-Oxley Act of 2002, Section 906 Certification for President and Chief Executive Officer |
| 32.2 | Sarbanes-Oxley Act of 2002, Section 906 Certification for Senior Vice President (Principal Financial Officer) |
(b) Reports on Form 8-K
The Registrant filed a Report on Form 8-K on April 29, 2004 to furnish under Item 12 its press release announcing its results of operations for the quarter ended March 31, 2004.
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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.
Date August 5, 2004 | GERMAN AMERICAN BANCORP By /s/ Mark A. Schroeder Mark A. Schroeder President and CEO |
Date August 5, 2004 | By /s/ Bradley M. Rust Bradley M. Rust Senior Vice President and Principal Financial Officer |
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| 3.1 | Restatement of Articles of Incorporation of the Registrant is incorporated by reference to Exhibit 3.01 to the Registrant’s Current Report on Form 8-K filed May 5, 2000. |
| 3.2 | Restated Bylaws of the Registrant, as amended through April 22, 2004. |
| 4.1 | Rights Agreement dated April 27, 2000 is incorporated by reference to Exhibit 4.01 to Registrant’s Current Report on Form 8-K filed May 5, 2000. |
| 4.2 | No long-term debt instrument issued by the Registrant exceeds 10% of consolidated total assets. In accordance with paragraph 4 (iii) of Item 601(b) of Regulation S-K, the Registrant will furnish the Securities and Exchange Commission copies of long-term debt instruments and related agreements upon requests. |
| 4.3 | Terms of Common Shares and Preferred Shares of German American Bancorp found in Restatement of Articles of Incorporation are incorporated by reference to Exhibit 3.01 to Registrant’s Current Report on From 8-K filed May 5, 2000. |
| 31.1 | Sarbanes-Oxley Act of 2002, Section 302 Certification for President and Chief Executive Officer |
| 31.2 | Sarbanes-Oxley Act of 2002, Section 302 Certification for Senior Vice President (Principal Financial Officer) |
| 32.1 | Sarbanes-Oxley Act of 2002, Section 906 Certification for President and Chief Executive Officer |
| 32.2 | Sarbanes-Oxley Act of 2002, Section 906 Certification for Senior Vice President (Principal Financial Officer) |
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