Net income increased $223,000 or 10% to $2,376,000 or $0.22 per share for the quarter ended September 30, 2004 compared to $2,153,000 or $0.20 per share for the third quarter of 2003. The increase in net income during the third quarter of 2004 compared with 2003 was attributable principally to an increase in net interest income of $875,000 and a net loss on the extinguishment of borrowings of $914,000 in the third quarter 2003. The net loss on extinguishment of borrowings resulted from the prepayment of $20,000,000 of FHLB advances in the third quarter 2003 while no prepayments FHLB advances have occurred in 2004. These increases were partially mitigated by a MSR impairment charge of $218,000 in the third quarter 2004 compared with a MSR recovery of $378,000 in the same period of 2003 and a reduced gain on sale of mortgage loans of $850,000 due to a significant decline in mortgage loan originations and subsequent sales of mortgage loans.
Net income increased $26,000 or 0.4% to $6,660,000 or $0.61 for the nine months ended September 30, 2004 compared to $6,634,000 or $0.59 for the same period of 2003. Earnings per share increased at a greater percentage than net income during the nine months ended September 30, 2004 compared with 2003 due to the reduced average number of shares outstanding during 2004 as a result of the March 20, 2003 stock purchase. The increase in net income during the nine months ended September 30, 2004 compared with 2003 was primarily the result of increased net interest income of $968,000, increased insurance revenues of $931,000, and no net losses on the extinguishment of borrowings in 2004. These increases were in large part mitigated by an increased provision for loan losses of $1,033,000, a lower level of gains from the sale of loans and related assets of $1,611,000, and increased professional fees of $324,000.
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):
Net interest income increased $875,000 or 12% ($796,000 or 11% on a tax-equivalent basis) for the quarter ended September 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 third quarter of 2004, the net interest margin increased to 3.88% compared to 3.44% for the same period of 2003.
Net interest income increased $968,000 or 4% ($571,000 or 2% on a tax-equivalent basis) for the nine months ended September 30, 2004 compared with the nine months ended September 30, 2003. For the first three quarters of 2004, the net interest margin increased to 3.82% compared to 3.60% for the same period of 2003.
The Company’s increase in net interest income during both the three and nine months ended September 30, 2004 compared with the same periods of the prior year 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 $601,000 and $384,000 during the three months and nine months ended September 30, 2004 compared with the same periods during 2003. The increase was largely attributable to an increased level of earning assets driven by commercial loan growth and a stable net interest margin.
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 nine month periods ended September 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 $258,000 and $710,000 for the quarter and nine months ended September 30, 2004 as compared with 2003.
Earning assets declined by $20.3 million during the third quarter of 2004 and $30.1 million during the nine months ended September 30, 2004 compared with the same periods in 2003. These declines were largely attributable to the repayment of FHLB advances within the mortgage banking segment.
Average total loans remained relatively stable, increasing $4.1 million and declining $1.0 million respectively, during the quarter and nine months ended September 30, 2004 compared with 2003. While total loans have remained relatively stable, the loan portfolio composition has changed. Average commercial loans increased $33.4 million or 9% and $37.3 or 11% during the three and nine months ended September 30, 2004 compared with the same periods of 2003. Mitigating to a large degree the growth in the commercial loan portfolio as been the continued decline in the average residential mortgage loan portfolio. Average residential mortgage loans declined $33.5 million or 25% and $41.3 million or 28% in the three and nine month periods ended September 30, 2004 compared with the same periods of 2003.
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 $288,000 during the quarter ended September 30, 2004 compared with $266,000 in the third quarter of 2003. Provisions for loan losses totaled $1,528,000 during the nine months ended September 30, 2004 compared with $495,000 during the same period of 2003. The increased level of provision for loan losses during the nine months ended September 30, 2004 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 nine month periods ended September 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 third quarter of 2004, the core banking segment’s provision for loan losses totaled $288,000 while the mortgage banking segment had no provision for loan losses. These levels compare with a provision in the core banking segment of $266,000 and no provision for loan losses in the mortgage banking segment during the quarter ended September 30, 2003. For the nine months ended September 30, 2004 the core banking segment’s provision for loan losses totaled $1,588,000 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 $936,000 and a negative provision of $441,000 in the mortgage banking segment during the nine months ended September 30, 2003.
16
Net charge-offs totaled $347,000 or 0.22% of average loans outstanding during the third quarter of 2004 compared with $470,000 or 0.30% during the same period of 2003. Net charge-offs totaled $896,000 or 0.19% of average loans outstanding during the nine months ended September 30, 2004 compared with $462,000 or 0.10% during the same period of 2003. Non-performing loans increased to $4,605,000 or 0.73% of total loans at September 30, 2004 compared with $2,779,000 or 0.45% of total loans at year-end 2003 and $3,061,000 or 0.50% of total loans at September 30, 2003.
The composition of the loan portfolio changed during 2004 compared with 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 70% of the total loan portfolio as of September 30, 2004 compared with 63% at year-end 2003 and 62% at September 30, 2003. This trend has also contributed to the increased level of provision for loan losses during the first nine months of 2004.
Non-interest Income:
Non-interest income declined $1,174,000 or 27% for the three month period ended September 30, 2004 as compared with the same period of 2003. For the nine months ended September 30, 2004, non-interest income increased $291,000 or 3% as compared with the nine months ended September 30, 2003.
Trust and Investment Product Fees increased $105,000 or 26% and $277,000 or 23% during the three and nine month periods ended September 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. For the third quarter of 2004, Service Charges on Deposit Accounts decreased $54,000 or 6% when compared with the third quarter of 2003. Service Charges on Deposit Accounts increased $162,000 or 7% for the nine months ended September 30, 2004 when compared with 2003 due to the introduction of an overdraft protection service program during the second quarter of 2003.
For the quarter and nine months ended September 30, 2004, Insurance Revenues increased $259,000 or 31% and $931,000 or 38% as 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 decreased $580,000 or 64% for the quarter ended September 30, 2004 and increased $604,000 or 60% for the nine months ended September 30, 2004 as compared to the same periods of the prior year. The decrease in Other Operating Income for the third quarter of 2004 was primarily attributable to a mortgage servicing right impairment charge of $218,000 compared with a recovery of mortgage servicing right impairment totaling $378,000 for the same period of 2003. The mortgage servicing right impairment totaled $34,000 for the nine months ended September 30, 2004 compared with impairment of $315,000 for the same period of 2003. Also contributing to the increase in Other Operating Income for the nine months ended September 30, 2004 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 $54,000 and $323,000 during the three and nine months ended September 30, 2004 compared with the same periods of 2003.
Net Gains on Sales of Loans and Related Assets decreased $850,000 or 75% and $1,611,000 or 66% for the three and nine month periods ended September 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 $20.0 million and $48.1 million during the three and nine month periods ended September 30, 2004 compared with $65.2 million and $166.7 million in 2003.
Non-interest Expense:
Non-interest Expense decreased $711,000 or 8% during the three month period ended September 30, 2004 and increased $69,000 or less than 1% for the nine months ended September 30, 2004 compared to the same periods of 2003. The decline during the third quarter and modest increase during the nine months ended September 30, 2004, were predominantly due to the net loss on the extinguishment of borrowings during the third quarter of 2003.
17
Salaries and Employee Benefits Expense increased $31,000 or 1% and $300,000 or 2% during the quarter and nine months ended September 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 nine months ended September 30, 2004, Professional Fees Expense increased $81,000 or 24% and $324,000 or 34% 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.
As was previously discussed in the “Net Income” and “Net Interest Income” sections of this report, the Company’s mortgage banking segment prepaid $20,000,000 of FHLB Advances in the third quarter of 2003 resulting in a loss on the extinguishment of borrowings of $914,000 for the three and nine months ended September 30, 2003. There were no prepayments of borrowings during 2004.
Other Operating Expense increased $82,000 or 8% and $295,000 or 10% during the quarter and nine months ended September 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.
Income Taxes:
The Company’s effective income tax rate approximated 18% of pre-tax income during the three and nine months ended September 30, 2004 and 15% and 16% during the three and nine months ended September 30, 2003. The higher effective tax rate during the quarter ended September 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.
Since December 31, 2001, the Company’s effective tax rate has been favorably impacted by Indiana financial institution tax savings resulting from the Company’s formation of investment subsidiaries in the state of Nevada by four of the Company’s banking subsidiaries. The state of Nevada has no state or local income tax. An auditor employed by the Indiana Department of Revenue (“Department”) has, in the course of the Department’s pending audit of the Company’s financial institutions tax return for the year 2002, advised the Company that the Department is considering issuing a notice of proposed assessment for unpaid financial institutions tax for the year 2002 of approximately $590,000 plus interest, based on the auditor’s inclusion of the income of the Nevada subsidiaries in the Indiana return for that year. If the Department issues such a notice of proposed assessment, the Company intends to file a Protest with the Department contesting the proposed assessment and would vigorously defend its position that the income of the Nevada subsidiaries is not subject to the Indiana financial institutions tax. Although there can be no such assurance, at this time management does not believe this potential assessment will result in additional tax liability. Therefore, no tax provision has been recognized for the potential assessment of additional financial institutions tax for 2002 or for financial institutions tax with respect to any of the Nevada subsidiaries in any period subsequent to 2002, including the three month and nine month periods ended September 30, 2004.
FINANCIAL CONDITION
Total assets at September 30, 2004 increased $1.7 million to $927.6 million compared with $925.9 million in total assets at December 31, 2003. Investment Securities decreased $11.1 million to $202.1 million at September 30, 2004 compared with $213.2 million at year-end. Loans, net of unearned income and allowance for loan losses, increased $14.8 million to $618.4 million at September 30, 2004 compared to $603.6 million at December 31, 2003. The growth in loans during the nine months ended September 30, 2004 was primarily due to commercial and agricultural loan growth.
Total Deposits at September 30, 2004 increased $7.6 million to $724.8 million compared with $717.1 in total deposits at December 31, 2003. Demand, savings, and money market accounts increased $25.5 million while time deposits declined $17.9 million. FHLB Advances and Other Borrowings decreased $5.5 million to $107.1 million at September 30, 2004 compared with $112.6 million at year-end.
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Non-performing Assets:
The following is an analysis of the Company’s non-performing assets at September 30, 2004 and December 31, 2003 (dollars in thousands):
| September 30,
2004
| | December 31,
2003
|
|---|
| Non-accrual Loans | | | $ | 3,690 | | $ | 1,817 | |
| Past Due Loans (90 days or more) | | | | 915 | | | 962 | |
| Restructured Loans | | | | --- | | | --- | |
|
| |
| |
| Total Non-performing Loans | | | | 4,605 | | | 2,779 | |
|
| |
| |
| Other Real Estate | | | | 207 | | | 749 | |
|
| |
| |
| Total Non-performing Assets | | | $ | 4,812 | | $ | 3,528 | |
|
| |
| |
| Allowance for Loan Loss to Non-performing Loans | | | | 193.20 | % | | 297.41 | % |
| Non-performing Loans to Total Loans | | | | 0.73 | % | | 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.
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 September 30, 2004.
At September 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
September 30,
2004
| At
December 31,
2003
|
|---|
| | | | |
|---|
| Leverage Ratio | 4.00% | 5.00% | 8.41% | 8.40% |
| Tier 1 Capital to Risk-adjusted Assets | 4.00% | 6.00% | 10.62% | 11.11% |
| Total Capital to Risk-adjusted Assets | 8.00% | 10.00% | 11.84% | 12.30% |
Shareholders’ equity totaled $83.7 million at September 30, 2004 or 9.0% of total assets, an increase of $580,000 from December 31, 2003.
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Liquidity:
The Consolidated Statement of Cash Flows details the elements of change in the Company’s cash and cash equivalents. During the nine months ended September 30, 2004, operating activities provided $11.9 million of available cash, which included net income of $6.7 million. In addition, cash outflows included $4.6 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 $8.5 million. Total cash and cash equivalents increased $831,000 during the nine months ended September 30, 2004 ending at $33.4 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 $2.5 million during the first half 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 the “Critical Accounting Policies and Estimates – Securities Available-for-Sale” regarding management’s expectation that the fair value of certain equity securities will recover as market rates rise and as the securities reprice at higher rates, the statement in “Results of Operations – Income Taxes” regarding management’s belief that any potential assessment of unpaid financial institutions tax by the Indiana Department of Revenue will not result in any additional tax liability, and the statement in Financial Condition – 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.
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; changes in accounting principles and interpretations; the inherent uncertainties involved in litigation and regulatory proceedings which could result in the Company’s incurring loss or damage regardless of the merits of the Company’s claims or defenses; 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.
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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.
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 September 30, 2004
| Net Portfolio
Value
| Net Portfolio Value
as a % of Present Value
of Assets
|
|---|
Changes
In rates
| $ Amount
| % Change
| NPV Ratio
| Change
| |
|---|
| +2% | $113,744 | 3.93% | 12.55% | 75 b.p. |
| Base | 109,448 | --- | 11.80 | --- |
| -2% | 94,681 | (13.49) | 10.06 | (175) 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.
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Item 4. Controls and Procedures.
As of September 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 third fiscal quarter of 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
22
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 September 30, 2004.
Period
| Total
Number
Of Shares
(or Units)
Purchased
| Average Price
Paid Per Share
(or Unit)
| Total Number of Shares
(or Units) Purchases 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)
|
|---|
| | | | |
|---|
| July 2004 | --- | --- | --- | 355,789 |
| August 2004 | --- | --- | --- | 355,789 |
| September 2004 | --- | --- | --- | 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 September 30, 2004. The Board of Directors established no expiration date for this program.
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, is incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 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 of President and Chief Executive Officer |
| 31.2 | Sarbanes-Oxley Act of 2002, Section 302 Certification of Senior Vice President (Principal Financial Officer) |
| 32.1 | Sarbanes-Oxley Act of 2002, Section 906 Certification of President and Chief Executive Officer |
| 32.2 | Sarbanes-Oxley Act of 2002, Section 906 Certification of Senior Vice President (Principal Financial Officer) |
(b) Reports on Form 8-K
The Registrant filed a Report on Form 8-K on July 29, 2004 to furnish under Item 12 its press release announcing its results of operations for the quarter ended June 30, 2004.
The Registrant filed a Report on Form 8-K on September 28, 2004 to report under Item 5.02 the expansion of the size of the Board of Directors to 13 members, the apportionment of the three vacancies caused by the increase in size of the Board among three classes of directors, and the election of certain individuals to fill such vacancies.
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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.
| Date November 8, 2004 | GERMAN AMERICAN BANCORP
By /s/ Mark A. Schroeder
Mark A. Schroeder
President and CEO
|
| Date November 8, 2004 | By /s/ Bradley M. Rust
Bradley M. Rust
Senior Vice President and
Principal Financial Officer |
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EXHIBIT INDEX
| 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, is incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 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 of President and Chief Executive Officer |
| 31.2 | Sarbanes-Oxley Act of 2002, Section 302 Certification of Senior Vice President (Principal Financial Officer) |
| 32.1 | Sarbanes-Oxley Act of 2002, Section 906 Certification of President and Chief Executive Officer |
| 32.2 | Sarbanes-Oxley Act of 2002, Section 906 Certification of Senior Vice President (Principal Financial Officer) |
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