UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
I X I Quarterly Report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the Quarterly Period Ended June 30, 1997
Or
I I 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 (I.R.S. Employer
incorporation or organization) 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 whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 11, 1997
Common Stock, $10.00 par value 2,541,552
GERMAN AMERICAN BANCORP
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets --
June 30, 1997 and December 31, 1996
Consolidated Statements of Income --
Three Months Ended June 30, 1997 and 1996
Consolidated Statements of Income --
Six Months Ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 1997 and 1996.
Notes to Consolidated Financial Statements --
June 30, 1997
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Shareholders on April 24, 1997. At
the Annual Meeting, the shareholders elected as Directors for an additional two-
year term the six nominees proposed by the Board of Directors, and approved an
amendment of the Corporation's Articles of Incorporation to increase the number
of authorized Common Shares from 5,000,000 to 20,000,000. The six nominees were
elected by the following votes:
Votes Votes Broker
Nominee Cast For Withheld Non-Votes
George Astrike 1,558,559.27 10,448.00 379,173.73
David G. Buehler 1,561,863.27 7,144.00 379,173.73
David B. Graham 1,561,555.27 7,452.00 379,173.73
William R. Hoffman 1,561,863.27 7,144.00 379,173.73
Michael B. Lett 1,559,730.27 9,277.00 379,173.73
A. Wayne Place, Jr. 1,561,063.24 7,944.03 379,173.73
There were no abstentions.
The amendment of the Articles of Incorporation was approved by a vote of
1,505,443.65 votes in favor and 31,434.67 votes opposed with 411,302.68
abstentions or broker non-votes.
The Company held a special meeting of shareholders on March 4, 1997, at
which the shareholders approved the Peoples Bancorp merger by a vote of
1,466,224.00 votes for and 5,633.00 votes against, with 11,579.00 abstentions or
broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
SIGNATURES
PART 1.FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
GERMAN AMERICAN BANCORP
CONSOLIDATED BALANCE SHEET
(dollar references in thousands except share data)
(unaudited)
June 30, December 31,
1997 1996
ASSETS
Cash and Due from Banks $15,738 $17,134
Federal Funds Sold 2,675 20,600
----- ------
Cash and Cash Equivalents 18,413 37,734
Interest-bearing Balances with Banks 394 597
Other Short-term Investments --- 979
Securities Available-for-Sale,
at market 98,047 98,557
Securities Held-to-Maturity, at cost 23,673 22,832
Total Loans 324,485 313,734
Less: Unearned Income (343) (452)
Allowance for Loan Losses (6,048) (6,528)
Loans, Net 318,094 306,754
Premises, Furniture and Equipment, Net 12,268 11,585
Other Real Estate 174 203
Intangible Assets 1,672 1,774
Accrued Interest Receivable
and Other Assets 8,306 8,428
----- -----
TOTAL ASSETS $481,041 $489,443
======== ========
LIABILITIES
Noninterest-bearing Deposits $46,506 $52,674
Interest-bearing Deposits 374,997 370,232
------- -------
Total Deposits 421,503 422,906
Short-term Borrowings 4,491 12,527
FHLB Borrowings --- 1,000
Accrued Interest Payable and
Other Liabilities 4,148 4,217
----- -----
TOTAL LIABILITIES 430,142 440,650
SHAREHOLDERS' EQUITY
Common Stock, $10 par value;
20,000,000 shares authorized, and
2,541,552 and 2,539,059 issued and
outstanding in 1997 and 1996,
respectively 25,416 25,390
Preferred Stock, $10 par value; 500,000
shares authorized, no shares issued --- ---
Additional Paid-in Capital 3,839 3,649
Retained Earnings 21,201 19,259
Unrealized Appreciation on Securities
Available-for-Sale, net of tax 443 495
--- ---
TOTAL SHAREHOLDERS' EQUITY 50,899 48,793
------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $481,041 $489,443
======== ========
See accompanying notes to consolidated financial statements.
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(dollar references in thousands except per share data)
(unaudited)
Three Months Ended
June 30,
1997 1996
INTEREST INCOME
Interest and Fees on Loans $7,323 $6,874
Interest on Federal Funds Sold 61 133
Interest on Short-term Investments 14 40
Interest and Dividends on Securities 1,940 1,694
----- -----
TOTAL INTEREST INCOME 9,338 8,741
INTEREST EXPENSE
Interest on Deposits 4,232 3,982
Interest on Short-term Borrowings 82 113
-- ---
TOTAL INTEREST EXPENSE 4,314 4,095
NET INTEREST INCOME 5,024 4,646
Provision for Loan Losses (682) 80
----- --
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,706 4,566
NONINTEREST INCOME
Income from Fiduciary Activities 83 66
Service Charges on Deposit Accounts 285 234
Investment Services Income 117 115
Other Charges, Commissions, and Fees 163 143
Gains on Sales of Loans and Other Real Estate 2 0
Gains on Sales of Securities 0 0
- -
TOTAL NONINTEREST INCOME 650 558
--- ---
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,869 1,778
Occupancy Expense 256 291
Furniture and Equipment Expense 227 188
Computer Processing Fees 123 101
Professional Fees 347 150
Other Operating Expenses 707 701
--- ---
TOTAL NONINTEREST EXPENSE 3,529 3,209
Income before Income Taxes 2,827 1,915
Income Tax Expense 977 625
--- ---
Net Income $1,850 $1,290
====== ======
Earnings Per Share (Note 2) $.73 $.51
Dividends Paid Per Share (Note 2) $.22 $.20
See accompanying notes to consolidated financial statements.
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(dollar references in thousands except per share data)
(unaudited)
Six Months Ended
June 30,
1997 1996
INTEREST INCOME
Interest and Fees on Loans $14,359 $13,659
Interest on Federal Funds Sold 162 313
Interest on Short-term Investments 41 125
Interest and Dividends on Securities 3,865 3,294
----- -----
TOTAL INTEREST INCOME 18,427 17,391
INTEREST EXPENSE
Interest on Deposits 8,394 7,903
Interest on Short-term Borrowings 181 246
--- ---
TOTAL INTEREST EXPENSE 8,575 8,149
NET INTEREST INCOME 9,852 9,242
Provision for Loan Losses (543) 103
----- ---
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,395 9,139
NONINTEREST INCOME
Income from Fiduciary Activities 149 117
Service Charges on Deposit Accounts 565 440
Investment Services Income 223 217
Other Charges, Commissions, and Fees 258 244
Gains on Sales of Loans and Other Real Estate 2 2
Gains on Sales of Securities 0 0
- -
TOTAL NONINTEREST INCOME 1,197 1,020
NONINTEREST EXPENSE
Salaries and Employee Benefits 3,695 3,541
Occupancy Expense 535 532
Furniture and Equipment Expense 453 446
Computer Processing Fees 248 208
Professional Fees 559 229
Other Operating Expenses 1,358 1,342
----- -----
TOTAL NONINTEREST EXPENSE 6,848 6,298
Income before Income Taxes 4,744 3,861
Income Tax Expense 1,620 1,251
----- -----
Net Income $3,124 $2,610
====== ======
Earnings Per Share (Note 2) $1.23 $1.03
Dividends Paid Per Share (Note 2) $.43 $.39
See accompanying notes to consolidated financial statements.
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar references in thousands)
(unaudited)
Six Months Ended
June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $3,124 $2,610
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities:
Amortization and Accretion of Investments (49) (32)
Depreciation and Amortization 564 521
Provision for Loan Losses (543) 103
Gains on Sales of Securities 0 0
Gains on Sales of Loans and
Other Real Estate (2) (2)
Change in Assets and Liabilities:
Unearned Income (109) (60)
Deferred Loan Fees (1) (22)
Interest Receivable (1,257) (395)
Other Assets 1,093 (29)
Deferred Taxes 286 (30)
Interest Payable 406 28
Other Liabilities (475) 156
---- ---
Total Adjustments (87) 238
---- ---
Net Cash from Operating Activities 3,037 2,848
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Change in Interest-bearing
Balances with Banks 203 198
Proceeds from Maturities of
Other Short-term Investments 996 7,000
Purchase of Other Short-term Investments 0 (1,466)
Proceeds from Maturities of Securities
Available-for-Sale 14,653 17,192
Proceeds from Sales of Securities
Available-for-Sale 0 0
Purchase of Securities
Available-for-Sale (14,163) (23,224)
Proceeds from Maturities of
Securities Held-to-Maturity 318 3,341
Proceeds from Sales of Securities
Held-to-Maturity 0 0
Purchase of Securities Held-to-Maturity (1,159) (818)
Purchase of Loans (27) (24)
Loans Made to Customers net of
Payments Received (10,669) (18,806)
Proceeds from Sales of Loans 9 0
Property and Equipment Expenditures (1,145) (453)
Proceeds from Sales of Other Real Estate 31 26
-- --
Net Cash from Investing Activities (10,953) (17,034)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits (1,403) 8,975
Change in Short-term Borrowings (8,036) (4,738)
Change in Long-term Borrowings (1,000) 1,000
Dividends Paid (963) (834)
Purchase of Fractional Shares (5) 0
Exercise of Stock Options 2 6
Net Cash from Financing Activities (11,405) 4,409
------- -----
Net Change in Cash and Cash Equivalents (19,321) (9,777)
Cash and Cash Equivalents at
Beginning of Year 37,734 32,601
------ ------
Cash and Cash Equivalents at
End of Period $18,413 $22,824
======= =======
Cash Paid During the Year for:
Interest $8,169 $8,121
Income Taxes $1,191 $1,257
See accompanying notes to consolidated financial statements.
GERMAN AMERICAN BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(unaudited)
Note 1 -- Basis of Presentation
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with Generally Accepted Accounting Principles
have been condensed or omitted. All adjustments made by management to these
unaudited statements were of a normal recurring nature. It is suggested that
these consolidated financial statements and notes be read in conjunction with
the financial statements and notes thereto in the German American Bancorp's
December 31, 1996 Annual Report to Shareholders.
German American Bancorp (referred to herein as the ``Company,'' the
`Corporation,'' or the ``Registrant'') is a multi-bank holding company organized
in Indiana in 1982. The Company's principal subsidiaries are The German
American Bank, Jasper, Indiana (`German American Bank''), First State Bank,
Southwest Indiana, Tell City, Indiana (`First State Bank''), and German
American Holdings Corporation (`GAHC''), an Indiana corporation that owns all
of the outstanding capital stock of both Community Trust Bank, Otwell, Indiana
(`Community Bank'') and The Peoples National Bank and Trust Company of
Washington, Washington, Indiana (`Peoples''). The Company, through its four
bank subsidiaries operates twenty banking offices in six contiguous counties in
southwestern Indiana.
Peoples, organized under the National Bank Act in 1888, was acquired by the
Company on March 4, 1997 pursuant to a merger of the parent corporation of
Peoples into GAHC. Simultaneously with and as an integral part of this merger,
The Union Bank of Loogootee, Indiana, a subsidiary of the Company, was merged
with and into Peoples. At December 31, 1996 Peoples had assets of $91,937,000
and equity of $9,452,000.
The Company's financial statements for all periods prior to the merger date
have been retroactively restated to include the accounts of Peoples because the
merger was recorded utilizing the pooling-of-interests method of accounting.
Note 2 -- Per Share Data
The weighted average number of shares used in calculating earnings and
dividends per share amounts were $2,541,552 and 2,533,586 for the second
quarters of 1997 and 1996, respectively. The weighted average number of shares
for the first half of 1997 and 1996 was 2,541,345 and 2,533,480, respectively.
The weighted average number of shares have been retroactively restated for stock
dividends and poolings of interests. Dividends paid per share amounts represent
historical dividends declared without retroactive restatement for pooling.
Note 3 -- Securities
At June 30, 1997 and December 31, 1996, U.S. Government Agency structured
notes with an amortized cost of $6,000,000 and $6,000,000, respectively and fair
value of $5,963,000 and $5,901,000, respectively, are included in securities
available-for-sale, consisting primarily of step-up and single-index bonds.
Note 3 -- Securities (continued)
The amortized cost and estimated market values of Securities as of June 30, 1997
are as follows:
Estimated
Amortized Market
Securities Available-for-Sale: Cost Value
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies $53,731 $53,606
Obligations of State and Political
Subdivisions 18,839 19,749
Corporate Securities 5,517 5,533
Mortgage-backed Securities 19,241 19,159
------ ------
Total $97,328 $98,047
======= =======
Estimated
Amortized Market
Securities Held-to-Maturity: Cost Value
U.S. Treasury Securities and
Obligations of U.S. Government
Corporation and Agencies $2,508 $2,506
Obligations of State and Political
Subdivisions 18,767 18,522
Corporate Securities 36 29
Mortgage and Asset-backed Securities 897 887
Other Securities 1,465 1,465
----- -----
Total $23,673 $23,409
======= =======
The amortized cost and estimated market values of Securities as of December 31,
1996 are as follows:
Estimated
Amortized Market
Securities Available-for-Sale: Cost Value
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies $47,181 $47,041
Obligations of State and Political
Subdivisions 19,560 20,186
Corporate Securities 7,221 7,245
Mortgage-backed Securities 23,783 24,078
Other Securities 1 7
- -
Total $97,746 $98,557
======= =======
Estimated
Amortized Market
Securities Held-to-Maturity: Cost Value
U.S. Treasury Securities and
Obligations of U.S. Government
Corporation and Agencies $2,519 $2,498
Obligations of State and Political
Subdivisions 18,253 18,881
Corporate Securities 47 47
Mortgage and Asset-backed Securities 999 989
Other Securities 1,014 1,014
----- -----
Total $22,832 $23,429
======= =======
Note 4 -- Loans
Loans, as presented on the balance sheet, are comprised of the following
classifications:
June 30, December 31,
1997 1996
(dollar references in thousands)
Real Estate Loans Secured by 1-4
Family Residential Properties $99,787 $93,713
Agricultural Loans 54,298 57,073
Commercial and Industrial Loans 113,837 111,469
Loans to Individuals for Household,
Family and Other Personal
Expenditures 55,702 50,200
Lease Financing 861 1,279
--- -----
Total Loans $324,485 $313,734
======== ========
Note 5 -- Allowance for Loan Losses
A summary of the activity in the Allowance for Loan Losses is as follows:
1997 1996
(dollar references in thousands)
Balance at January 1 $6,528 $6,893
Provision for Loan Losses (543) 103
Recoveries of Prior Loan Losses 415 154
Loan Losses Charged to the Allowance (352) (130)
----- -----
Balance at June 30 $6,048 $7,020
====== ======
Note 6 -- Business Combinations
On March 4, 1997, the Company acquired all of the outstanding shares of
Peoples Bancorp of Washington, Indiana (and its wholly owned subsidiary, The
Peoples National Bank and Trust Company of Washington) in exchange for 615,285
shares of German American Bancorp common stock. Fractional interests were paid
in cash of $5. The transaction was accounted for as a pooling of interests.
Note 6 -- Business Combinations (continued)
The following is a reconciliation of the separate and combined net interest
income and net income of German American Bancorp and Peoples Bancorp of
Washington for the periods prior to the acquisition:
GERMAN AMERICAN PEOPLES
BANCORP BANCORP OF
(as previously reported) WASHINGTON COMBINED
For the period January 1, 1997 through
February 28, 1997
Net interest income $2,558 $696 $3,254
Net income $698 $218 $916
For the three months ended
June 30, 1996
Net interest income $3,671 $975 $4,646
Net income $1,057 $233 $1,290
For the six months ended
June 30, 1996
Net interest income $7,325 $1,917 $9,242
Net income $2,148 $462 $2,610
ITEM 2.
GERMAN AMERICAN BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
German American Bancorp (``the Company'') is a multi-bank holding company
based in Jasper, Indiana. Its four affiliate banks conduct business in twenty
offices in Dubois, Daviess, Martin, Pike, Perry and Spencer Counties in
Southwest Indiana. The banks provide a wide range of financial services,
including accepting deposits; making commercial, mortgage and consumer loans;
issuing credit life, accident and health insurance; providing trust services for
personal and corporate customers; providing safe deposit facilities; and
providing investment advisory and brokerage services.
This section presents an analysis of the consolidated financial condition of
the Company as of June 30, 1997 and December 31, 1996 and the consolidated
results of operations for the periods ended June 30, 1997 and 1996. This review
should be read in conjunction with the consolidated financial statements and
other financial data presented elsewhere herein and with the financial
statements and other financial data and the Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the Company's
December 31, 1996 Annual Report to Shareholders.
Because of the Peoples National Bank acquisition on March 4, 1997 under the
pooling-of-interests method of accounting, all financial statements have been
retroactively restated for all periods. Also see Footnote 6 `Business
Combinations.''
RESULTS OF OPERATIONS
Net Income:
The Company's earnings for the second quarter of 1997 were $1,850,000 or $.73
per share, an increase of $560,000 (or 43.4%) from the Company's second quarter
earnings for 1996 of $1,290,000 or $.51 per share. Net income for the first
half of 1997 was $3,124,000 or $1.23 per share, which was $514,000 or 19.7%
greater than the $2,610,000 or $1.03 per share recorded for the same period of
1996.
The comparison of 1997 earnings for both the six and three month periods
relative to those of the same periods of 1996 was materially impacted by an
increase in net interest income and Deposit Service Charges and Fees. Earnings
for 1997 were also largely impacted by a negative provision for loan losses,
which was due to the collection of significant dollar amounts of previously
charged-off loans These earnings improvements were partially offset by
increased noninterest expense.
Return on average assets (ROA) was 1.31% and return on average equity was
12.80% for the first half of 1997 versus 1.14% and 11.27%, respectively for the
first six months of 1996.
Net Interest Income:
The following table summarizes German American Bancorp's net interest income
(on a tax-equivalent basis) for each of the periods presented herein. An
effective tax rate of 34 percent is used on each period presented.
Three Months Change from
Ended June 30, Prior Period
1997 1996 Amount Percent
(dollar references in thousands)
Interest Income $9,634 $9,001 $633 7.0%
Interest Expense 4,314 4,095 219 5.3%
----- ----- ---
Net Interest Income $5,320 $4,906 $414 8.4%
====== ====== ====
Six Months Change from
Ended June 30, Prior Period
1997 1996 Amount Percent
(dollar references in thousands)
Interest Income $19,018 $17,901 $1,117 6.2%
Interest Expense 8,575 8,149 426 5.2%
----- ----- ---
Net Interest Income $10,443 $9,752 $691 7.1%
======= ====== ====
Net interest income is the difference between interest income (which
includes yield-related fees) and interest expense. The increase in net interest
income for the first half and the second quarter of 1997 compared to the same
periods of 1996 was primarily due to an increase of loans in the mix of average
earning assets. Loans generally provide a higher yield than that earned on
investment securities and Federal Funds Sold.
Net interest income on a tax-equivalent basis expressed as a percentage of
average earning assets is referred to as the net interest margin, which
represents the average net effective yield on earning assets. For the first
half of 1997, the net interest margin was 4.69 percent compared to 4.55 percent
for the comparable period of 1996; for the second quarter of 1997, net interest
margin was 4.87% compared to 4.52% for 1996.
Provision For Loan Losses:
The Company provides for loan losses through regular provisions to the
allowance for loan losses. These provisions are made at a level which is
considered necessary by management to absorb estimated losses in the loan
portfolio. A detailed evaluation of the adequacy of this loan loss reserve is
completed quarterly by management.
The consolidated provision for loan losses was $(543,000) and $103,000 for
the first half of 1997 and 1996, respectively and $(682,000) and $80,000 for the
second quarter of 1997 and 1996, respectively. The negative provision for 1997
was due to collections during the second quarter of previous years' charged-off
loans, combined with management's determination during the second quarter that
certain specific reserve allocations were no longer necessary due to the
performance of the related loans. Based on Management's evaluation of the
adequacy of the reserve, a negative provision was recorded to eliminate excess
reserves created by loan recoveries and reduced specific reserve allocations.
The amount of future periods' provision for loan loss will be subject to
adjustment based on the findings of future evaluations of the adequacy of the
loan loss reserve.
Net recoveries were $63,000 or 0.02 percent of average loans for the first
six months of 1997. For the same period of 1996, net recoveries were $24,000.
Underperforming loans, as a percentage of total loans were 0.59% and 0.79% on
June 30, 1997 and December 31, 1996, respectively. See discussion headed
`Financial Condition'' for more information regarding underperforming assets.
Noninterest Income:
Noninterest income, exclusive of gains realized on the sales of loans, for
the first half of 1997 was $1,195,000. This was $177,000 or 17.4 percent
greater than the $1,018,000 recorded for the same six months of 1996. For the
second quarter of 1997, noninterest income was $92,000 or 16.5 percent greater
than the identical period of 1996.
Service charges on deposit accounts for the first half of 1997 rose $125,000
or 28.4 percent over 1996. The Company made revisions to its pricing structure
during the latter part of 1996 based on a market review.
Noninterest Expense:
Total noninterest expense for the first six months of 1997 was $6,848,000
which translates to a $550,000 or 8.7% increase over the $6,298,000 posted for
the same period in 1996. Total noninterest expense for the second quarter of
1997 was $3,529,000 which represents a $320,000 or ten percent increase over the
$3,209,000 posted for the same period in 1996.
Salaries and Employee Benefits expense constituted 54% of total noninterest
expense. For the first six months of 1997 this amounted to $3,695,000. This
was $154,000 or 4.3 percent more than the $3,541,000 recorded for the same
period of the prior year. Salaries and employee benefits were $1,869,000 during
the second quarter of 1997, an increase of $91,000 or 5.1% over the 1996 level
of $1,778,000. The Company's active full-time equivalent (FTE) staff was 221 at
June 30, 1997.
Occupancy expense combined with Furniture and Equipment expense for the first
six months of 1997 equaled $988,000. This was only $10,000 or slightly more
than one percent greater than the $978,000 posted for the same half of the prior
year. These expenses are expected, however, to moderately increase throughout
the remainder of 1997 largely as a consequence of a planned upgrading of
computer systems. The Company has recently embarked upon a strategy to
implement state-of-the-art computer processing to provide the opportunities to,
over the long-term, better control the level of employee related expenses and
improve the quality of customer service provided throughout the affiliate bank
system. The upgrade of computer equipment at Peoples concurrent with the merger
represents the Company's first step in this process. Systems at all affiliate
banks will be upgraded on a systematic basis throughout 1997 and 1998.
Professional fees for the first six months of 1997 was $559,000. This was
$330,000 greater than the $229,000 recorded for the same period of 1996.
Professional fees for the second quarter of 1997 were $347,000, an increase of
$197,000 over the $150,000 recorded for 1996. The bulk of this increase stems
directly from the March 4, 1997 merger of Peoples.
Other noninterest expense included a special contingency reserve of $200,000
with respect to an unasserted potential claim. Without that reserve, other
noninterest expense would have risen by 5.7% and 3.7% for the six and three
month periods ended June 30, 1997 compared to the prior year periods.
FINANCIAL CONDITION
Total assets at June 30, 1997 stood at $481,041,000. This was a decline of
$8,043,000 from the December 31, 1996 total asset position. The decline in
assets was concentrated in the holdings of Federal Funds Sold while total loans
increased $10,751,000 and investment securities balances rose a moderate
$331,000.
Deposits at June 30, 1997 stood at $421,503,000 which was a decline of less
than one percent from the total deposits held six months earlier. Short-term
and Long-term Borrowings at June 30, 1997 were $4,491,000. A decrease of
$9,036,000 from December 31, 1996 as the Company utilized Federal Funds Sold to
reduce its level of borrowings.
All of the Company's Banks are either currently members of the Federal Home
Loan Bank System (`FHLB'') or are in the process of obtaining membership. The
banks' membership in the FHLB provides a ready alternative for both long and
short-term borrowing needs.
Underperforming Assets:
The following analyzes German American Bancorp's underperforming assets at
June 30, 1997 and December 31, 1996.
June 30, 1997 December 31, 1996
(dollar references in thousands)
Nonaccrual Loans $534 $1,370
Loans which are contractually
past due 90 days or more 1,381 1,102
Renegotiated Loans --- ---
--- ---
Total Underperforming Loans 1,915 2,472
----- -----
Other Real Estate 174 203
--- ---
Total Underperforming Assets 2,089 $2,675
===== ======
Allowance for Loan Loss to
Underperforming Loans 315.82% 264.08%
Underperforming Loans to
Total Loans 0.59% 0.79%
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. Minimum levels of capital are required to be
maintained in proportion to total risk-weighted assets and off-balance sheet
exposures such as loan commitments and standby letters of credit.
Tier 1, or core capital, consists of shareholders' equity less goodwill, core
deposit intangibles, and certain tax receivables defined by bank regulations.
Tier 2 capital is defined as the amount of the allowance for loan losses which
does not exceed 1.25% of gross risk adjusted assets. Total capital is the sum
of Tier 1 and Tier 2 capital.
The minimum requirements under these standards are generally at least a 4.0%
leverage ratio, which is Tier 1 capital divided by defined `total assets'',
4.0% Tier 1 capital to risk-adjusted assets and 8.0% 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
substantially 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, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under these regulations, a
`well-capitalized'' entity must achieve a Tier One Risk-based capital ratio of
at least 6.0%, a total capital ratio of at least 10.0% and a leverage ratio of
at least 5.0% and not be under a capital directive order.
At June 30, 1997, 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.
RISK BASED CAPITAL STRUCTURE ($ in thousands)
June 30, December 31,
1997 1996
Tier 1 Capital:
Shareholders' Equity as presented
on Balance Sheet $50,899 $48,793
Add / (Subtract): Unrealized
Depreciation / (Appreciation) on
Securities Available-for-Sale (443) (495)
Less: Intangible Assets and
Ineligible Deferred Tax Assets (1,786) (1,924)
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Total Tier 1 Capital 48,670 46,374
Tier 2 Capital:
Qualifying Allowance for Loan Loss 4,157 4,028
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Total Capital $52,827 $50,402
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Risk-adjusted Assets $330,661 $319,718
To be Well
Capitalized
Under Prompt
Minimum for Corrective
Capital Action
Adequacy Provisions June 30, December 31,
Purposes (FDICIA) 1997 1996
Leverage Ratio 4.00% 5.00% 10.21% 9.70%
Tier 1 Capital
to Risk-adjusted
Assets 4.00% 6.00% 14.72% 14.50%
Total Capital
to Risk-adjusted
Assets 8.00% 10.00% 15.98% 15.76%
LIQUIDITY
The Consolidated Statement of Cash Flows details the elements of change in the
Company's cash and cash equivalents. During the first six months of 1997, the
net cash from operating activities, including net income of $3,124,000 provided
$3,037,000 of available cash. The maturities of securities and short-term
investments brought in $848,000 in cash above the dollar amount of purchases.
Major cash outflows experienced during this six month period of 1997 included
dividends of $963,000, property and equipment purchases, primarily related to
computer upgrading, of $1,145,000 and the net funding outlay of loans in the
amount of $10,687,000. Decreases occurring in deposits and short-term as well
as long-term borrowings reduced cash by an additional $10,439,000. Total cash
outflows for the period exceeded inflows by $19,321,000 leaving a cash and cash
equivalent balance of $18,413,000 at June 30, 1997.
PART II. -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule for the
period ended June 30, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
three months ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GERMAN AMERICAN BANCORP
Date: August 12, 1997 By/s/George W. Astrike
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George W. Astrike
Chairman
Date: August 12, 1997 By/s/John M. Gutgsell
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John M. Gutgsell
Controller and Principal