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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
______________________

Date of Report (Date of earliest event reported): October 29, 2018

GERMAN AMERICAN BANCORP, INC.
(Exact name of registrant as specified in its charter)

Indiana
(State or other jurisdiction of incorporation)

001-15877
35-1547518
(Commission File Number)
(IRS Employer Identification No.)
711 Main Street
Box 810
Jasper, Indiana


47546
(Address of Principal Executive Offices)
(Zip Code)

Registrant’s telephone number, including area code: (812) 482-1314

Not Applicable
(Former name or former address, if changed since last report)
    
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 under the Securities Act (17 CFR 230.405) or Rule 12b-2 under the Exchange Act (17 CFR 240.12b-2).

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]




Item 2.02. Results of Operations and Financial Condition.

On October 29, 2018, German American Bancorp, Inc. (the “Company” or “German American”) issued a press release announcing its results for the quarter ended September 30, 2018, and making other disclosures. The press release (including the accompanying unaudited consolidated financial statements as of and for the quarter ended September 30, 2018, and other financial data) is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

The information in this Item 2.02, including the information incorporated herein from Exhibit 99.1, is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.


Item 5.02     Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(d)    As contemplated by that certain Agreement and Plan of Reorganization, dated May 22, 2018 (the “Merger Agreement”), among German American, German American Bank, First Security, Inc. (“First Security”) and First Security Bank, Inc., the Board of Directors of German American appointed Lee A. Mitchell, the former chairman of the board of directors of First Security, to the Board of Directors of German American effective as of October 29, 2018, which Board had first increased its size from eleven (11) to twelve (12) members in order to permit such appointment. The merger of First Security with and into German American became effective on October 15, 2018.

Mr. Mitchell will serve as a Director of German American for a term expiring at German American’s 2019 annual meeting of shareholders and will be nominated for election at such annual meeting to serve for an additional term of three (3) years. Effective as of October 29, 2018, Mr. Mitchell was also appointed to the Finance & Asset/Liability Management Committee of German American’s Board of Directors.

Mr. Mitchell, who had served as a director of First Security since 2001, is the owner and operator of L. Mitchell Farms, and is President and Chief Executive Officer of Amino Health, Inc.

For his service as a Director, Mr. Mitchell will be entitled to receive his pro rata portion of the standard director cash retainer and standard meeting cash fees payable to non-employee Directors of German American, as more fully described in German American’s Current Report on Form 8-K filed on June 29, 2018, which description is incorporated herein by reference. Other than being eligible to receive such director compensation and the appointment being required by the Merger Agreement, Mr. Mitchell did not enter into any material plan, contract, or arrangement in connection with his appointment as a director. Mr. Mitchell is not a party to any transaction with German American that would require disclosure under Item 404(a) of Securities and Exchange Commission Regulation S-K.


Item 8.01. Other Events.

Cash Dividend. As announced in the press release that is furnished as Exhibit 99.1 to this report, the Company’s Board of Directors has declared a cash dividend of $0.15 per share which will be payable on November 20, 2018, to shareholders of record as of November 10, 2018.













Item 9.01. Financial Statements and Exhibits.

(d)
Exhibits
 
 
 
 
 
 
 
Exhibit No.
 
Description
 
 
 
 
 
 
Press release dated October 29, 2018.




* * * * * *






SIGNATURE

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 hereunto duly authorized.

Date: October 29, 2018
By:
GERMAN AMERICAN BANCORP, INC.

 
/s/ Mark A. Schroeder
 
 
Mark A. Schroeder, Chairman and Chief Executive Officer



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


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OCTOBER 29, 2018
GERMAN AMERICAN BANCORP, INC. (GABC)
REPORTS RECORD QUARTERLY EARNINGS


Jasper, Indiana: October 29, 2018 -- German American Bancorp, Inc. (NASDAQ: GABC) reported quarterly earnings of $12.6 million, or $0.55 per share, in the third quarter of 2018. This record level of quarterly earnings performance was an increase of approximately $1.5 million, or 15% on a per share basis, over second quarter 2018 net income of $11.1 million, or $0.48 per share, and an increase of approximately $3.0 million, or 31% on a per share basis, relative to the Company’s third quarter 2017 net income of $9.7 million, or $0.42 per share.

On a year-to-date basis, reported earnings for the first nine months of 2018 were $35.6 million, or $1.55 per share, which represents an increase of approximately $6.5 million, or 22% on a per share basis, from the first nine months of 2017 net income of $29.1 million, or $1.27 per share. 2018 reported earnings were inclusive of $1.5 million in acquisition-related expenses, of which $396,000 (approximately $317,000, or $0.01 per share, on an after-tax basis) were recorded in the third quarter, with the remaining $1.1 million (approximately $867,000, or $0.04 per share, on an after-tax basis) incurred in the first half of 2018. These acquisition-related expenses were associated with the five-branch acquisition in the Columbus and Greensburg, Indiana markets that closed on May 18, 2018 and the merger with First Security, Inc. of Owensboro, Kentucky that closed on October 15, 2018.

2018 third quarter record financial performance, relative to that of the prior quarter of this year and the same quarter last year, was largely attributable to increased net interest income, which was driven by the Company’s double-digit increases, on an annualized basis, in the level of average loans outstanding. Average loans outstanding during the third quarter of 2018 was $2.319 billion, which was an increase of $88.7 million, or 16% on an annualized basis, relative to the average loans outstanding during the second quarter of 2018. Relative to the average loans in the third quarter of 2017, the current quarter average loans represented an increase of $260.2 million, or 13%. These increases in average loans outstanding were driven by organic loan growth from the Company’s existing branch footprint and from the growth related to the branch acquisition the Company completed during the second quarter.

2018 third quarter, second quarter and year-to-date reported net income and earnings per share were also positively impacted by the federal income tax reform legislation, which reduced the Company’s corporate federal income tax statutory rate of 35% to 21% effective January 1, 2018.




    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


2 of 14

Commenting on German American’s record quarterly performance, Mark A. Schroeder, German American’s Chairman & CEO, stated, "The record earnings performance achieved in the third quarter was a direct result of the combined organic and acquisition growth in deposits, loans, and total assets that our Company has achieved throughout the past year. We are very encouraged about our prospects for continued growth in the future based on the economic strength within our existing Southern Indiana markets. Furthermore, we successfully completed, earlier this month, the previously announced pending merger transaction with Owensboro, Kentucky based First Security, Inc., which expands German American’s footprint into Bowling Green, Lexington and Owensboro, three of the most economically vibrant markets in the Commonwealth of Kentucky. This combination of First Security and German American will elevate German American’s consolidated total assets to nearly $4.0 billion, with a projected total loan portfolio of approximately $2.8 billion and total deposit balances of approximately $3.0 billion. We welcome the communities, customers, employees and shareholders of First Security to the German American family of community banks, and look forward to further enhancing our relationships with all these stakeholders.”

The Company also announced its Board of Directors declared a regular quarterly cash dividend of $0.15 per share, which will be payable on November 20, 2018 to shareholders of record as of November 10, 2018.
























    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


3 of 14

Balance Sheet Highlights

Total assets for the Company increased to $3.364 billion at September 30, 2018, representing an increase of $19.2 million, or 2% on an annualized basis, compared with June 30, 2018 and an increase of $290.9 million, or 9%, compared with September 30, 2017. The increase in total assets compared to the prior year was driven by the acquisition of a five-branch network in the Columbus and Greensburg, Indiana markets as well as organic loan growth.

At September 30, 2018, total loans increased $18.3 million, or 3% on an annualized basis, compared with June 30, 2018 and increased $250.5 million, or 12%, compared with September 30, 2017. At September 30, 2018, the loans acquired as a part of the branch acquisition which closed during May 2018, totaled $112.9 million. At September 30, 2018, total loans, excluding those acquired as a part of the branch acquisition, increased $136.7 million, or 7%, compared with September 30, 2017.

The increase in total loans during the third quarter of 2018 compared with the second quarter of 2018 was driven by an increase of approximately $9.6 million, or 7% on an annualized basis, of commercial and industrial loans, a decline of $571,000, or less than 1% on an annualized basis, of commercial real estate loans, an increase of $6.2 million, or 7% on an annualized basis, of agricultural loans and an increase of $3.0 million, or 3% on annualized basis, of retail loans.

 
 
 
 
 
 
 
End of Period Loan Balances
 
9/30/2018
 
6/30/2018
 
9/30/2017
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial & Industrial Loans
 
$
527,938

 
$
518,299

 
$
474,917

Commercial Real Estate Loans
 
985,915

 
986,486

 
898,752

Agricultural Loans
 
358,543

 
352,308

 
327,026

Consumer Loans
 
247,861

 
241,315

 
209,537

Residential Mortgage Loans
 
219,916

 
223,437

 
179,481

 
 
$
2,340,173

 
$
2,321,845

 
$
2,089,713

 
 
 
 
 
 
 

Non-performing assets totaled $8.6 million at September 30, 2018 compared to $9.5 million of non-performing assets at June 30, 2018 and $10.2 million at September 30, 2017. Non-performing assets represented 0.26% of total assets at September 30, 2018 compared to 0.28% of total assets at June 30, 2018 and 0.33% of total assets at September 30, 2017. Non-performing loans totaled $8.5 million at September 30, 2018 compared to $9.5 million at June 30, 2018 and $9.7 million at September 30, 2017. Non-performing loans represented



    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


4 of 14

0.36% of total loans at September 30, 2018 compared to 0.41% at June 30, 2018 and 0.46% at September 30, 2017.
 
 
 
 
 
 
Non-performing Assets
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
9/30/2018
 
6/30/2018
 
9/30/2017
Non-Accrual Loans
$
8,428

 
$
8,953

 
$
9,177

Past Due Loans (90 days or more)
69

 
534

 
474

       Total Non-Performing Loans
8,497

 
9,487

 
9,651

Other Real Estate
100

 
40

 
568

       Total Non-Performing Assets
$
8,597

 
$
9,527

 
$
10,219

 
 
 
 
 
 
Restructured Loans
$
122

 
$
123

 
$
152

 
 
 
 
 
 

The Company’s allowance for loan losses totaled $16.1 million at September 30, 2018 compared to $15.6 million at June 30, 2018 and $15.3 million at September 30, 2017. The allowance for loan losses represented 0.69% of period-end loans at September 30, 2018 compared with 0.67% of period-end loans at June 30, 2018 and 0.73% of period-end loans at September 30, 2017. From time to time, the Company has acquired loans through bank and branch acquisitions with the most recent being a branch acquisition in the second quarter of 2018. Under acquisition accounting treatment, loans acquired are recorded at fair value which includes a credit risk component, and therefore the allowance on loans acquired is not carried over from the seller. The Company held a net discount on acquired loans of $9.0 million as of September 30, 2018, $9.6 million at June 30, 2018 and $8.0 million at September 30, 2017.

Total deposits increased $39.4 million, or 6% on an annualized basis, as of September 30, 2018 compared with June 30, 2018 and increased $216.3 million, or 9%, compared with September 30, 2017. The increase in total deposits as of September 30, 2018 compared with September 30, 2017 was largely driven by the previously discussed branch acquisition. At September 30, 2018, the deposits acquired as a part of the branch acquisition totaled approximately $132.1 million.



    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


5 of 14

 
 
 
 
 
 
 
End of Period Deposit Balances
 
9/30/2018
 
6/30/2018
 
9/30/2017
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing Demand Deposits
 
$
634,421

 
$
629,724

 
$
589,315

IB Demand, Savings, and MMDA Accounts
 
1,605,818

 
1,611,583

 
1,454,073

Time Deposits < $100,000
 
189,405

 
190,179

 
204,946

Time Deposits > $100,000
 
211,203

 
169,954

 
176,238

 
 
$
2,640,847

 
$
2,601,440

 
$
2,424,572

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Results of Operations Highlights – Quarter ended September 30, 2018

Net income for the quarter ended September 30, 2018 totaled $12,639,000, or $0.55 per share, an increase of 15% on a per share basis compared with second quarter 2018 net income of $11,097,000, or $0.48 per share, and an increase of 31% on a per share basis compared with the third quarter 2017 net income of $9,660,000, or $0.42 per share.




    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


6 of 14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Summary Average Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Tax-equivalent basis / dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Quarter Ended
 
 Quarter Ended
 
 Quarter Ended
 
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Principal Balance
 
 Income/ Expense
 
 Yield/ Rate
 
 Principal Balance
 
 Income/ Expense
 
 Yield/ Rate
 
 Principal Balance
 
 Income/ Expense
 
 Yield/ Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Funds Sold and Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Short-term Investments
 
$
20,745

 
$
101

 
1.94
%
 
$
12,939

 
$
54

 
1.68
%
 
$
13,543

 
$
46

 
1.38
%
Securities
 
755,793

 
5,826

 
3.08
%
 
751,367

 
5,758

 
3.07
%
 
748,754

 
5,872

 
3.14
%
Loans and Leases
 
2,318,657

 
28,240

 
4.84
%
 
2,229,972

 
26,394

 
4.75
%
 
2,058,453

 
23,358

 
4.51
%
Total Interest Earning Assets
 
$
3,095,195

 
$
34,167

 
4.39
%
 
$
2,994,278

 
$
32,206

 
4.31
%
 
$
2,820,750

 
$
29,276

 
4.13
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Demand Deposit Accounts
 
$
636,989

 
 
 
 
 
$
625,158

 
 
 
 
 
$
572,204

 
 
 
 
IB Demand, Savings, and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        MMDA Accounts
 
$
1,617,768

 
$
2,028

 
0.50
%
 
$
1,560,838

 
$
1,597

 
0.41
%
 
$
1,447,693

 
$
1,117

 
0.31
%
Time Deposits
 
425,783

 
1,507

 
1.40
%
 
417,585

 
1,251

 
1.20
%
 
382,827

 
842

 
0.87
%
FHLB Advances and Other Borrowings
 
257,460

 
1,392

 
2.14
%
 
238,775

 
1,216

 
2.04
%
 
246,698

 
1,110

 
1.79
%
Total Interest-Bearing Liabilities
 
$
2,301,011

 
$
4,927

 
0.85
%
 
$
2,217,198

 
$
4,064

 
0.74
%
 
$
2,077,218

 
$
3,069

 
0.59
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Funds
 
 
 
 
 
0.63
%
 
 
 
 
 
0.54
%
 
 
 
 
 
0.43
%
Net Interest Income
 
 
 
$
29,240

 
 
 
 
 
$
28,142

 
 
 
 
 
$
26,207

 
 
Net Interest Margin
 
 
 
 
 
3.76
%
 
 
 
 
 
3.77
%
 
 
 
 
 
3.70
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

During the quarter ended September 30, 2018, net interest income totaled $28,548,000, which represented an increase of $1,079,000, or 4%, from the quarter ended June 30, 2018 net interest income of $27,469,000 and an increase of $3,631,000, or 15%, compared with the quarter ended September 30, 2017 net interest income of $24,917,000. The increased level of net interest income during the third quarter of 2018 compared with the both the second quarter of 2018 and third quarter of 2017 was driven primarily by a higher level of average earning assets. Also contributing to the increased net interest income during the third quarter of 2018 compared with the third quarter of 2017 was an improvement in the tax equivalent net interest margin. The increased level of average earning assets in the third quarter of 2018, compared with the second quarter of 2018, was driven by organic loan growth from the Company's existing branch footprint of $30.3 million combined with growth related to the branch acquisition of $58.4 million which was completed during May 2018. The $30.3 million of average organic loan growth equated to approximately 6% annualized growth during third quarter of 2018, compared with the second quarter of 2018.



    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


7 of 14


The tax equivalent net interest margin for the quarter ended September 30, 2018 was 3.76% compared with 3.77% in the second quarter of 2018 and 3.70% in the third quarter of 2017. The lower federal income tax rates during 2018 had an approximately 9 basis point negative impact on the Company's net interest margin in both the second and third quarters of 2018 compared with 2017. The improvement in the net interest margin, excluding the impact of the lower federal tax rates, during third quarter of 2018 compared to both comparative periods was related to the positive impact on earning asset yields caused by the continued increase in short-term market interest rates partially offset by an increased cost of funds also related to the increased short-term interest rates.

Accretion of loan discounts on acquired loans contributed approximately 8 basis points to the net interest margin on an annualized basis in the third quarter of 2018, 7 basis points in the second quarter of 2018, and 5 basis points in the third quarter of 2017.

During the quarter ended September 30, 2018, the Company recorded a provision for loan loss of $500,000 compared with a provision for loan loss of $1,220,000 in the second quarter of 2018 and $250,000 in the third quarter of 2017. The provision during all periods was done in accordance with the Company's standard methodology for determining the adequacy of its allowance for loan loss.

During the quarter ended September 30, 2018, non-interest income totaled $8,963,000, an increase of $81,000, or 1%, compared with the quarter ended June 30, 2018, and an increase of $688,000, or 8%, compared with the third quarter of 2017.




    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


8 of 14

 
 
 
 
 
 
 
 
 
Quarter Ended
 
Quarter Ended
 
Quarter Ended
Non-interest Income
 
9/30/2018
 
6/30/2018
 
9/30/2017
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Trust and Investment Product Fees
 
$
1,585

 
$
1,677

 
$
1,301

Service Charges on Deposit Accounts
 
1,858

 
1,643

 
1,608

Insurance Revenues
 
1,827

 
1,696

 
1,728

Company Owned Life Insurance
 
251

 
260

 
317

Interchange Fee Income
 
1,847

 
1,714

 
1,186

Other Operating Income
 
639

 
913

 
608

     Subtotal
 
8,007

 
7,903

 
6,748

Net Gains on Loans
 
866

 
905

 
952

Net Gains on Securities
 
90

 
74

 
575

Total Non-interest Income
 
$
8,963

 
$
8,882

 
$
8,275

 
 
 
 
 
 
 

Trust and investment product fees declined $92,000, or 5%, during the third quarter of 2018 compared with the second quarter of 2018 and increased $284,000, or 22%, compared with the third quarter of 2017. The increase in the third quarter of 2018 compared with the third quarter of 2017 was largely attributable to increased assets under management in the Company's wealth advisory group.

Service charges on deposit accounts increased $215,000, or 13%, during the third quarter of 2018 compared with the second quarter of 2018 and increased $250,000, or 16%, compared with the third quarter of 2017. The increase during the third quarter of 2018 compared with both the second quarter of 2018 and third quarter of 2017 was positively impacted by the five-branch acquisition completed during May 2018.

Interchange fees increased $133,000, or 8%, during the third quarter of 2018 compared with the second quarter of 2018 and increased $661,000, or 56%, compared with the third quarter of 2017. The increase during the third quarter of 2018 compared with the second quarter of 2018 was largely attributable to increased card utilization by customers and the second quarter branch acquisition. The increase during the third quarter of 2018 compared with the third quarter of 2017 was attributable to increased card utilization by customers, the branch acquisition and also attributable to the adoption of the new revenue recognition standard effective January 1, 2018. While the adoption of the standard did not have a significant impact on the Company's financial results, the recording of revenue gross versus net of certain expenses, in accordance with the standard, did result in the reclassification of some expenses associated with the interchange fee revenue during the first first nine months of 2018.



    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


9 of 14


Other operating income declined $274,000, or 30%, during the quarter ended September 30, 2018 compared with the second quarter of 2018 and increased $31,000, or 5%, compared with the third quarter of 2017. The decline in the third quarter of 2018 compared with the second quarter of 2018 was largely attributable to a decline in merchant card services revenue related to a non-recurring incentive payment received during the second quarter of 2018.

During the quarter ended September 30, 2018, non-interest expense totaled $21,576,000, a decline of $132,000, or 1%, compared with the quarter ended June 30, 2018, and an increase of $1,805,000, or 9%, compared with the third quarter of 2017. The third quarter of 2018 included a full quarter of operating expenses for the five-branch acquisition completed during the second quarter of 2018. The third quarter of 2018 included acquisition-related expenses of a non-recurring nature of approximately $396,000 (approximately $317,000 or $0.01 per share, on an after tax basis) while the second quarter of 2018 included acquisition-related expenses of approximately $904,000 (approximately $727,000 or $0.03 per share, on an after-tax basis) for the five-branch acquisition that closed on May 18, 2018 and the acquisition of First Security, Inc. that closed on October 15, 2018.

 
 
 
 
 
 
 
 
 
Quarter Ended
 
Quarter Ended
 
Quarter Ended
Non-interest Expense
 
9/30/2018
 
6/30/2018
 
9/30/2017
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and Employee Benefits
 
$
12,134

 
$
12,019

 
$
11,570

Occupancy, Furniture and Equipment Expense
 
2,738

 
2,527

 
2,372

FDIC Premiums
 
324

 
238

 
241

Data Processing Fees
 
1,309

 
1,398

 
1,067

Professional Fees
 
793

 
1,361

 
551

Advertising and Promotion
 
851

 
857

 
1,315

Intangible Amortization
 
430

 
306

 
230

Other Operating Expenses
 
2,997

 
3,002

 
2,425

Total Non-interest Expense
 
$
21,576

 
$
21,708

 
$
19,771

 
 
 
 
 
 
 

Salaries and benefits increased $115,000, or 1%, during the quarter ended September 30, 2018 compared with the second quarter of 2018 and increased $564,000, or 5%, compared with the third quarter of 2017. The increase in salaries and benefits during the third quarter of 2018 compared with both the second quarter of



    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


10 of 14

2018 and the third quarter of 2017 was primarily attributable to an increased number of full-time equivalent employees.
 
Occupany, furniture and equipment expense increased $211,000, or 8%, during the third quarter of 2018 compared with the second quarter of 2018 and increased $366,000, or 15%, compared to the third quarter of 2017. The increase during the third quarter of 2018 compared to both the second quarter of 2018 and the third quarter of 2017 was primarily due to operating costs related to the acquisition of the five banking branches in the Columbus and Greensburg, Indiana markets as well as other facilities the Company has placed into service over the past twelve months.

Data processing fees declined $89,000, or 6%, during the third quarter of 2018 compared with the second quarter of 2018 and increased $242,000, or 23%, compared to the third quarter of 2017. The decline during the third quarter of 2018 compared with the second quarter of 2018 was driven by a lower level of conversion-related costs associated with the aforementioned branch acquisition. The higher level of costs during the third quarter of 2018 compared with the third quarter of 2017 was primarily attributable to costs associated with merger and acquisition activity during 2018 and overall growth of the Company.
 
Professional fees declined $568,000, or 42%, during the third quarter of 2018 compared with the second quarter of 2018 and increased $242,000, or 44%, compared to the third quarter of 2017. The decline during the third quarter of 2018 compared to the second quarter of 2018 was was largely related to a lower level of professional fees associated with the previously discussed merger and acquisition activity of the Company. The increase during the third quarter of 2018 compared with the third quarter of 2017 was due to professional fees related to merger and acquisition activity during 2018, while there were no professional fee costs for acquisitions during the third quarter of 2017.

Advertising and promotion expense declined $6,000, or less than 1%, during the third quarter of 2018 compared with the second quarter of 2018 and declined $464,000, or 35%, compared to the third quarter of 2017. The decline in the third quarter of 2018 compared to the third quarter of 2017 was primarily related to the donation of a former branch facility to a municipality in one of the Company's market areas during the third quarter of 2017.

Intangible amortization increased $124,000, or 41%, during the quarter ended September 30, 2018 compared with the second quarter of 2018 and increased $200,000, or 87%, compared with the third quarter of 2017. The increase in intangible amortization was attributable to the previously discussed branch acquisition completed during the second quarter of 2018.




    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


11 of 14

Other operating expenses declined $5,000, or less than 1%, during the third quarter of 2018 compared with the second quarter of 2018 and increased $572,000, or 24%, compared with the third quarter of 2017. The increase in the third quarter of 2018 compared with the third quarter of 2017 was largely attributable to the adoption of the revenue recognition standard effective January 1, 2018 and the reclassification of expense as previously discussed.

The Company’s effective income tax rate was 18.1% during the three months ended September 30, 2018 compared with an effective tax rate of 17.3% during the second quarter of 2018 and 26.7% during the third quarter of 2017. The Company's effective tax rate and provision for income tax was positively impacted during the first three quarters of 2018 by the reduction of federal income tax rates from a statutory rate of 35% to 21% effective January 1, 2018 related to the federal tax reform legislation enacted during the fourth quarter of 2017.

About German American
German American Bancorp, Inc. is a NASDAQ-traded (symbol: GABC) bank holding company based in Jasper, Indiana. Following the merger and planned merger integration of First Security, Inc., German American, through its banking subsidiary German American Bank, will operate 66 banking offices in 20 contiguous southern Indiana counties and five counties in Kentucky. The Company also owns an investment brokerage subsidiary (German American Investment Services, Inc.) and a full line property and casualty insurance agency (German American Insurance, Inc.).





    

NEWS RELEASE

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314


12 of 14

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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 and experience could differ materially from the anticipated results or other expectations expressed or implied by these forward-looking statements as a result of a number of factors, including but not limited to, those discussed in this press release. Factors that could cause actual experience to differ from the expectations expressed or implied in this press release include the unknown future direction of interest rates and the timing and magnitude of any changes in interest rates; changes in competitive conditions; the introduction, withdrawal, success and timing of asset/liability management strategies or of mergers and acquisitions and other 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; potential deterioration in general economic conditions, either nationally or locally, resulting in, among other things, credit quality deterioration; capital management activities, including possible future sales of new securities, or possible repurchases or redemptions by the Company of outstanding debt or equity securities; risks of expansion through acquisitions and mergers, such as unexpected credit quality problems of the acquired loans or other assets, unexpected attrition of the customer base of the acquired institution or branches, and difficulties in integration of the acquired operations; factors driving impairment charges on investments; the impact, extent and timing of technological changes; potential cyber-attacks, information security breaches and other criminal activities; litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future; actions of the Federal Reserve Board; changes in accounting principles and interpretations; the expected impact of U.S. tax regulations passed in December 2017; potential increases of federal deposit insurance premium expense, and possible future special assessments of FDIC premiums, either industry wide or specific to the Company’s banking subsidiary; actions of the regulatory authorities under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and the Federal Deposit Insurance Act and other possible legislative and regulatory actions and reforms; impacts resulting from possible amendments or revisions to the Dodd-Frank Act and the regulations promulgated thereunder, or to Consumer Financial Protection Bureau rules and regulations; the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends; and other risk factors expressly identified in the Company’s filings with the United States Securities and Exchange Commission. Such statements reflect our views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements. It is intended that these forward-looking statements speak only as of the date they are made. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.









GERMAN AMERICAN BANCORP, INC.
(unaudited, dollars in thousands except per share data)
 
 
 
 
 
 
Consolidated Balance Sheets
 
 
 
 
 
 
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
ASSETS
 
 
 
 
 
     Cash and Due from Banks
$
50,980

 
$
60,244

 
$
44,804

     Short-term Investments
14,604

 
11,038

 
9,758

     Investment Securities
739,980

 
739,834

 
741,710

 
 
 
 
 
 
     Loans Held-for-Sale
9,178

 
9,552

 
8,484

 
 
 
 
 
 
     Loans, Net of Unearned Income
2,336,625

 
2,318,510

 
2,086,325

     Allowance for Loan Losses
(16,051
)
 
(15,637
)
 
(15,321
)
        Net Loans
2,320,574

 
2,302,873

 
2,071,004

 
 
 
 
 
 
     Stock in FHLB and Other Restricted Stock
13,048

 
13,048

 
13,048

     Premises and Equipment
69,267

 
66,641

 
51,355

     Goodwill and Other Intangible Assets
65,548

 
65,978

 
56,378

     Other Assets
80,590

 
75,336

 
76,348

   TOTAL ASSETS
$
3,363,769

 
$
3,344,544

 
$
3,072,889

 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
     Non-interest-bearing Demand Deposits
$
634,421

 
$
629,724

 
$
589,315

     Interest-bearing Demand, Savings, and Money Market Accounts
1,605,818

 
1,611,583

 
1,454,073

     Time Deposits
400,608

 
360,133

 
381,184

        Total Deposits
2,640,847

 
2,601,440

 
2,424,572

 
 
 
 
 
 
     Borrowings
327,039

 
354,803

 
261,941

     Other Liabilities
19,760

 
17,761

 
25,751

   TOTAL LIABILITIES
2,987,646

 
2,974,004

 
2,712,264

 
 
 
 
 
 
SHAREHOLDERS' EQUITY
 
 
 
 
 
     Common Stock and Surplus
189,195

 
188,885

 
187,917

     Retained Earnings
204,188

 
194,994

 
169,859

     Accumulated Other Comprehensive Income (Loss)
(17,260
)
 
(13,339
)
 
2,849

SHAREHOLDERS' EQUITY
376,123

 
370,540

 
360,625

 
 
 
 
 
 
   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
3,363,769

 
$
3,344,544

 
$
3,072,889

 
 
 
 
 
 
END OF PERIOD SHARES OUTSTANDING
22,968,078

 
22,967,898

 
22,930,017

 
 
 
 
 
 
TANGIBLE BOOK VALUE PER SHARE (1)
$
13.52

 
$
13.26

 
$
13.27

 
 
 
 
 
 
 
(1) Tangible Book Value per Share is defined as Total Shareholders' Equity less Goodwill and Other Intangible Assets divided by End of Period Shares Outstanding.




GERMAN AMERICAN BANCORP, INC.
(unaudited, dollars in thousands except per share data)
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Income
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
INTEREST INCOME
 
 
 
 
 
 
 
 
 
   Interest and Fees on Loans
$
28,148

 
$
26,308

 
$
23,182

 
$
78,406

 
$
68,046

   Interest on Short-term Investments
101

 
54

 
46

 
211

 
100

   Interest and Dividends on Investment Securities
5,226

 
5,171

 
4,758

 
15,536

 
14,274

  TOTAL INTEREST INCOME
33,475

 
31,533

 
27,986

 
94,153

 
82,420

 
 
 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
 
   Interest on Deposits
3,535

 
2,848

 
1,959

 
8,666

 
5,028

   Interest on Borrowings
1,392

 
1,216

 
1,110

 
3,860

 
2,937

  TOTAL INTEREST EXPENSE
4,927

 
4,064

 
3,069

 
12,526

 
7,965

 
 
 
 
 
 
 
 
 
 
 
   NET INTEREST INCOME
28,548

 
27,469

 
24,917

 
81,627

 
74,455

   Provision for Loan Losses
500

 
1,220

 
250

 
2,070

 
1,100

   NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
28,048

 
26,249

 
24,667

 
79,557

 
73,355

 
 
 
 
 
 
 
 
 
 
 
NON-INTEREST INCOME
 
 
 
 
 
 
 
 
 
   Net Gain on Sales of Loans
866

 
905

 
952

 
2,421

 
2,598

   Net Gain on Securities
90

 
74

 
575

 
434

 
575

   Other Non-interest Income
8,007

 
7,903

 
6,748

 
24,482

 
21,087

  TOTAL NON-INTEREST INCOME
8,963

 
8,882

 
8,275

 
27,337

 
24,260

 
 
 
 
 
 
 
 
 
 
 
NON-INTEREST EXPENSE
 
 
 
 
 
 
 
 
 
   Salaries and Benefits
12,134

 
12,019

 
11,570

 
36,279

 
34,474

   Other Non-interest Expenses
9,442

 
9,689

 
8,201

 
27,460

 
23,329

  TOTAL NON-INTEREST EXPENSE
21,576

 
21,708

 
19,771

 
63,739

 
57,803

 
 
 
 
 
 
 
 
 
 
 
   Income before Income Taxes
15,435

 
13,423

 
13,171

 
43,155

 
39,812

   Income Tax Expense
2,796

 
2,326

 
3,511

 
7,606

 
10,757

 
 
 
 
 
 
 
 
 
 
 
NET INCOME
$
12,639

 
$
11,097

 
$
9,660

 
$
35,549

 
$
29,055

 
 
 
 
 
 
 
 
 
 
 
BASIC EARNINGS PER SHARE
$
0.55

 
$
0.48

 
$
0.42

 
$
1.55

 
$
1.27

DILUTED EARNINGS PER SHARE
$
0.55

 
$
0.48

 
$
0.42

 
$
1.55

 
$
1.27

 
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
22,968,047

 
22,968,178

 
22,929,864

 
22,958,977

 
22,922,724

DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
22,968,047

 
22,968,178

 
22,929,864

 
22,958,977

 
22,922,724

 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 




GERMAN AMERICAN BANCORP, INC.
(unaudited, dollars in thousands except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
June 30,
 
September 30,
 
September 30,
 
September 30,
 
 
 
2018
 
2018
 
2017
 
2018
 
2017
EARNINGS PERFORMANCE RATIOS
 
 
 
 
 
 
 
 
 
 
 
Annualized Return on Average Assets
 
1.52
%
 
1.38
%
 
1.27
%
 
1.47
%
 
1.30
%
 
Annualized Return on Average Equity
 
13.47
%
 
12.15
%
 
10.78
%
 
12.88
%
 
11.16
%
 
Net Interest Margin
 
3.76
%
 
3.77
%
 
3.70
%
 
3.72
%
 
3.78
%
 
Efficiency Ratio (1)
 
56.48
%
 
58.63
%
 
57.34
%
 
57.43
%
 
56.36
%
 
Net Overhead Expense to Average Earning Assets (2)
 
1.63
%
 
1.71
%
 
1.63
%
 
1.62
%
 
1.61
%
 
 
 
 
 
 
 
 
 
 
 
 
ASSET QUALITY RATIOS
 
 
 
 
 
 
 
 
 
 
 
Annualized Net Charge-offs to Average Loans
 
0.01
%
 
0.01
%
 
0.05
%
 
0.10
%
 
0.04
%
 
Allowance for Loan Losses to Period End Loans
 
0.69
%
 
0.67
%
 
0.73
%
 
 
 
 
 
Non-performing Assets to Period End Assets
 
0.26
%
 
0.28
%
 
0.33
%
 
 
 
 
 
Non-performing Loans to Period End Loans
 
0.36
%
 
0.41
%
 
0.46
%
 
 
 
 
 
Loans 30-89 Days Past Due to Period End Loans
 
0.65
%
 
0.52
%
 
0.48
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SELECTED BALANCE SHEET & OTHER FINANCIAL DATA
 
 
 
 
 
 
 
 
 
 
 
Average Assets
 
$
3,333,005

 
$
3,226,091

 
$
3,033,055

 
$
3,227,466

 
$
2,977,023

 
Average Earning Assets
 
$
3,095,195

 
$
2,994,278

 
$
2,820,750

 
$
3,002,543

 
$
2,769,758

 
Average Total Loans
 
$
2,318,657

 
$
2,229,972

 
$
2,058,453

 
$
2,230,100

 
$
2,015,245

 
Average Demand Deposits
 
$
636,989

 
$
625,158

 
$
572,204

 
$
616,048

 
$
563,679

 
Average Interest Bearing Liabilities
 
$
2,301,011

 
$
2,217,198

 
$
2,077,218

 
$
2,223,469

 
$
2,044,112

 
Average Equity
 
$
375,255

 
$
365,197

 
$
358,299

 
$
368,053

 
$
347,057

 
 
 
 
 
 
 
 
 
 
 
 
 
Period End Non-performing Assets (3)
 
$
8,597

 
$
9,527

 
$
10,219

 
 
 
 
 
Period End Non-performing Loans (4)
 
$
8,497

 
$
9,487

 
$
9,651

 
 
 
 
 
Period End Loans 30-89 Days Past Due (5)
 
$
15,110

 
$
12,146

 
$
10,089

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax Equivalent Net Interest Income
 
$
29,240

 
$
28,142

 
$
26,207

 
$
83,643

 
$
78,306

 
Net Charge-offs during Period
 
$
86

 
$
43

 
$
249

 
$
1,713

 
$
587

 
 
 
 
 
 
 
 
 
 
 
 
(1) 
Efficiency Ratio is defined as Non-interest Expense divided by the sum of Net Interest Income, on a tax equivalent basis, and Non-interest Income.
 
 
 
 
(2) 
Net Overhead Expense is defined as Total Non-interest Expense less Total Non-interest Income.
 
 
 
 
(3) 
Non-performing assets are defined as Non-accrual Loans, Loans Past Due 90 days or more, Restructured Loans, and Other Real Estate Owned.
 
 
 
 
(4) 
Non-performing loans are defined as Non-accrual Loans, Loans Past Due 90 days or more, and Restructured Loans.
 
 
 
 
(5) 
Loans 30-89 days past due and still accruing.
 
 
 
 
 
 
 
 
 
 


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