-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pun67rXJ9i8jGKxmDxvFLtN5Cxvd5WDkIgtwvSPSaRdyS4DI4JawBOqy6UgBYna2 cz7RQaegX8snKJe9TIOfZQ== 0000714395-96-000005.txt : 19960531 0000714395-96-000005.hdr.sgml : 19960531 ACCESSION NUMBER: 0000714395-96-000005 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960530 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GERMAN AMERICAN BANCORP CENTRAL INDEX KEY: 0000714395 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 351547518 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-11244 FILM NUMBER: 96574766 BUSINESS ADDRESS: STREET 1: 711 MAIN ST STREET 2: P O BOX 810 CITY: JASPER STATE: IN ZIP: 47546 BUSINESS PHONE: 8124821314 MAIL ADDRESS: STREET 1: 711 MAIN STREET CITY: JASPER STATE: IN ZIP: 47546 FORMER COMPANY: FORMER CONFORMED NAME: GAB BANCORP DATE OF NAME CHANGE: 19950510 10-K/A 1 THE FOLLOWING SUBMISSION IS AN AMMENDED FORM 10-K FROM DECEMBER 31, 1995 FOR THE GERMAN AMERICAN BANCORP. THE ORIGINAL SUBMISSION SENT ON 4-1-96 CONTAINED AN EXTRA END SUBMISSION TAG IN THE MIDDLE OF THE DOCUMENT AND THERE FORE DID NOT CONTAIN ANY OF THE NECESSARY EXHIBITS THAT WERE TO BE FILED WITH THE DOCUMENT. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark one) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended: December 31, 1995 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ----------- Commission File Number 0 -11244 GERMAN AMERICAN BANCORP (Exact name of registrant as specified in its Charter) INDIANA 35-1547518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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 Securities registered pursuant to Section 12 (b) or the Act: Title of each class Name of each exchange on which registered NONE Not Applicable Securities registered pursuant to Section 12 (g) of the Act: Common Shares, $10.00 Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO The aggregate market value of the voting stock held by nonaffiliates of the Registrant (assuming solely for purposes of this calculation that all directors and executive officers of the Registrant are affiliates) valued at the last trade price reported by NASDAQ as of March 11, 1996 was approximately $42,000,000. As of March 22, 1996, there were outstanding 1,825,040 common shares, $10.00 par value, of the registrant. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Annual Report to Shareholders of German American Bancorp for 1995, to the extent stated herein, are incorporated by reference into Parts I and II. (2) Portions of the Proxy Statement of German American Bancorp for the Annual Meeting of its Shareholders to be held April 25, 1996, to the extent stated herein, are incorporated by reference into Part III. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. | | PART I Item 1. Business General German American Bancorp (``the Company'' 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'), The Union Bank, Loogootee, Indiana, (``Union Bank''), Winslow Bancorporation, Inc. (`Winslow''), an Indiana corporation that owns all of the outstanding capital stock of Community Trust Bank, Otwell, Indiana (`Community Bank') and First State Bank, Southwest, Indiana of Tell City, Indiana (``First State Bank'). The Company, through its four bank subsidiaries, operates fourteen (14) banking offices in five contiguous counties in southwestern Indiana and has total consolidated assets at year-end 1995 in excess of $367,000,000. German American Bank was organized under the law of Indiana in 1910. At December 31, 1995, German American Bank was the second largest of the six commercial banks with offices in Dubois County, Indiana, in terms of total assets and total deposits. German American Bank conducts its banking operations from its principal banking office in Jasper, Indiana, and from seven branch office locations throughout Dubois County. Union Bank, organized under Indiana law in 1929, operates from a single banking office in Loogootee, Martin County, Indiana. Union Bank was acquired by the Registrant on March 8, 1993. At December 31, 1995, Union Bank ranked third in asset size among the seven commercial banks and thrifts headquartered in Martin and Daviess Counties, Indiana. On April 1, 1993, the Registrant purchased all the shares of Winslow Bancorporation, Winslow, Indiana, and its subsidiary Southwestern Indiana Bank in a cash transaction. On April 1, 1994, the Registrant issued 113,286 shares for all the outstanding shares of the Otwell State Bank. Following the completion of this transaction, Otwell and Southwestern were merged into Community Trust Bank, a combined banking institution operating in the Pike County, Indiana market through three offices. On October 28, 1994, the Registrant acquired three branches of Regional Federal Savings Bank of New Albany, Indiana. The Huntingburg, Indiana branch was combined with an existing branch of the Registrant's lead bank, German American Bank. The other two former branches in Tell City and Rockport, Indiana were acquired by a new subsidiary bank of the Registrant named First State Bank, Southwest, Indiana. Each of the Company's subsidiary banks engages in a wide range of commercial and personal banking services, and German American Bank and Union Bank provide a wide range of personal and corporate trust-related services. In addition, German American Bank shares investment services income through an operating agreement with Invest Financial Corporation, a subsidiary of Kemper Financial Companies, Inc., which provides full-service brokerage operations from an office in German American's principal banking office. The Company and its subsidiary banks operate primarily in the banking industry, which accounts for over ninety percent (90%) of the Company's consolidated revenues, operating income and identifiable assets. Through its banking subsidiaries, the Company generates commercial, installment and mortgage loans and receives deposits from customers located primarily in the local market area. The overall loan portfolio is diversified among a variety of individual borrowers, with a substantial portion of such borrowers' ability to honor their indebtedness being dependent on the agriculture, poultry and wood furniture manufacturing industries. Although wood manufacturers employ a significant number of people in the Company's market area, the Company does not have a concentration of credit to companies engaged in that industry. The majority of the Company's loans are secured by specific items of collateral including business assets, consumer assets and real property. Additional information regarding the Company and its subsidiaries is included in the Company's Annual Report to Shareholders for 1995 which is filed as Exhibit 13 to this Annual Report on Form 10-K (the `Shareholders' Report''). Competition The banking business is highly competitive. The Company's subsidiary banks compete not only with financial institutions that have offices in the same counties but also compete with financial institutions that are located in other neighboring areas in obtaining deposits, making loans and providing many other types of financial services. The banking market in which the Company's banking subsidiaries operate is heavily influenced by larger financial institutions located in Evansville and Indianapolis, Indiana, Louisville, Kentucky and other cities. In addition to other commercial banks, the Company's subsidiary banks compete with savings and loan associations, savings banks, credit unions, production credit associations, federal land banks, finance companies, credit card companies, personal loan companies, money market funds, mortgage companies and other non-depository financial intermediaries. Employees At January 31, 1996 the Company and its subsidiaries employed approximately 167 employees. There are no collective bargaining agreements, and employee relations are considered to be good. Regulation and Supervision The Company is subject to the Bank Holding Company Act of 1956, as amended (`BHC Act''), and is required to file with the Board of Governors of the Federal Reserve System (`FRB'') annual reports and such additional information as the FRB may require. The FRB may also make examinations or inspections of the Company. The BHC Act prohibits a bank holding company from engaging in, or acquiring direct or indirect control of more than 5 percent of the voting shares of any company engaged in nonbanking activities. One of the principal exceptions to this prohibition is for activities deemed by the FRB to be `closely related to banking.'' Under current regulations, bank holding companies and their subsidiaries are permitted to engage in such banking-related business ventures as sales and consumer finance, equipment leasing, computer service bureau and software operations, and mortgage banking. The BHC Act and Indiana law restrict banking expansion by banks and bank holding companies. Under current Indiana law, Indiana banks may establish an unlimited number of branches anywhere within the State of Indiana. A holding company may establish non-banking offices without geographical limitation. Under the BHC Act, the Company must receive the prior written approval of the FRB or its delegate before it may acquire ownership or control of more than 5 percent of the voting shares of another bank, and under Indiana law it may not acquire 25 percent or more of the voting shares of another bank without the prior approval of the Indiana Department of Financial Institutions (`DFI''). The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 provides for nationwide interstate banking and branching. Since September 30, 1995, well-capitalized bank holding companies have been authorized, pursuant to the legislation, to acquire banks and bank holding companies in any state. The legislation also permits banks to merge across state lines, thereby creating a main bank in one state with branches in other states. Interstate branching by merger provisions will become effective on June 1, 1997, unless a state takes legislative action prior to that date. States may pass laws to either `opt- in''before June 1, 1997 or to ``opt-out'' by expressly prohibiting merger transactions involving out-of-state banks, providing the legislative action is taken before June 1, 1997. Indiana has not yet taken any legislative action with respect to such interstate mergers. The Company's subsidiary banks are under the supervision of and subject to examination by both the DFI and the Federal Deposit Insurance Corporation (`FDIC''). Regulation and examination by banking regulatory agencies are primarily for the benefit of depositors rather than shareholders. The earnings of commercial banks and their holding companies are affected not only by general economic conditions but also by the policies of various governmental regulatory authorities. In particular, the FRB regulates money and credit conditions and interest rates in order to influence general economic conditions, primarily through open-market operations in U.S. Government securities, varying the discount rate on bank borrowings, and setting reserve requirements against bank deposits. These policies have a significant influence on overall growth and distribution of bank loans, investments and deposits, and affect interest rates charged on loans and earned on investments or paid for time and savings deposits. FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and this is expected to continue in the future. The general effect, if any, of such policies upon the future business and earnings of the Company cannot accurately be predicted. The Company is required by the FRB and the FDIC to maintain minimum levels of capital. These required capital levels are expressed in terms of capital ratios, known as the leverage ratio and the capital to risk-based assets ratios. The Company significantly exceeds the minimum required capital levels for each measure of capital adequacy. See `Management's Discussion and Analysis of Financial Condition and Results of Operations -- Capital Resources,''included on page 8 of the Shareholders' Report. Also, FDIC regulations define five categories of financial institutions for purposes of implementing prompt corrective action and supervisory enforcement requirements of the Federal Deposit Insurance Corporation Improvements Act of 1991. The category to which the most highly capitalized institutions are assigned is termed `Well Capitalized.'' Institutions falling into this category must have a total risk-based capital ratio (the ratio of total capital to risk- weighted assets) of at least 10%, a Tier 1 risk-based capital ratio (the ratio of Tier 1, or `core'', capital to risk-weighted assets) of at least 6%, a leverage ratio (the ratio of Tier 1 capital to total assets) of at least 5%, and must not be subject to any written agreement, order or directive from its regulator relative to meeting and maintaining a specific capital level. On December 31, 1995, the Company had a total risk-based capital ratio of 15.89%, a Tier 1 risk-based capital ratio of 14.62% (based on Tier 1 capital of $33,957,000 and total risk-weighted assets of $232,272,000), and a leverage ratio of 9.29%. The Company meets all of the requirements of the `Well Capitalized''category and, accordingly, the Company does not expect these regulations to significantly impact operations. Statistical Disclosures The following statistical data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7), Selected Financial Data (Item 6), and the financial statements and notes (Item 8) included elsewhere herein through incorporation by reference to the indicated pages of the Shareholders' Report. Statistical Disclosures (continued) Securities (in thousands) The following tables set forth the carrying amount of Securities at the dates indicated:
December 31, 1995 1994 1993 U.S. Treasury and other U.S. Government Agencies and Corporations ---- $17,249 $27,940 State and Political Subdivisions $9,869 21,237 16,744 Mortgage-backed Securities ---- 11,267 15,272 Corporate Securities ---- 803 1,100 Other Securities 738 717 717 Subtotal of Securities Held-to-Maturity $10,607 $51,273 $61,773 U.S. Treasury and other U.S. Government Agencies and Corporations 23,727 7,280 2,000 State and Political Subdivisions 14,232 56 ---- Mortgage-backed Securities 33,144 15,584 16,532 Corporate Securities 6,375 212 617 Subtotal of Securities Available-for-Sale 77,478 23,132 19,149 Total Securities $88,085 $74,405 $80,922
The following table sets forth the contractual maturities of securities at December 31, 1995 and the weighted average yields of such securities (calculated on the basis of the cost and effective yields weighted for the maturity of each security.) Contractual maturities may differ from actual due to rights to prepay or call. Other securities totaling $738 are comprised of restricted stock which do not have contractual maturities and are excluded from the table below.
Maturing Within After One But One Year Within Five Years Amount Yield Amount Yield U.S. Treasury and other Government Agencies and Corporations $8,844 5.67% $14,883 5.81% State and Political Subdivisions 1,140 10.41% 5,245 9.36% Mortgage-backed Securities --- --- 4,890 5.66% Corporate Securities --- --- 3,682 6.48% Totals $9,984 6.21% $28,700 6.52%
Maturing After Five But After Ten Within Ten Years Years Amount Yield Amount Yield U.S. Treasury and other Government Agencies and Corporations --- --- ---- --- State and Political Subdivisions $6,235 10.18%$ 11,481 9.73% Mortgage-backed Securities 11,071 5.53% 17,183 5.59% Corporate Securities 2,693 6.54% --- --- Totals $19,999 7.12%$ 28,664 7.24%
A tax-equivalent adjustment using a tax rate of 34 percent was used in the above table. Statistical Disclosures (continued) The following table sets forth for the periods indicated a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:
(dollar references in thousands) 1995 compared to 1994 Increase / (Decrease) Due to (1) Volume Rate Net Interest Income: Federal Funds Sold $83 $276 $359 Short-term Investments 308 95 403 Taxable Securities 88 291 379 Nontaxable Securities (2) 379 (40) 339 Loans and Leases (3) 1,372 2,529 3,901 Total Interest Income 2,230 3,151 5,381 Interest Paid: Savings 77 290 367 Time Deposits 1,291 1,581 2,872 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase (99) 66 (33) Demand Notes Issued to the U.S. Treasury 12 19 31 Notes Payable 53 --- 53 Total Interest Expense 1,334 1,956 3,290 Net Interest Earnings $896 $1,195 $2,091
(dollar references in thousands) 1994 compared to 1993 Increase / (Decrease) Due to (1) Volume Rate Net Interest Income: Federal Funds Sold $71 $52 $123 Short-term Investments (100) 60 (40) Taxable Securities (258) (474) (732) Nontaxable Securities (2) 41 (2) 39 Loans and Leases (3) 970 75 1,045 Total Interest Income 724 (289) 435 Interest Paid: Savings 133 (141) (8) Time Deposits (191) (251) (442) Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 76 (3) 73 Demand Notes Issued to the U.S. Treasury (2) 12 10 Notes Payable --- --- --- Total Interest Expense 16 (383) (367) Net Interest Earnings $708 $94 $802
(1)The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. (2)Change in interest income include the effect of tax equivalent adjustments using a tax rate of 34 percent for all years presented. (3)Interest income on loans includes loan fees of $254, $253, and $206 for 1995, 1994, and 1993, respectively. Statistical Disclosures (continued) The following is a schedule of loans by major category for each reported period:
December 31, (dollar references in thousands) 1995 1994 1993 Real Estate Loans Secured by 1-4 Family Residential Properties $68,826 $67,737 $55,225 Loans to Finance Poultry Production and Other Related Operations 23,784 25,599 30,505 Loans to Finance Agricultural Production and Other Loans to Farmers 27,310 31,959 24,806 Commercial and Industrial Loans 74,612 67,662 62,321 Loans to Individuals for Household, Family and Other Personal Expenditures 34,685 29,248 26,684 Economic Development Commission Bonds 608 625 762 Term Federal Funds Sold --- --- --- Lease Financings 1,302 1,820 2,323 Total Loans $231,127 $224,650 $202,626
December 31, (dollar references in thousands) 1992 1991 Real Estate Loans Secured by 1-4 Family Residential Properties $47,170 $41,042 Loans to Finance Poultry Production and Other Related Operations 30,621 21,528 Loans to Finance Agricultural Production and Other Loans to Farmers 23,844 23,348 Commercial and Industrial Loans 61,189 60,445 Loans to Individuals for Household, Family and Other Personal Expenditures 24,183 24,594 Economic Development Commission Bonds 1,547 2,181 Term Federal Funds Sold --- 4,000 Lease Financings 2,666 2,175 Total Loans $191,220 $179,313
The following table indicates the amounts of loans (excluding residential mortgages on 1-4 family residences, installment loans and lease financing) outstanding as of December 31, 1995 which, based on remaining scheduled repayments of principal, are due in the periods indicated.
Maturing Within After One One But Within Year Five Years Commercial, Financial, Agricultural, and Poultry $40,716 $48,001 Economic Development Bonds 108 500 Total Loans $40,824 $48,501
Maturing After Five Years Total Commercial, Financial, Agricultural, and Poultry $36,989 $125,706 Economic Development Bonds 0 608 Total Loans $36,989 $126,314
Interest Sensitivity Fixed Variable Rate Rate Loans maturing after one year $16,114 $69,376
Statistical Disclosures (continued) The Provision for Loan Losses provides a reserve (the Allowance for Loan Losses) to which loan losses are charged as those losses become identifiable. Management determines the appropriate level of the Allowance for Loan Losses on a quarterly basis through an independent review by the Bank's credit review section done by employees who have no direct lending responsibilities. Through this review, all commercial loans with outstanding balances in excess of $25,000 are analyzed with particular attention paid to those loans which are considered by management to have an above-average level of risk. This analysis is evaluated by Senior Management and serves as the basis for determining the adequacy of the Allowance for Loan Losses. Through this review process a specific portion of the reserve is allocated to impaired loans and to those loans which are considered to represent significant exposure to risk, and estimated potential losses are provided based on historic loan loss experience for consumer loans, residential mortgage loans, and commercial loans not specifically reviewed. In addition, a balance of the reserve is unallocated to provide an allowance for risk, such as concentrations of credit to specific industry groups, which are difficult to quantify in an absolute dollar amount. The following table presents information concerning the aggregate amount of underperforming assets. Underperforming loans comprise: (a) loans accounted for on a nonaccrual basis (`nonaccrual loans''); (b) loans contractually past due 90 days or more as to interest or principal payments (but not included in the loans in (a) above) (`past due loans''); and (c) loans not included above which are `troubled debt restructuring'' as defined in Statement of Financial Standards No. 15 `FASB 15'', ``Accounting by Debtors and Creditors for Troubled Debt Restructurings''(``restructured loans'').
December 31, (dollar references in thousands) 1995 1994 1993 Nonaccrual Loans $803 $983 $1,395 Past Due Loans 2,683 601 461 Restructured Loans --- --- --- Total Underperforming Loans 3,486 1,584 1,856 Other Real Estate 286 497 698 Total Underperforming Assets $3,772 $2,081 $2,554
December 31, (dollar references in thousands) 1992 1991 Nonaccrual Loans $1,693 $1,599 Past Due Loans 665 483 Restructured Loans 6 370 Total Underperforming Loans 2,364 2,452 Other Real Estate 660 748 Total Underperforming Assets $3,024 $3,200
The gross interest income that would have been recognized in 1995 on underperforming loans if the loans had been current in accordance with their original terms is $337. Interest income recognized on underperforming loans for 1995 was $280. Loans are placed on nonaccrual status when scheduled principal or interest payments are past due for 90 days or more, unless the loan is well secured and in the process of collection. In addition to the nonaccrual and restructured loans described above, there exists an additional $3,088 of loans which management feels may not be able to comply with the existing repayment terms. These credits have been considered in management's analysis of the allowance for loan losses. Statements of Financial Accounting Standards No. 114 and No. 118 were adopted January 1, 1995. These standards require recognition of loan impairment if a loan's full principal or interest payments are not expected to be received. Loans considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans. No increase to the allowance for loan losses was required at January 1, 1995 as a result of the adoption of these new standards. For additional detail on impaired loans, see Note 4 on page 26 of the Shareholders' Report. It is management's belief that loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that are not included in the table and discussion above, do not represent or result from trends or uncertainties which will have a material impact on future operating results, liquidity or capital resources, and that at December 31, 1995 there were no material credits not included in the above table about which management is aware of possible credit problems of borrowers which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. This paragraph includes forward-looking statements that are based on management's assumptions concerning future economic and business conditions as they affect the local economy in general and the Company's borrowers in particular, which economic and business assumptions are inherently uncertain and subject to risk and may prove to be invalid. Readers are also cautioned that management relies upon the truthfulness of statements made by the borrowers, and that misrepresentation by borrowers is an inherent risk of the activity of lending money that could cause these forward-looking statements to be inaccurate. At December 31, 1995 loans to finance poultry operations amounted to $23,784 or 10.3% of total loans. Statistical Disclosures (continued) Summary of Loan Loss Experience (in thousands) The following table summarizes changes in the allowance for loan losses arising from loans charged-off and recoveries on loans previously charged-off, by loan category, and additions to the allowance which have been charged to expense.
Year Ended December 31, 1995 1994 1993 Balance of allowance for possibleosses at beginning of period $5,669 $4,935 $3,862 Addition of Affiliate Banks --- 195 164 Loans charged-off: Real Estate Loans Secured by 1-4 Family Residential Properties 221 101 --- Loans to Finance Poultry Production and Other Related Operations --- --- --- Loans to Finance Agricultural Production and Other Loans to Farmers --- --- 12 Commercial and Industrial Loans 20 99 378 Loans to Individuals for Household, Family and Other Personal Expenditures 98 55 53 Economic Development Bonds --- --- --- Term Federal Funds Sold --- --- --- Total Loans charged-off 339 255 443 Recoveries of previously charged-off Loans: Real Estate Loans Secured by 1-4 Family Residential Properties 6 6 14 Loans to Finance Poultry Production and Other Related Operations --- --- --- Loans to Finance Agricultural Production and Other Loans to Farmers 538 --- 500 Commercial and Industrial Loans 53 186 148 Loans to Individuals for Household, Family and Other Personal Expenditures 25 35 37 Economic Development Commission Bonds --- --- --- Term Federal Funds Sold --- --- --- Total Recoveries 622 227 699 Net Loans recovered / (charged-off) 283 (28) 256 Additions to allowance charged to expense (19) 567 653 Balance at end of period $5,933 $5,669 $4,935 Ratio of net recoveries / (charge-offs) during the period to average loans outstanding .12% (0.01%) 0.13%
Year Ended December 31, 1992 1991 Balance of allowance for possibleosses at beginning of period $3,204 $2,898 Addition of Affiliate Banks --- --- Loans charged-off: Real Estate Loans Secured by 1-4 Family Residential Properties 96 65 Loans to Finance Poultry Production and Other Related Operations --- --- Loans to Finance Agricultural Production and Other Loans to Farmers 29 758 Commercial and Industrial Loans 835 891 Loans to Individuals for Household, Family and Other Personal Expenditures 76 100 Economic Development Bonds --- --- Term Federal Funds Sold --- --- Total Loans charged-off 1,036 1,814 Recoveries of previously charged-off Loans: Real Estate Loans Secured by 1-4 Family Residential Properties 46 --- Loans to Finance Poultry Production and Other Related Operations --- --- Loans to Finance Agricultural Production and Other Loans to Farmers 132 54 Commercial and Industrial Loans 504 106 Loans to Individuals for Household, Family and Other Personal Expenditures 28 17 Economic Development Commission Bonds --- --- Term Federal Funds Sold --- --- Total Recoveries 710 177 Net Loans recovered / (charged-off) (326) (1,637) Additions to allowance charged to expense 984 1,943 Balance at end of period $3,862 $3,204 Ratio of net recoveries / (charge-offs) during the period to average loans outstanding (0.17%) (0.95%)
Statistical Disclosures (continued) The following table indicates the breakdown of the allowance for loan losses for the periods indicated:
(dollar references in thousands) December 31, December 31, 1995 1994 Allowance Ratio of Allowance Ratio of Loans to Loans to Total Total Loans Loans Real Estate Loans $3 29.78% $185 30.15% Poultry Loans 1,493 10.29% 918 11.40% Agricultural Loans 726 11.82% 944 14.23% Commercial and Industrial Loans 1,976 32.84% 1,101 30.92% Loans to Individuals 58 15.01% 146 13.02% Economic Development Commission Bonds --- 0.26% --- 0.28% Term Federal Funds Sold --- -- Unallocated 1,677 N/A 2,375 N/A Totals $5,933 100.00% $5,669 100.00%
(dollar references in thousands) December 31, 1993 Allowance Ratio of Loans to Total Loans Real Estate Loans $118 27.25% Poultry Loans 65 15.05% Agricultural Loans 872 12.24% Commercial and Industrial Loans 906 31.91% Loans to Individuals 128 13.17% Economic Development Commission Bonds --- 0.38% Term Federal Funds Sold --- Unallocated 2,846 N/A Totals $4,935 100.00%
(dollar references in thousands) December 31, December 31, 1992 1991 Allowance Ratio of Allowance Ratio of Loans to Loans to Total Total Loans Loans Real Estate Loans $29 24.67% $28 22.89% Poultry Loans 60 16.01% 57 12.01% Agricultural Loans 148 12.47% 212 13.02% Commercial and Industrial Loans 1,229 33.39% 1,468 34.91% Loans to Individuals 116 12.65% 114 13.72% Economic Development Commission Bonds --- 0.81% --- 1.22% Term Federal Funds Sold --- --- 2.23% Unallocated 2,280 N/A 1,325 N/A Totals $3,862 100.00% $3,204 100.00%
Statistical Disclosures (continued) The average amount of deposits is summarized for the periods indicated in the following table:
December 31, 1995 1994 Average Average Balance Rate Balance Rate Demand Deposits Non-interest Bearing $32,576 --- $30,279 --- Interest Bearing 40,134 2.29% 41,009 2.30% Savings Deposits 52,177 3.01% 48,166 2.45% Time Deposits 191,202 5.30% 164,422 4.42% Totals $316,089 4.00% $283,876 3.31%
December 31, 1993 Average Balance Rate Demand Deposits Non-interest Bearing $27,278 --- Interest Bearing 37,924 2.50% Savings Deposits 45,841 2.58% Time Deposits 168,659 4.57% Totals $279,702 3.52%
Maturities of time certificates of deposit of $100,000 or more are summarized as follows:
December 31, 1995 3 months or less $4,639 Over 3 through 6 months 7,960 Over 6 through 12 months 6,602 Over 12 months 7,532 Total $26,733
Return on Equity and Assets The ratio of net income to average shareholders' equity and to average total assets, and certain other ratios, are as follows:
Year Ended December 31, 1995 1994 1993 Percentage of Net Income to: Average Shareholders' Equity 11.68% 10.85% 9.62% Average Total Assets 1.13% 1.08% 0.93% Percentage of Dividends Declared per Common Share to Net Income per Common Share (1) 34.55% 35.79% 40.99% Percentage of Average Shareholders' Equity to Average Total Assets 9.65% 9.91% 9.69% (1) Based on historical dividends declared by German American Bancorp without restatement for pooling.
Item 2. Properties. The Company owns no material physical properties except through its subsidiaries. Office space for employees is leased from the German American Bank. German American Bank conducts its operations from its main office building at 711 Main Street, in Jasper, Indiana. The main office building is owned by German American and contains approximately 23,600 square feet of office space. There is no indebtedness on such property on which German American's main office is located. German American Bank has seven branches, three of which are located in Jasper, and one each in the Dubois County towns of Huntingburg, Ferdinand, Dubois and Ireland. Of these branch facilities, five are owned by German American Bank and two are leased. Union Bank's main office facility in Loogootee, Indiana, contains approximately 12,000 square feet of space. The facility was constructed in 1988 and is owned by Union Bank. Community Bank conducts its operations from three locations, all of which are owned by Community Bank. Community Bank's principal banking office is located in Otwell, Indiana, in a building containing approximately 2,850 square feet. First State Bank's main office facility, located in Tell City, Indiana, constructed in 1981, contains approximately 13,900 square feet. The branch office located in Rockport, Indiana contains approximately 1,660 square feet. Both of these facilities are owned by First State Bank. Item 3. Legal Proceedings. There are no pending legal proceedings, other than routine litigation incidental to the business of the Company's subsidiary banks, of a material nature in which the Company or any of its subsidiaries is involved. Item 4. Submission of Matters to a Vote of Security Holders. There was no matter submitted during the fourth quarter of 1995 to a vote of security holders, by solicitation of proxies or otherwise. Special Item. Executive Officers of the Registrant. [CAPTION] NAME AGE TITLE AND FIVE YEAR HISTORY George W. Astrike (60) Chairman and CEO of the Company in 1995; Chairman and President /CEO prior thereto. Chairman of German American Bank in 1995; Chairman and President prior thereto. Director of each of the other Banks since acquisition by the Company. Mark A. Schroeder (42) President / Chief Operating Officer / Chief Financial Officer of the Company in 1995; Vice President / Chief Financial Officer prior thereto. Director of each of the other Banks since acquisition by the Company. Urban Giesler (58) Treasurer and Secretary of the Corporation; Senior Vice President Personal Banking of German American Bank since January, 1993; Senior Vice President - Retail Lending of German American Bank prior thereto. John M. Gutgsell (40) Vice President and Controller of the Company in 1995; Vice President and Controller of German American Bank prior thereto. Stan J. Ruhe (44) Executive Vice President - Credit Administration of the Company in 1995. Executive Vice President of German American Bank in 1995; Senior Vice President - Credit Administration prior thereto. James E. Essany (41) Senior Vice President - Marketing in 1995; Senior Vice President - Operations / Administration of German American Bank prior thereto.
There are no family relationships between any of the officers of the Corporation. All officers are elected for a term of one year. PART II The information in Part II of this report is incorporated by reference to the indicated sections of the Registrant's annual report to shareholders for the fiscal year ended December 31, 1995 (`Shareholders' Report''). Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. See ``Market and Dividend Information'' on page 35 of the Shareholders' Report which section is incorporated herein by reference. Item 6. Selected Financial Data. See ``Five Year Summary of Financial Statements and Related Statistics'' on page 1 of the Shareholders' Report which section is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. See ``Management's Discussion and Analysis of Financial Condition and Results of Operations''on pages 2 through 14 of the Shareholders' Report which section is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The financial statements of the Corporation and related notes on pages 15 through 33 of the Shareholders' Report and the Auditors' Report thereon on page 34 of the Shareholders' Report, and the Interim Financial Data on page 3 of the Shareholders' Report, are all incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable. PART III Item 10. Directors and Executive Officers of the Registrant. Information relating to Directors of the Corporation will be included under the caption `Election of Directors'' in the Corporation's Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 1996 which will be filed with the Commission within 120 days of the end of the fiscal year covered by this Report (the `1996 Proxy Statement''), which section is incorporated herein by reference in partial answer to this Item. Information relating to Executive Officers of the Corporation is included under the caption `Executive Officers of the Registrant'' under Part I of this Report on Form 10-K. Information relating to Section 16(a) reporting will be included in the 1996 Proxy Statement under the caption `Section 16(a) Reporting'', which is incorporated herein by reference. Item 11. Executive Compensation. Information relating to compensation of the Corporation's Executive Officers and Directors will be included under the captions `Executive Compensation'' and `Election of Directors -- Compensation of Directors'' in the 1996 Proxy Statement of the Corporation, which sections are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. Information relating to security ownership of certain beneficial owners and management of the Corporation will be included under the captions `Election of Directors''and ``Principal Owners of Common Shares'' of the 1996 Proxy Statement of the Corporation, which sections are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. Information responsive to this Item 13 will be included under the captions `Certain Business Relationships and Transactions'' and ``Executive Compensation - - Compensation Committee Interlocks and Insider Participation''of the 1996 Proxy Statement of the Corporation, which sections are incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. a) The following 1995, 1994, and 1993 consolidated financial statements of the Corporation, and the Auditors' Report thereon, included on pages 15 through 34 of the Shareholders' Reports, are incorporated into Item 8 of this report by reference. Location in 1. Financial Statements Shareholders' Report German American Bancorp and Subsidiaries Consolidated Balance Sheets at December 31, 1995 and December 31, 1994 Page 15 Consolidated Statements of Income, years ended December 31, 1995, 1994, and 1993 Page 16 Consolidated Statements of Cash Flows, years ended December 31, 1995, 1994, and 1993 Page 17 Consolidated Statements of Changes in Shareholders'Equity, years ended December 31, 1995, 1994, and 1993 Page 18 Notes to the Consolidated Financial Statements Pages 19 - 33 Independent Auditors' Report Page 34 2. Other financial statements and schedules are omitted because they are not required or because the required information is included in the consolidated financial statements or related notes. b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended December 31, 1995. c) Exhibits: The Exhibits described in the Exhibit List immediately following the `Signatures'' page of this report (which is incorporated herein by reference) are hereby filed as part of this report. Pursuant to the requirements of Section 13 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 (Registrant) Date: March 15, 1996 By/s/George W. Astrike George W. Astrike, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 15, 1996 By/s/George W. Astrike George W. Astrike, Chairman of the Board and Director (Chief Executive Officer) Date: March 15, 1996 By/s/Mark A. Schroeder Mark A. Schroeder, President and Director (Principal Financial Officer) Date: March 15, 1996 By/s/David G. Buehler David G. Buehler, Director Date: March 15, 1996 By/s/Michael B. Lett Michael B. Lett, Director Date: March 15, 1996 By/s/Gene C. Mehne Gene C. Mehne, Director Date: March 15, 1996 By/s/Robert L. Ruckriegel Robert L. Ruckriegel, Director Date: March 15, 1996 By/s/William R. Hoffman William R. Hoffman, Director Date: March 15, 1996 By/s/Joseph F. Steurer Joseph F. Steurer, Director Date: A. Wayne (Skip) Place Jr., Director Date: Larry J. Seger, Director Date: March 15, 1996 By/s/John M. Gutgsell John M. Gutgsell, Controller (Principal Accounting Officer)
Executive Compensation Plans and Exhibit Arrangements** Number Description of Exhibit 3.1 Restated Articles of Incorporation of the Registrant as amended April 24, 1995. 3.2 Restated Bylaws of the Registrant as amended August 14, 1990. 10.1 Purchase and Assumption Agreement between the Registrant and Regional Federal Savings Bank dated July 8, 1994, is incorporated by reference to Exhibit 2 to the Company's Quarterly Report on Form 10-Q, as amended by Form 10-Q/A filed on or about September 19, 1994. 10.2 Sublease entered by and between Buehler Foods, Inc. and The German American Bank dated January 2, 1987 (Huntingburg Banking Center Branch) is incorporated by reference from Exhibit 10.5 to the Registrant's Registration Statement on Form S-4 filed February 28, 1994 (No. 33-75762) (the ``Otwell S-4''). 10.3 Sublease entered by and between Buehler Foods, Inc. and the Bank dated August 1, 1990 (The Crossing Shopping Center Branch) is incorporated by reference to Exhibit 10.12 of the Registrant's Report on Form 10-K for the year ended December 31, 1990. 10.4 Letter dated January 5, 1995 from the German American Bank to Buehler Foods, Inc. notifying Buehler Foods, Inc. of exercise of renewal option on The Crossing Shopping Center Branch. (Exhibit 10.3). X 10.5 The Company's 1992 Stock Option Plan is incorporated by reference from Exhibit 10.1 to the Unibancorp S-4. X 10.6 Executive Deferred Compensation Agreement dated December 1, 1992 between the German American Bank and George W. Astrike, is incorporated herein by reference from Exhibit 10.3 to the Unibancorp S-4. X 10.7 Director Deferred Compensation Agreement between The German American Bank and certain of its Directors, is incorporated herein by reference from Exhibit 10.4 to the S-4. (The Agreement entered into by George W. Astrike, a copy of which was filed as Exhibit 10.4 to the S-4, is substantially identical to the Agreements entered into by the other Directors.) The schedule following Exhibit 10.4 to the S-4 lists the Agreements with the other Directors and sets forth the material detail in which such Agreements differ from the Agreement filed as Exhibit 10.4 to the Unibancorp S-4. X 10.8 Incentive stock option agreement between the Company and George W. Astrike dated April 20, 1993, is incorporated by reference from Exhibit 10.6 to the Otwell S-4. X 10.9 Form of Incentive Stock Option Agreement executed April 20, 1993 between the Company and each of Mark A. Schroeder (5000 shares), James E. Essany (1500 shares), Urban Giesler (1500 shares) and Stan J. Ruhe (3000 shares) (all numbers and prices unadjusted for stock splits and stock dividends) is incorporated by reference from Exhibit 10.7 to the Otwell S-4. X 10.10 Form of Incentive Stock Option Agreement executed December 30, 1994 between the Registrant and George W. Astrike (1700 shares) and Mark A. Schroeder (1500 shares) is incorporated by reference to Exhibit 10.12 of the Registrant's Report on Form 10-K for the year ended December 31, 1994. X 10.11 Form of Incentive Stock Option Agreement executed July 10, 1995 between the Registrant and Mark A. Schroeder is incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on or about November 13, 1995. X 10.12 Schedule of Incentive Stock Option Agreements between the Registrant and its executive officers dated July 10, 1995. 11 Computation of Earnings Per Share. 13 Registrant's Annual Report to Shareholders for the year ended December 31, 1995. This exhibit, except to the extent specifically incorporated by reference herein, is furnished for the information of the Commission only and is not to be deemed `filed'' as a part of this Report. 21 Subsidiaries of the Registrant. 23 Consents of Experts and Counsel. 27 Financial Data Schedule.
**Exhibits that describe or evidence all management contracts or compensatory plans or arrangements required to be filed as exhibits to this Report are indicated by an `X'' in this column. EX-3.1 2 RESTATED ARTICLES OF INCORPORATION OF GERMAN AMERICAN BANCORP ARTICLE I Name The name of the Corporation is German American Bancorp. ARTICLE II Purposes and Powers Section 1. Purposes of the Corporation. The purposes for which the Corporation is formed are to transact any or all lawful business permitted by applicable law and for which corporations may now or hereafter be incorporated under the Corporation Law. Section 2. Powers of the Corporation. The Corporation shall have (a) all powers now or hereafter authorized by or vested in corporations pursuant to the provisions of the Corporation Law, (b) all powers now or hereafter vested in corporations by common law or any other statute or act, and (c) all powers authorized by or vested in the corporation by the provisions of these Restated Articles of Incorporation or by the provisions of its Bylaws as from time to time in effect. ARTICLE III Term of Existence The period during which the Corporation shall continue is perpetual. Exhibit 3.1 ARTICLE IV Registered Office and Agent The street address of the Corporation's registered office at the time of adoption of these Restated Articles of Incorporation is 711 Main Street, P.O. Box 810, Jasper, Indiana 47546, and the name of its Resident Agent at such office at the time of adoption of these Restated Articles of Incorporation is George W. Astrike. ARTICLE V Shares The total number of shares of capital stock the Corporation has authority to issue shall be 5,500,000 shares consisting of 5,000,000 common shares (the `Common Shares'') and 500,000 preferred shares (the ``Preferred Shares''). The Corporation's shares shall have a par value of ten dollars ($10.00) per share. ARTICLE VI Terms of Shares Section 1. General Terms of All Shares. The Corporation shall have the power to acquire (by purchase, redemption, or otherwise), hold, own, pledge, sell, transfer, assign, reissue, cancel, or otherwise dispose of the shares of the Corporation in the manner and to the extent now or hereafter permitted by the laws of the State of Indiana. The power to purchase, redeem, or otherwise acquire the Corporation's own shares, directly or indirectly, may be exercised without pro rata treatment of the owners or holders of any class or series of shares. The Corporation may not purchase, redeem or otherwise acquire the Corporation's own shares if, after giving effect thereto, the Corporation would not be able to pay its debts as they become due in the usual course of business or the Corporation's total assets would be less than its total liabilities (without regard to any amounts that would be needed, if the Corporation were to be dissolved at the time of the purchase, redemption, or other acquisition, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those of the holders of the shares of the Corporation being purchased, redeemed, or otherwise acquired, unless otherwise expressly provided with respect to a series of Preferred Shares in the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of this Article VI describing the terms of such series). Shares of the Corporation purchased, redeemed, or otherwise acquired by it shall constitute authorized by unissued shares, unless the Board of Directors shall at any time adopt a resolution providing that such shares constitute authorized and issued but not outstanding shares. The Board of Directors of the Corporation may dispose of, issue, and sell shares in accordance with, and in such amounts as may be permitted by, the laws of the State of Indiana and the provisions of these Restated Articles of Incorporation and for such consideration, at such price or prices, at such time or times and upon such terms and conditions (including the privilege of selectively repurchasing the same) as the Board of Directors of the Corporation shall determine, without the authorization or approval by any shareholders of the Corporation. Shares may be disposed of, issued, and sold to such persons, firms, or corporations as the Board of Directors may determine, without any preemptive or other right on the part of the owners or holders of other shares of the Corporation of any class or kind to acquire such shares by reason of their ownership of such other shares. The Corporation shall have the power to declare and pay dividends or other distributions upon the issued and outstanding shares of the Corporation, subject to the limitation that a dividend or other distribution may not be made if, after giving it effect, the Corporation would not be able to pay its debts as they become due in the usual course of business or the Corporation's total assets would be less than its total liabilities (without regard to any amounts that would be needed, if the Corporation were to be dissolved at the time of the dividend or other distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those of the holders of shares receiving the dividend or other distribution, unless otherwise expressly provided with respect to a series of Preferred Shares in the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of this Article VI describing the terms of such series). The Corporation shall have the power to issue shares of one class or series as a share dividend or other distribution in respect of that class or series or one or more other classes or series, except as may be otherwise provided with respect to a series of Preferred Shares in the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of this Article VI describing the terms of such series. Section 2. Terms of Common Shares. The Common Shares shall be equal in every respect insofar as their relationship to the Corporation is concerned, but such equality of rights shall not imply equality of treatment as to redemption or other acquisition of shares by the Corporation. Subject to the rights of the holders of any issued and outstanding Preferred Shares under this Article VI, the holders of Common Shares shall be entitled to share ratably in such dividends or other distributions (other than purchases, redemptions, or other acquisitions of Common Shares of the Corporation), if any, as are declared and paid from time to time on the Common Shares at the discretion of the Board of Directors. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, after payment shall have been made to the holders of the Preferred Shares of the full amount to which they shall be entitled under this Article VI, the holders of Common Shares shall be entitled, to the exclusion of the holders of the Preferred Shares of any and all series, to share, ratably according to the number of Common Shares held by them, in all remaining assets of the Corporation available for distribution to its shareholders. Section 3. Terms of Preferred Shares. (a) Preferred Shares may be issued from time to time in one or more series, each such series to have such distinctive designation and such preferences, limitations, and relative voting and other rights as shall be set forth in these Restated Articles of Incorporation. Subject to the requirements of the Corporation Law and subject to all other provisions of these Restated Articles of Incorporation, the Board of Directors of the Corporation may create one or more series of Preferred Shares and may determine the preferences, limitations, and relative voting and other rights of one or more series of Preferred Shares before the issuance of any shares of that series by the adoption of an amendment to these Restated Articles of Incorporation that specifies the terms of that series of Preferred Shares. All shares of a series of Preferred Shares must have preferences, limitations, and relative voting and other rights identical to those of other shares of the same series. No series of Preferred Shares need have preferences, limitations, or relative voting or other rights identical with those of any other series of Preferred Shares. Before issuing any shares of a series of Preferred Shares, the Board of Directors shall adopt an amendment to these Restated Articles of Incorporation, which shall be effective without any shareholder approval or other action, that fixes and sets forth the distinctive designation of such series; the number of shares that shall constitute such series, which number may be increased or decreased (but not below the number of shares thereof then outstanding) from time to time by action of the Board of Directors; and the preferences, limitations, and relative voting and other rights of the series. Authority is hereby expressly vested in the Board of Directors, by such amendment, to fix all of the preferences or rights, and any qualifications, limitations, or restrictions of such preferences or rights, of such series to the full extent permitted by the Corporation Law; provided, however, that no such preferences, rights, qualifications, limitations, or restrictions shall be in conflict with these Restated Articles of Incorporation or any amendment hereof. (b) Preferred Shares of any series that have been redeemed (whether through the operation of a sinking fund or otherwise) or purchased by the Corporation, or that, if convertible, have been converted into shares of the Corporation of any other class or series, may be reissued as a part of such series or of any other series of Preferred Shares, subject to such limitations (if any) as may be fixed by the Board of Directors with respect to such series of Preferred Shares in accordance with Section 3 (a) of this Article VI. ARTICLE VII Voting Rights Section 1. Common Shares. Except as otherwise provided by the Corporation Law or by the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of Article VI hereof describing the Preferred Shares or a series thereof, and subject to such shareholder disclosure and recognition procedures (which may include sanctions for noncompliance therewith to the fullest extent permitted by the Corporation Law) as the Corporation may by action of the Board of Directors establish, the Common Shares have unlimited voting rights. At every meeting of the shareholders of the Corporation every holder of Common Shares shall be entitled to one vote in person or by proxy for each Common Share standing in such holder's name on the share transfer records of the Corporation. Section 2. Preferred Shares. Except as required by the Corporation Law or by the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of Article VI hereof describing the terms of Preferred Shares or a series thereof, the holders of Preferred Shares shall have no voting rights or powers. Preferred Shares shall, when validly issued by the Corporation, entitle the record holder thereof to vote on such matters, but only on such matters, as the holders thereof are entitled to vote under the Corporation Law or under these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of Article VI hereof describing the terms of Preferred Shares or a series thereof (which provisions may provide for special, conditional, limited, or unlimited voting rights, including multiple or fractional votes per share, or for no right to vote, except to the extent required by the Corporation Law) and subject to such shareholder disclosure and recognition procedures (which may include sanctions for noncompliance therewith to the fullest extent permitted by the Corporation Law) as the Corporation may by action of the Board of Directors establish. ARTICLE VIII Directors Section 1. Number. The Board of Directors at the time of adoption of these Restated Articles of Incorporation is composed of ten members. The number of Directors shall be fixed by, or fixed in accordance with, the Bylaws. Whenever there are nine or more Directors, the Bylaws may also provide for staggering the terms of the members of the Board of Directors by dividing the total number of Directors into two or three groups (with each group containing one-half or one-third of the total, as near as may be) whose terms of office expire at different times. Section 2. Election of Directors by Holders of Preferred Shares. The holders of one or more series of Preferred Shares may be entitled to elect all or a specified number of Directors, but only to the extent and subject to limitations as may be set forth in the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of Article VI hereof describing the terms of the series of Preferred Shares. Section 3. Vacancies. Vacancies occurring in the Board of Directors shall be filled in the manner provided in the Bylaws or, if the Bylaws do not provide for the filling of vacancies, in the manner provided by the Corporation Law. Section 4. Removal of Directors. Any or all of the members of the Board of Directors may be removed, with or without cause, at a meeting of the shareholders called expressly for that purpose, by the affirmative vote of the holders of at least 80 percent of the outstanding shares then entitled to vote at an election of Directors. However, a Director elected by the holders of a series of Preferred Shares as authorized by Section 2 of this Article VIII may be removed only by the affirmative vote of the holders of at least 80 percent of the outstanding shares of that series then entitled to vote at an election of Directors. Directors may not be removed by the Board of Directors. Section 5. Liability of Directors. A Director's responsibility to the Corporation shall be limited to discharging his duties as a Director, including his duties as a member of any committee of the Board of Directors upon which he may serve, in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner the Director reasonably believes to be in the best interests of the Corporation, all based on the facts then known to the Director. In discharging his duties, a Director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by: (a) One or more officers or employees of the Corporation whom the Director reasonably believes to be reliable and competent in the matters presented; (b) Legal counsel, public accountants, or other persons as to matters the Director reasonably believes are within such person's professional or expert competence; or (c) A committee of the Board of which the Director is not a member if the Director reasonably believes the committee merits confidence; but a Director is not acting in good faith if the Director has knowledge concerning the matter in question that makes reliance otherwise permitted by this Section 5 unwarranted. A Director may, in considering the best interests of the Corporation, consider the effects of any action on shareholders, employees, suppliers, and customers of the Corporation, and communities in which offices or other facilities of the Corporation are located, and any other factors the Director considers pertinent. Directors shall be immune from personal liability for any action taken as a Director, or any failure to take any action, to the fullest extent permitted by the applicable provisions of the Corporation Law from time to time in effect and by general principles of corporate law. ARTICLE IX Provisions for Regulation of Business and Conduct of Affairs of Corporation Section 1. Bylaws. The Board of Directors shall have the exclusive power to make, alter, amend, or repeal, or to waive provisions of, the Bylaws of the Corporation by the affirmative vote of a majority of the number of Directors then in office, except as provided by the Corporation Law. All provisions for the regulation of the business and management of the affairs of the Corporation not stated in these Restated Articles of Incorporation shall be stated in the Bylaws. The Board of Directors may also adopt Emergency Bylaws of the Corporation and shall have the exclusive power (except as may otherwise be provided therein) to make, alter, amend, or repeal, or to waive provisions of, the Emergency Bylaws by the affirmative vote of a majority of the entire number of Directors at the time. Section 2. Amendment or Repeal. (a) Any amendment, change or repeal of Section 4 of Article VIII, Section 2 or 3 of Article IX, or Article X of these Restated Articles of Incorporation, or any other amendment of these Restated Articles of Incorporation which would have the effect of modifying or permitting circumvention of those provisions, shall require the affirmative vote, at a meeting of shareholders of the Corporation, by the holders of a least 80 percent of the outstanding shares of all classes of Voting Shares of the Corporation (considered for purposes of this Section 2(a) as a single class and as defined in Article X) and, if the amendment, change or repeal shall be proposed by or on behalf of a Related Person (as that term is defined in Article X), by an Independent Majority of Shareholders (as defined in Article X); provided, however, that this Section 2(a) shall not apply to, and such vote shall not be required for, any such amendment, change or repeal recommended to shareholders by the favorable vote of not less than two-thirds of the Board of Directors and, if the amendment, change or repeal shall be proposed by or on behalf of a Related Person, by the favorable vote of not less than two-thirds of the Continuing Directors (as defined in Article X and computed with reference to the Related Person who shall propose such amendment, change or repeal), and any such amendment, change or repeal so recommended shall require only the shareholder vote required under the applicable provisions of the Corporation Law. (b) Except as otherwise expressly provided in Section 2(a) above, the Corporation shall be deemed, for all purposes, to have reserved the right to amend, alter, change or repeal any provision contained in these Restated Articles of Incorporation to the extent and in the manner now or hereafter permitted or prescribed by statute, and all rights herein conferred upon shareholders are granted subject to such reservation. Section 3. Removal of Chairman of the Board and President. The Chairman of the Board and the President, and each of them, may be removed from office at any time, with or without cause, at a meeting of the Board of Directors called expressly for that purpose, but only by the affirmative vote of two-thirds of all other members of the entire Board of Directors, Any vacancy created by the removal of the Chairman or the President may be filled only by the affirmative vote of two-thirds of all remaining members of the Board. ARTICLE X Approval of Business Combinations Section 1. Supermajority Vote. Except as provided in Sections 2 and 3 of this Article X, neither the Corporation nor any of its Subsidiaries shall become party to any Business Combination with a Related Person without the prior affirmative vote at a meeting of the Corporation's shareholders: (a) By the holders of not less than 80 percent of the outstanding shares of all classes of Voting Shares of the Corporation considered for purposes of this Article X as a single class, and (b) By an Independent Majority of Shareholders. Such favorable votes shall be in addition to any shareholder vote that would be required without reference to this Section 1 and shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified by law or in other Articles of these Restated Articles of Incorporation or the Bylaws of the Corporation or otherwise. Section 2. Reduced Supermajority Vote for Fair Pricing. The provisions of Section 1 shall apply to a Business Combination, except that the percentage vote required by Section 1 (a) shall be reduced from not less than 80 percent to not less than two-thirds, if all of the conditions set forth in subsections (a) through (d) of this Section 2 are satisfied. (a) The fair market value of the property, securities or other consideration to be received per share by holders of each class or series of capital shares of the Corporation in the Business Combination is not less, as of the date of the consummation of the Business Combination (the `Consummation Date''), than the higher of the following: (i) the highest per share price (with appropriate adjustments for recapitalizations and for share splits, share dividends and like distributions) including brokerage commissions and solicitation fees paid by the Related Person in acquiring any of its holdings of such class or series of capital shares within the two-year period immediately prior to the first public announcement of the proposed Business Combination (`Announcement Date'') or in the transaction in which it became a Related Person, whichever is higher, plus interest compounded annually, from the later of the date that the Related Person became a Related Person (the `Determination Date''), or the date two years before the Consummation Date, through the Consummation Date, at the rate publicly announced as the `prime rate'' of interest of Citibank, N.A. (or of such other major bank headquartered in New York as may be selected by a majority of the Continuing Directors) from time to time in effect, less the aggregate amount of any cash dividends paid and the fair market value of any dividends paid in other than cash on each such share from the date from which interest accrues under the preceding clause through the Consummation Date up to but not exceeding the amount of interest so payable per share; OR (ii) if such class or series is then traded on an exchange or is the subject of regularly published quotations from three or more broker/dealers who make a market in such class or series for their own accounts, the fair market value per share of such class or series on the Announcement Date, as determined by the highest closing sales price on such exchange or the highest closing bid quotation with respect to such shares during the 30-day period immediately preceding the Announcement Date. In the event of a Business Combination upon consummation of which the Corporation would be the surviving corporation or company or would continue to exist (unless it is provided, contemplated or intended that as part of such Business Combination or within one year after consummation thereof a plan of liquidation or dissolution of the Corporation will be effected), the term `other consideration to be received''shall include (without limitation) Common Shares and/or the shares of any other class of shares retained by shareholders of the Corporation other than Related Persons who are parties to such Business Combination; (b) The consideration to be received in such Business Combination by holders of each class or series of capital shares other than the Related Person involved shall, except to the extent that a shareholder agrees otherwise as to all or part of the shares which he or she owns, be in the same form and of the same kind as the consideration paid by the Related Person in acquiring the majority of the capital shares of such class or series already Beneficially Owned by it within the two-year period ending on the Determination Date; (c) After such Related Person became a Related Person and prior to the consummation of such Business Combination: (i) such Related Person shall have taken steps to insure that the Board of Directors of the Corporation included at all times representation by Continuing Directors proportionate to the ratio that the number of Voting Shares of the Corporation from time to time not Beneficially Owned by the Related Person bears to all Voting Shares of the Corporation outstanding at the time in question (with a Continuing Director to occupy any resulting fractional position among the Directors); (ii) such Related Person shall not have acquired from the Corporation, directly or indirectly, any shares of the Corporation (except upon conversion of convertible securities acquired by it prior to becoming a Related Person or as a result of a pro rata share dividend, share split or division of shares or in a transaction that satisfied all applicable requirements of this Article X); (iii) such Related Person shall not have acquired any additional Voting Shares of the Corporation or securities convertible into or exchangeable for Voting Shares except as a part of the transaction which resulted in such Related Person's becoming a Related Person; and (iv) such Related Person shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the Corporation or any Subsidiary, or made any major change in the Corporation's business or equity capital structure or entered into any contract, arrangement or understanding with the Corporation except any such change, contract, arrangement or understanding as may have been approved by the favorable vote of not less than a majority of the Continuing Directors of the Corporation; and (d) A proxy statement complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission thereunder, as then in force for corporations subject to the requirements of Section 14 of such Act (even if the Corporation is not otherwise subject to Section 14 of such Act), shall have been mailed to all holders of Voting Shares for the purpose of soliciting shareholder approval of such Business Combination. Such proxy statement shall contain on the face page thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors, or any of them, may have furnished in writing and, if deemed advisable by a majority of the Continuing Directors, a fair summary of an opinion of a reputable investment banking firm addressed to the Corporation as to the fairness (or lack of fairness) of the terms of such Business Combination from the point of view of the holders of Voting Shares other than any Related Person (such investment banking firm to be selected by a majority of the Continuing Directors, to be furnished with all information it reasonably requests, and to be paid a reasonable fee for its services upon receipt by the Corporation of such opinion). Section 3. Director Approval Exception. The provisions of Sections 1 and 2 of this Article X shall not apply to, and such votes shall not be required, if: (a) The Continuing Directors of the Corporation by a two-thirds vote (i) have expressly approved a memorandum of understanding with the Related Person with respect to the Business Combination prior to the time the Related Person became a Related Person, or (ii) have otherwise approved the Business Combination (this provision is incapable of satisfaction unless there is at least one Continuing Director); or (b) The Business Combination is solely between the Corporation and another corporation, 100 percent of the Voting Shares of which are owned directly or indirectly by the Corporation. Section 4. Definitions. For the purpose of this Article X: (a) A `Business Combination'' means: (i) the sale, exchange, lease, transfer or other disposition to or with a Related Person or any Affiliate or Associate of such Related Person by the Corporation or any of its Subsidiaries (in a single transaction or a Series of Related Transactions) of all or substantially all, or any Substantial Part, of its or their assets or businesses (including, without limitation, any securities issued by a Subsidiary); (ii) The purchase, exchange, lease or other acquisition by the Corporation or any of its Subsidiaries (in a single transaction or a Series of Related Transactions) of all or substantially all, or any Substantial Part, of the assets or business of a Related Person or any Affiliate or Associate of such Related Person; (iii) Any merger or consolidation of the Corporation or any Subsidiary thereof into or with a Related Person or any Affiliate or Associate of such Related Person or into or with another Person which, after such merger or consolidation, would be an Affiliate or an Associate of a Related Person, in each case irrespective of which Person is the surviving entity in such merger or consolidation; (iv) Any reclassification of securities, recapitalization or other transaction (other than a redemption in accordance with the terms of the security redeemed) which has the effect, directly or indirectly, of increasing the proportionate amount of Voting Shares of the Corporation or any Subsidiary thereof which are Beneficially Owned by a Related Person, or any partial or complete liquidation, spinoff, splitoff or splitup of the Corporation or any Subsidiary thereof; provided, however, that this Section 4(a)(iv) shall not relate to any transaction of the types specified in this Article X that has been approved by a majority of the Continuing Directors; or (v) The acquisition upon the issuance thereof of Beneficial Ownership by a Related Person of Voting Shares or securities convertible into Voting Shares or any voting securities or securities convertible into voting securities of any Subsidiary of the Corporation, or the acquisition upon the issuance thereof of Beneficial Ownership by a Related Person of any rights, warrants or options to acquire any of the foregoing or any combination of the foregoing Voting Shares or voting securities of the Subsidiary. (b) A `Series of Related Transactions'' shall be deemed to include not only a series of transactions with the same Related Person but also a series of separate transactions with a Related Person or any Affiliate or Associate of such Related Person. (c) A `Person'' shall mean any individual, firm, corporation or other entity and any partnership, syndicate or other group. (d) `Related Person'' shall mean any Person (other than the Corporation or any of the Corporation's Subsidiaries) who or that: (i) is the Beneficial Owner, directly or indirectly, of more than ten percent of the voting power of the outstanding Voting Shares; (ii) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the Beneficial Owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of Voting Shares; or (iii) is an assignee of or has otherwise succeeded to any Voting Shares which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Related Person, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. A Related Person shall be deemed to have acquired a share of the Corporation at the time when such Related Person became the Beneficial Owner thereof. For the purposes of determining whether a Person is the Beneficial Owner of ten percent or more of the voting power of the then outstanding Voting Shares, the outstanding Voting Shares shall be deemed to include any Voting Shares that may be issuable to such Person pursuant to a right to acquire such Voting Shares and that is therefore deemed to be Beneficially Owned by such Person pursuant to Section 4(e)(ii)(a). A Person who is a Related Person at (i) the time any definitive agreement relating to a Business Combination is entered into, (ii) the record date for the determination of shareholders entitled to notice of and to vote on a Business Combination, or (iii) the time immediately prior to the consummation of a Business Combination, shall be deemed a Related Person. (e) A Person shall be a `Beneficial Owner'' of any Voting Shares: (i) which such Person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (ii) which such Person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any Voting Shares. (f) An `Affiliate'' of, or a person Affiliated with, a specific Person, means a Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified. (g) The term `Associate'' used to indicate a relationship with any Person, means (i) any corporation or organization (other than this Corporation or a majority-owned Subsidiary of this Corporation) of which such Person is an officer or partner or is, directly or indirectly, the Beneficial Owner of five percent or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial nterest or as to which such Person serves as trustee or in a similar fiduciary capacity, (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person, or (iv) any investment company registered under the Investment Company Act of 1940, for which such Person or any Affiliate of such Person serves as investment advisor. (h) `Subsidiary'' means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Related Person set forth in paragraph (d) of this Section 4, the term `Subsidiary'' shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (i) `Continuing Director'' means any member of the Board of Directors of the Corporation (the `Board''), other than the Related Person who proposes the Business Combination in question and his Affiliates and Associates, who (i) is a member of the Board at the time this Article X first became effective or (ii) was a member of the Board prior to the time that the Related Person who proposes the Business Combination in question became a Related Person or (iii) is a successor of a Continuing Director who was recommended to succeed the Continuing Director by a majority of Continuing Directors then on the Board. (j) `Independent Majority of Shareholders'' shall mean the holders of a majority of the outstanding Voting Shares that are not Beneficially Owned or controlled, directly or indirectly, by the Related Person who proposes the Business Combination in question. (k) `Voting Shares'' shall mean all outstanding capital shares of the Corporation or another corporation entitled to vote generally in the election of Directors, and each reference to a proportion of shares of Voting Shares shall refer to such proportion of the votes entitled to be cast by such shares. (l) `Substantial Part'' means properties and assets involved in any single transaction or a Series of Related Transactions having an aggregate fair market value of more than ten percent of the total consolidated assets of the Person in question as determined immediately prior to such transaction or Series of Related Transactions. Section 5. Director Determinations. A majority of the Continuing Directors shall have the power to determine for the purposes of this Article X, on the bases of information known to them: (i) the number of Voting Shares of which any Person is the Beneficial Owner, (ii) whether a Person is an Affiliate or Associate of another, (iii) whether a Person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of `Beneficial Owner,'' (iv) whether the assets subject to any Business Combination constitute a Substantial Part, (v) whether two or more transactions constitute a Series of Related Transactions, and (vi) such other matters with respect to which a determination is required under this Article X. In connection with the exercise of its judgment in determining what is in the best interests of the Corporation and its shareholders when evaluating a business combination or a proposal by another Person or Persons to make a business combination or a tender or exchange offer (regardless of whether such proposal is otherwise subject to this Article X), the Board of Directors of the Corporation shall, in addition to considering the adequacy of the consideration to be paid in connection with any such transaction, consider all of the following factors and any other factors that it deems relevant: (i) the social and economic effects of the transaction on the Corporation and its Subsidiaries, employees, depositors, loan and other customers, creditors and other elements of the communities in which the Corporation and its Subsidiaries operate or are located; (ii) the business and financial condition and earnings prospects of the acquiring Person or Persons, including, but not limited to, debt service and other existing or likely financial obligations of the acquiring Person or Persons and their Affiliates and Associates, and the possible effect of such conditions upon the Corporation and its Subsidiaries and the other elements of the communities in which the Corporation and its Subsidiaries operate or are located; and (iii) the competence, experience, and integrity of the acquiring Person or Persons and its or their management and Affiliates and Associates. Section 6. Fiduciary Obligations Unaffected. Nothing in this Article X shall be construed to relieve any Related Person from any fiduciary duty imposed by law. EX-3.2 3 BYLAWS OF GERMAN AMERICAN BANCORP (RESTATED AS OF MARCH 14,1989) ARTICLE I Meetings of Shareholders Section 1.1. Annual Meetings. Annual meetings of the shareholders of the Corporation shall be held at such hour and at such place within or without the State of Indiana as shall be designated by the Board of Directors. Section 1.2. Special Meetings. Special meetings of the shareholders of the Corporation may be called at any time by the Board of Directors or the President and shall be called by the Board of Directors if the Secretary receives written, dated, and signed demands for a special meeting, describing in reasonable detail the purpose or purposes for which it is to be held, from the holders of shares representing at least 25 percent of all votes entitled to be cast on any issue proposed to be considered at the proposed special meeting. If the Secretary receives one or more proper written demands for a special meeting of shareholders, the Board of Directors may set a record date for determining shareholders entitled to make such demand. The Board of Directors or the President, as the case may be, calling a special meeting of shareholders shall set the date, time, and place of such meeting, which may be held within or without the State of Indiana. Section 1.3. Notices. A written notice, stating the date, time and place of any meeting of the shareholders, and in the case of a special meeting the purpose or purposes for which such meeting is called, shall be delivered or mailed by the Secretary of the Corporation, to each shareholder of record of the Corporation entitled to notice of or to vote at such meeting no fewer than 10 nor more than 60 days before the date of the meeting, or as otherwise provided by the Corporation Law. In the event of a special meeting of shareholders required to be called as the result of a demand therefore made by shareholders, such notice shall be given no later than the sixtieth day after the Corporation's receipt of the demand requiring the meeting to be called. Notice of shareholders' meetings, if mailed, shall be mailed, postage prepaid, to each shareholder at his address shown in the Corporation's current record of shareholders. A shareholder or his proxy may at any time waive notice of a meeting if the waiver is in writing and is delivered to the Corporation for inclusion in the minutes or filing with the Corporation's records. A shareholder's attendance at a meeting, whether in person or by proxy, (a) waives objection to lack of notice or defective notice of the meeting, unless the shareholders or his proxy at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder or his proxy objects to considering the matter when it is presented. Each shareholder who has in the manner above provided waived notice or objection to notice of the shareholders' meeting shall be conclusively presumed to have been given due notice of such meeting, including the purpose or purposes thereof. Exhibit 3.2 If an annual or special shareholders' meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before adjournment, unless a new record date is or must be established for the adjourned meeting. Section 1.4. Voting. Except as otherwise provided by the Corporation Law or the Corporation's Articles of Incorporation, each capital share of any class of the Corporation that is outstanding at the record date and represented in person or by proxy at the annual or special meeting shall entitle the record holder thereof, or his proxy, to one vote on each matter voted on at the meeting. Section 1.5. Quorum. Unless the Corporation's Articles of Incorporation or the Corporation Law provide otherwise, at all meetings of shareholders a majority of the votes entitled to be cast on a matter, represented in person or by proxy, constitutes a quorum for action on the matter. Action may be taken at a shareholders' meeting only on matters with respect to which a quorum exists; provided, however, that any meeting of shareholders, including annual and special meetings and any adjournments thereof, may be adjourned to a later date although less than a quorum is present. Once a share is represented for any purpose at a meeting, it is deemed present for any quorum purposes for the remainder of the meeting and for any meeting held pursuant to an adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. Section 1.6. Vote Required to Take Action. If a quorum exists as to a matter to be considered at a meeting of shareholders, action on such matter (other than the election of Directors) is approved if the votes properly cast favoring the action exceed the votes properly cast opposing the action, unless the Corporation's Articles of Incorporation or the Corporation Law requires a greater number of affirmative votes. Directors shall be elected by a plurality of the votes properly cast. Section 1.7. Record Date. Only such persons shall be entitled to notice of or to vote, in person or by proxy, at any shareholders' meeting as shall appear as shareholders upon the books of the Corporation as of such record date as the Board of Directors shall determine, which date may not be earlier than the date 70 days immediately preceding the meeting unless otherwise permitted by the Corporation Law. In the absence of such determination, the record date shall be the fiftieth day immediately preceding the date of such meeting. Unless otherwise provided by the Board of Directors, shareholders shall be determined as of the close of business on the record date. Section 1.8. Proxies. A shareholder may vote his shares either in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder (including authorizing the proxy to receive, or to waive, notice of any shareholders' meetings within the effective period of such proxy) by signing an appointment form, either personally or by the shareholder's attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent authorized to tabulate votes and is effective for 11 months unless a longer period is expressly provided in the appointment form. The proxy's authority may be limited to a particular meeting or may be general and authorize the proxy to represent the shareholder at any meeting of shareholders held within the time provided in the appointment form. Subject to the Corporation Law and to any express limitation on the proxy's authority appearing on the face of the appointment form, the Corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment. ARTICLE II Directors Section 2.1. Number and Term. The business of the Corporation shall be managed by a Board of Directors consisting of at least 9 Directors and no more than 12 Directors. The exact number of Directors of the Corporation shall be fixed by the Board of Directors within the range established by the preceding sentence, and may be changed within that range from time to time by the Board of Directors. The Directors shall be divided into two equal (or as nearly equal as possible) classes with only one class of Directors being elected at any annual meeting. The term of each class of Directors elected shall be two years. Despite the expiration of a Director's term, the Director shall continue to serve until his successor is elected and qualified, or until the earlier of his death, resignation, disqualification, or removal, or until there is a decrease in the number of Directors. No Director shall be elected after reaching the age of 65 years, unless such Director for the year preceding his election has (a) worked an average of 30 hours per week in his principal occupation, and (b) resided in the State of Indiana for nine months. No Director shall be elected after reaching the age of 69 years. Vacancies caused by an increase in the number of Directors shall be apportioned so as to make the classes as nearly equal as possible. The Directors and each of them shall have no authority to bind the Corporation except when acting as a Board or as a committee established by the Board and granted authority to bind the Corporation. Section 2.2. Quorum and Vote Required to Take Action. A majority of the members of the Board of Directors (the size of which shall be determined in accordance with the latest action of the Board of Directors fixing the number of Directors) shall be necessary to constitute a quorum for the transaction of any business, except the filling of vacancies. If a quorum is present when a vote is taken, the affirmative vote of a majority of the Directors present shall be the act of the Board of Directors, unless the act of a greater number is required by the Corporation Law, the Corporation's Articles of Incorporation or these Bylaws. Section 2.3. Annual and Regular Meetings. The Board of Directors shall meet annually, without notice, on the same day as the annual meeting of the shareholders, for the purpose of transacting such business as properly may come before the meeting. Other regular meetings of the Board of Directors, in addition to said annual meeting, shall be held on such dates, at such times, and at such places as shall be fixed by resolution adopted by the Board of Directors or otherwise communicated to the Directors. The Board of Directors may at any time alter the date for the next regular meeting of the Board of Directors. Section 2.4. Special Meetings. Special meetings of the Board of Directors may be called by the President or by a majority of the Board of Directors upon not less than 24 hours' notice given to each Director of the date, time and place of the meeting, which notice need not specify the purpose or purposes of the special meeting. Such notice may be communicated in person (either in writing or orally), by telephone, telegraph, teletype or other form of wire or wireless communication or by mail, and shall be effective at the earlier of the time of its receipt or, if mailed, five days after its mailing. Notice of any meeting of the Board may be waived in writing at any time if the waiver is signed by the Director entitled to the notice and is filed with the minutes of Corporate records. A Director's attendance at or participation in a meeting waives any required notice to the Director of the meeting, unless the Director at the beginning of the meeting (or promptly upon the Director's arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Section 2.5. Written Consents. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one or more written consents describing the action taken, signed by each Director, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this Section 2.5 is effective when the last Director signs the consent, unless the consent specifies a different prior or subsequent effective date, in which case the action is effective on or as of the specified date. A consent signed under this Section 2.5 has the effect of a meeting vote and may be described as such in any document. Section 2.6. Participation by Conference Telephone. The Board of Directors may permit any or all Directors to participate in a regular or special meeting by, or through the use of, any means of communication, such as conference telephone, by which all Directors participating may simultaneously hear each other during the meeting. A Director participating in a meeting by such means shall be deemed to be present in person at the meeting. Section 2.7. Committees. (a) The Board of Directors may create one or more committees and appoint members of the Board of Directors to serve on them, by resolution of the Board of Directors adopted by a majority of all the Directors in office when the resolution is adopted. Each committee may have one or more members, and all the members of a committee shall serve at the pleasure of the Board of Directors. (b) To the extent specified by the Board of Directors in the resolutions creating a committee, each committee may exercise all of the authority of the Board of Directors; provided, however, that a committee may not: (1) authorize dividends or other distributions as defined by the Corporation Law, except a committee may authorize or approve a reacquisition of shares if done according to a formula or method prescribed by the Board of Directors; (2) approve or propose to shareholders action that is required to be approved by shareholders; (3) fill vacancies on the Board of Directors or on any of its committees; (4) amend the Corporation's Articles of Incorporation; (5) adopt, amend, repeal or waive any provision of these Bylaws; or (6) approve a plan of merger not requiring shareholder approval. (c) Except to the extent inconsistent with the resolutions creating a committee, Sections 2.2 through 2.6 of these Bylaws, which govern meetings, action without meetings, notice and waiver of notice, quorum and voting requirements, and telephone participation in meetings of the Board of Directors, apply to the committee and its members as well. ARTICLE III Officers Section 3.1. Designation, Selection and Terms. The officers of the Corporation shall consist of the Chairman of the Board, the President and the Secretary. The Board of Directors may also elect Vice Presidents, Assistant Secretaries and such other officers or assistant officers as it may from time to time determine by resolution creating the office and defining the duties thereof. In defining the duties of officers, the Board of Directors may designate a chief executive officer, a chief operating officer, a chief administrative officer, a chief financial officer, a chief accounting officer or similar functional titles. The officers of the Corporation shall be elected by the Board of Directors and need not be selected from among the members of the Board of Directors, except for the Chairman of the Board, who shall be a member of the Board of Directors. Any two or more offices may be held by the same person. All officers shall serve at the pleasure of the Board of Directors. The election or appointment of an officer does not itself create contract rights. Section 3.2. Removal. The Board of Directors may remove any officer at any time with or without cause, except that a two-thirds affirmative vote of all other members of said Board shall be required to remove the Chairman of the Board and/or the President. Vacancies in such offices, however occurring, may be filled by the Board of Directors at any meeting of the Board of Directors, except that two-thirds affirmative vote of all remaining members of said Board shall be required to fill any vacancy created by the removal of the Chairman of the Board and/or the President. Section 3.3. Chairman of the Board. The Chairman of the Board shall be selected from among the members of the Board of Directors. He shall preside at all meetings of the shareholders and the Board of Directors at which he shall be present, and shall perform the duties and have the powers of the President in his absence or in the event of the inability or refusal of the President to act. The Chairman of the Board shall serve the Corporation in such other capacities and perform such other duties as are incident to his office or may from time to time be delegated to him by the Board of Directors or defined in these Bylaws. Section 3.4. President. The President shall have and may exercise all of the powers and duties as are incident to his office or may from time to time be delegated to him by the Board of Directors or defined in these Bylaws. Section 3.5. Secretary. The Secretary shall be the custodian of the books, papers and records of the Corporation and of its corporate seal, if any, and shall be responsible for seeing that the Corporation maintains the records required by the Corporation Law (other than accounting records) and that the Corporation files with the Indiana Secretary of State the annual report required by the Corporation Law. The Secretary shall be responsible for preparing minutes of the meetings of the shareholders and of the Board of Directors and for authenticating records of the Corporation, and he shall perform all of the other duties usual in the office of the Secretary of a Corporation. ARTICLE IV Indemnification of Officers, Directors and Other Eligible Persons Section 4.1. General. To the extent not inconsistent with applicable law, every Eligible Person shall be indemnified by the Corporation against all Liability and reasonable Expense that may be incurred by him in connection with or resulting from any Claim: (a) if such Eligible Person is Wholly Successful with respect to the Claim, or (b) if not Wholly Successful, then if such Eligible Person is determined, as provided in either Section 4.3(a) or 4.3(b) of this Article IV, to have: (1) conducted himself in good faith; and (2) reasonably believed: (i) in the case of conduct in his official capacity with the Corporation, that his conduct was in its best interest; and (ii) in all other cases, that his conduct was at least not opposed to its best interest; and (3) in the case of any criminal proceeding, either: (i) had reasonable cause to believe his conduct was lawful; or (ii) had no reasonable cause to believe his conduct was unlawful. The termination of any Claim, by judgment, order, settlement (whether with or without court approval) or conviction or upon a plea of guilty or of nolo contendere, or its equivalent, shall not create a presumption that an Eligible Person did not meet the standards of conduct set forth in clause (b) of this Section 4.1. The actions of an Eligible Person with respect to an employee benefit plan subject the Employee Retirement Income Security Act of 1974 shall be deemed to have been taken in what the Eligible Person reasonably believed to be the best interests of the Corporation or at least not opposed to its best interests if the Eligible Person reasonable believed he was acting in conformity with the requirements of such Act or he reasonable believed his actions to be in the interests of the participants in or beneficiaries of the plan. Section 4.2. Definitions. (a) The term `Claim'' as used in this Article IV shall include every pending, threatened, or completed claim, action, suit, or proceeding and all appeals thereof (whether brought by or in the right of this Corporation or any other corporation or otherwise), civil, criminal, administrative, or investigative, formal or informal, in which an Eligible Person may become involved, as a party or otherwise: (i) by reason of his being or having been an Eligible Person, or (ii) by reason of any action taken or not taken by him in his capacity as an Eligible Person, whether or not he continued in such capacity at the time such Liability or Expense shall have been incurred. (b) The term `Eligible Person'' as used in this Article IV shall mean every person (and the estate, heirs and personal representatives of such person) who is or was a Director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other organization or entity, whether for profit or not. An Eligible Person shall also be considered to have been serving an employee benefit plan at the request of the Corporation if his duties to the Corporation also imposed duties on, or otherwise involved services by, him to the plan or to participants in or beneficiaries of the plan. (c) The terms `Liability'' and ``Expense'' as used in this Article IV shall include, but shall not be limited to, counsel fees and disbursements and amounts of judgments, fines, or penalties against (including excise taxes assessed with respect to an employee benefit plan), and amounts paid in settlement by or on behalf of, and Eligible Person. (d) The term `Wholly Successful'' as used in this Article IV shall mean (i) termination of any Claim against the Eligible Person in question without any finding of liability or guilt against him, (ii) approval by a court, with knowledge of the indemnity herein provided, of a settlement of any Claim, or (iii) the expiration of a reasonable period of time after making or threatened making of any Claim without the institution of the same, without any payment or promise made to induce a settlement. Section 4.3. Procedure. (a) Every Eligible Person claiming indemnification hereunder (other than one who has been Wholly Successful with respect to any Claim) shall be entitled to indemnification (i) if special independent legal counsel, which may be regular counsel of the Corporation or other disinterested person or persons, in either case selected by the Board of Directors, whether or not a disinterested quorum exists (such counsel or person or persons being hereinafter called the `Referee''), shall deliver to the Corporation a written finding that such Eligible Person has met the standards of conduct set forth in clause (b) of Section 4.1, and (ii) if the Board of Directors, acting upon such written finding, so determines. The Board of Directors shall, if an Eligible Person is found to be entitled to indemnification pursuant to the preceding sentence, also determine the reasonableness of the Eligible Person's Expenses. The Eligible Person claiming indemnification shall, if requested, appear before the Referee, answer questions that the Referee deems relevant, and shall be given ample opportunity to present to the Referee evidence upon which he relies for indemnification. The Corporation shall, at the request of the Referee, make available facts, opinions or other evidence in any way relevant to the Referee's finding that are within the possession or control of the Corporation. (b) If an Eligible Person claiming indemnification pursuant to Section 4.3(a) of this Article IV is found not to be entitled thereto, or if the Board of Directors fails to select a Referee under Section 4.3(a) within a reasonable amount of time following a written request of an Eligible Person for the selection of a Referee, or if the Referee or the Board of Directors fails to make a determination under Section 4.3(a) within a reasonable amount of time following the selection of a Referee, the Eligible Person may apply for indemnification with respect to a Claim to a court of competent jurisdiction, including a court in which the Claim is pending against the Eligible Person. On receipt of an application, the Court, after giving notice to the Corporation and giving the Corporation ample opportunity to present to the court any information or evidence relating to the claim for indemnification that the Corporation deems appropriate, may order indemnification if it determines that the Eligible Person is entitled to indemnification with respect to the Claim because such Eligible Person met the standards of conduct set forth in clause (b) of Section 4.1 of this Article IV. If the court determines that the Eligible Person is entitled to indemnification, the court shall also determine the reasonableness of the Eligible Person's Expenses. Section 4.4. Nonexclusive Rights. The right of indemnification provided in this Article IV shall be in addition to any rights to which any Eligible Person may otherwise be entitled. Irrespective of the provisions of this Article IV, the Board of Directors may, at any time and from time to time, (a) approve indemnification of any Eligible Person to the full extent permitted by the provisions of applicable law at the time in effect, whether on account of past or future transactions, and (b) authorize the Corporation to purchase and maintain insurance on behalf of any Eligible Person against any Liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability. Section 4.5. Expenses. Expenses incurred by an Eligible Person with respect to any Claim may be advanced by the Corporation (by action of the Board of Directors, whether or not a disinterested quorum exists) prior to the final disposition thereof upon receipt of any undertaking by or on behalf of the recipient to repay such amount unless he is determined to be entitled to indemnification. Section 4.6. Contract. The provisions of this Article IV shall be deemed to be a contract between the Corporation and each Eligible Person, and an Eligible Person's rights hereunder with respect to a Claim shall not be diminished or otherwise adversely affected by any repeal, amendment, or modification of this Article IV that occurs subsequent to the date of any action taken or not taken by reason of which such Eligible Person becomes involved in a Claim. Section 4.7. Effective Date. The provisions of this Article IV shall be applicable to Claims made or commenced after the adoption hereof, whether arising from acts or omissions to act occurring before or after the adoption hereof. ARTICLE V Checks All checks, drafts, or other orders for payment of money shall be signed in the name of the Corporation by such officers or persons as shall be designated from time to time by resolution adopted by the Board of Directors and included in the minute book of the Corporation. ARTICLE VI Loans Such of the officers of the Corporation as shall be designated from time to time by any resolution adopted by the Board of Directors and included in the minute book of the Corporation shall have the power, with such limitations thereon as may be fixed by the Board of Directors, to borrow money in the Corporation's behalf, to establish credit, to discount bills and papers, to pledge collateral, and to execute such notices, bonds, debentures, or other evidences of indebtedness, and such mortgages, trust indentures, and other instruments in connection therewith, as may be authorized from time to time by such Board of Directors. ARTICLE VII Execution of Documents The Chairman of the Board, the President or any officer designated by either of them, may, in the Corporation's name, sign all deeds, leases, contracts or similar documents that may be authorized by the Board of Directors unless otherwise directed by the Board of Directors or otherwise provided herein or in the Corporation's Restated Articles of Incorporation, or as otherwise required by law. ARTICLE VIII Shares Section 8.1. Execution. Certificates for capital shares of the Corporation shall be signed by the President and the Secretary or by two officers designated from time to time by the Board of Directors and the seal of the Corporation (or a facsimile thereof), if any, may be thereto affixed. Where any such certificate is also signed by a transfer agent or a registrar, or both, the signatures of the officers of the Corporation may be facsimiles. The Corporation may issue and deliver any such certificate notwithstanding that any such officer who shall have signed, or whose facsimile signature shall have been imprinted on, such certificate shall have ceased to be such officer. Section 8.2. Contents. Each certificate shall state on its face the name of the Corporation and that it is organized under the laws of the State of Indiana, the name of the person to whom it is issued, and the number and class and the designation of the series, if any, of shares the certificate represents, and, whenever the Corporation is authorized to issue more than one class of shares or different series within a class, each certificate issued after the effectiveness of such authorization shall further state conspicuously on its front or back that the Corporation will furnish the shareholder, upon his written request and without charge, a summary of the designations, relative rights, preferences and limitations applicable to each class and series and the authority of the Board of Directors to determine variations in rights, preferences and limitations for future series. Section 8.3. Transfers. Except as otherwise provided by law or by resolution of the Board of Directors, transfers of shares of the Corporation shall be made only on the books of the Corporation by the holder thereof in person or by duly authorized attorney, on payment of all taxes thereon and surrender for cancellation of the certificate or certificates for such shares (except as hereinafter provided in the case of loss, destruction or mutilation of certificates) properly endorsed by the holder thereof or accompanied by the proper evidence of succession, assignment or authority to transfer and delivered to the Secretary or an Assistant Secretary. Section 8.4. Share Transfer Records. There shall be entered upon the share records of the Corporation the number of each certificate issued; the name and address of the registered holder of such certificate; the number, kind and class or series of shares represented by such certificate; the date of issue; whether the shares are originally issued or transferred; the registered holder from whom transferred; and such other information as is commonly required to be shown by such records. The share records of the Corporation shall be kept at its principal office, unless the Corporation appoints a transfer agent or registrar, in which case the Corporation shall keep at its principal office a complete and accurate shareholders' list giving the name and addresses of all shareholders and the number and class of shares held by each. If a transfer agent is appointed by the Corporation, shareholders shall give written notice of any changes in their addresses from time to time to the transfer agent. Section 8.5. Transfer Agents and Registrars. The Board of Directors may appoint one or more transfer agents and one or more registrars and may require each share certificate to bear the signature of either or both. Section 8.6. Loss, Destruction or Mutilation of Certificates. The holder of any of the shares of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate therefore, and the Board of Directors may, in its discretion, cause to be issued to him a new certificate or certificates of shares upon the surrender of the mutilated certificate or, in the case of loss or destruction, upon satisfactory proof of such loss or destruction. The Board of Directors may, in its discretion, require the holder of the lost or destroyed certificate or his legal representative to give the Corporation a bond in such sum and in such form, and with such surety or sureties as it may direct, to indemnify the Corporation, its transfer agents and its registrars, if any, against any claim that may be made against them or any of them with respect to the shares represented by the certificate or certificates alleged to have been lost or destroyed, but the Board of Directors may, in its discretion, refuse to issue a new certificate or certificates, save upon the order of a court having jurisdiction in such matters. Section 8.7. Form of Certificates. The form of the certificates for shares of the Corporation shall conform to the requirements of Section 8.2 of these Bylaws and be in such printed form as shall from time to time be approved by resolution of the Board of Directors. ARTICLE IX Seal The corporate seal of the Corporation shall, if the Corporation elects to have one, be in the form of a disc, with the name of the Corporation on the periphery thereof and the word `SEAL'' in the center. ARTICLE X Miscellaneous Section 10.1. Corporation Law. The provisions of the Corporation Law, as it may from time to time be amended, applicable to all matters relevant to, but not specifically covered by, these Bylaws are hereby, by reference, incorporated in and made a part of these Bylaws. The term `Corporation Law'' as used in these Bylaws means the Indiana Business Corporation Law, as amended from time to time. Section 10.2. Fiscal Year. The fiscal year of the Corporation shall end on the thirty-first day of December of each year. Section 10.3. Control Share Acquisition and Business Combination Chapters. (a) The provisions of I.C. 23-1-42 of the Corporation Law are applicable to the Corporation as of and after March 14, 1989. The provisions of I.C. 23-1-43 of the Corporation Law are not applicable to the Corporation. (b) In the event (i) that no acquiring person statement complying with I.C. 23-1-42-6 has been delivered to the Corporation with respect to a control share acquisition on or before the date of mailing a notice of redemption of control shares pursuant to Section 10.3(c), or (ii) that control shares are not accorded full voting rights by the shareholders pursuant to I.C. 23-1-42-9, the Corporation shall have the power, at its option, to redeem any or all control shares at the fair value thereof, in accordance with the time and other requirements specified by I.C. 23-1-42-10 and this Section 10.3. `Fair Value'' for purposes of the preceding sentence shall be deemed to be equal to the fair market value per share of the class or series of which the control shares are part immediately prior to the first public announcement of the intent or plan of the acquiring person to make a control share acquisition (`Announcement Date'). Such fair market value shall be determined by (i) the highest reported closing sale price during the thirty-day period immediately preceding the Announcement Date if such shares are listed on a securities exchange registered under the Securities Exchange Act of 1934 or if closing sales prices are reported on the National Market of the National Association of Securities Dealers, Inc. Automatic Quotation System (`NASDAQ''), or any similar system of automated dissemination of quotations of securities prices then in common use, or (ii) if such shares are not listed on any such exchange or such closing sales prices are not reported on the National Market, the highest closing bid quotation with respect to such shares during the thirty-day period immediately preceding the Announcement Date as reported on NASDAQ or any similar system then in use, or (iii) if no such quotations are available, the fair market value of such shares immediately prior to the Announcement Date as determined by the Board of Directors in good faith by such other reasonable method as the Board of Directors of the Corporation shall, in its discretion, select and apply. (c) In case the Corporation shall desire to exercise its right to redeem control shares pursuant to Section 10.3(b), notice of such redemption shall be given to the holders of the control shares to be redeemed by mailing to such holders, within the time period, if any, specified by I.C. 23-1-42-10, a notice of such redemption by first class mail, postage prepaid, not less than thirty (30) days prior to the redemption date, to their last addresses as they shall appear upon the stock transfer records of the Corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives the notice, as of the date of mailing of the notice. In any case, failure to give due notice by mail to the holder of any control share, or any defect in such notice, shall not affect the validity of the proceedings for the redemption of any other control share. Each such notice shall specify the redemption date, the number of control shares to be redeemed held by such holder, the place of redemption and the redemptive price at which the control shares are to be redeemed. Such notice shall further state that payment of the redemption price will be made upon presentation and surrender of the certificate(s) representing the control shares (with such instruments of transfer and other assurances as the Corporation may reasonably request) and that from and after the redemption date such holder shall have no rights with respect to such control shares (including no rights to vote or to receive distributions in respect thereof with respect to matters for which the record date shall fall on or after the redemption date) except the right to receive the redemption price (without interest) upon compliance with the procedures specified by this Section 10.3. (d) The Board of Directors may by resolution specify such other procedures as may in its discretion be deemed necessary or advisable for the purpose of implementing this Section 10.3 and is hereby empowered to determine, on the basis of the information known to it, all matters with respect to which a determination is required under I.C. 23-1-42 in connection with redemption of control shares. (e) Terms used in this Section 10.3 not otherwise defined shall, unless the context otherwise requires, have the meanings assigned to them by I.C. 23-1-42. Section 10.4. Definition of Articles of Incorporation. The term `Articles of Incorporation'' as used in these Bylaws means the Articles of Incorporation of the Corporation, as amended and restated from time to time. Section 10.5. Amendments. These Bylaws may be rescinded, changed or amended, and provisions hereof may be waived, at any annual, regular or special meeting of the Board of Directors by the affirmative vote of a majority of the number of Directors then in office, except as otherwise required by the EX-11 4 GERMAN AMERICAN BANCORP COMPUTATION OF EARNINGS PER SHARE (1)
1995 1994 FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED AVERAGE SHARES: Outstanding Common Shares 1,825,641 1,825,641 1,825,059 1,825,059 Common Stock Equivalents: Stock Options (2) 20,822 20,822 23,415 23,415 Assumed Repurchase of Shares (15,429) (14,706) (16,913 ) (16,367) Average Common and Common Equivalent Shares Outstanding 1,831,034 1,831,757 1,831,561 1,832,107 Net Income in Thousands: Before Cumulative Effect of Accounting Change $4,018 $4,018 $3,474 $3,474 Accounting Change 0 0 0 0 Net Income $4,018 $4,018 $3,474 $3,474 Earnings Per Share: (3) Before Cumulative Effect of Accounting Change $2.20 $2.20 $1.90 $1.90 Accounting Change 0.00 0.00 0.00 0.00 Net Income $2.20 $2.20 $1.90 $1.90
1993 FULLY PRIMARY DILUTED AVERAGE SHARES: Outstanding Common Shares 1,825,053 1,825,053 Common Stock Equivalents: Stock Options (2) 26,775 26,775 Assumed Repurchase of Shares (21,168) (18,946) Average Common and Common Equivalent Shares Outstanding 1,830,660 1,832,882 Net Income in Thousands: Before Cumulative Effect of Accounting Change $2,782 $2,782 Accounting Change 150 150 Net Income $2,932 $2,932 Earnings Per Share: (3) Before Cumulative Effect of Accounting Change $1.53 $1.52 Accounting Change 0.08 0.08 Net Income $1.61 $1.60
(1) Average outstanding common shares and net income have been restated for all periods presented to reflect acquisitions made under the pooling of interests method and to reflect a three-for-two stock split effected in the form of a 50% stock dividend in 1993 and a 5% stock dividend in December, 1995. (2) Stock options of 3,497 and 2,186 have been excluded from the above calculations as they were anti-dilutive at December 31, 1994 and 1995, respectively. (3) Stock options are not materially dilutive and have been excluded from earnings per share reflected in the consolidated statements of income. EX-13 5 ANNUAL REPORT TO SHAREHOLDERS FIVE YEAR SUMMARY OF CONSOLIDATED FINANCIAL STATEMENTS AND RELATED STATISTICS (DOLLAR REFERENCES IN THOUSANDS EXCEPT SHARE DATA) The following selected data have been taken from the Company's consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report. See Note 18 to the consolidated financial statements and `Management's Discussion and Analysis of Financial Condition and Results of Operations''for information regarding certain purchase acquisitions during 1994 and 1993 which affect the comparability of data.
1995 1994 1993 SUMMARY OF OPERATIONS Interest and Fees on Loans $21,210 $17,348 $16,312 Interest on Investments 6,087 4,722 5,345 Total Interest Income 27,297 22,070 21,657 Interest on Deposits 12,633 9,394 9,844 interest on Short-term Borrowings 184 133 50 Interest on Long-term Debt --- --- --- Total Interest Expense 12,817 9,527 9,894 Net Interest Income 14,480 12,543 11,763 Provision for Loan Losses (19) 567 653 Net Interest Income after Provision for Loan Losses 14,499 11,976 11,110 Service Charges on Deposit Accounts 620 567 520 Other Income 840 1,122 1,049 Total Other Income 1,460 1,689 1,569 Salaries and Benefits 5,349 4,517 4,338 Other Expenses 4,729 4,092 4,251 Total Other Expenses 10,078 8,609 8,589 Income Before Income Taxes and Cumulative Effect of Change in Accounting for Income Taxes 5,881 5,056 4,090 Income Tax Expense 1,863 1,582 1,308 Effect of Change in Accounting for Income Taxes 4,018 3,474 2,782 Cumulative Effect of Change in Accounting for Income Taxes --- --- 150 Net Income $4,018 $3,474 $2,932 YEAR-END BALANCES Total Assets $367,763 $346,526 $323,279 Total Loans, Net 224,657 218,141 196,465 Total Long-term Debt --- --- --- Total Deposits 327,579 302,290 281,510 Total Shareholders' Equity 36,956 32,925 31,341 PER SHARE DATA (1 ) Income Before Cumulative Effect of Change in Accounting for Income Taxes $2.20 $1.90 $1.53 Net Income 2.20 1.90 1.61 Cash Dividends (2) .76 .68 .66 Shareholders' Equity, End of Year 20.25 18.03 17.16 OTHER DATA AT YEAR-END Number of Shareholders 1,681 1,634 1,649 Number of Employees 167 157 143 Weighted Average Number of Shares 1,825,641 1,825,059 1,825,053 (1)Per share data has been retroactively adjusted to give effect for stock dividends and stock splits. (2)Cash dividends represent historical per share dividends declared without retroactive restatement for pooling.
1992 1991 SUMMARY OF OPERATIONS Interest and Fees on Loans $16,903 $17,739 Interest on Investments 6,018 7,956 Total Interest Income 22,921 25,695 Interest on Deposits 11,197 14,771 interest on Short-term Borrowings 69 185 Interest on Long-term Debt 3 5 Total Interest Expense 11,269 14,961 Net Interest Income 11,652 10,734 Provision for Loan Losses 984 1,943 Net Interest Income after Provision for Loan Losses 10,668 8,791 Service Charges on Deposit Accounts 439 466 Other Income 1,175 481 Total Other Income 1,614 947 Salaries and Benefits 4,096 3,716 Other Expenses 3,881 3,281 Total Other Expenses 7,977 6,997 Income Before Income Taxes and Cumulative Effect of Change in Accounting for Income Taxes 4,305 2,741 Income Tax Expense 1,403 716 Income Before Cumulative Effect of Change in Accounting for Income Taxes 2,902 2,025 Cumulative Effect of Change in Accounting for Income Taxes --- --- Net Income $2,902 $2,025 YEAR-END BALANCES Total Assets $305,022 $291,625 Total Loans, Net 185,741 174,547 Total Long-term Debt --- 69 Total Deposits 270,952 258,133 Total Shareholders' Equity 29,470 27,446 PER SHARE DATA (1 ) Income Before Cumulative Effect of Change in Accounting for Income Taxes $1.59 $1.11 Net Income 1.59 1.11 Cash Dividends (2) .57 .60 Shareholders' Equity, End of Year 16.14 15.03 OTHER DATA AT YEAR-END Number of Shareholders 1,635 1,609 Number of Employees 133 132 Weighted Average Number of Shares 1,825,053 1,825,559 (1)Per share data has been retroactively adjusted to give effect for stock dividends and stock splits. (2)Cash dividends represent historical per share dividends declared without retroactive restatement for pooling.
Exhibit 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table summarizes the net interest income (on a tax-equivalent basis) for each of the past three years. For the tax-equivalent adjustments, an effective tax rate of 34% was used for all years presented. (1)
AVERAGE BALANCE SHEET (TAX-EQUIVALENT / DOLLAR REFERENCES IN THOUSANDS) Twelve Months Ended December 31, 1995 Average Interest Principal Income/ Average Balance Expense Yield Short-term Investments: Interest-bearing Balances with Banks $1,024 $49 4.79% Federal Funds Sold and Securities Purchased under Agreements to Resell 12,716 739 5.81% Other Short-term Investments 11,247 679 6.04% Securities: Taxable 56,670 3,229 5.70% Non-taxable 20,937 2,107 10.06% Total Loans and Leases (2) (3) 230,143 21,302 9.26% TOTAL INTEREST EARNING ASSETS 332,737 28,105 8.45% Cash and Due from Banks 11,159 Premises, Furniture & Equipment 9,668 Other Assets 8,769 Less: Allowance for Loan Losses (5,790) TOTAL ASSETS $356,543 LIABILITIES AND SHARE- HOLDERS' EQUITY Savings and Interest-bearing Demand Deposits $92,311 2,490 2.70% Time Deposits 191,202 10,143 5.30% Federal Funds Purchased and Securities Sold under Agreements to Repurchase 928 57 6.14% Short-term Borrowings 2,141 127 5.93% TOTAL INTEREST-BEARING LIABILITIES 286,582 12,817 4.47% Demand Deposit Accounts 32,576 Other Liabilities 2,993 TOTAL LIABILITIES 322,151 Shareholders' Equity 34,392 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $356,543 NET INTEREST INCOME $15,288 NET YIELD ON EARNING ASSETS 4.59% 1. Effective tax rates were determined as though interest earned on the Company's investments in municipal bonds and loans was fully taxable. 2. Nonaccruing loans have been included in average loans. 3. Interest income on loans includes loan fees of $254, $253, and $206 for 1995, 1994, and 1993, respectively.
AVERAGE BALANCE SHEET (TAX-EQUIVALENT / DOLLAR REFERENCES IN THOUSANDS) Twelve Months Ended December 31, 1994 Average Interest Principal Income/ Average Balance Expense Yield ASSETS Short-term Investments: Interest-bearing Balances with Banks $2,841 $123 4.34% Federal Funds Sold and Securities Purchased under Agreements to Resell 10,688 380 3.56% Other Short-term Investments 4,002 202 5.05% Securities: Taxable 55,014 2,850 5.18% Non-taxable 17,175 1,768 10.29% Total Loans and Leases (2) (3) 214,041 17,401 8.13% TOTAL INTEREST EARNING ASSETS 303,761 22,724 7.48% Cash and Due from Banks 10,222 Premises, Furniture & Equipment 7,636 Other Assets 6,810 Less: Allowance for Loan Losses (5,266) TOTAL ASSETS $323,163 LIABILITIES AND SHARE- HOLDERS' EQUITY Savings and Interest-bearing Demand Deposits $89,175 2,123 2.38% Time Deposits 164,422 7,271 4.42% Federal Funds Purchased and Securities Sold under Agreements to Repurchase 3,572 90 2.52% Short-term Borrowings 1,081 43 4.01% TOTAL INTEREST-BEARING LIABILITIES 258,250 9,527 3.69% Demand Deposit Accounts 30,279 Other Liabilities 2,603 TOTAL LIABILITIES 291,132 Shareholders' Equity 32,031 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $323,163 NET INTEREST INCOME $13,197 NET YIELD ON EARNING ASSETS 4.34% 1. Effective tax rates were determined as though interest earned on the Company's investments in municipal bonds and loans was fully taxable. 2. Nonaccruing loans have been included in average loans. 3. Interest income on loans includes loan fees of $254, $253, and $206 for 1995, 1994, and 1993, respectively.
AVERAGE BALANCE SHEET (TAX-EQUIVALENT / DOLLAR REFERENCES IN THOUSANDS) Twelve Months Ended December 31, 1993 Average Interest Principal Income/ Average Balance Expense Yield ASSETS Short-term Investments: Interest-bearing Balances with Banks $8,183 $335 4.09% Federal Funds Sold and Securities Purchased under Agreements to Resell 8,547 257 3.01% Other Short-term Investments 910 30 3.26% Securities: Taxable 59,532 3,582 6.02% Non-taxable 16,774 1,729 10.31% Total Loans and Leases (2) (3) 202,100 16,356 8.09% TOTAL INTEREST EARNING ASSETS 296,046 22,289 7.53% Cash and Due from Banks 8,779 Premises, Furniture & Equipment 7,365 Other Assets 6,436 Less: Allowance for Loan Losses (4,166) TOTAL ASSETS $314,460 LIABILITIES AND SHARE- HOLDERS' EQUITY Savings and Interest-bearing Demand Deposits $83,765 2,131 2.54% Time Deposits 168,659 7,713 4.57% Federal Funds Purchased and Securities Sold under Agreements to Repurchase 539 17 3.03% Short-term Borrowings 1,155 33 2.87% TOTAL INTEREST-BEARING LIABILITIES 254,118 9,894 3.89% Demand Deposit Accounts 27,278 Other Liabilities 2,596 TOTAL LIABILITIES 283,992 Shareholders' Equity 30,468 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $314,460 NET INTEREST INCOME $12,395 NET YIELD ON EARNING ASSETS 4.19% 1. Effective tax rates were determined as though interest earned on the Company's investments in municipal bonds and loans was fully taxable. 2. Nonaccruing loans have been included in average loans. 3. Interest income on loans includes loan fees of $254, $253, and $206 for 1995, 1994, and 1993, respectively.
INTERIM FINANCIAL DATA (Table 1) (Unaudited, $ in thousands except share data)
FOR THE THREE MONTHS ENDED DECEMBER SEPTEMBER 31 30 1995 Interest Income $7,148 $6,923 Interest Expense 3,422 3,313 Net Interest Income 3,726 3,610 Provision for Loan Losses (34) (213) Noninterest Income 353 353 Noninterest Expense 2,715 2,418 Income before Income Taxes 1,398 1,758 Income Tax Expense 403 598 Net Income $995 $1,160 Net Income per Share $.55 $.63 Weighted Average Shares 1,825,040 1,825,346 1994 Interest Income $6,020 $5,466 Interest Expense 2,599 2,347 Net Interest Income 3,421 3,119 Provision for Loan Losses 105 105 Noninterest Income 370 478 Noninterest Expense 2,382 2,108 Income before Income Taxes 1,304 1,384 Income Tax Expense 419 390 Net Income $885 $994 Net Income per Share $.48 $.54 Weighted Average Shares 1,825,077 1,825,053
INTERIM FINANCIAL DATA (Table 1) (Unaudited, $ in thousands except share data)
FOR THE THREE MONTHS ENDED JUNE MARCH 30 31 1995 Interest Income $6,819 $6,407 Interest Expense 3,253 2,829 Net Interest Income 3,566 3,578 Provision for Loan Losses 114 114 Noninterest Income 354 400 Noninterest Expense 2,509 2,436 Income before Income Taxes 1,297 1,428 Income Tax Expense 392 470 Net Income $905 $958 Net Income per Share $.50 $.52 Weighted Average Shares 1,826,023 1,826,171 1994 Interest Income $5,320 $5,264 Interest Expense 2,296 2,285 Net Interest Income 3,024 2,979 Provision for Loan Losses 107 250 Noninterest Income 439 402 Noninterest Expense 2,085 2,034 Income before Income Taxes 1,271 1,097 Income Tax Expense 439 334 Net Income $832 $763 Net Income per Share $.46 $.42 Weighted Average Shares 1,825,053 1,825,053
INTRODUCTION AND OVERVIEW German American Bancorp (`the Company'') is a multi-bank holding company based in Jasper, Indiana. Its four affiliate banks conduct business in fourteen offices in Dubois, Martin, Pike, Perry and Spencer Counties, Indiana. The banks provide a wide range of financial services, including accepting deposits; making commercial and consumer loans; originating, marketing, and servicing mortgage 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. The information in this Management's Discussion and Analysis is presented as an analysis of the major components of the Company's operations for the years 1993 through 1995 and financial condition as of December 31, 1995 and 1994. The information should be used in conjunction with accompanying consolidated financial statements and footnotes contained elsewhere in this report. The information has been restated to reflect the mergers with Unibancorp and The Otwell State Bank accounted for as poolings of interests as if they had occurred as of the beginning of the first year presented. The acquisition of Winslow Bancorporation and certain branches of Regional Federal Savings Bank (`Regional'') have been accounted for as purchases and included in reported results from the dates of acquisition. (See the discussion below for further information on mergers and acquisitions.) MERGERS AND ACQUISITIONS On March 8, 1993, the Company completed a merger with Unibancorp, Loogootee, Indiana, parent company of The Union Bank (`Union'') in which the Company issued 320,283 shares for all of the outstanding shares of Unibancorp. This merger was recorded utilizing the pooling of interests method of accounting. On April 1, 1993, the Company purchased all the shares of Winslow Bancorporation, Winslow, Indiana and its subsidiary South Western Indiana National Bank (`Southwestern'') in a cash transaction of $2,023,000, recorded utilizing the purchase method of accounting. As a result of the Winslow acquisition, the Company recorded approximately $730,000 of intangible assets consisting of $377,000 of goodwill and $353,000 of core deposit intangible. On April 1, 1994, the Company acquired The Otwell State Bank, Otwell, Indiana (`Otwell''), by the issuance of 113,286 shares for all the outstanding shares of Otwell. This transaction was recorded utilizing the pooling of interests method of accounting. Following the completion of the transaction, Otwell and Southwestern were merged into Community Trust Bank, a combined banking institution operating in the Pike County, Indiana market through offices in Otwell, Petersburg, and Winslow, Indiana. On October 28, 1994, the Company acquired the Regional branches in Huntingburg, Rockport and Tell City, Indiana. This transaction, resulting in the acquisition of approximately $25,000,000 in assets, was recorded utilizing the purchase method of accounting. As a result of the Regional acquisition, the Company recorded approximately $1,670,000 of intangible assets consisting of $1,353,000 of goodwill and $317,000 of core deposit intangible. Intangible assets are being amortized to expense on a straight line basis over a 15 year period in the case of goodwill and over 10 years on an accelerated basis for the core deposit intangible. Following the Regional acquisition, the Huntingburg office was combined into the Company's lead bank, German American Bank. The Tell City and Rockport offices were combined into the Company's newly formed subsidiary bank, First State Bank, Southwest, Indiana (`First State''). Due to the relative impact of First State's operating results in any analysis of the 1995 results as compared to those of previous years, this Management's Discussion and Analysis will attempt to quantify and identify that impact whenever it is deemed to be material in nature. First State provided the Company with an entrance to the Perry and Spencer County, Indiana markets which are adjacent to the general market areas served by the Company and thereby provided a logical extension to the Company's financial services marketing area. The Company does not have any pending mergers or acquisitions but does plan to continue to aggressively pursue such opportunities as they become available. The Company's management believes other community banks located in the Company's general geographic area will find the concept of the Company's localized community bank holding company an attractive alternative to merging with other larger regional multi-bank holding companies. The Company's approach offers these community banks the competitive advantages of operational efficiencies gained through the ability to spread fixed operating costs over a larger asset base without the loss of flexibility and independence generally associated with affiliation with the larger regional multi-bank holding companies. Through the Company, these community banks can retain ownership control within a group of shareholders who reside in their general market areas and who support the bank's commitment to their local communities. Because of this belief, the Company's management anticipates that additional mergers and acquisitions with like-minded community banks may occur in future years. RESULTS OF OPERATIONS NET INCOME Net Income in 1995 was $4,018,000 or $2.20 per share, an increase of 15.7% over the $3,474,000 or $1.90 per share reported in 1994. The increase in 1995 earnings relative to those of a year earlier was materially impacted by an increase in net interest income and a decline in the required level of provision for loan loss. Partially offsetting these earnings improvements were a decline in Investment Services Income and an increase in Salaries and Benefits largely related to the inclusion of First State and the effect of the Company's organizational structure changes discussed at more length below. For 1994, net income was 18.5% higher than in 1993. This increase in 1994 earnings relative to 1993 was impacted by a $150,000 positive cumulative effect of a change in the manner of accounting for income taxes required by the implementation of Financial Accounting Standard 109 during 1993. Excluding this cumulative effect, net income increased by $692,000 or 24.9% in 1994 as compared to 1993. Other factors materially impacting the earnings comparison of 1994 and 1993 were the recording of a significant increase in net interest income as well as an increase in other income and a reduction in the level of provision for loan loss. NET INTEREST INCOME Net interest income is the Company's single largest source of earnings. It represents the difference between interest and fees realized on earning assets, primarily loans and securities, and interest paid on deposits and other borrowed funds. The net interest margin is this difference expressed as a percentage of average earning assets. Several factors contribute to the determination of net interest income, including the volume of earning assets, the mix of earning assets, interest rates, and income taxes. Many of these factors can be controlled by management policies and actions. Factors beyond the control of management include the general level of credit demand, Federal Reserve Board monetary policy, and changes in tax laws. Net interest income for 1995 on a tax-equivalent basis was 15.8% higher than that for 1994 while the net interest margin was 4.59% for 1995 versus 4.34% for 1994. Tax-equivalent net interest income for 1994 was 6.5% higher as compared to 1993 with net interest margin increasing to 4.34% in 1994 from 4.19% in 1993. Excluding the effect of First State, tax-equivalent net interest income was $14,345,000 for 1995, a $1,271,000 or 9.7% increase over the $13,074,000 recorded in 1994, and net interest margins (exclusive of First State) were 4.73% in 1995 and 4.36% in 1994. Management anticipates the tax-equivalent net interest margin of First State Bank will, over time, become more comparable to that of the Company's other affiliate banks because the relative asset and liability mix of First State Bank should become more homogeneous to that of the Company's other affiliate banks. The increase in net interest income during 1995 and 1994 occurred as a result of the impact of increases in average yields on loans and short-term investments and securities, which react more quickly to a rise in general short-term interest rates than the average yields on longer-term investment securities and the average rate paid on interest-bearing liabilities. The increase in short- term interest rates which occurred throughout 1994 and in early 1995 therefore resulted in a corresponding increase in both net interest income and net interest margin. See the discussion headed `Interest Rate Management'' for a further explanation of the Company's interest rate sensitivity position. PROVISION FOR LOAN LOSSES The Company provides for future 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 ($19,000) in 1995, $567,000 in 1994, and $653,000 in 1993. The $586,000 decline in provision during 1995 primarily resulted from a $475,000 negative provision for loan loss at Union Bank. The negative provision at Union Bank was due to collections of previous years' charged-off loans combined with management's determination that an adequate level of loan loss reserve existed prior to the loan recoveries. Because of the adequacy that the existing reserve, the recoveries resulted in the recording of a negative provision. The amount of future years' provision for loan loss will be subject to adjustment based on the findings of future evaluations of the adequacy of the loan loss reserve. The section entitled RISK MANAGEMENT expands this discussion further. NONINTEREST INCOME Exclusive of net security gains and gains on sales of loans and other real estate (`ORE''), noninterest income decreased 5.7% in 1995 to $1,431,000 compared to $1,517,000 in 1994. First State's noninterest income increased by $67,000 during the full year of 1995 as compared to the income recorded by the bank for the two months of operation in 1994. The primary source of noninterest income continues to be trust fees (income from fiduciary activities), service charges on deposit accounts and investment services income. The decline in noninterest income during 1995 was directly attributable to a reduction of Investment Services Income discussed in further detail below. As presented on Table 2 below, trust department income grew by 8.2% in 1995 and resulted from higher levels of assets held in trust combined with an increase in trust fee schedules. Service charges on deposit accounts increased by 9.4% during 1995 because of a larger number of transactions and fee generating opportunities for the Company in this area. Investment services income declined significantly by $212,000 following a $73,000 decline in 1994 reversing a trend of the strong growth experienced in prior years. This investment services income is generated through a full service brokerage operation which is available at several of the Company's affiliate banks through an operating agreement with INVEST FINANCIAL CORPORATION, a subsidiary of Kemper Financial Companies, Inc. The Company intends to expand the availability of investment services throughout its affiliate banks. Noninterest income exclusive of security gains and gains on loan and ORE sales increased 1.7% in 1994 compared to 1993. Trust fees increased by 23.0% while deposit service charges increased by 9.0%. The gains on sales of loans and other real estate in 1995 were related to sales of other real estate while the 1994 gain was due primarily to the gain generated as a result of German American Bank's sale of a portion of excess real estate adjacent to one of its branch facilities. During 1993 the gain resulted primarily from Union's activities involving Small Business Administration loans purchased for resale. In 1993, Union sold the remaining loans held for resale and no longer carries any loans held for resale. The Company's management does not anticipate that Union or any other affiliate bank will engage in this activity in the future. NONINTEREST INCOME (Table 2)($ in thousands)
1995 1994 1993 Income from Fiduciary Activities $185 $171 $139 Service Charges on Deposit Accounts 620 567 520 Investment Services Income 208 420 493 Other Income 418 359 339 Subtotal 1,431 1,517 1,491 Gains on Sales of Loans and Other Real Estate 29 92 61 Security Gains 0 80 17 TOTAL NONINTEREST INCOME $1,460 $1,689 $1,569 N/M = Not Meaningful
NONINTEREST INCOME (Table 2)($ in thousands)
% CHANGE FROM PRIOR YEAR 1994 1993 Income from Fiduciary Activities 8.2% 23.0% Service Charges on Deposit Accounts 9.4 9.0 Investment Services Income (50.5) (14.8) Other Income 16.4 5.9 Subtotal (5.7) 1.7 Gains on Sales of Loans and Other Real Estate (68.5) 50.8 Security Gains N/M 370.6 TOTAL NONINTEREST INCOME (13.6) 7.7 N/M = Not Meaningful
NONINTEREST EXPENSE Total noninterest expense increased 17.1% in 1995 over 1994 levels. As a percentage of average total assets, total noninterest expense was 2.83% in 1995 compared to 2.66% in 1994 and 2.73% in 1993. Excluding the impact of First State Bank, noninterest expense increased by $636,000 or 7.5% in 1995 as compared to 1994. Salaries and employee benefits, which comprise approximately 53% of total noninterest expense, increased by 18.4% in 1995 following a 4.1% increase in 1994. Again excluding the impact of First State, Salaries and Benefits increased by 11.1% in 1995. A significant portion of this increase is attributable to effects of changes in the Company's organizational structure which occurred in mid 1995. Prior to July 1995, the Company's executive officers and support functions served both the Company and its lead affiliate bank, German American Bank. In recognition of the increased management and administrative demands existing under a multi-bank holding company environment, the management and administrative support functions of German American Bank and the Company were segmented into distinct groups with additional staffing implemented as deemed appropriate. Although this organizational change did result in an increased level of Salaries & Benefits, Company management believes the increased management focus at both the Bank and Bancorp level will result in increased operating efficiency. Occupancy expense and furniture and equipment expense combined, increased by $264,000 or 20.4% in 1995 following a 4.9% increase in 1994. Approximately one- half of this increase resulted from First State with the balance of the increased 1995 expense level attributable to an upgrading of facilities and equipment at the Company's other affiliate banks. Computer processing expense increased by 13.4% and 18.5% in 1995 and 1994, respectively reflecting conversion expenses at the Company's newly acquired affiliates. Excluding First State Bank, computer processing fees increased by 5.4% and 17.5% in 1995 and 1994, respectively. Through the utilization of state-of-the-art equipment and computer processing, the Company's management believes it will, over the long-term, be able to better control the level of employee related expenses, the Company's major noninterest expense category, while improving the quality of customer service provided throughout the affiliate bank system. Professional fees declined significantly by 23.0% and 46.9% in 1995 and 1994, respectively, as a result of a reduction in merger related professional fees. While it is not possible to predict the level of acquisition activity and the resulting level of costs associated thereto, management does intend to pursue acquisition opportunities and, therefore, increased and continued costs will be likely in future years. During 1995, the FDIC reduced the commercial bank deposit insurance premium rates as a result of the Bank Insurance Fund (`BIF'') reaching full capitalization of its congressionally mandated level. The full impact of this rate reduction won't be evident until 1996 when FDIC premiums are anticipated to be approximately $60,000, plus any additional assessments or premiums that may arise from proposals before Congress which would result in the recapitalization of the Savings Association Insurance Fund (`SAIF''). Under this proposal, institutions holding deposits insured by SAIF would be subject to a one-time assessment followed by a reduction in ongoing FDIC premiums similar to that currently in place for BIF insured deposits. All of First State's deposits are insured under SAIF. Therefore, the implementation of this proposal would increase 1996 total FDIC premiums by approximately $150,000 to an estimated $210,000 for 1996. Subsequent years premiums following any such SAIF assessment are anticipated to be $2,000 per affiliate bank for a total of $8,000. The statements in this paragraph relating to FDIC premiums and assessments for 1996 and future years are forward-looking statements which may or may not be accurate due to the impossibility of predicting future Congressional or regulatory actions or the future capitalization levels of BIF and SAIF. Other operating expenses increased by 41.3% in 1995 following a 2.9% decrease in 1994. Excluding First State's other operating expense, this component of noninterest expense increased by $334,000 or 21.9% during 1995. This increase is largely attributable to increased advertising and supplies expenses related to the Company's introduction, throughout 1995, of a new company-wide corporate identity program . Additionally, amortization of goodwill and the core deposit intangible totaled $231,000 and $112,000, respectively for 1995 and 1994. First State Bank's operating results reflected a significant portion of the amortization expense. NONINTEREST EXPENSE (Table 3)($ in thousands)
1995 1994 1993 Salaries and Employee Benefits $5,349 $4,517 $4,338 Occupancy, Furniture and Equipment Expense 1,561 1,297 1,237 FDIC Premiums 393 644 645 Computer Processing Fees 399 352 297 Professional Fees 198 257 484 Other Operating Expenses 2,178 1,542 1,588 TOTAL NONINTEREST EXPENSE $10,078 $8,609 $8,589
NONINTEREST EXPENSE (Table 3)($ in thousands)
% CHANGE FROM PRIOR YEAR 1994 1993 Salaries and Employee Benefits 18.4% 4.1% Occupancy, Furniture and Equipment Expense 20.4 4.9 FDIC Premiums (39.0) (.2) Computer Processing Fees 13.4 18.5 Professional Fees (23.0) (46.9) Other Operating Expenses 41.2 (2.9) TOTAL NONINTEREST EXPENSE 17.1 .2
PROVISION FOR INCOME TAXES The Company records a provision for income taxes currently payable, along with a provision for taxes payable in the future. Such deferred taxes arise from differences in the timing of certain items for financial statement reporting versus for income tax reporting. The major difference between the effective tax rate applied to the Company's financial statement income and the federal statutory rate of 34% is interest on tax-exempt securities and loans. Other components affecting this calculation include state income taxes and nondeductible merger costs. Note 10 to the consolidated financial statements contains additional details relative to the Company's income tax provision. The Company's effective tax rate was 31.7%, 31.3% and 32.0% in 1995, 1994, and 1993, respectively. Note 1 presents further information regarding the impact of the change in the manner of accounting for income taxes required by the implementation in 1993 of Financial Accounting Standard 109. CAPITAL RESOURCES Industry 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 a 3.0% leverage ratio, which is Tier 1 capital divided by defined `total assets'', and 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. Table 4 below presents the Company's consolidated capital ratios under the regulatory guidelines. The Company's shareholders' equity of $36,956,000 and $32,925,000 at December 31, 1995 and December 31, 1994, respectively represented 10.0% and 9.5% of total assets. The Company paid cash dividends of $1,392,000 and $1,232,000 during 1995 and 1994, respectively. The increased level of dividends paid in 1995 and 1994 resulted from the issuance of additional shares in connection with the merger transactions and the higher level of the Company's dividend payout ratio relative to that of Unibancorp and The Otwell State Bank. At December 31, 1995, Management is not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material effect on the Company's consolidated liquidity, capital resources or operations. RISK BASED CAPITAL STRUCTURE (Table 4) ($ in thousands)
1995 1994 Tier 1 Capital: Shareholders' Equity as presented on Balance Sheet $36,956 $32,925 Add/(Subtract): Unrealized Depreciation/Appreciation on Securities Available-for-Sale (859) 658 Less: Intangible Assets and Ineligible Deferred Tax Assets (2,140) (2,439) Total 33,957 31,144 Tier 2 Capital: Qualifying Allowance for Loan Loss 2,943 2,712 Total Capital $36,900 $33,856 Risk-adjusted Assets $232,272 $213,827 Tier 1 Capital to Total Assets (leverage ratio) 9.29% 9.05% Tier 1 Capital to Risk-adjusted Assets 14.62% 14.57% Total Capital to Risk-adjusted Assets 15.87% 15.83%
RISK BASED CAPITAL STRUCTURE (Table 4) ($ in thousands)
1993 Tier 1 Capital: Shareholders' Equity as presented on Balance Sheet $31,341 Add/(Subtract): Unrealized Depreciation/Appreciation on Securities Available-for-Sale --- Less: Intangible Assets and Ineligible Deferred Tax Assets (864) Total 30,477 Tier 2 Capital: Qualifying Allowance for Loan Loss 2,522 Total Capital $32,999 Risk-adjusted Assets $199,338 Tier 1 Capital to Total Assets (leverage ratio) 9.45% Tier 1 Capital to Risk-adjusted Assets 15.29% Total Capital to Risk-adjusted Assets 16.55%
SOURCES OF FUNDS The Company's primary funding source is its base of core customer deposits, such as noninterest-bearing demand, regular savings and money market accounts and small denomination certificates of deposit of less than $100,000. Other shorter term sources of funds are larger denomination certificates of deposit, overnight borrowings from other financial institutions, securities sold under agreements to repurchase, short-term notes payable issued on an unsecured basis, and short- term borrowings consisting of interest-bearing demand notes issued to the U.S. Treasury. The Company did not have any long-term debt during the periods presented. The membership of the Company's lead affiliate bank, German American Bank, in the Federal Home Loan Bank System provides an additional source for both long and short-term borrowings. The Company's other affiliate banks are in the process of also obtaining membership in the Federal Home Loan Bank System. No such advances were outstanding during the periods presented. The following page contains a discussion of changes in these areas. Table 5 on the following page presents changes between years in the average balances of all funding sources. FUNDING SOURCES - AVERAGE BALANCES (Table 5) ($ in thousands)
1995 1994 1993 Demand $32,576 $30,279 $27,278 Savings and Interest- bearing Checking 69,847 71,765 68,135 Money Market Accounts 22,464 17,410 15,630 Other Time Deposits 158,428 135,742 138,581 Total Core Deposits 283,315 255,196 249,624 Certificates of Deposits of $100,000 and Over 32,774 28,680 30,078 Federal Funds Purchased and Securities Sold under Agreement to Repurchase 928 3,572 539 Other Short-term Borrowings 2,141 1,081 1,155 Total Funding Sources $319,158 $288,529 $281,396 N/M = Not Meaningful
FUNDING SOURCES - AVERAGE BALANCES (Table 5) ($ in thousands)
% CHANGE FROM PRIOR YEAR 1995 1994 Demand 7.6% 11.0% Savings and Interest- bearing Checking (2.7) 5.3 Money Market Accounts 29.0 11.4 Other Time Deposits 16.7 (2.0) Total Core Deposits 11.0 2.2 Certificates of Deposits of $100,000 and Over 14.3 (4.6) Federal Funds Purchased and Securities Sold under Agreement to Repurchase (74.0) N/M Other Short-term Borrowings 98.1 (6.4) Total Funding Sources 10.6 2.5 N/M = Not Meaningful
CORE DEPOSITS The Company's average core deposits have shown steady growth over the past several years, increasing by 11.0% and 2.2% in 1995 and 1994, respectively. The inclusion of First State accounted for approximately three-fourths of the 11.0% increase experienced during 1995 and for approximately two-thirds of the 1994 increase. In 1995, the Company experienced a shift in the composition of its deposits toward money market deposits and longer term certificates of deposit. This movement is largely attributable to customer reaction to the increase in interest rates during 1995 relative to the prior years' level of interest rates. In total, average savings, interest-bearing checking and money market deposits increased by 3.5% and 6.5% in 1995 and 1994, respectively while other time deposits consisting primarily of certificates of deposits in denominations of $100,000 or less increased by 16.7% in 1995 following a 2.0% decrease in 1994. Average noninterest-bearing demand deposits increased by 7.6% in 1995 and 11.0% in 1994. These changes in the mix of deposits are influenced by customers' tendency to avoid committing to longer term instruments during periods of low or declining interest rates and their attempts to lock in rates on longer term instruments during periods of perceived higher rates. They are also subject to seasonal and other non-economic factors. OTHER FUNDING SOURCES Exclusive of core deposits, large denomination certificates of deposit provide the majority of other funding sources for the Company. These certificates increased by 14.3% in 1995 following a 4.6% decrease in 1994. This entire increase in 1995 was attributable to the inclusion of First State. The remaining other funding sources consist of federal funds purchased from other financial institutions on an overnight basis, secured repurchase agreements which generally mature within 30 days, short-term notes payable extended on an unsecured basis, and borrowings under U.S. Treasury demand notes. These borrowings represent an important source of temporary short-term liquidity for the Company. These types of borrowings and large dollar denominated certificates are considered to be more subject to periodic withdrawals than are core deposits, and, therefore, are generally not used as a permanent funding source for loans. INVESTMENTS The Company's securities portfolio, consisting of all components of the Company's investment securities, mortgage-backed securities, and securities available-for-sale, includes U.S. Treasury securities, obligations of U.S. government agencies, obligations of state and political subdivisions, corporate investments and mortgage-backed securities issued by U.S. government agencies and other intermediaries. Money market securities include federal funds sold, interest-bearing balances with banks, and other short-term investments. The maturities of the securities and money market portfolios are a principal source of funds for loan growth and other liquidity needs. The Company's available- for-sale portfolio provides an additional source of funds from which management can respond to liquidity needs and asset/liability management requirements. During 1995, the Financial Accounting Standards Board authorized a one-time window of opportunity for the transfer of securities to available-for-sale portfolios. Company management utilized this opportunity to transfer a significant portion of its securities portfolio to the available-for-sale classification. Although management may sell these securities if the need arises, their designation as available-for-sale should not be interpreted to indicate that management anticipates such sales. Securities available-for-sale are carried at market value. All other securities are carried at amortized cost because management intends to hold them until maturity and the Company has the ability to do so. Note 2 to the consolidated financial statements contains additional details regarding the Company's securities portfolio in 1995 and 1994. SECURITIES PORTFOLIO (Table 6) ($ in thousands)
December 31, 1995 % Money Market Securities $19,376 17.8% U.S. Treasury and Agency Securities 23,787 21.8 Municipal Securities 25,255 23.2 Corporate Securities 6,463 5.9 Mortgage-backed Securities 33,272 30.6 Other Securities 738 .7 Total Securities Portfolio $108,891 100.0%
SECURITIES PORTFOLIO (Table 6) ($ in thousands)
December 31, 1994 % Money Market Securities $22,257 23.3% U.S. Treasury and Agency Securities 24,330 25.5 Municipal Securities 21,294 22.3 Corporate Securities 999 1.0 Mortgage-backed Securities 25,976 27.2 Other Securities 717 .7 Total Securities Portfolio $95,573 100.0%
LOANS Total loans grew by $6,477,000 or 2.9% between 1995 and 1994. The inclusion of First State's loans in the year-end comparison accounted for $7,152,000 of this growth as the Company's newest affiliate bank achieved a significant market share of the lending opportunities available within its market. Excluding the effect of First State, total loan balances remained relatively unchanged declining by $675,000 or .3% between the two years. The Company's loan portfolio remains well diversified with 55% of the portfolio in commercial and agricultural loans (including economic development bonds), 30% in 1-4 family residential mortgages, and 15% in consumer loans at December 31, 1995. The Company's affiliate banks lend to commercial customers in various industries including agribusiness, manufacturing, health care services, wholesale, and retailing. The Company's policy is generally to extend credit to consumer and commercial borrowers in its primary geographic market area in Southwestern Indiana. Extensions of credit outside this primary geographic market area (other than poultry-related loans described below) are generally concentrated in commercial real estate loans granted on a selective basis generally within a 120 mile radius of the Company's primary market. Loans outside the Company's general geographic market area are further limited to loans guaranteed by either the Small Business Administration (SBA) or the Farmers Home Administration (FmHA). The overall loan portfolio is diversified among a variety of borrowers with a substantial portion of the debtors' ability to honor their contracts dependent upon the agricultural, poultry and wood manufacturing industries. Although wood manufacturers employ a significant number of people in the market area, there is not a concentration of credit to companies engaged in that industry. The Company has historically been involved in the financing of poultry production and other agriculturally integrated related operations. Approximately $23,784,000 or 10.3% of total loans at December 31, 1995 consisted of such loans. As a means of controlling risk from concentrations of credit within this industry, the Company has, during recent years, utilized guaranties from SBA and FmHA. Typically, the guaranties provide for SBA and FmHA, in the event of default, to absorb from 85% to 90% of the loan balance remaining after the application of collateral. Assuming the guarantors perform in accordance with their guaranties, the Company's net exposure is limited to the remaining 10% to 15% balance. At December 31, 1995, the net unguaranteed amount of poultry and other agricultural integrated related loans was $8,221,000 or 3.6% of total loans. The Company intends to promote continued growth within this segment of the loan portfolio. Such growth, however, will be limited by the extent it can be supported by the Company's capital base and by the Company's ability to obtain further SBA and FmHA guaranties. Approximately $17,535,000 of loans to poultry and other agriculturally integrated related operations, substantially all of which are covered by guaranties as described above, were originated outside the Company's primary business market. No unguaranteed concentration of credit in excess of 10% of total assets exists within any single industry group. The composition of loan portfolio at December 31, 1995 and 1994 is presented in further detail in Note 3 to the consolidated financial statements and in Table 7 on the following page. LOAN PORTFOLIO (Table 7) ($ in thousands)
1995 1994 1993 Commercial and Industrial $75,914 $69,482 $64,644 Agricultural and Poultry 51,094 57,558 55,311 Financial --- --- --- Economic Development Bonds 608 625 762 Residential Mortgage Loans 68,826 67,737 55,225 Consumer Loans 34,685 29,248 26,684 Total Loans 231,127 224,650 202,626 Less: Unearned Income 537 840 1,226 Allowance for Loan Loss 5,933 5,669 4,935 Loans, Net $224,657 $218,141 $196,465
LOAN PORTFOLIO (Table 7) ($ in thousands)
1992 1991 Commercial and Industrial $63,855 $62,620 Agricultural and Poultry 54,465 44,876 Financial --- 4,000 Economic Development Bonds 1,547 2,181 Residential Mortgage Loans 47,170 41,042 Consumer Loans 24,183 24,594 Total Loans 191,220 179,313 Less: Unearned Income 1,617 1,562 Allowance for Loan Loss 3,862 3,204 Loans, Net $185,741 $174,547 RISK MANAGEMENT Various procedures are employed at the Company's affiliate banks to monitor risk. The major risk addressed by the Company on a regular basis is the credit risk inherent in the loan portfolio and to a lesser extent, the investment portfolio. Another risk is that associated with changes in interest rates. The following is a discussion of the Company's philosophies and procedures to address risk. LENDING AND LOAN ADMINISTRATION The primary responsibility and accountability for day-to-day lending activities rests with the Company's affiliate banks. Loan personnel at each bank have the authority to extend credit under guidelines approved by the bank's board of directors. Each bank also has executive and board loan committees that serve as vehicles for communication and the pooling of knowledge, judgment and experience of its members. These committees provide valuable input to lending personnel and act as an approval body. They also serve as a monitoring tool of the overall quality of the loan portfolios. Members of the Company's executive officers serve on the board loan committees of each of the affiliate banks to ensure a consistent application of company policies. The Company maintains a comprehensive loan review program for its affiliate banks. The purpose of these reviews is to evaluate loan administration, credit quality, loan documentation and the adequacy of the allowance for loan losses. This program also includes regular reviews of problem loan reports, delinquencies and charge-offs. The adequacy of the allowance for loan losses is also evaluated at the affiliate bank level on a quarterly basis. This evaluation of the allowances for loan losses is based on reviews of specific loans, changes in the type and volume of the loan portfolios given current and anticipated economic conditions, and historical loss experience. The review of specific loans includes loans where the customer's cash flow or net worth may not be sufficient to repay the loan, the loan has been criticized in a regulatory examination, the accrual of interest has been suspended, or for other reasons where either the ultimate collectibility of the loan is in question or the loan has characteristics requiring special monitoring. Activity in the allowance for loan losses is summarized in Table 8 on the following page. Table 9 presents data for the underperforming assets. Underperforming assets consist of 1) nonaccrual loans; 2) loans which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial condition of the borrower; 3) loans past due ninety (90) days or more as to principal or interest; and 4) other real estate owned. Loans are placed on nonaccrual status when scheduled principal or interest payments are past due for 90 days or more, unless the loan is well secured and in the process of collection. Loans are charged-off when they are deemed uncollectible. During 1995, the Company's level of underperforming loans increased from $1,584,000 or .71% of total loans as of December 31, 1994 to $3,486,000 or 1.51% of total loans at December 31, 1995. This increase in the amount of underperforming loans is largely attributable to the past-due status of a single large commercial real estate loan in the loan portfolio of the Company's lead bank, German American Bank. Although past due and a specific allocation of the loan loss reserve has been provided, this credit is not anticipated to present any significant exposure to loss; however, this forward-looking statement assumes the accuracy of financial information provided by the borrower, the borrower's willingness to comply with the promises made to German American Bank, the lack of any adverse change in the borrower's financial condition or results of operations, and the willingness of other creditors to cooperate with the borrower's plans. During 1995, the allowance for loan loss increased by $264,000 as the recoveries of prior years' charge-offs offset all of the loans charged-off during the year allowing for the small negative provision for loan losses recorded in 1995. See the discussion entitled `PROVISION FOR LOAN LOSS''elsewhere in this report for further details regarding the negative provision. ALLOWANCE FOR LOAN LOSSES (Table 8) ($ in thousands)
1995 1994 1993 Balance as of January 1 $5,669 $4,935 $3,862 Addition of Affiliate Banks --- 195 164 Provision for Loan Losses (19) 567 653 Recoveries of Prior Loan Losses 622 227 699 Loan Losses Charged to the Allowance (339) (255) (443) Balance as of December 31 $5,933 $5,669 $4,935
UNDERPERFORMING ASSETS (Table 9) ($ in thousands)
1995 1994 1993 Nonaccrual Loans $803 $983 $1,395 Past Due Loans (90 days or more) 2,683 601 461 Renegotiated Loans --- --- --- Total Underperforming Loans 3,486 1,584 1,856 Other Real Estate Owned 286 497 698 Total Underperforming Assets $3,772 $2,081 $2,554 Allowance for Loan Losses to Underperforming Loans 170.20% 357.89% 265.89% Underperforming Loans to Total Loans 1.51% .71% .92%
INVESTMENTS, LIQUIDITY, AND INFLATION Two of the more important and interrelated areas the Company and its affiliate banks manage very closely are the Company's liquidity requirements and its balance between interest-rate-sensitive assets and interest-rate-sensitive liabilities. Liquidity needs in a banking organization arise from new loan demand, the funding of existing loan commitments, and deposit withdrawals. One important objective in managing the securities portfolio is to ensure the Company has adequate liquidity. The purposes of liquidity management are to match sources of funds with anticipated customer borrowings and withdrawals and other obligations and to ensure a dependable funding base. As discussed in the `Investments'' discussion contained elsewhere in this report, management significantly increased the available-for-sale portfolio during 1995. This action greatly enhanced the Company's ability to quickly react to changes in liquidity and asset and liability needs. Failure to properly manage liquidity requirements can result in the need to satisfy customer withdrawals and other obligations on less than desirable terms. The Company's asset and liability structure is substantially different from that of an industrial company, in that virtually all assets and liabilities of a financial institution are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a financial institution's performance. Interest rates do not necessarily move in the same direction, or in the same magnitude, as the prices of other goods and services. Attention should be directed to the various analyses and schedules throughout Management's Discussion and Analysis which are useful in analyzing how the Company is positioned to react to changing interest rates. INTEREST RATE MANAGEMENT Interest rate sensitivity occurs when assets or liabilities are subject to rate and yield changes within a designated time period. The Company performs rate sensitivity analyses which place each of the Company's balance sheet components in its appropriate maturity category according to its repricing frequency. In addition to rate sensitivity analyses, the Company also utilizes other asset/liability measurements such as computer generated simulation modeling. This enables management to measure the effect on earnings of changes in interest rates. Without regular monitoring and management of these critical areas, a movement in interest rates and its corresponding effect on the net interest margin may significantly affect profitability. The degree of any potential consequences of such interest rate changes can be mitigated by maintaining a proper asset/liability position given projected interest rates. The Company's policy is to actively manage its asset / liability position within a one-year interval with a goal to protect its earnings from being materially adversely impacted by changes in interest rates during the coming year. The Company has a Funds Management Policy which established guidelines under which the affiliate banks manage their securities portfolios. Funds Management Committees at each of the affiliate banks meet quarterly to monitor the established guidelines. The overall objective of these committees is to ensure the Company maintains an adequate level of liquidity and maximizes its net interest margins while implementing and monitoring programs for the matching of the mix and maturities of various asset and liability categories so as to avoid undue interest rate risk. The committees formulate short and long-term strategies, direct the acquisition and allocation of funds and monitor the level of interest rate sensitivity within the established guidelines. Table 10 below reflects the Company's interest rate sensitivity position (interest rate-sensitive assets minus interest rate-sensitive liabilities) individually and cumulatively, over various time horizons. As indicated in the table, a significant portion of the Company's assets and liabilities reprice within 1-181 days. While slightly more of its liabilities than assets are subject to repricing during this period, the Company believes its asset/liability management program allows adequate reaction time to adjust to changes in interest rate trends and believes the current asset/liability position does effectively protect the Company's net interest margin and the resulting net interest income from any material adverse impact during 1996 assuming a moderate rise or decline in interest rates. ANALYSIS OF INTEREST RATE SENSITIVITY at December 31, 1995 (Table 10) ($ in thousands)
1-3 3-6 6-12 Months Months Months Money Market Assets $14,543 $4,434 $99 Securities 14,472 7,337 15,026 Loans (Net of Unearned) 81,348 34,594 68,423 TOTAL EARNING ASSETS $110,363 $46,365 $83,548 INTEREST BEARING LIABILITIES Retail Savings Deposits $96,165 --- --- Retail Time Deposits 26,010 $26,354 $43,534 Large Dollar Denominated Time Deposits 4,639 7,960 6,602 Other Borrowings --- --- --- TOTAL INTEREST BEARING LIABILITIES $126,814 $34,314 $50,136 Periodic GAP $(16,451) $12,051 $33,412 Cumulative GAP $(16,451) $(4,400) $29,012 Cumulative Ratio (1) 87% 97% 114% (1)Rate-sensitive Assets / Rate-sensitive Liabilities
ANALYSIS OF INTEREST RATE SENSITIVITY at December 31, 1995 (Table 10) ($ in thousands)
1-5 Beyond Years 5 Years Total EARNING ASSETS Money Market Assets $300 --- $19,376 Securities 33,963 $18,717 89,515 Loans (Net of Unearned) 36,989 9,236 230,590 TOTAL EARNING ASSETS $71,252 $27,953 $339,481 INTEREST BEARING LIABILITIES Retail Savings Deposits --- --- $96,165 Retail Time Deposits $67,742 $186 163,826 Large Dollar Denominated Time Deposits 7,532 --- 26,733 Other Borrowings --- --- --- TOTAL INTEREST BEARING LIABILITIES $75,274 $186 $286,724 Periodic GAP $(4,022) $27,767 Cumulative GAP $24,990 $52,757 Cumulative Ratio (1) 109% 118% (1)Rate-sensitive Assets / Rate-sensitive Liabilities
CONSOLIDATED BALANCE SHEETS (DOLLAR REFERENCES IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, 1995 1994 ASSETS Cash and Due from Banks (Note 13) $ 15,421 $ 14,636 Federal Funds Sold 12,550 7,650 Cash and Cash Equivalents 27,971 22,286 Interest-bearing Balances with Banks 897 1,192 Other Short-term Investments 5,929 13,415 Securities Available-for-Sale, at Market (Note 2) 78,908 22,043 Securities Held-to-Maturity, at Cost (Market Value of $11,237 and $50,316 on December 31, 1995 and 1994, respectively) (Note 2) 10,607 51,273 Loans (Note 3) 231,127 224,650 Less: Unearned Income (537) (840) Allowance for Loan Losses (Note 4) (5,933) (5,669) Loans, Net 224,657 218,141 Premises, Furniture and Equipment, Net (Note 5) 9,624 9,407 Other Real Estate 286 497 Intangible Assets 1,990 2,235 Accrued Interest Receivable and Other Assets 6,894 6,037 TOTAL ASSETS $ 367,763 $ 346,526 LIABILITIES Noninterest-bearing Deposits $ 40,855 $ 36,448 Interest-bearing Deposits (Note 6) 286,724 265,842 Total Deposits 327,579 302,290 Short-term Borrowings (Note 7) --- 9,169 Accrued Interest Payable and Other Liabilities 3,228 2,142 TOTAL LIABILITIES 330,807 313,601 Commitments and Contingent Liabilities (Notes 12 & 13) SHAREHOLDERS' EQUITY Common Stock, $10 par value; 5,000,000 shares authorized, and 1,825,040 and 1,739,994 issued and outstanding in 1995 and 1994, respectively 18,250 17,400 Preferred Stock, $10 par value; 5,000,000 shares authorized, no shares issued --- --- Additional Paid-in Capital 5,449 3,542 Retained Earnings 12,398 12,641 Unrealized Appreciation / (Depreciation) on Securities Available-for-Sale (Net of tax of $571 and ($431) in 1995 and 1994, respectively) 859 (658) TOTAL SHAREHOLDERS' EQUITY 36,956 32,925 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 367,763 $ 346,526
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF INCOME (DOLLAR REFERENCES IN THOUSANDS EXCEPT EARNINGS PER SHARE)
YEARS ENDED DECEMBER 31, 1995 1994 1993 INTEREST INCOME Interest and Fees on Loans $21,210 $17,348 $16,312 Interest on Federal Funds Sold 739 319 161 Interest on Short-term Investments 728 386 461 Interest and Dividends on Securities Taxable 3,229 2,850 3,582 Non-taxable 1,391 1,167 1,141 TOTAL INTEREST INCOME 27,297 22,070 21,657 INTEREST EXPENSE Interest on Deposits 12,633 9,394 9,844 Interest on Short-term Borrowings 184 133 50 TOTAL INTEREST EXPENSE 12,817 9,527 9,894 NET INTEREST INCOME 14,480 12,543 11,763 Provision for Loan Losses (Note 4) (19) 567 653 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 14,499 11,976 11,110 NONINTEREST INCOME Income from Fiduciary Activities 185 171 139 Service Charges on Deposit Accounts 620 567 520 Investment Services Income 208 420 493 Other Service Charges, Commissions, and Fees 418 359 339 Gains on Sales of Loans and Other Real Estate 29 92 61 Security Gains --- 80 71 TOTAL NONINTEREST INCOME 1,460 1,689 1,569 NONINTEREST EXPENSE Salaries and Employee Benefits (Note 8) 5,349 4,517 4,338 Occupancy Expense 813 678 659 Furniture and Equipment Expense 748 619 578 FDIC Premiums 393 644 645 Computer Processing Fees 399 352 297 Professional Fees 198 257 484 Other Operating Expenses 2,178 1,542 1,588 TOTAL NONINTEREST EXPENSE 10,078 8,609 8,589 Income before Income Taxes and Cumulative Effect of Change in Accounting for Income Taxes 5,881 5,056 4,090 Income Tax Expense (Note 10) 1,863 1,582 1,308 Income before Cumulative Effect of Change in Accounting for Income Taxes 4,018 3,474 2,782 Cumulative Effect of Change in Accounting for Income Taxes (Note 1) --- --- 150 NET INCOME $ 4,018 $ 3,474 $ 2,932 EARNINGS PER SHARE (NOTE 11): Income before Cumulative Effect of Accounting Change $ 2.20 $ 1.90 $ 1.53 Cumulative Effect --- --- .08 Net Income $ 2.20 $ 1.90 $ 1.61
See Accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLAR REFERENCES IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $4,018 $3,474 Adjustments to Reconcile Net Income to Net Cash from Operating Activities Accretion and Amortization on Investments (662) (50) Depreciation and Amortization 948 712 Provision for Loan Losses (19) 567 Gain on Sale of Securities --- (80) Gain on Sales of Loans and Other Real Estate (29) (92) Change in Assets and Liabilities: Loans Purchased for Resale --- --- Deferred Taxes 5 (349) Deferred Loan Fees 34 (157) Interest Receivable (632) (143) Interest Payable 340 40 Other Assets (649) 316 Other Liabilities 163 (274) Unearned Income (303) (386) Total Adjustments (804) 104 NET CASH FROM OPERATING ACTIVITIES 3,214 3,578 CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest-bearing Balances with Banks 295 5,172 Proceeds from Maturities of Other Short-term Investments 52,133 14,835 Purchase of Other Short-term Investments (43,967) (22,049) Proceeds from Maturities of Securities Available-for-Sale 8,518 10,661 Proceeds from Sales of Securities Available-for-Sale --- 3,354 Purchase of Securities Available-for-Sale (26,940) (3,391) Proceeds from Maturities of Securities Held-to-Maturity 8,967 11,972 Proceeds from Sales of Securities Held-to-Maturity --- --- Purchase of Securities Held-to-Maturity (4,243) (16,153) Purchase of Loans (3,691) (7,332) Proceeds from Sales of Loans 500 7,625 Loans Made to Customers net of Payments Received (3,186) (9,462) Proceeds from Sales of Other Real Estate 389 415 Property and Equipment Expenditures (920) (956) Cash Acquired / (Paid) in Acquisition of Affiliates --- 8,934 NET CASH FROM INVESTING ACTIVITIES (12,145) 3,625 CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits 25,289 (4,088) Change in Short-term Borrowings (9,169) 1,003 Purchase and Retire Common Stock (110) --- Dividends Paid (1,392) (1,232) Exercise of Stock Option 22 2 Purchase of Interest in Fractional Shares (24) (2) NET CASH FROM FINANCING ACTIVITIES 14,616 (4,317) NET CHANGE IN CASH AND CASH EQUIVALENTS 5,685 2,886 Cash and Cash Equivalents at Beginning of Year 22,286 19,400 Cash and Cash Equivalents at End of Year $ 27,971 $ 22,286 CASH PAID DURING THE YEAR FOR: Interest $ 12,477 $ 9,487 Income Taxes 1,980 1,984
CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLAR REFERENCES IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $2,932 Adjustments to Reconcile Net Income to Net Cash from Operating Activities Accretion and Amortization on Investments 277 Depreciation and Amortization 557 Provision for Loan Losses 653 Gain on Sale of Securities (17) Gain on Sales of Loans and Other Real Estate (61) Change in Assets and Liabilities: Loans Purchased for Resale 1,862 Deferred Taxes (238) Deferred Loan Fees (28) Interest Receivable 118 Interest Payable (143) Other Assets 470 Other Liabilities (31) Unearned Income (364) Total Adjustments 3,055 NET CASH FROM OPERATING ACTIVITIES 5,987 CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest-bearing Balances with Banks 6,882 Proceeds from Maturities of Other Short-term Investments 11,539 Purchase of Other Short-term Investments (9,021) Proceeds from Maturities of Securities Available-for-Sale 2,229 Proceeds from Sales of Securities Available-for-Sale 1,998 Purchase of Securities Available-for-Sale (13,906) Proceeds from Maturities of Securities Held-to-Maturity 36,835 Proceeds from Sales of Securities Held-to-Maturity 487 Purchase of Securities Held-to-Maturity (32,118) Purchase of Loans (5,208) Proceeds from Sales of Loans 632 Loans Made to Customers net of Payments Received 2,400 Proceeds from Sales of Other Real Estate 57 Property and Equipment Expenditures (488) Cash Acquired / (Paid) in Acquisition of Affiliates (963) NET CASH FROM INVESTING ACTIVITIES 1,355 CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits (5,287) Change in Short-term Borrowings 5,581 Purchase and Retire Common Stock --- Dividends Paid (1,049) Exercise of Stock Option --- Purchase of Interest in Fractional Shares (12) NET CASH FROM FINANCING ACTIVITIES (767) NET CHANGE IN CASH AND CASH EQUIVALENTS 6,575 Cash and Cash Equivalents at Beginning of Year 12,825 Cash and Cash Equivalents at End of Year $ 19,400 CASH PAID DURING THE YEAR FOR: Interest $ 10,037 Income Taxes 1,201
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DOLLAR REFERENCES IN THOUSANDS EXCEPT SHARE DATA)
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS BALANCES, JANUARY 1, 1993 $11,973 $3,509 $13,988 Net Income for 1993 2,932 Stock Split (Note 11) (541,624 Shares) 5,416 (5,416) Purchase of Interest in Fractional Shares (Notes 11 & 18) (12) Cash Dividends ($.57 per Common Share) as restated for the pooling of interests (1,049) BALANCES, DECEMBER 31, 1993 17,389 3,509 10,443 Net Income for 1994 3,474 Changes in Accounting for Securities (Note 1) Net Change in Unrealized Appreciation / (Depreciation) on Securities Purchase and Retirement of 2,082 Shares pursuant to Exercise of Stock Options (Note 9) (21) (4) (42) Issuance of 3,200 shares upon Exercise of Stock Options (Note 9) 32 37 Purchase of Interest in Fractional Shares (Note 18) (2) Cash Dividends ($.68 per Common Share ) as restated for pooling of interests (1,232) BALANCES, DECEMBER 31, 1994 17,400 3,542 12,641 Net Income for 1995 4,018 Unrealized Appreciation on Securities Transferred to Available-for-Sale Net Change in Unrealized Appreciation / (Depreciation) on Securities Purchase and Retirement of 3,600 Shares of Common Stock (36) (7) (67) Purchase and Retirement of 3,331 Shares pursuant to Exercise of Stock Options (Note 9) (33) (7) (64) Issuance of 5,800 Shares upon Exercise of Stock Options (Note 9) 58 68 5% Stock Dividend (86,177 Shares) (Note 11) 861 1,853 (2,714) Purchase of Interest in Fractional Shares (Note 11) (24) Cash Dividends ($.76 per Common Share) (1,392) BALANCES, DECEMBER 31, 1995 $18,250 $5,449 $12,398
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DOLLAR REFERENCES IN THOUSANDS EXCEPT SHARE DATA)
UNREALIZED APPRECIATION / (DEPRECIATION) ON SECURITIES TOTAL AVAILABLE- SHAREHOLDERS' FOR-SALE EQUITY BALANCES, JANUARY 1, 1993 $29,470 Net Income for 1993 2,932 Stock Split (Note 11) (541,624 Shares) --- Purchase of Interest in Fractional Shares (Notes 11 & 18) (12) Cash Dividends ($.57 per Common Share) as restated for the pooling of interests (1,049) BALANCES, DECEMBER 31, 1993 31,341 Net Income for 1994 3,474 Changes in Accounting for Securities (Note 1) $274 274 Net Change in Unrealized Appreciation / (Depreciation) on Securities (932) (932) Purchase and Retirement of 2,082 Shares pursuant to Exercise of Stock Options (Note 9) (67) Issuance of 3,200 shares upon Exercise of Stock Options (Note 9) 69 Purchase of Interest in Fractional Shares (Note 18) (2) Cash Dividends ($.68 per Common Share ) as restated for pooling of interests (1,232) BALANCES, DECEMBER 31, 1994 (658) 32,925 Net Income for 1995 4,018 Unrealized Appreciation on Securities Transferred to Available-for-Sale 523 523 Net Change in Unrealized Appreciation / (Depreciation) on Securities 994 994 Purchase and Retirement of 3,600 Shares of Common Stock (110) Purchase and Retirement of 3,331 Shares pursuant to Exercise of Stock Options (Note 9) (104) Issuance of 5,800 Shares upon Exercise of Stock Options (Note 9) 126 5% Stock Dividend (86,177 Shares) (Note 11) --- Purchase of Interest in Fractional Shares (Note 11) (24) Cash Dividends ($.76 per Common Share) (1,392) BALANCES, DECEMBER 31, 1995 $859 $36,956
See accompanying notes to consolidated financial statements. Notes to the Consolidated Financial Statements December 31, 1995, 1994, and 1993 (dollar references in thousands) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION German American Bancorp, (formerly known as GAB Bancorp) operates primarily in the banking industry, which accounts for over 90% of its revenues, operating income and identifiable assets. German American Bancorp generates commercial, installment and mortgage loans and receives deposits from customers through its locations in the Indiana counties of Dubois, Martin, Pike, Perry and Spencer. The overall loan portfolio is diversified among a variety of individual borrowers, with a substantial portion of debtors' ability to honor their contracts dependent on the agriculture, poultry and wood manufacturing industries. Although wood manufacturers employ a significant number of people in the Company's market area, the Company does not have a concentration of credit to companies engaged in that industry. The majority of the Company's loans are secured by specific items of collateral including business assets, consumer assets and real property. These financial statements include the accounts of German American Bancorp and its wholly-owned subsidiaries, The German American Bank, The Union Bank, Winslow Bancorporation, Inc., Community Trust Bank (wholly-owned by Winslow Bancorporation), First State Bank, Southwest Indiana and GAB Mortgage Corp. Significant intercompany balances and transactions have been eliminated in consolidation. Certain items in the 1994 and 1993 financial statements have been reclassified to correspond with the 1995 presentation. USES OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS Management must make estimates and assumptions in preparing financial statements that affect the amounts reported therein and the disclosures provided. These estimates and assumptions may change in the future and future results could differ. Areas involving the use of management's estimates and assumptions include the allowance for loan losses, the realization of deferred tax assets, fair values of certain securities, the determination and carrying value of impaired loans, the carrying value of other real estate, the determination of other-than-temporary reductions in the fair value of securities, recognition and measurement of loss contingencies, depreciation of premises and equipment, and the carrying value and amortization of intangibles. Estimates that are more susceptible to change in the near term include the allowance for loan losses, the determination and carrying value of impaired loans, and the fair value of certain securities. SHORT-TERM INVESTMENTS Short-term Investments consist of interest-bearing balances with banks, which are generally limited to FDIC insured amounts, and Bankers Acceptances. These investments generally have terms to maturity of less than one year and are carried at cost, which approximates market value. SECURITIES On January 1, 1994, the Company adopted Financial Accounting Standard No. 115 (FAS 115), `Accounting for Certain Investments in Debt and Equity Securities.'' Upon adoption of FAS 115, securities were classified by management as available- for-sale or held-to-maturity. The adoption of FAS 115 in 1994 had no effect on net income, earnings per share or retained earnings, but did increase shareholders' equity by $274 on January 1, 1994, which is a market adjustment of $454 less $180 in deferred taxes. Securities classified as available-for-sale are securities that the Company intends to hold for an indefinite period of time, but not necessarily until maturity, and includes securities that management might use as part of its asset-liability strategy or that may be sold in response to changes in the interest rates, changes in prepayment risk, or for similar reasons. It is difficult to predict whether changes such as the above will occur or the degree or specific nature of such changes. The amount of securities reported as available-for-sale include securities that might be sold if a condition changes in a given way, whereas those securities might not be sold if the condition does not change or if it changes in a different way. Accordingly, many securities reported as available-for-sale may not be sold and thus the amount reported does not necessarily represent anticipated sales and resulting cash receipts. Securities available-for-sale are reported at market value with unrealized gains or losses included as a separate component of equity net of tax. Securities classified as held-to-maturity are securities that the Company has both the ability and positive intent to hold to maturity. Securities held-to- maturity are carried at amortized cost. Premium amortization is deducted from and discount accretion is added to interest income using the level yield method. The cost of securities sold is computed on the identified securities method. INTEREST INCOME ON LOANS Interest is accrued over the term of the loans based on the principal balance outstanding. Loans are placed on a nonaccrual status when scheduled principal or interest payments are past due 90 days or more, unless the loan is well secured and in the process of collection. Under FAS 114 and 118 (as explained below in ``Allowance for Loan Losses''), the carrying values of impaired loans are periodically adjusted to reflect cash payments, revised estimates of future cash flows, and increases in the present value of expected cash flows due to the passage of time. Cash payments representing interest income are reported as such. Other cash payments are reported as reductions in carrying value, while increases or decreases due to changes in estimates of future payments and due to the passage of time are reported as bad debt expense, if reductions, or otherwise as interest income. LOAN FEES AND COSTS The Company defers loan fees and certain direct loan origination costs. The amounts deferred are reported in the balance sheet as part of loans and are recognized into interest income over the term of the loan using the level yield method. ALLOWANCE FOR LOAN LOSSES Because some loans may not be repaid in full, an allowance for loan losses is recorded. Increases of the allowance are recorded by a provision for possible loan losses charged to expense. Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover possible losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time. While management may periodically allocate portions of the allowance for specific problem loan situations, the whole allowance is available for any loan charge-offs that occur. A loan is charged- off by management as a loss when deemed uncollectible, although collection efforts continue and future recoveries may occur. Statements of Financial Accounting Standards No. 114 and No. 118 were adopted January 1, 1995. These standards require recognition of loan impairment if a loan's full principal or interest payments are not expected to be received. Loans considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans. No increase to the allowance for loan losses was required at January 1, 1995 as a result of the adoption of these new standards. Smaller-balance homogenous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Commercial, agricultural, and poultry loans are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of more than 30 days. Nonaccrual loans are generally also considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. The nature of disclosures for impaired loans is considered generally comparable to prior nonaccrual and renegotiated loan disclosures. PREMISES, FURNITURE, AND EQUIPMENT Premises, Furniture and Equipment are stated at cost less accumulated depreciation. Premises and related components are depreciated on the straight- line method with useful lives ranging from 10 to 40 years. Furniture and equipment are primarily depreciated using straight-line methods with useful lives ranging from 3 to 12 years. Maintenance and repairs are expensed and major improvements are capitalized. At the time of sale or disposition of an asset, the applicable cost and accumulated depreciation amounts are removed from the accounting records. OTHER REAL ESTATE Other Real Estate is carried at the lower of cost or fair value less estimated selling costs. Expenses incurred in carrying Other Real Estate are charged to operations as incurred. INTANGIBLE ASSETS Intangible Assets are comprised of core deposit intangible ($434 and $548 at December 31, 1995 and 1994, respectively) and goodwill ($1,556 and $1,687, at December 31, 1995 and 1994, respectively). Core deposit intangible is being amortized on an accelerated method over ten years and goodwill is being amortized on a straight-line basis over fifteen years. CHANGE IN ACCOUNTING FOR INCOME TAXES The Company adopted, effective January 1, 1993, Statement of Financial Accounting Standards 109 (FAS 109). The adoption of FAS 109 changes the Company's accounting for income taxes from an income statement approach to an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The effect of adopting FAS 109 in 1993 was to increase net income by $150, which represents the cumulative effect of the accounting change on years prior to January 1, 1993. INCOME TAXES Deferred tax liabilities and assets are determined at each balance sheet date. They are measured by applying enacted tax laws to future amounts that will result from differences in the financial statement and tax basis of assets and liabilities. Recognition of deferred tax assets is limited by the establishment of a valuation reserve unless management concludes that the assets will more likely than not result in future tax benefits to the Company. Income tax expense is the amount due on the current year tax returns plus or minus the change in deferred taxes. STATEMENT OF CASH FLOWS The Company reports net cash flows for customer loan transactions, deposit transactions and deposits made with other financial institutions. Cash and cash equivalents are defined to include cash on hand, demand deposits in other institutions and Federal Funds Sold. NOTE 2 - SECURITIES The amortized cost and estimated market values of Securities as of December 31, 1995 are as follows:
GROSS AMORTIZED UNREALIZED COST GAINS Securities Available-for-Sale: U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $23,727 $172 Obligations of State and Political Subdivisions 14,232 1,154 Corporate Securities 6,375 88 Mortgage-backed Securities 33,144 317 Total $77,478 $1,731
GROSS ESTIMATED UNREALIZED MARKET LOSSES VALUE Securities Available-for-Sale: U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $(112) $23,787 Obligations of State and Political Subdivisions --- 15,386 Corporate Securities --- 6,463 Mortgage-backed Securities (189) 33,272 Total $(301) $78,908
GROSS AMORTIZED UNREALIZED COST GAINS Securities Held-to-Maturity: Obligations of State and Political Subdivisions $9,869 $659 Other Securities 738 --- Total $10,607 $659
GROSS ESTIMATED UNREALIZED MARKET LOSSES VALUE Securities Held-to-Maturity: Obligations of State and Political Subdivisions $(29) $10,499 Other Securities --- 738 Total $(29) $11,237
The amortized cost and estimated market values of Securities as of December 31, 1994 are as follows:
GROSS AMORTIZED UNREALIZED COST GAINS Securities Available-for-Sale: U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $7,280 $11 Obligations of State and Political Subdivisions 56 1 Corporate Securities 212 --- Mortgage-backed Securities 15,584 30 Total $23,132 $42
GROSS ESTIMATED UNREALIZED MARKET LOSSES VALUE Securities Available-for-Sale: U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $(210) $7,081 Obligations of State and Political Subdivisions --- 57 Corporate Securities (16) 196 Mortgage-backed Securities (905) 14,709 Total $(1,131) $22,043
GROSS AMORTIZED UNREALIZED COST GAINS Securities Held-to-Maturity: U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $17,249 $7 Obligations of State and Political Subdivisions 21,237 634 Corporate Securities 803 --- Mortgage-backed Securities 11,267 1 Other Securities 717 --- Total $51,273 $642
GROSS ESTIMATED UNREALIZED MARKET LOSSES VALUE Securities Held-to-Maturity: U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $(769) $16,487 Obligations of State and Political Subdivisions (234) 21,637 Corporate Securities (1) 802 Mortgage-backed Securities (595) 10,673 Other Securities --- 717 Total $(1,599) $50,316
NOTE 2 - SECURITIES (CONTINUED) The amortized cost and estimated market value of Securities at December 31, 1995 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.
ESTIMATED AMORTIZED MARKET COST VALUE Securities Available-for-Sale: Due in one year or less $9,794 $9,826 Due after one year through five years 21,861 22,091 Due after five years through ten years 6,770 7,216 Due after ten years 5,909 6,503 Mortgage-backed Securities 33,144 33,272 Totals $77,478 $78,908
ESTIMATED AMORTIZED MARKET COST VALUE Securities Held-to-Maturity: Due in one year or less $190 $201 Due after one year through five years 1,949 2,012 Due after five years through ten years 2,158 2,357 Due after ten years 5,572 5,929 Other Securities 738 738 Totals $10,607 $11,237
1995 AVAILABLE- HELD-TO- FOR-SALE MATURITY Sales of Securities are summarized below: Proceeds from Sales $0 $0 Gross Gains on Sales 0 0 Gross Losses on Sales 0 0 Income Taxes on Gross Gains 0 0 Income Taxes on Gross Losses 0 0
1994 AVAILABLE- HELD-TO- FOR-SALE MATURITY Sales of Securities are summarized below: Proceeds from Sales $3,354 $0 Gross Gains on Sales 82 0 Gross Losses on Sales 2 0 Income Taxes on Gross Gains 33 0 Income Taxes on Gross Losses 1 0
1993 AVAILABLE- HELD-TO- FOR-SALE MATURITY Sales of Securities are summarized below: Proceeds from Sales $1,998 $487 Gross Gains on Sales 0 48 Gross Losses on Sales 11 20 Income Taxes on Gross Gains 0 19 Income Taxes on Gross Losses 4 8
Upon acquisition of The Otwell State Bank in 1994, $2,400 of securities were transferred from held-to-maturity to available-for-sale. Securities with a carrying value of $8,488 and $13,349 as of December 31, 1995 and 1994, respectively, were pledged to secure public and trust deposits and for other purposes as required by law. No investment securities of an individual issuer exceeded ten percent of German American Bancorp shareholders' equity at December 31, 1995. The total dollar amount of Cash and Due from Banks, Federal Funds Sold and Other Short- term Investments with National City Bank, Louisville, Kentucky was $16,278 at December 31, 1995. Investments in state and political subdivisions and corporate obligations are generally required by policy to be investment grade as established by national rating organizations. However, the purchase of non-rated Indiana municipal securities is permitted by policy when the inherent quality of the issue is clearly evident to management. These investments are actively traded and have a readily available market valuation. Market values of these investments are reviewed quarterly with market values being obtained from an independent rating service or broker. At December 31, 1995, U.S. Government Agency structured notes with an amortized cost of $9,250 and fair value of $9,201 are included in securities available-for-sale, consisting primarily of step-up and single-index bonds. At December 31, 1995, mortgage-backed securities include collateralized mortgage obligations (CMO's) and real estate mortgage investment conduits (REMIC's) with an amortized cost of $29,429 and fair value of $29,474, all of which are issued by U.S. Government Agencies and of which approximately $28,041 are fixed rate and approximately $1,433 are single-index variable rate. NOTE 3 - LOANS Loans, as presented on the balance sheet, are comprised of the following classifications as of December 31,
1995 1994 Real Estate Loans Secured by 1- 4 Family Residential Properties $68,826 $67,737 Loans to Finance Poultry Production and Other Related Operations 23,784 25,599 Loans to Finance Agricul- tural Production and Other Loans to Farmers 27,310 31,959 Commercial and Industrial Loans 74,612 67,662 Loans to Individuals for Household, Family and Other Personal Expenditures 34,685 29,248 Economic Development Commission Bonds 608 625 Lease Financing 1,302 1,820 Total $231,127 $224,650
Underperforming loans are loans which are contractually past due 90 days or more as to interest or principal payments, loans accounted for on a nonaccrual basis and troubled debt restructurings. Underperforming assets at December 31 are as follows:
1995 1994 Underperforming Loans $3,486 $1,584 Other Real Estate Owned 286 497 Total Underperforming Assets $3,772 $2,081 Interest that would have been recognized at the original rate on Underperforming Loans $337 $136 Amount of interest recognized on Underperforming Loans $280 $123
Certain directors, executive officers, and principal shareholders of the Company, including their immediate families and companies in which they are principal owners, were loan customers of the Company during 1995. A summary of the activity of these loans is as follows:
BALANCE CHANGES JANUARY 1, IN PERSONS 1995 ADDITIONS INCLUDED $9,740 $7,264 $0
DEDUCTIONS BALANCE DECEMBER 31, COLLECTED CHARGED-OFF 1995 $(7,126) $0 $9,878
NOTE 4 - ALLOWANCE FOR LOAN LOSSES A summary of the activity in the Allowance for Loan Losses is as follows:
1995 1994 1993 Balance as of January 1 $5,669 $4,935 $3,862 Addition of Affiliate Banks --- 195 164 Provision for Loan Losses (19) 567 653 Recoveries of Prior Loan Losses 622 227 699 Loan Losses Charged to the Allowance (339) (255) (443) Balance as of December 31 $5,933 $5,669 $4,935
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Information regarding impaired loans is as follows for the year ended December 31, 1995: Average investment in impaired loans $4,233 Interest income recognized on impaired loans including interest income recognized on cash basis $353 Interest income recognized on impaired loans on cash basis 270 Information regarding impaired loans is as follows at December 31, 1995: Balance of impaired loans $6,244 Less: Portion for which no allowance for loan loss is allocated 215 Portion of impaired loan balance for which an allowance for credit losses is allocated $6,029 Portion of allowance for loan losses allocated to the impaired loan balance $898
At December 31, 1995, impaired loans of $2,646 are also included in Underperforming Loans (Note 3). NOTE 5 - PREMISES, FURNITURE, AND EQUIPMENT
Premises, furniture, and equipment as presented on the balance sheet is comprised of the following classifications: 1995 1994 Land $1,472 $1,418 Buildings and Improvements 9,160 8,841 Furniture and Equipment 4,578 4,269 Total Premises, Furniture and Equipment 15,210 14,528 Less: Accumulated Depreciation (5,586) (5,121) Total $9,624 $9,407
NOTE 6 - DEPOSITS The aggregate amount of interest-bearing deposits in denominations of $100 or more was $26,733 and $26,868 as of December 31, 1995 and 1994, respectively. NOTE 7 - SHORT-TERM BORROWINGS
Short-term borrowings, as presented in the balance sheet, consist of the following: 1995 1994 Interest-bearing Demand Notes issued to the U.S. Treasury $ --- $ 898 Securities Sold under Agreements to Repurchase --- 8,171 Federal Funds Purchased --- 100 Total Short-term Borrowings $ --- $9,169
NOTE 8 - EMPLOYEE BENEFIT PLANS During 1995, the Company and all its banking affiliates provided a trusteed noncontributory profit sharing plan which covered substantially all full-time employees. Contributions are discretionary and are subject to determination by the Board of Directors. Contributions to this plan for 1995 were $184. During 1994, First State Bank did not participate in the plan and, prior to 1994, only German American Bank had such a plan. Contributions were $170 and $121 for 1994 and 1993, respectively. During 1995, the Company and all its banking affiliates offered 401(k) deferred compensation plans under which the banks agree to match certain employee contributions. Contributions to this plan during 1995 were $196. During 1994, all affiliate banks of the Company except First State Bank offered this plan. Only German American and Union provided such plans in 1993. Contributions to these plans were $154 and $135 for 1994 and 1993, respectively. NOTE 9 - STOCK OPTION PLAN During 1992, the Company adopted a Stock Option Plan which reserved 76,287 shares of Common Stock (as adjusted for subsequent stock splits and subject to further customary antidilution adjustments) for the purpose of grants of options to officers and other employees of the Company. The date on which options are first exercisable is determined by the Stock Option Committee of the Company, but no stock option may be exercised after ten years from the date of grant. Options may be designated as `incentive stock options'' under the Internal Revenue Code of 1986, or as nonqualified options. The exercise price of incentive stock options granted pursuant to the Plan must be no less than the fair market value of the Common Stock on the date of the grant. The Plan authorizes an optionee to pay the exercise price of options in cash or in common shares of the Company or in some combination of cash or common shares. If an optionee tenders already-owned common shares to the Company to exercise an option, the Company is obligated to use its best efforts to issue to such optionee a replacement option for the number of shares tendered of the same type (either an incentive stock option or a nonqualified option) as the option exercised and with the same expiration date priced at the fair market value of the stock on that date. Replacement options may not be exercised until one year from the date of grant. Changes in options outstanding were as follows, as adjusted to reflect stock splits and stock dividends: WEIGHTED AVERAGE OPTION PRICE
1995 1994 1993 Outstanding at beginning of year $21.51 $20.64 --- Granted during the year $29.71 $30.83 $20.64 Exercised during the year $20.64 $20.64 --- Outstanding at end of year $22.99 $21.51 $20.64 Exercisable at end of year $23.08 $20.64 $20.64
NUMBER OF OPTIONS
1995 1994 1993 Outstanding at beginning of year 25,601 26,775 --- Granted during the year 3,497 2,186 26,775 Exercised during the year (6,090) (3,360) --- Outstanding at end of year 23,008 25,601 26,775 Exercisable at end of year 9,116 9,555 4,725
There were 49,512 shares available for grant as of December 31, 1995. NOTE 10 - INCOME TAXES THE PROVISION FOR INCOME TAXES CONSISTS OF THE FOLLOWING:
1995 1994 1993 Currently Payable $1,858 $1,931 $1,546 Deferred 52 (267 ) (238 ) Net Operating Loss Carryforward (47) (82 ) --- Total $1,863 $1,582 $1,308
Income tax expense is reconciled to the 34% statutory rate applied to pre-tax income as follows:
1995 1994 1993 Statutory Rate Times Pre-tax Income $2,000 $1,719 $1,391 Add/(Subtract) the Tax Effect of: Income from Tax-exempt Loans and Investments (531) (435 ) (423 ) Non-deductible Merger Costs --- 26 74 Non-deductible Interest Expense 49 30 27 State Income Tax, Net of Federal Tax Effect 344 291 249 Tax Effect of Other Differences 1 (49) (10) Total Income Taxes $1,863 $1,582 $1,308
The net deferred tax asset at December 31 consists of the following:
1995 1994 Deferred Tax Assets: Allowance for Loan Losses $1,474 $1,521 Net Operating Loss Carryforwards 281 328 Unrealized Depreciation on Securities --- 431 Other 271 199 Total Deferred Tax Assets 2,026 2,479 Deferred Tax Liabilities: Leasing Activities, net (227 ) (286 ) Depreciation (122) (102 ) Purchase Accounting Adjustments (63) (80 ) Unrealized Appreciation on Securities (571) --- Other (145) (46 ) Total Deferred Tax Liabilities (1,128) (514 ) Valuation Allowance (48) (71 ) Net Deferred Tax Asset $850 $1,894
The Company's subsidiary, Winslow Bancorporation, has $826 of federal tax net operating loss carryforwards expiring in the following amounts:
YEAR AMOUNT 1996 $52 1997 128 1998 80 1999 135 2000 135 2001 129 2002 105 2007 58 2008 4
NOTE 11 - PER SHARE DATA In July 1993, the Board of Directors authorized a three-for-two stock split effected in the form of a 50 percent stock dividend issued in August, 1993. In December 1995, the Board of Directors declared a 5 percent stock dividend payable on December 22, 1995. In lieu of issuing fractional shares, the Company purchased from shareholders their fractional interest in both instances. Earnings and dividend per share amounts have been retroactively computed as though these additionally issued shares had been outstanding for all periods presented. The weighted average number of shares used in calculating earnings and dividends per share amounts were 1,825,641, 1,825,059, and 1,825,053 for 1995, 1994, and 1993, respectively. Stock Options (see Note 9) are not materially dilutive and have been excluded from weighted average shares. NOTE 12 - LEASE COMMITMENTS The total rental expense for all leases for the years ended December 31, 1995, 1994, and 1993 was $73, $67, and $61, respectively, including amounts paid under short-term cancelable leases. At December 31, 1995, the German American Bank subleased space for two branch banking facilities from a company controlled by a director and principal shareholder of the Company. The subleases expire in 1996 and 2000 with various renewal options provided. Aggregate annual rental payments to this Director's company totaled $31 for 1995. Exercise of the Bank's sublease renewal options are contingent upon the Director's company renewing its primary leases. The following is a schedule of future minimum lease payments:
Years Ending December 31: PREMISES EQUIPMENT TOTAL 1996 $25 $11 $36 1997 17 8 25 1998 17 1 18 1999 17 --- 17 2000 10 --- 10 Total $86 $20 $106
NOTE 13 - COMMITMENTS AND OFF-BALANCE SHEET ITEMS In the normal course of business, there are various commitments and contingent liabilities, such as guarantees and commitments to extend credit, which are not reflected in the accompanying consolidated financial statements. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to make loans, standby letters of credit, and financial guarantees is represented by the contractual amount of those instruments. The Company uses the same credit policy to make such commitments as it uses for on-balance sheet items. These financial instruments at December 31, are summarized as follows:
1995 1994 Commitments to Fund Loans Home Equity $5,760 $5,036 Credit Card Lines 3,287 2,200 Commercial Real Estate Commitments 1,516 385 Commercial Operating Lines 22,913 14,593 Total Commitments to Fund Loans $33,476 $22,214 Standby Letters of Credit $3,110 $4,188
NOTE 13 - COMMITMENTS AND OFF-BALANCE SHEET ITEMS (CONTINUED) Since many commitments to make loans expire without being used, the amount does not necessarily represent future cash commitments. Collateral obtained upon exercise of the commitment is determined using management's credit evaluation of the borrower, and may include accounts receivable, inventory, property, land and other items. the approximate duration of these commitments is generally one year or less. The interest rates associated with these commitments are generally variable rate. During 1995, the Company self-insured employee health benefits for all affiliates. Stop loss insurance covers losses exceeding $35 per covered individual and approximately $296 in the aggregate . Management's policy is to establish a reserve for claims not submitted by a charge to earnings based on prior experience. The charge to earnings for 1995 was $269. During 1994, the Company self-insured the benefits for all affiliates except First State Bank. Prior to 1994, only German American Bank self- insured the health benefits. The charges to earnings were $230 for 1994 and $187 for 1993. At December 31, 1995, the affiliate banks were required to have $1,950 on deposit with the Federal Reserve or as cash on hand. These reserves do not earn interest. NOTE 14 - NON-CASH INVESTING ACTIVITIES
1995 1994 1993 Loans Transferred to Other Real Estate $149 $122 $97 Securities Transferred to Available-for-Sale $35,943 $32,732 ---
The data above should be read in conjunction with the Consolidated Statements of Cash Flows. Securities were transferred to Available-for-Sale in 1994 upon adoption of FAS 115 (Note 1). During December 1995, Securities were transferred from Held-to-Maturity to Available-for-Sale in accordance with the Financial Accounting Standards Board Special Report on implementation of FAS 115. NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS The condensed financial statements of German American Bancorp as of December 31, 1995 and 1994, and for each of the three years ended December 31, 1995, 1994, and 1993 are as follows: GERMAN AMERICAN BANCORP BALANCE SHEETS DECEMBER 31,
1995 1994 ASSETS Cash $409 $340 Investment in Subsidiary Banks and Bank Holding Company 35,833 32,174 Investment in GAB Mortgage Corp 274 269 Furniture and Equipment 313 16 Other Assets 204 130 TOTAL ASSETS $37,033 $32,929 LIABILITIES $77 $4 SHAREHOLDERS' EQUITY Common Stock 18,250 17,400 Additional Paid-in Capital 5,449 3,542 Retained Earnings 12,398 12,641 Unrealized Appreciation/ (Depreciation) on Securities Available-for-Sale 859 (658) TOTAL SHAREHOLDERS' EQUITY 36,956 32,925 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $37,033 $32,929
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED) GERMAN AMERICAN BANCORP STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 INCOME Dividends from Subsidiary Banks $2,511 $4,754 $4,531 Interest Income 18 44 29 Fee Income 178 --- --- Total Income 2,707 4,798 4,560 EXPENSES Salaries and Benefits 922 533 26 Professional Fees 95 157 187 Occupancy and Equipment Expense 130 2 --- Other Expenses 104 24 33 Total Expenses 1,251 716 246 INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 1,456 4,082 4,314 Income Tax Benefit 415 286 16 INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 1,871 4,368 4,330 Equity in Undistributed Income of Subsidiaries 2,147 (894) (1,398) NET INCOME $4,018 $3,474 $2,932
GERMAN AMERICAN BANCORP STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $4,018 $3,474 $2,932 Adjustments to Reconcile Net Income to Net Cash from Operations Depreciation 65 2 --- Change in Other Assets (74) (110) 90 Change in Other Liabilities 73 (66) (45) Equity in Undistributed Income of Subsidiaries (2,147) 894 1,398 Total Adjustments (2,083) 720 1,443 Net Cash from Operating Activities 1,935 4,194 4,375 CASH FLOWS FROM INVESTING ACTIVITIES Investment in Subsidiaries --- (3,818) (2,339) Advances made to Subsidiaries --- (1,000) (3,400) Repayment of Advances by Subsidiaries --- 2,100 2,500 Property and Equipment Expenditures (362) (18) --- Net Cash from Investing Activities (362) (2,736) (3,239) CASH FLOWS FROM FINANCING ACTIVITIES Dividends Paid (1,392) (1,232) (1,049) Exercise of Stock Options 22 2 --- Purchase and Retire Common Stock (110) --- --- Purchase of Interest in Fractional Shares (24) (2) (12) Net Cash from Financing Activities (1,504) (1,232) (1,061) NET CHANGE IN CASH AND CASH EQUIVALENTS 69 226 75 Cash and Cash Equivalents at Beginning of Year 340 114 39 Cash and Cash Equivalents at End of Year $409 $340 $114
NOTE 16 - PENDING CHANGES IN ACCOUNTING POLICIES As of January 1, 1996 the following new Statements of Financial Accounting Standards (FAS) become applicable to the Company: FAS 121, `Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of'; FAS 122, ``Accounting for Mortgage Servicing Rights'; and FAS 123, ``Accounting for Stock-Based Compensation'. FAS 121 requires review of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Management does not expect the adoption of FAS 121 to have a material effect on the consolidated financial statements. FAS 122 eliminates the d istinction between purchased and originated mortgage servicing rights and causes an asset to be recorded for newly originated mortgage servicing rights. As the Company presently does not purchase or retain originated mortgage servicing rights, FAS 122 will have no effect on the consolidated financial statements. FAS 123 encourages entities to use a `fair value based method'' to account for stock-based compensation plans. If FAS 123 is not adopted, entities must disclose the proforma effect on net income and on earnings per share had the statement been adopted. The Company does not plan to use a fair value method to account for stock compensation plans, and, accordingly, the effect of FAS 123 will be limited to the additional disclosures of the required market values. NOTE 17 - DIVIDENDS AND CAPITAL REQUIREMENTS German American Bancorp's primary source of funds with which to pay dividends is its affiliate banks. The Banks and the Company are each required to maintain minimum capital amounts in accordance with regulatory requirements. Capital, as defined, is generally required to be at least 3% to 5% of total assets (leverage ratio), as defined, or at least 8% to 10% of risk-based assets (total risk-based capital ratio), as defined. At December 31, 1995 the Company's leverage and total risk-based capital ratios were 9.29% and 15.89%, respectively, which exceeded the minimum requirements by 6.29% and 7.89%, respectively. Under these requirements, the Company estimates as of December 31, 1995 that retained earnings available for payment by affiliate Banks to the Company approximated $3,272 and that approximately $12,398 of Company retained earnings are available for payment to shareholders. NOTE 18 - BUSINESS COMBINATIONS On April 1, 1994, the Company acquired all of the outstanding shares of The Otwell State Bank of Otwell, Indiana in exchange for 113,286 shares of German American Bancorp common stock. The Otwell State Bank was subsequently merged into Community Trust Bank. Fractional interests were paid in cash of $2. The transaction was accounted for as a pooling of interests. On March 8, 1993, the Company acquired all of the outstanding shares of Unibancorp and its wholly owned subsidiary, The Union Bank of Loogootee, Indiana in exchange for 320,283 shares of German American Bancorp common stock (Unibancorp was subsequently merged into German American Bancorp). Fractional interests were paid in cash of $1. The transaction was accounted for as a pooling of interests. On April 1, 1993, the Company acquired all of the outstanding stock of Winslow Bancorporation, Inc. and its subsidiary, then known as Southwestern Indiana Bank, of Winslow, Indiana, for total cash consideration of $2,023 plus direct expenses. The transaction was recorded under the purchase method of accounting and resulted in goodwill of $377 and core deposit intangible of $353. Winslow Bancorporation's consolidated financial statements reflected, on an unaudited basis, total assets of $17,692, total liabilities of $16,161, and shareholders' equity of $1,531 at April 1, 1993, and a net loss of $203 for the period January 1 through April 1, 1993. The Company's consolidated financial statements do not include the assets, liabilities, equity, revenue, and net loss of Winslow Bancorporation, Inc. prior to the April 1, 1993 purchase date. On October 28, 1994, the Company acquired three Indiana branches of Regional Federal Savings Bank. The Huntingburg branch site was subsequently combined into an existing branch of the German American Bank in Huntingburg, while the other two sites in Tell City and Rockport comprise a newly-formed commercial bank known as First State Bank, Southwest Indiana. The fair value of assets acquired was $16,048, the fair value of liabilities assumed was $24,982, and the Company received $8,934 of cash at settlement. Goodwill associated with this purchase was $1,353 while core deposit intangible was $317. NOTE 19 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND SHORT-TERM INVESTMENTS For short-term instruments, the carrying amount is a reasonable estimate of fair value. SECURITIES For securities, fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar instruments. LOANS The fair value of loans is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSIT LIABILITIES The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed- maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. SHORT-TERM BORROWINGS For short-term borrowings, the carrying amount is a reasonable estimate of fair value. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT These instruments are generally short-term or variable rate with minimal fees charged. Carrying value (which is zero) is a reasonable estimation of fair value. DECEMBER 31, 1995 CARRYING FAIR VALUE VALUE Financial Assets: Cash and Short-term Investments $34,797 $34,797 Securities Available-for-Sale 78,908 78,908 Securities Held-to-Maturity 10,607 11,237 Loans, net 224,657 223,949 Financial Liabilities: Deposits (327,579) (329,840) Short-term Borrowings --- --- Unrecognized Financial Instruments Commitments to extend credit --- --- Standby letters of credit --- --- DECEMBER 31, 1994 CARRYING FAIR VALUE VALUE Financial Assets: Cash and Short-term Investments $36,893 $36,893 Securities Available-for-Sale 22,043 22,043 Securities Held-to-Maturity 51,273 50,316 Loans, net 218,141 216,694 Financial Liabilities: Deposits (302,290) (301,694) Short-term Borrowings (9,169) (9,169) Unrecognized Financial Instruments Commitments to extend credit --- --- Standby letters of credit --- --- INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders German American Bancorp Jasper, Indiana We have audited the accompanying consolidated balance sheets of German American Bancorp as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1993 have been restated to reflect the pooling of interests in 1994, as described in Note 18. We did not audit the separate 1993 financial statements of the company acquired as reflected in the pooling of interests, which statements reflect (in thousands) net income of $104 for the year ended December 31, 1993. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the other company for the year ended December 31, 1993, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of German American Bancorp as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As described in Note 1 to the consolidated financial statements, the Corporation changed its method of accounting for certain loans in 1995, securities in 1994, and income taxes in 1993 to comply with new accounting pronouncements. Indianapolis, Indiana February 1, 1996 Crowe, Chizek and Company LLP MARKET AND DIVIDEND INFORMATION FOR GERMAN AMERICAN BANCORP COMMON STOCK MARKET AND DIVIDEND INFORMATION The following table sets forth (a) the high and low bid prices for the Company's common stock as reported by NASDAQ by quarter for 1995 and 1994, and (b) dividends declared per share on the Company's common stock (not retroactively restated for pooling of interests transactions) by quarter during 1995 and 1994. Bid prices in the table reflect interdealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. All per share information has been retroactively restated for the Company's 5% stock dividend in December 1995. 1995 High Bid Low Bid Dividend First Quarter $29.52 $29.05 $.19 Second Quarter $29.52 $28.57 $.19 Third Quarter $29.05 $28.10 $.19 Fourth Quarter $30.48 $28.10 $.19 $.76 1994 First Quarter $29.52 $27.62 $.17 Second Quarter $28.57 $27.62 $.17 Third Quarter $29.05 $28.10 $.17 Fourth Quarter $29.52 $28.57 $.17 $.68 The Common Stock was held of record by approximately 1,681 shareholders at February 22, 1996. Funds for payment by the Company of cash dividends are expected to be obtained from dividends received by the Company from its subsidiaries. The Company presently intends to follow its historical policy as to the amount, timing and frequency of the payment of dividends. In addition, the Company's Board of Directors presently intends to consider declaring and issuing a stock dividend of 5% on an annual basis. The declaration and payment of future dividends, however, will depend upon the earnings and financial condition of the Company and its subsidiaries, general economic conditions, compliance with regulatory requirements and other factors. THE COMPANY WILL PROVIDE A COPY OF ITS ANNUAL REPORT (FORM 10-K, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION), WITHOUT EXHIBITS, FREE OF CHARGE, TO ANY SHAREHOLDER, UPON WRITTEN REQUEST. SUCH WRITTEN REQUESTS SHOULD BE MADE TO JOHN M. GUTGSELL, CONTROLLER, GERMAN AMERICAN BANCORP, 711 MAIN STREET, JASPER, EX-21 6 SUBSIDIARIES OF THE REGISTRANT STATE OF NAME INCORPORATION THE GERMAN AMERICAN BANK INDIANA GAB MORTGAGE CORP INDIANA THE UNION BANK INDIANA WINSLOW BANCORPORATION, INC. INDIANA COMMUNITY TRUST BANK INDIANA FIRST STATE BANK, SOUTHWEST INDIANA INDIANA EX-23 7 CONSENT OF INDEPENDENT ACCOUNTANTS Board of Directors German American Bancorp Jasper, Indiana We consent to the inclusion by reference in the Registration Statement of German American Bancorp on Form S-3, which relates to the Dividend Reinvestment and Stock Purchase Plan and which is included by reference as an Exhibit in the December 31, 1995 Form 10-K, of our Independent Auditor's Report, dated January 27, 1995, on the consolidated financial statements of German American Bancorp as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994. We also consent to the use of our name and the statements with respect to us appearing under the heading `Experts'' in the Registration Statement Form S-3. By/s/Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP March 20, 1996 Indianapolis, Indiana EX-27 8
9 12-MOS DEC-31-1995 DEC-31-1995 14,523 898 12,550 0 78,908 10,607 11,237 230,590 5,933 367,763 327,579 0 3,228 0 18,250 0 0 18,706 367,763 21,210 4,621 1,467 27,298 12,633 184 12,817 (19) 0 10,078 5,881 5,881 0 0 4,018 2.20 2.20 4.35 803 2,683 0 3,486 5,669 339 622 5,933 5,933 0 1,677
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