-----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, RRyny1m/iFJ0dDxisR5pY8ndPk3F570U+GhX1pPRCkml8rhdjvm+SIpfZwc4zugw wAWH+XwodBNDcO7blbrizQ== 0000714395-96-000010.txt : 19960816 0000714395-96-000010.hdr.sgml : 19960816 ACCESSION NUMBER: 0000714395-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11244 FILM NUMBER: 96613441 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) I X I Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Quarterly Period Ended June 30, 1996 Or I I Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period From to ---------- ---------- Commission File Number 0-11244 German American Bancorp (Exact name of registrant as specified in its charter) INDIANA 35-1547518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 711 Main Street, Jasper, Indiana 47546 (Address of Principal Executive Offices and Zip Code) Registrant's telephone number, including area code:(812) 482-1314 Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 10, 1996 Common Stock, 1,829,034 $10.00 par value GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets -- June 30, 1996 and December 31, 1995 Consolidated Statements of Income -- Three Months Ended June 30, 1996 and 1995 Consolidated Statements of Income -- Six Months Ended June 30, 1996 and 1995 Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1996 and 1995 Notes to Consolidated Financial Statements -- June 30, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART 1.FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTS GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEET (dollar references in thousands except share data) (unaudited) June 30, December 31, 1996 1995 ASSETS Cash and Due from Banks $14,947 $15,421 Federal Funds Sold 4,425 12,550 Cash and Cash Equivalents 19,372 27,971 Interest-bearing Balances with Banks 699 897 Other Short-term Investments 492 5,929 Securities Available-for-Sale, at Market (Note 3) 86,033 78,908 Securities Held-to-Maturity, at cost (Market Value of $11,560 and $11,237 on June 30, 1996 and December 31, 1995, respectively) (Note 3) 11,270 10,607 Loans (Note 4) 244,352 231,127 Less: Unearned Income (425) (537) Allowance for Loan Losses (Note 5) (6,057) (5,933) Loans, Net 237,870 224,657 Premises, Furniture and Equipment, Net 9,680 9,624 Other Real Estate 262 286 Intangible Assets 1,881 1,990 Accrued Interest Receivable and Other Assets 7,036 6,894 TOTAL ASSETS $374,595 $367,763 LIABILITIES Noninterest-bearing Deposits $37,085 $40,855 Interest-bearing Deposits 294,414 286,724 Total Deposits 331,499 327,579 Short-term Borrowings 2,217 --- Accrued Interest Payable and Other Liabilities 3,427 3,228 TOTAL LIABILITIES 337,143 330,807 SHAREHOLDERS' EQUITY Common Stock, $10 par value; 5,000,000 shares authorized, and 1,827,460 and 1,825,040 issued and outstanding in 1996 and 1995, respectively 18,275 18,250 Preferred Stock, $10 par value; 500,000 shares authorized, no shares issued --- --- Additional Paid-in Capital 5,508 5,449 Retained Earnings 13,719 12,398 Unrealized Appreciation / (Depreciation) on Securities Available-for-Sale (Net of tax of ($33) and $571 in 1996 and 1995, respectively) (50) 859 TOTAL SHAREHOLDERS' EQUITY 37,452 36,956 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $374,595 $367,763 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME (dollar references in thousands except per share data) (unaudited) Three Months Ended June 30, 1996 1995 INTEREST INCOME Interest and Fees on Loans $5,432 $5,304 Interest on Federal Funds Sold 125 213 Interest on Short-term Investments 38 198 Interest and Dividends on Securities 1,424 1,104 TOTAL INTEREST INCOME 7,019 6,819 INTEREST EXPENSE Interest on Deposits 3,337 3,195 Interest on Short-term Borrowings 11 58 TOTAL INTEREST EXPENSE 3,348 3,253 NET INTEREST INCOME 3,671 3,566 Provision for Loan Losses 68 114 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,603 3,452 NONINTEREST INCOME Income from Fiduciary Activities 48 44 Service Charges on Deposit Accounts 182 149 Investment Services Income 119 52 Other Charges, Commissions, and Fees 118 96 Gains on Sales of Loans and Other Real Estate 0 13 Gains on Sales of Securities 0 0 TOTAL NONINTEREST INCOME 467 354 NONINTEREST EXPENSE Salaries and Employee Benefits 1,424 1,339 Occupancy Expense 203 198 Furniture and Equipment Expense 173 176 FDIC Premiums 19 174 Computer Processing Fees 101 99 Professional Fees 87 37 Other Operating Expenses 537 486 TOTAL NONINTEREST EXPENSE 2,544 2,509 Income before Income Taxes 1,526 1,297 Income Tax Expense 469 392 Net Income $1,057 $905 Earnings Per Share (Note 2) $0.58 $0.50 Dividends Paid Per Share $0.21 $0.19 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME (dollar references in thousands except per share data) (unaudited) Six Months Ended June 30, 1996 1995 INTEREST INCOME Interest and Fees on Loans $10,843 $10,257 Interest on Federal Funds Sold 306 376 Interest on Short-term Investments 122 429 Interest and Dividends on Securities 2,709 2,164 TOTAL INTEREST INCOME 13,980 13,226 INTEREST EXPENSE Interest on Deposits 6,633 5,950 Interest on Short-term Borrowings 22 132 TOTAL INTEREST EXPENSE 6,655 6,082 NET INTEREST INCOME 7,325 7,144 Provision for Loan Losses 78 228 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,247 6,916 NONINTEREST INCOME Income from Fiduciary Activities 98 104 Service Charges on Deposit Accounts 345 296 Investment Services Income 222 100 Other Charges, Commissions, and Fees 194 225 Gains on Sales of Loans and Other Real Estate 2 29 Gains on Sales of Securities 0 0 TOTAL NONINTEREST INCOME 861 754 NONINTEREST EXPENSE Salaries and Employee Benefits 2,826 2,613 Occupancy Expense 405 400 Furniture and Equipment Expense 358 353 FDIC Premiums 35 348 Computer Processing Fees 206 194 Professional Fees 145 77 Other Operating Expenses 1,020 960 TOTAL NONINTEREST EXPENSE 4,995 4,945 Income before Income Taxes 3,113 2,725 Income Tax Expense 965 862 Net Income $2,148 $1,863 Earnings Per Share (Note 2) $1.18 $1.02 Dividends Paid Per Share $0.41 $0.38 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar references in thousands) (unaudited) Six Months Ended June 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $2,148 $1,863 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Amortization and Accretion of Investments (54) (404) Depreciation and Amortization 459 476 Provision for Loan Losses 78 228 Gains on Sales of Securities --- --- Gains on Sales of Loans and Other Real Estate (2) (29) Change in Assets and Liabilities: Unearned Income (112) (155) Interest Receivable (270) (143) Other Assets 673 (641) Interest Payable 37 183 Deferred Loan Fees (12) (4) Deferred Taxes 12 (504) Other Liabilities 162 931 Total Adjustments 971 (62) Net Cash from Operating Activities 3,119 1,801 CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest-bearing Balances with Banks 198 398 Proceeds from Maturities of Other Short-term Investments 7,000 32,000 Purchase of Other Short-term Investments (1,466) (31,535) Proceeds from Maturities of Securities Available-for-Sale 13,591 1,748 Proceeds from Sales of Securities Available-for-Sale --- --- Purchase of Securities Available-for-Sale (22,224) (7,749) Proceeds from Maturities of Securities Held-to-Maturity 154 6,108 Proceeds from Sales of Securities Held-to-Maturity --- --- Purchase of Securities Held-to-Maturity (818) (1,739) Purchase of Loans (24) (259) Loans Made to Customers net of Payments Received (13,143) (5,630) Proceeds from Sales of Loans --- 500 Property and Equipment Expenditures (406) (628) Proceeds from Sales of Other Real Estate 26 139 Net Cash from Investing Activities (17,112) (6,647) CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits 3,920 6,016 Change in Short-term Borrowings 2,217 (3,062) Dividends Paid (749) (696) Exercise of Stock Options 6 --- Purchase and Retire Common Stock --- (46) Net Cash from Financing Activities 5,394 2,212 Net Change in Cash and Cash Equivalents (8,599) (2,634) Cash and Cash Equivalents at Beginning of Year 27,971 22,286 Cash and Cash Equivalents at End of Year $19,372 $19,652 Cash Paid During the Year for: Interest $6,618 $5,899 Income Taxes 868 971 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 (unaudited) Note 1 -- Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles have been condensed or omitted. All adjustments made by management to these unaudited statements were of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the German American Bancorp's December 31, 1995 Annual Report to Shareholders. 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. Note 2 -- Per Share Data The weighted average number of shares used in calculating earnings and dividends per share amounts were 1,827,354 and 1,826,097 for the second quarters of 1996 and 1995, respectively. The weighted average number of shares for the first six months of 1996 and 1995 were 1,827,460 and 1,826,023, respectively. The 1992 weighted average amounts have been retroactively restated for the effect of a 5% stock dividend declared in December 1995. Note 3 -- Securities At June 30, 1996 and December 31, 1995, U.S. Government Agency structured notes with an amortized cost of $6,300 and $9,250, respectively and fair value of $6,205 and $9,201, respectively, are included in securities available-for- sale, consisting primarily of step-up and single-index bonds. Information regarding collateralized mortgage obligations (CMO's) and real estate mortgage investment conduits (REMIC's) is as follows: June 30, December 31, 1996 1995 Amortized Cost $27,939 $29,429 Fair Value 28,150 29,474 Fixed Rate 26,720 28,041 Variable Rate 1,430 1,433 Note 4 -- Loans Loans, as presented on the balance sheet, are comprised of the following classifications: June 30, December 31, 1996 1995 (dollar references in thousands) Real Estate Loans Secured by 1-4 Family Residential Properties $70,808 $68,826 Loans to Finance Poultry Production and other Related Operations 19,006 23,784 Loans to Finance Agricultural Production and Other Loans to Farmers 29,385 27,310 Commercial and Industrial Loans 86,535 74,612 Loans to Individuals for Household, Family and Other Personal Expenditures 37,205 34,685 Economic Development Commission Bonds 594 608 Lease Financing 819 1,302 Total Loans $244,352 $231,127 Information regarding impaired loans is as follows at June 30, 1996 and December 31, 1995: June 30, December 31, 1996 1995 Balance of impaired loans $5,580 $6,244 Less: Portion for which no allowance for loan loss is allocated 180 215 Portion of impaired loan balance for which an allowance for credit losses is allocated $5,400 $6,029 Portion of allowance for loan losses allocated to the impaired loan balance $830 $898 Note 5 -- Allowance for Loan Losses A summary of the activity in the Allowance for Loan Losses is as follows: 1996 1995 (dollar references in thousands) Balance at January 1 $5,933 $5,669 Provision for Loan Losses 78 228 Recoveries of Prior Loan Losses 153 77 Loan Losses Charged to the Allowance (107) (259) Balance at June 30 $6,057 $5,715 Note 6 -- Stock Options As of January 1, 1996 Statement of Financial Accounting Standards No. 123 (FAS123), `Accounting for Stock-Based Compensation'' is applicable to the Company. FAS123 encourages, but does not require, the use of a `fair value based method''to account for stock-based compensation plans. The Company has elected not to change its accounting for stock options to a fair value based method, and no compensation expense was recorded for stock options granted during the six months ended June 30, 1996. Note 7 -- Proposed Acquisition The Company signed an agreement in July 1996 providing for the merger of Peoples Bancorp of Washington (Washington, Indiana) (`Peoples Bancorp'') with the Company. Peoples Bancorp owns all of the outstanding stock of Peoples National Bank and Trust Company, Washington, Indiana (`Peoples Bank''). Peoples Bank operates four banking offices in Daviess County, Indiana. Under the terms of the agreement, the Company will issue to the shareholders of Peoples Bancorp between 586,111 and 659,375 shares of Company common stock (subject to customary antidilution adjustments in the event of stock dividends, splits and the like) depending upon the Company's average common stock price during a period prior to the date of the merger closing. The transaction is expected to be accounted for as a pooling of interests. The proposed merger is subject to approval by the Boards of Directors of both German American and Peoples Bancorp of a comprehensive agreement incorporating the terms of the July 1996 agreement and other customary terms and conditions, approval of that agreement by the shareholders of Peoples Bancorp, approvals of bank regulatory agencies, and other conditions. The parties contemplate that the merger will be effective at year end 1996 or early 1997. As of December 31, 1995 and for the year ended, Peoples Bancorp reported total assets of $90,841,580, shareholders equity of $8,832,441 and net income of $823,972. ITEM 2. GERMAN AMERICAN BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS German American Bancorp (``the Company'') is a multi-bank holding company based in Jasper, Indiana. Its four affiliate banks conduct business in 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, mortgage and consumer loans; issuing credit life, accident and health insurance; providing trust services for personal and corporate customers; providing safe deposit facilities; and providing investment advisory and brokerage services. This section presents an analysis of the consolidated financial condition of the Company as of June 30, 1996 and December 31, 1995 and the consolidated results of operations for the periods ended June 30, 1996 and 1995. This review should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's December 31, 1995 Annual Report to Shareholders. RESULTS OF OPERATIONS Net Income: Earnings for the second quarter of 1996 were $1,057,000 or $.58 per share as compared to $905,000 or $.50 per share for the same period a year earlier. Net income for the first half of 1996 was $2,148,000 or $1.18 per share, which was $285,000 or 15.3 percent greater than the $1,863,000 or $1.02 per share recorded during the same period in 1995. Principal factors affecting the earnings comparison were an increase in the net interest income, a lower provision for loan losses and an increase in noninterest income. Net Interest Income: Net Interest Income is the Company's largest component of income and represents the difference between interest and fees earned on loans and investments and the interest paid on interest-bearing liabilities. In this discussion net interest income is presented on a `tax-equivalent'' basis whereby tax exempt income, such as interest on securities of state and political subdivisions, has been increased to the amount that would have been earned on a comparable taxable basis. This adjustment places taxable and non-taxable income on a common basis and allows an accurate comparison of rates and yields. The following table summarizes German American Bancorp's net interest income (on a tax-equivalent basis) for each of the periods presented herein. An effective tax rate of 34 percent is used on each period presented. Six Months Change from Ended June 30, Prior Period 1996 1995 Amount Percent (dollar references in thousands) Interest Income $14,424 $13,613 $811 6.0% Interest Expense 6,655 6,082 573 9.4% Net Interest Income $7,769 $7,531 $238 3.2% Three Months Change from Ended June 30, Prior Period 1996 1995 Amount Percent (dollar references in thousands) Interest Income $7,246 $7,014 $232 3.3% Interest Expense 3,348 3,253 95 2.9% Net Interest Income $3,898 $3,761 $137 3.6% For the first half of 1996, the tax-equivalent net interest income of $7,769,000 exceeded the 1995 amount by $238,000 or 3.2%. For the second quarter of 1996, tax-equivalent net interest income of $3,898,000 increased by $137,000 or 3.6% from the 1995 level. The net interest margin for the first half of 1996 was 4.53% versus 4.64% for 1995. The increase in the level of higher yielding assets, such as loans, which occurred during the period in 1996 resulted in a corresponding increase in net interest income. The decrease in net interest margin reflects the effect of the decline in general interest rates which occurred during the last half of 1995. This decrease occurred as a result of the impact on the average yields on loans and short-term investments which react more quickly to changes in general short-term interest rates than the average yields on investment securities and the average rates paid on interest- bearing deposits. Provision For Loan Losses: The Company provides for loan losses through regular provisions to the allowance for loan losses. These provisions are made at a level which is considered necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of this loan loss reserve is completed quarterly by management. The Provision for loan losses for the second quarter of 1996 was $68,000 while a $114,000 provision was recorded for the comparable period of 1995. The provision for loan losses in the first half of 1996 was $78,000 versus $228,000 for the first six months of 1995. The decline in provision during 1996 resulted from a negative provision for loan losses at Union Bank and a significant decline in first half 1996 charge-offs. 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 of 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. Net recoveries were $46,000 or 0.02 percent of average loans for the first six months of 1996. For the same period of 1995, net charge-offs were $182,000. Underperforming loans, as a percentage of total loans were 1.61 and 1.51 percent on June 30, 1996 and December 31, 1995, respectively. See discussion headed `Financial Condition'' for more information regarding underperforming assets. Noninterest Income: Operating noninterest income, exclusive of gains realized on the sales of Loans and Other Real Estate, for the first half of 1996 was $859,000. This was $134,000 or 18.5 percent greater than the $725,000 posted for the same period of 1995. Investment Services Income for 1996 increased by $122,000 from that earned in 1995, as customers have again redirected their investable funds to nontraditional Investment products. Second quarter operating noninterest income, exclusive of gains realized on the sales of Loans and Other Real Estate, increased by $126,000 in 1996 primarily as a result of the $67,000 increase in investment services income. The Company had no security gains during 1996 or 1995. Noninterest Expense: Total noninterest expense for the first six months of 1996 was $4,995,000 which translates to a $50,000 or 1.01% increase over the $4,945,000 posted for the same period in 1995. Total noninterest expense for the second quarter of 1996 was $2,544,000 which represents a $35,000 or 1.4% increase over the $2,509,000 posted for the same period in 1995. The largest single component of noninterest expense, Salaries and Employee Benefits, represents 56.6% of total noninterest expenses for 1996. This expense category was $2,826,000 during the first half of 1996, an increase of $213,000 or 8.2% from the 1995 level of $2,613,000. Salaries and employee benefits were $1,424,000 during the second quarter of 1996, an increase of $85,000 or 6.3% from the 1995 level of $1,339,000. 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. 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 became evident in 1996, as the assessment for the second quarter equaled $19,000 in 1996 as compared to $174,000 in 1995. For the first six months of 1996, the assessment was $35 compared to $348 in the same period of 1995. The deposits of First State Bank, the Company's newly-formed affiliate, continues to be insured under the Savings Association Insurance Fund (`SAIF'') which was not afforded the rate reduction. Professional fees rose by $50,000 during the second quarter of 1996, largely as a result of merger activities. FINANCIAL CONDITION As of June 30, 1996, total assets increased to $374,595,000 compared to $367,763,000 at December 31, 1995. Deposits rose $3,920,000 in 1996 over that of year-end 1995. Total loans rose by $13,337,000 or 5.8% from the year-end mark of $230,590,000. The following analyzes German American Bancorp's underperforming assets at June 30, 1996 and December 31, 1995. June 30, 1996 December 31, 1995 (dollar references in thousands) Loans which are contractually past due 90 days or more $2,777 $803 Nonaccrual Loans 1,164 2,683 Renegotiated Loans --- --- Total Underperforming Loans 3,941 3,486 Other Real Estate 262 286 Total Underperforming Assets $4,203 $3,772 Allowance for Loan Loss to Underperforming Loans 153.69% 170.20% Underperforming Loans to Total Loans 1.61% 1.51% Underperforming loans at June 30, 1996 were 13.1% more than the $3,486,000 of underperforming loans at December 31, 1995. Stated as a percentage of total loans, underperforming loans were 1.61% and 1.51% for June 30, 1996 and December 31, 1995, respectively. The allowance for loan loss stated as a percentage of underperforming loans equaled 153.69% and 170.20% for the same two dates respectively. Underperforming loans include $2,546 and $2,646 of impaired loans at June 30, 1996 and December 31, 1995 (See Note 4 to the consolidated financial statements). 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 agricultural, 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. 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'', 4.0% Tier 1 capital to risk-adjusted assets and 8.0% total capital to risk-adjusted assets ratios. Under these guidelines, the Company, on a consolidated basis, and each of its affiliate banks individually, have capital ratios that substantially exceed the regulatory minimums. The table below presents the Company's consolidated capital ratios under the regulatory guidelines. At June 30, 1996, 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 liquidity, capital resources or operations. RISK BASED CAPITAL STRUCTURE ($ in thousands) June 30, December 31, 1996 1995 Tier 1 Capital: Shareholders' Equity as presented on Balance Sheet $37,452 $36,956 Add / (Subtract): Unrealized Depreciation / Appreciation on Securities Available-for-Sale 50 (859) Less: Intangible Assets and Ineligible Deferred Tax Assets (2,040) (2,140) Total 35,462 33,957 Tier 2 Capital: Qualifying Allowance for Loan Loss 3,115 2,943 Total Capital $38,577 $36,900 Risk-adjusted Assets $246,224 $232,272 Tier 1 Capital to Total Assets (leverage ratio) 9.52% 9.29% Tier 1 Capital to Risk-adjusted Assets 14.40% 14.62% Total Capital to Risk-adjusted Assets 15.67% 15.89% LIQUIDITY The Consolidated Statement of Cash Flows presented in another section of this report details the elements of change in the Company's cash and cash equivalents. During the first half of 1996, the net cash from operating activities, including net income of $2,148,000 provided $3,119,000 of available cash. Increases in deposits and short-term borrowings made available an additional $6,137,000. Major cash outflows experienced during this six month period of 1996 include dividends of $749,000, property and equipment purchases of $406,000 and the net funding outlay of loans in the amount of $13,167,000. The purchase of securities and short-term investments (net of proceeds from maturities) decreased cash by $3,565,000. Total cash outflows for the period exceeded inflows by $8,599,000 leaving a cash and cash equivalent balance of $19,372,000 at June 30, 1996. PROPOSED PEOPLES BANCORP MERGER During July 1996, the Company agreed to acquire Peoples Bancorp of Washington, Washington, Indiana (`Peoples Bancorp'') on the terms set forth in Note 7 to the financial statements included in this report. In evaluating the terms of this acquisition, the Company prepared estimates of the future earnings and financial condition for the Company and for Peoples Bancorp which took into consideration cost savings and efficiencies that Company management believes could be achieved in future years. These estimates compared the estimated earnings per share of the Company's common stock and its estimated shareholders' equity per share to the estimated earnings per share and shareholders' equity per share on a prospective pro forma basis giving effect to the acquisition on the agreed terms. Based on such analysis, the proposed acquisition of Peoples Bancorp is expected to be materially dilutive to the Company's earnings per share and shareholders equity per share compared to the amounts that might be expected without the business combination with Peoples Bancorp. The Company believes, however, that the anticipated dilution is acceptable given the Company's belief that entry into the Daviess County banking market offers strategic advantages to the Company. PART II. -- OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Shareholders on April 25, 1996. At the Annual Meeting, the only matter voted upon was the election of Directors. The shareholders elected as Directors for an additional two-year term the five nominees proposed by the Board of Directors. The five nominees who were elected were Gene C. Mehne, Robert L. Ruckriegel, Mark A. Schroeder, Larry J. Seger and Joseph F. Steurer. The results of the proxy solicitation were as follows: Votes Votes Broker Nominee Cast For Withheld Non-Votes Gene C. Mehne 1,507,460.28 7,405.58 312,680.14 Robert L. Ruckriegel1,506,940.28 7,925.58 312,680.14 Mark A. Schroeder 1,507,460.28 7,405.58 312,680.14 Larry J. Seger 1,507,040.28 7,825.58 312,680.14 Joseph F. Steurer 1,507,460.28 7,405.58 312,680.14 There were no abstentions. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 2 Offer of Merger dated July 3, 1996 from the Company to Peoples Bancorp of Washington, as accepted by Peoples Bancorp of Washington. 27 Financial Data Schedule for the period ended June 30, 1996. (b) Reports on Form 8-K A report on Form 8-K dated July 8, 1996 was filed reporting under Item 5 the Company's entering into merger agreement with Peoples Bancorp of Washington, Indiana providing for the merger of Peoples with German American Bancorp and also under Item 7 a Press Release more fully describing the agreement. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GERMAN AMERICAN BANCORP Date August 14, 1996 By/s/Mark A. Schroeder ----------------- ----------------------- Mark A. Schroeder President Date August 14, 1996 By/s/John M. Gutgsell ----------------- ------------------------ John M. Gutgsell Controller and Principal EX-27 2
9 3-MOS JUN-30-1996 JUN-30-1996 14,947 699 4,425 0 86,033 11,270 11,560 243,927 6,057 374,595 331,499 2,217 3,427 0 18,275 0 0 19,177 374,595 10,843 2,709 428 13,980 6,633 6,655 7,325 78 0 4,995 3,113 3,113 0 0 2,148 1.18 1.18 4.27 1,164 2,777 0 3,941 5,933 107 153 6,057 6,057 0 1,025
EX-2 3 EXHIBIT 2 GERMAN AMERICAN BANCORP 711 MAIN STREET, BOX 810 JASPER, INDIANA 47546 OFFER OF MERGER July 3, 1996 Board of Directors Peoples Bancorp of Washington Washington, Indiana Gentlemen: Our Board of Directors has authorized me to present this Offer, which amends and supersedes the Offer of Merger dated June 21, 1996, for the affiliation of Peoples Bancorp of Washington (`Peoples'') and its subsidiary, Peoples National Bank of Washington (`Bank''), with German American Bancorp (`Company'') and its four affiliated community banks pursuant to a merger of Peoples with the Company (or subsidiary of the Company) or similar transaction (`Merger''). Pursuant to the Merger, the Company would issue to the shareholders of Peoples a number of shares of common stock of the Company at closing that have an aggregate `Closing Market Value'' (as defined below) of $21,000,000; provided, however, that the number of shares of Company common stock to be issued will in no event be more than 659,375 shares (even if the Closing Market Value is less than $32.00) nor will it be less than 586,111 shares (even if the Closing Market Value is more than $36.00). If the Closing Market Value is less than $32.00, then Peoples would be entitled to terminate the Merger. The maximum and minimum number of shares issuable by the Company is subject to appropriate adjustment on account of any future Company stock dividends, splits, and the like that are effected as of a record date prior to the closing date. For purposes of the Offer, the `Closing Market Value'' of Company common stock shall be determined by averaging the bid and ask prices as reported by NASDAQ at the close of each the ten (10) consecutive business days ending on the second business day prior to such closing. The following terms and conditions are applicable to this Offer, and will be contained in the merger agreement along with other mutually agreeable terms and conditions: 1. The Board of Directors of each of the parties shall have approved a merger agreement and the parties thereafter shall have executed and delivered the merger agreement and shall have obtained all the necessary or appropriate regulatory and shareholder approvals for consummation of the Merger. The merger agreement will contain such representations, warranties, conditions, and other terms and conditions as are mutually agreeable and customary in community bank merger transactions. 2. The consolidated results of operations and financial condition of Peoples and its subsidiaries, and the Company and its subsidiaries, as described by the December 31, 1995 and the March 31, 1996 financial statements filed with supervisory regulatory authorities and made available to shareholders, shall have been fairly presented in accordance with generally accepted accounting principles and practices applicable to banks, consistently applied, including the full and fair disclosures of, or adequate reserves against, all liabilities, absolute or contingent. 3. The operation and condition (on a consolidated basis) of the business, properties, prospects and affairs, financial and otherwise, of Peoples and of the Company, from the date of their respective December 31, 1995 financial statements through the effective date of the Merger, shall have been continued without changes, except changes in the ordinary course of business, which individually or in the aggregate shall not have been materially adverse, and except changes reflected by the March 31, 1996 financial statements of the Bank and of the Company. 4. There shall have been no material change since December 31, 1995, in the nature of the business, capital structure, compensation arrangements or dividend policies of Peoples, and no additional stock or other securities of Peoples (or warrants, options, convertible securities, or other rights to acquire such stock or other securities) shall have been issued. 5. All currently outstanding common stock of Peoples shall have been duly authorized, validly issued, fully paid and nonassessable. 6. There shall be no pending or threatened litigation or administrative proceedings to restrain or invalidate the proposed acquisition or otherwise relating to or affecting the proposed acquisition, or affecting or relating to Peoples or the Bank or their business or properties. 7. The affiliation shall be tax-free to the shareholders of Peoples and shall qualify as a pooling of interests for financial reporting purposes. 8. The Board of Directors of Peoples (a) shall have approved this Offer by favorable vote of at least the number of members of the whole Board of Directors required under applicable law and the governing corporate documents of Peoples, (b) shall cause the Merger to be submitted for a vote of the shareholders of Peoples at the earliest possible date, and (c) in connection with such shareholder vote, the Directors who have approved this Offer shall recommend (unless in the written opinion of counsel for Peoples the fiduciary duties of the Board of Directors prohibit such a recommendation) the Merger to the shareholders of Peoples. In connection with the recommendation, Peoples shall have received from its financial adviser a letter, dated the date of mailing of the Prospectus/Proxy Statement to be mailed to the shareholders of Peoples with respect to the Merger and included therein, to the effect that, in the opinion of such financial advisor, the terms of the Merger are fair to the shareholders of Peoples from a financial point of view. From and after the time of acceptance of this Offer by Peoples, neither Peoples nor the Bank shall (a) directly or indirectly solicit, encourage or facilitate (nor shall they permit any of their respective officers, directors, employees or agents directly or indirectly to solicit, encourage or facilitate), including by way of furnishing information other than the fact of the acceptance of the Offer by Peoples, any inquiries or proposals from third parties for a merger, consolidation, share exchange or similar transaction involving Peoples or the Bank or for the acquisition of the stock or substantially all of the assets or business of Peoples or the Bank, or (b) subject to the fiduciary duties of the Directors of Peoples as advised by counsel in a written opinion, discuss with or enter into conversations with any person concerning any such merger, consolidation, share exchange, acquisition or other transaction. Peoples shall promptly notify the Company orally (to be confirmed in writing as soon as practicable thereafter) of all of the relevant details concerning any inquiries or proposals that it may receive relating to any such matters, including actions it intends to take with respect to such matters. In the event that the transactions contemplated by this Offer terminate because Peoples either willfully fails to perform its obligations for reasons not contemplated by this Offer or because Peoples or the Bank enters into a merger, consolidation, or other business combination with any other party, then (in addition to whatever other legal rights or remedies to which the Company may be entitled), at the Company's option Peoples shall (a) pay to the Company a termination fee of $422,000 and (b) reimburse the Company for all of its out-of-pocket costs and expenses in connection with the Merger incurred from and after the date of acceptance of the Offer, including its legal, accounting, environmental and other consulting fees and expenses. 9. In connection with the filings that the Company and/or Peoples may be required to make in connection with the Merger with banking, securities, and anti-trust regulatory agencies (`Agencies''), Peoples shall cooperate with the Company, and each shall use their best efforts to obtain all necessary approvals of, or clearances from, the Agencies, and shall cause their agents and advisors to cooperate and use their best efforts in connection therewith. The Company (or its subsidiaries) shall be responsible for making the required Merger filings (except to the limited extent that the applicable law, regulations, or forms specify that Peoples (or its subsidiary) is the appropriate filing party) with the Agencies, and for discussing such filings with the Agencies and responding to comments thereon. If any required filing is disapproved by any of the Agencies, or any determination is made by any of the Agencies that the Merger cannot be consummated except on terms and conditions that are materially adverse from a financial point of view to the Company or to the shareholders of Peoples (an `Adverse Determination''), then the Company shall promptly advise Peoples of such Adverse Determination and the Company's intended course of action with respect thereto. In the event that the Company in its sole discretion determines to seek a judicial or regulatory appeal or review (formal or informal) of the Adverse Determination, Peoples (and its agents and advisors) shall continue to cooperate with such appeal and review procedure and use its best efforts to assist in connection with obtaining reversal or modification of such Adverse Determination. In the event that (a) the Company in its sole discretion elects not to seek an appeal or review of the Adverse Determination or elects in its sole discretion at any time after seeking such an appeal or review to discontinue that effort, or (b) the Company seeks such an appeal or review but all avenues for such appeal or review are exhausted without the Adverse Determination having been vacated or overruled or modified in such a manner that the Adverse Determination is no longer materially adverse (`Relief Determination''), or (c) the Company seeks such an appeal or review but such appeal or review remains pending on December 31, 1997, without having resulted in a Relief Determination, then either the company or Peoples may terminate the Merger without obligation to the other on account of the Adverse Determination; provided, however, that the Company shall pay Peoples a termination fee of ------------------ $422,000 within 90 days if (x) the Merger is terminated solely as a result of an Adverse Determination relating to the Company's eligibility to account for the Merger under the pooling-of-interests method of accounting in accordance with this sentence for reasons other than the exercise of statutory dissenters rights by shareholders of Peoples who would otherwise be entitled to receive ten percent or more of the Company common stock issuable in the Merger, and (y) Peoples and its agents and advisors have abided by their obligations of cooperation and best efforts expressed in this Paragraph 9. We contemplate that Peoples National Bank would lead the Company's Daviess County banking operations under the direction of its present management and Board of Directors without loss of its separate corporate identity. In contrast to the staffing reductions that are usually associated with cross-town mergers and the negative impact these job losses have on the people involved and the community as a whole, our proposal offers continuity of local employment. The employees of all of our affiliate banks are welcomed into our organization on an equal basis, and your employees will receive full vesting and eligibility credit under our defined contribution retirement plans for their years of service to Peoples. Furthermore, cross-town mergers present the issues of combining the Boards of Directors and management philosophies with the uncertainty of compatibility. Finally, cross-town mergers could raise significant anti-trust issues which we are confident, based upon the findings of an independent study, are not a factor under our Offer. Our offer further contemplates that Peoples may, in its discretion, form a non-profit charitable foundation, managed by People's Board of Directors, for the benefit of the communities served by the Bank. Initial funding for the Foundation would be an amount not less than $28,000, the amount of your 1996 budgeted charitable contributions, and subsequent years' fundings would be at levels not less than your Bank's past charitable contributions practices. In this way, the Merger will result in a tangible benefit to the community in addition to the intangible benefits that flow from the preservation of the identity and local management of the Bank. Through this Foundation, local Board members can be assured that continued community support, which we believe is critical to a community bank's identity, will remain as a cornerstone in Peoples National Bank's well established history of enriching the local community through its charitable giving. The Company's policy is to provide substantial operational autonomy for each of its bank subsidiaries. In light of the important role that Peoples National Bank will have in the organization, we anticipate (in accordance with our long-standing policy) that all Directors of the Bank would continue to serve after the closing of the Merger indefinitely, subject of course to the Bank's mandatory retirement age policy as in force from time to time. We have never requested any members of the boards of directors of any of our affiliate banks to resign their positions. In addition to the appointment of your chairman to the Company's Board of Directors, we will also invite a second representative of Peoples, who is mutually acceptable to the Peoples Board and the Company Board, to join the Company's Board promptly following the closing of the Merger. Except as specified by paragraph 8 above, each party will bear all of the expenses it incurs in connection with this letter and the transactions contemplated hereby. This Offer, when accepted by Peoples, shall constitute a legally-binding agreement enforceable against Peoples and the Company in accordance with its terms, and shall constitute a `Definitive Agreement'' as that term is used in the letter to the Chairman of the Company from Austin Associates, Inc., dated May 2, 1996, and accepted by the Company. If you desire to accept this Offer on behalf of Peoples, and work toward the completion of the Merger as described in this letter, kindly indicate your acceptance below and return the executed copy to our Chairman or President. Yours very truly, GERMAN AMERICAN BANCORP By:/s/ George W. Astrike ------------------------- George W. Astrike Chairman and Chief Executive Officer Peoples Bancorp of Washington, by unanimous action of its Board of Directors, hereby accepts the above Offer of Merger this 9th day of July, 1996. PEOPLES BANCORP OF WASHINGTON By:/s/ David Graham --------------------- -----END PRIVACY-ENHANCED MESSAGE-----