-----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, CXxlKWudJkId9To1Tayx0f8gWl1MDCIYESAxSUje229hSyKduEV8DDMZJ/T1DlCD vFeyPJA0J1zw5XUSuJ8rOw== 0000714395-97-000005.txt : 19970814 0000714395-97-000005.hdr.sgml : 19970814 ACCESSION NUMBER: 0000714395-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 97657980 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, 1997 Or I I Transition Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from to --------------- Commission File Number 0-11244 German American Bancorp (Exact name of registrant as specified in its charter) INDIANA 35-1547518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 711 Main Street, Jasper, Indiana 47546 (Address of Principal Executive Offices and Zip Code) Registrant's telephone number, including area code: (812) 482-1314 Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 11, 1997 Common Stock, $10.00 par value 2,541,552 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets -- June 30, 1997 and December 31, 1996 Consolidated Statements of Income -- Three Months Ended June 30, 1997 and 1996 Consolidated Statements of Income -- Six Months Ended June 30, 1997 and 1996 Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1997 and 1996. Notes to Consolidated Financial Statements -- June 30, 1997 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The Company held its Annual Meeting of Shareholders on April 24, 1997. At the Annual Meeting, the shareholders elected as Directors for an additional two- year term the six nominees proposed by the Board of Directors, and approved an amendment of the Corporation's Articles of Incorporation to increase the number of authorized Common Shares from 5,000,000 to 20,000,000. The six nominees were elected by the following votes: Votes Votes Broker Nominee Cast For Withheld Non-Votes George Astrike 1,558,559.27 10,448.00 379,173.73 David G. Buehler 1,561,863.27 7,144.00 379,173.73 David B. Graham 1,561,555.27 7,452.00 379,173.73 William R. Hoffman 1,561,863.27 7,144.00 379,173.73 Michael B. Lett 1,559,730.27 9,277.00 379,173.73 A. Wayne Place, Jr. 1,561,063.24 7,944.03 379,173.73 There were no abstentions. The amendment of the Articles of Incorporation was approved by a vote of 1,505,443.65 votes in favor and 31,434.67 votes opposed with 411,302.68 abstentions or broker non-votes. The Company held a special meeting of shareholders on March 4, 1997, at which the shareholders approved the Peoples Bancorp merger by a vote of 1,466,224.00 votes for and 5,633.00 votes against, with 11,579.00 abstentions or broker non-votes. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 27 Financial Data Schedule b) Reports on Form 8-K SIGNATURES PART 1.FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTS GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEET (dollar references in thousands except share data) (unaudited) June 30, December 31, 1997 1996 ASSETS Cash and Due from Banks $15,738 $17,134 Federal Funds Sold 2,675 20,600 ----- ------ Cash and Cash Equivalents 18,413 37,734 Interest-bearing Balances with Banks 394 597 Other Short-term Investments --- 979 Securities Available-for-Sale, at market 98,047 98,557 Securities Held-to-Maturity, at cost 23,673 22,832 Total Loans 324,485 313,734 Less: Unearned Income (343) (452) Allowance for Loan Losses (6,048) (6,528) Loans, Net 318,094 306,754 Premises, Furniture and Equipment, Net 12,268 11,585 Other Real Estate 174 203 Intangible Assets 1,672 1,774 Accrued Interest Receivable and Other Assets 8,306 8,428 ----- ----- TOTAL ASSETS $481,041 $489,443 ======== ======== LIABILITIES Noninterest-bearing Deposits $46,506 $52,674 Interest-bearing Deposits 374,997 370,232 ------- ------- Total Deposits 421,503 422,906 Short-term Borrowings 4,491 12,527 FHLB Borrowings --- 1,000 Accrued Interest Payable and Other Liabilities 4,148 4,217 ----- ----- TOTAL LIABILITIES 430,142 440,650 SHAREHOLDERS' EQUITY Common Stock, $10 par value; 20,000,000 shares authorized, and 2,541,552 and 2,539,059 issued and outstanding in 1997 and 1996, respectively 25,416 25,390 Preferred Stock, $10 par value; 500,000 shares authorized, no shares issued --- --- Additional Paid-in Capital 3,839 3,649 Retained Earnings 21,201 19,259 Unrealized Appreciation on Securities Available-for-Sale, net of tax 443 495 --- --- TOTAL SHAREHOLDERS' EQUITY 50,899 48,793 ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $481,041 $489,443 ======== ======== See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME (dollar references in thousands except per share data) (unaudited) Three Months Ended June 30, 1997 1996 INTEREST INCOME Interest and Fees on Loans $7,323 $6,874 Interest on Federal Funds Sold 61 133 Interest on Short-term Investments 14 40 Interest and Dividends on Securities 1,940 1,694 ----- ----- TOTAL INTEREST INCOME 9,338 8,741 INTEREST EXPENSE Interest on Deposits 4,232 3,982 Interest on Short-term Borrowings 82 113 -- --- TOTAL INTEREST EXPENSE 4,314 4,095 NET INTEREST INCOME 5,024 4,646 Provision for Loan Losses (682) 80 ----- -- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,706 4,566 NONINTEREST INCOME Income from Fiduciary Activities 83 66 Service Charges on Deposit Accounts 285 234 Investment Services Income 117 115 Other Charges, Commissions, and Fees 163 143 Gains on Sales of Loans and Other Real Estate 2 0 Gains on Sales of Securities 0 0 - - TOTAL NONINTEREST INCOME 650 558 --- --- NONINTEREST EXPENSE Salaries and Employee Benefits 1,869 1,778 Occupancy Expense 256 291 Furniture and Equipment Expense 227 188 Computer Processing Fees 123 101 Professional Fees 347 150 Other Operating Expenses 707 701 --- --- TOTAL NONINTEREST EXPENSE 3,529 3,209 Income before Income Taxes 2,827 1,915 Income Tax Expense 977 625 --- --- Net Income $1,850 $1,290 ====== ====== Earnings Per Share (Note 2) $.73 $.51 Dividends Paid Per Share (Note 2) $.22 $.20 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME (dollar references in thousands except per share data) (unaudited) Six Months Ended June 30, 1997 1996 INTEREST INCOME Interest and Fees on Loans $14,359 $13,659 Interest on Federal Funds Sold 162 313 Interest on Short-term Investments 41 125 Interest and Dividends on Securities 3,865 3,294 ----- ----- TOTAL INTEREST INCOME 18,427 17,391 INTEREST EXPENSE Interest on Deposits 8,394 7,903 Interest on Short-term Borrowings 181 246 --- --- TOTAL INTEREST EXPENSE 8,575 8,149 NET INTEREST INCOME 9,852 9,242 Provision for Loan Losses (543) 103 ----- --- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,395 9,139 NONINTEREST INCOME Income from Fiduciary Activities 149 117 Service Charges on Deposit Accounts 565 440 Investment Services Income 223 217 Other Charges, Commissions, and Fees 258 244 Gains on Sales of Loans and Other Real Estate 2 2 Gains on Sales of Securities 0 0 - - TOTAL NONINTEREST INCOME 1,197 1,020 NONINTEREST EXPENSE Salaries and Employee Benefits 3,695 3,541 Occupancy Expense 535 532 Furniture and Equipment Expense 453 446 Computer Processing Fees 248 208 Professional Fees 559 229 Other Operating Expenses 1,358 1,342 ----- ----- TOTAL NONINTEREST EXPENSE 6,848 6,298 Income before Income Taxes 4,744 3,861 Income Tax Expense 1,620 1,251 ----- ----- Net Income $3,124 $2,610 ====== ====== Earnings Per Share (Note 2) $1.23 $1.03 Dividends Paid Per Share (Note 2) $.43 $.39 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar references in thousands) (unaudited) Six Months Ended June 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $3,124 $2,610 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Amortization and Accretion of Investments (49) (32) Depreciation and Amortization 564 521 Provision for Loan Losses (543) 103 Gains on Sales of Securities 0 0 Gains on Sales of Loans and Other Real Estate (2) (2) Change in Assets and Liabilities: Unearned Income (109) (60) Deferred Loan Fees (1) (22) Interest Receivable (1,257) (395) Other Assets 1,093 (29) Deferred Taxes 286 (30) Interest Payable 406 28 Other Liabilities (475) 156 ---- --- Total Adjustments (87) 238 ---- --- Net Cash from Operating Activities 3,037 2,848 ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest-bearing Balances with Banks 203 198 Proceeds from Maturities of Other Short-term Investments 996 7,000 Purchase of Other Short-term Investments 0 (1,466) Proceeds from Maturities of Securities Available-for-Sale 14,653 17,192 Proceeds from Sales of Securities Available-for-Sale 0 0 Purchase of Securities Available-for-Sale (14,163) (23,224) Proceeds from Maturities of Securities Held-to-Maturity 318 3,341 Proceeds from Sales of Securities Held-to-Maturity 0 0 Purchase of Securities Held-to-Maturity (1,159) (818) Purchase of Loans (27) (24) Loans Made to Customers net of Payments Received (10,669) (18,806) Proceeds from Sales of Loans 9 0 Property and Equipment Expenditures (1,145) (453) Proceeds from Sales of Other Real Estate 31 26 -- -- Net Cash from Investing Activities (10,953) (17,034) ------ ------- CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits (1,403) 8,975 Change in Short-term Borrowings (8,036) (4,738) Change in Long-term Borrowings (1,000) 1,000 Dividends Paid (963) (834) Purchase of Fractional Shares (5) 0 Exercise of Stock Options 2 6 Net Cash from Financing Activities (11,405) 4,409 ------- ----- Net Change in Cash and Cash Equivalents (19,321) (9,777) Cash and Cash Equivalents at Beginning of Year 37,734 32,601 ------ ------ Cash and Cash Equivalents at End of Period $18,413 $22,824 ======= ======= Cash Paid During the Year for: Interest $8,169 $8,121 Income Taxes $1,191 $1,257 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (unaudited) Note 1 -- Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles have been condensed or omitted. All adjustments made by management to these unaudited statements were of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the German American Bancorp's December 31, 1996 Annual Report to Shareholders. German American Bancorp (referred to herein as the ``Company,'' the `Corporation,'' or the ``Registrant'') is a multi-bank holding company organized in Indiana in 1982. The Company's principal subsidiaries are The German American Bank, Jasper, Indiana (`German American Bank''), First State Bank, Southwest Indiana, Tell City, Indiana (`First State Bank''), and German American Holdings Corporation (`GAHC''), an Indiana corporation that owns all of the outstanding capital stock of both Community Trust Bank, Otwell, Indiana (`Community Bank'') and The Peoples National Bank and Trust Company of Washington, Washington, Indiana (`Peoples''). The Company, through its four bank subsidiaries operates twenty banking offices in six contiguous counties in southwestern Indiana. Peoples, organized under the National Bank Act in 1888, was acquired by the Company on March 4, 1997 pursuant to a merger of the parent corporation of Peoples into GAHC. Simultaneously with and as an integral part of this merger, The Union Bank of Loogootee, Indiana, a subsidiary of the Company, was merged with and into Peoples. At December 31, 1996 Peoples had assets of $91,937,000 and equity of $9,452,000. The Company's financial statements for all periods prior to the merger date have been retroactively restated to include the accounts of Peoples because the merger was recorded utilizing the pooling-of-interests method of accounting. Note 2 -- Per Share Data The weighted average number of shares used in calculating earnings and dividends per share amounts were $2,541,552 and 2,533,586 for the second quarters of 1997 and 1996, respectively. The weighted average number of shares for the first half of 1997 and 1996 was 2,541,345 and 2,533,480, respectively. The weighted average number of shares have been retroactively restated for stock dividends and poolings of interests. Dividends paid per share amounts represent historical dividends declared without retroactive restatement for pooling. Note 3 -- Securities At June 30, 1997 and December 31, 1996, U.S. Government Agency structured notes with an amortized cost of $6,000,000 and $6,000,000, respectively and fair value of $5,963,000 and $5,901,000, respectively, are included in securities available-for-sale, consisting primarily of step-up and single-index bonds. Note 3 -- Securities (continued) The amortized cost and estimated market values of Securities as of June 30, 1997 are as follows: Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $53,731 $53,606 Obligations of State and Political Subdivisions 18,839 19,749 Corporate Securities 5,517 5,533 Mortgage-backed Securities 19,241 19,159 ------ ------ Total $97,328 $98,047 ======= ======= Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $2,508 $2,506 Obligations of State and Political Subdivisions 18,767 18,522 Corporate Securities 36 29 Mortgage and Asset-backed Securities 897 887 Other Securities 1,465 1,465 ----- ----- Total $23,673 $23,409 ======= ======= The amortized cost and estimated market values of Securities as of December 31, 1996 are as follows: Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $47,181 $47,041 Obligations of State and Political Subdivisions 19,560 20,186 Corporate Securities 7,221 7,245 Mortgage-backed Securities 23,783 24,078 Other Securities 1 7 - - Total $97,746 $98,557 ======= ======= Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $2,519 $2,498 Obligations of State and Political Subdivisions 18,253 18,881 Corporate Securities 47 47 Mortgage and Asset-backed Securities 999 989 Other Securities 1,014 1,014 ----- ----- Total $22,832 $23,429 ======= ======= Note 4 -- Loans Loans, as presented on the balance sheet, are comprised of the following classifications: June 30, December 31, 1997 1996 (dollar references in thousands) Real Estate Loans Secured by 1-4 Family Residential Properties $99,787 $93,713 Agricultural Loans 54,298 57,073 Commercial and Industrial Loans 113,837 111,469 Loans to Individuals for Household, Family and Other Personal Expenditures 55,702 50,200 Lease Financing 861 1,279 --- ----- Total Loans $324,485 $313,734 ======== ======== Note 5 -- Allowance for Loan Losses A summary of the activity in the Allowance for Loan Losses is as follows: 1997 1996 (dollar references in thousands) Balance at January 1 $6,528 $6,893 Provision for Loan Losses (543) 103 Recoveries of Prior Loan Losses 415 154 Loan Losses Charged to the Allowance (352) (130) ----- ----- Balance at June 30 $6,048 $7,020 ====== ====== Note 6 -- Business Combinations On March 4, 1997, the Company acquired all of the outstanding shares of Peoples Bancorp of Washington, Indiana (and its wholly owned subsidiary, The Peoples National Bank and Trust Company of Washington) in exchange for 615,285 shares of German American Bancorp common stock. Fractional interests were paid in cash of $5. The transaction was accounted for as a pooling of interests. Note 6 -- Business Combinations (continued) The following is a reconciliation of the separate and combined net interest income and net income of German American Bancorp and Peoples Bancorp of Washington for the periods prior to the acquisition: GERMAN AMERICAN PEOPLES BANCORP BANCORP OF (as previously reported) WASHINGTON COMBINED For the period January 1, 1997 through February 28, 1997 Net interest income $2,558 $696 $3,254 Net income $698 $218 $916 For the three months ended June 30, 1996 Net interest income $3,671 $975 $4,646 Net income $1,057 $233 $1,290 For the six months ended June 30, 1996 Net interest income $7,325 $1,917 $9,242 Net income $2,148 $462 $2,610 ITEM 2. GERMAN AMERICAN BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS German American Bancorp (``the Company'') is a multi-bank holding company based in Jasper, Indiana. Its four affiliate banks conduct business in twenty offices in Dubois, Daviess, Martin, Pike, Perry and Spencer Counties in Southwest Indiana. The banks provide a wide range of financial services, including accepting deposits; making commercial, mortgage and consumer loans; issuing credit life, accident and health insurance; providing trust services for personal and corporate customers; providing safe deposit facilities; and providing investment advisory and brokerage services. This section presents an analysis of the consolidated financial condition of the Company as of June 30, 1997 and December 31, 1996 and the consolidated results of operations for the periods ended June 30, 1997 and 1996. This review should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's December 31, 1996 Annual Report to Shareholders. Because of the Peoples National Bank acquisition on March 4, 1997 under the pooling-of-interests method of accounting, all financial statements have been retroactively restated for all periods. Also see Footnote 6 `Business Combinations.'' RESULTS OF OPERATIONS Net Income: The Company's earnings for the second quarter of 1997 were $1,850,000 or $.73 per share, an increase of $560,000 (or 43.4%) from the Company's second quarter earnings for 1996 of $1,290,000 or $.51 per share. Net income for the first half of 1997 was $3,124,000 or $1.23 per share, which was $514,000 or 19.7% greater than the $2,610,000 or $1.03 per share recorded for the same period of 1996. The comparison of 1997 earnings for both the six and three month periods relative to those of the same periods of 1996 was materially impacted by an increase in net interest income and Deposit Service Charges and Fees. Earnings for 1997 were also largely impacted by a negative provision for loan losses, which was due to the collection of significant dollar amounts of previously charged-off loans These earnings improvements were partially offset by increased noninterest expense. Return on average assets (ROA) was 1.31% and return on average equity was 12.80% for the first half of 1997 versus 1.14% and 11.27%, respectively for the first six months of 1996. Net Interest Income: The following table summarizes German American Bancorp's net interest income (on a tax-equivalent basis) for each of the periods presented herein. An effective tax rate of 34 percent is used on each period presented. Three Months Change from Ended June 30, Prior Period 1997 1996 Amount Percent (dollar references in thousands) Interest Income $9,634 $9,001 $633 7.0% Interest Expense 4,314 4,095 219 5.3% ----- ----- --- Net Interest Income $5,320 $4,906 $414 8.4% ====== ====== ==== Six Months Change from Ended June 30, Prior Period 1997 1996 Amount Percent (dollar references in thousands) Interest Income $19,018 $17,901 $1,117 6.2% Interest Expense 8,575 8,149 426 5.2% ----- ----- --- Net Interest Income $10,443 $9,752 $691 7.1% ======= ====== ==== Net interest income is the difference between interest income (which includes yield-related fees) and interest expense. The increase in net interest income for the first half and the second quarter of 1997 compared to the same periods of 1996 was primarily due to an increase of loans in the mix of average earning assets. Loans generally provide a higher yield than that earned on investment securities and Federal Funds Sold. Net interest income on a tax-equivalent basis expressed as a percentage of average earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. For the first half of 1997, the net interest margin was 4.69 percent compared to 4.55 percent for the comparable period of 1996; for the second quarter of 1997, net interest margin was 4.87% compared to 4.52% for 1996. Provision For Loan Losses: The Company provides for loan losses through regular provisions to the allowance for loan losses. These provisions are made at a level which is considered necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of this loan loss reserve is completed quarterly by management. The consolidated provision for loan losses was $(543,000) and $103,000 for the first half of 1997 and 1996, respectively and $(682,000) and $80,000 for the second quarter of 1997 and 1996, respectively. The negative provision for 1997 was due to collections during the second quarter of previous years' charged-off loans, combined with management's determination during the second quarter that certain specific reserve allocations were no longer necessary due to the performance of the related loans. Based on Management's evaluation of the adequacy of the reserve, a negative provision was recorded to eliminate excess reserves created by loan recoveries and reduced specific reserve allocations. The amount of future periods' provision for loan loss will be subject to adjustment based on the findings of future evaluations of the adequacy of the loan loss reserve. Net recoveries were $63,000 or 0.02 percent of average loans for the first six months of 1997. For the same period of 1996, net recoveries were $24,000. Underperforming loans, as a percentage of total loans were 0.59% and 0.79% on June 30, 1997 and December 31, 1996, respectively. See discussion headed `Financial Condition'' for more information regarding underperforming assets. Noninterest Income: Noninterest income, exclusive of gains realized on the sales of loans, for the first half of 1997 was $1,195,000. This was $177,000 or 17.4 percent greater than the $1,018,000 recorded for the same six months of 1996. For the second quarter of 1997, noninterest income was $92,000 or 16.5 percent greater than the identical period of 1996. Service charges on deposit accounts for the first half of 1997 rose $125,000 or 28.4 percent over 1996. The Company made revisions to its pricing structure during the latter part of 1996 based on a market review. Noninterest Expense: Total noninterest expense for the first six months of 1997 was $6,848,000 which translates to a $550,000 or 8.7% increase over the $6,298,000 posted for the same period in 1996. Total noninterest expense for the second quarter of 1997 was $3,529,000 which represents a $320,000 or ten percent increase over the $3,209,000 posted for the same period in 1996. Salaries and Employee Benefits expense constituted 54% of total noninterest expense. For the first six months of 1997 this amounted to $3,695,000. This was $154,000 or 4.3 percent more than the $3,541,000 recorded for the same period of the prior year. Salaries and employee benefits were $1,869,000 during the second quarter of 1997, an increase of $91,000 or 5.1% over the 1996 level of $1,778,000. The Company's active full-time equivalent (FTE) staff was 221 at June 30, 1997. Occupancy expense combined with Furniture and Equipment expense for the first six months of 1997 equaled $988,000. This was only $10,000 or slightly more than one percent greater than the $978,000 posted for the same half of the prior year. These expenses are expected, however, to moderately increase throughout the remainder of 1997 largely as a consequence of a planned upgrading of computer systems. The Company has recently embarked upon a strategy to implement state-of-the-art computer processing to provide the opportunities to, over the long-term, better control the level of employee related expenses and improve the quality of customer service provided throughout the affiliate bank system. The upgrade of computer equipment at Peoples concurrent with the merger represents the Company's first step in this process. Systems at all affiliate banks will be upgraded on a systematic basis throughout 1997 and 1998. Professional fees for the first six months of 1997 was $559,000. This was $330,000 greater than the $229,000 recorded for the same period of 1996. Professional fees for the second quarter of 1997 were $347,000, an increase of $197,000 over the $150,000 recorded for 1996. The bulk of this increase stems directly from the March 4, 1997 merger of Peoples. Other noninterest expense included a special contingency reserve of $200,000 with respect to an unasserted potential claim. Without that reserve, other noninterest expense would have risen by 5.7% and 3.7% for the six and three month periods ended June 30, 1997 compared to the prior year periods. FINANCIAL CONDITION Total assets at June 30, 1997 stood at $481,041,000. This was a decline of $8,043,000 from the December 31, 1996 total asset position. The decline in assets was concentrated in the holdings of Federal Funds Sold while total loans increased $10,751,000 and investment securities balances rose a moderate $331,000. Deposits at June 30, 1997 stood at $421,503,000 which was a decline of less than one percent from the total deposits held six months earlier. Short-term and Long-term Borrowings at June 30, 1997 were $4,491,000. A decrease of $9,036,000 from December 31, 1996 as the Company utilized Federal Funds Sold to reduce its level of borrowings. All of the Company's Banks are either currently members of the Federal Home Loan Bank System (`FHLB'') or are in the process of obtaining membership. The banks' membership in the FHLB provides a ready alternative for both long and short-term borrowing needs. Underperforming Assets: The following analyzes German American Bancorp's underperforming assets at June 30, 1997 and December 31, 1996. June 30, 1997 December 31, 1996 (dollar references in thousands) Nonaccrual Loans $534 $1,370 Loans which are contractually past due 90 days or more 1,381 1,102 Renegotiated Loans --- --- --- --- Total Underperforming Loans 1,915 2,472 ----- ----- Other Real Estate 174 203 --- --- Total Underperforming Assets 2,089 $2,675 ===== ====== Allowance for Loan Loss to Underperforming Loans 315.82% 264.08% Underperforming Loans to Total Loans 0.59% 0.79% Capital Resources: Federal banking regulations provide guidelines for determining the capital adequacy of bank holding companies and banks. These guidelines provide for a more narrow definition of core capital and assign a measure of risk to the various categories of assets. Minimum levels of capital are required to be maintained in proportion to total risk-weighted assets and off-balance sheet exposures such as loan commitments and standby letters of credit. Tier 1, or core capital, consists of shareholders' equity less goodwill, core deposit intangibles, and certain tax receivables defined by bank regulations. Tier 2 capital is defined as the amount of the allowance for loan losses which does not exceed 1.25% of gross risk adjusted assets. Total capital is the sum of Tier 1 and Tier 2 capital. The minimum requirements under these standards are generally at least a 4.0% leverage ratio, which is Tier 1 capital divided by defined `total assets'', 4.0% Tier 1 capital to risk-adjusted assets and 8.0% total capital to risk- adjusted assets ratios. Under these guidelines, the Company, on a consolidated basis, and each of its affiliate banks individually, have capital ratios that substantially exceed the regulatory minimums. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires federal regulatory agencies to define capital tiers. These are: well- capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under these regulations, a `well-capitalized'' entity must achieve a Tier One Risk-based capital ratio of at least 6.0%, a total capital ratio of at least 10.0% and a leverage ratio of at least 5.0% and not be under a capital directive order. At June 30, 1997, management is not under such a capital directive nor is it aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material effect on the Company's liquidity, capital resources or operations. The table below presents the Company's consolidated capital ratios under regulatory guidelines. RISK BASED CAPITAL STRUCTURE ($ in thousands) June 30, December 31, 1997 1996 Tier 1 Capital: Shareholders' Equity as presented on Balance Sheet $50,899 $48,793 Add / (Subtract): Unrealized Depreciation / (Appreciation) on Securities Available-for-Sale (443) (495) Less: Intangible Assets and Ineligible Deferred Tax Assets (1,786) (1,924) ------- ------- Total Tier 1 Capital 48,670 46,374 Tier 2 Capital: Qualifying Allowance for Loan Loss 4,157 4,028 ----- ----- Total Capital $52,827 $50,402 ======= ======= Risk-adjusted Assets $330,661 $319,718 To be Well Capitalized Under Prompt Minimum for Corrective Capital Action Adequacy Provisions June 30, December 31, Purposes (FDICIA) 1997 1996 Leverage Ratio 4.00% 5.00% 10.21% 9.70% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 14.72% 14.50% Total Capital to Risk-adjusted Assets 8.00% 10.00% 15.98% 15.76% LIQUIDITY The Consolidated Statement of Cash Flows details the elements of change in the Company's cash and cash equivalents. During the first six months of 1997, the net cash from operating activities, including net income of $3,124,000 provided $3,037,000 of available cash. The maturities of securities and short-term investments brought in $848,000 in cash above the dollar amount of purchases. Major cash outflows experienced during this six month period of 1997 included dividends of $963,000, property and equipment purchases, primarily related to computer upgrading, of $1,145,000 and the net funding outlay of loans in the amount of $10,687,000. Decreases occurring in deposits and short-term as well as long-term borrowings reduced cash by an additional $10,439,000. Total cash outflows for the period exceeded inflows by $19,321,000 leaving a cash and cash equivalent balance of $18,413,000 at June 30, 1997. PART II. -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 27 Financial Data Schedule for the period ended June 30, 1997. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended June 30, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GERMAN AMERICAN BANCORP Date: August 12, 1997 By/s/George W. Astrike ---------------- ----------------------- George W. Astrike Chairman Date: August 12, 1997 By/s/John M. Gutgsell ---------------- ------------------------ John M. Gutgsell Controller and Principal EX-27 2
9 6-MOS JUN-30-1997 JUN-30-1997 15,738 394 2,675 0 98,047 23,673 23,409 324,142 6,048 481,041 421,503 4,491 4,148 0 25,416 0 0 25,483 481,041 14,359 3,865 203 8,575 8,394 8,575 9,852 543 0 6,848 4,744 4,744 0 0 3,124 1.23 1.23 4.42 534 1,381 0 0 6,528 352 415 6,048 6,048 0 1,753
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