-----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, WhGJQcnCSZYfryn1J6xZ0hu8SL6y0SNMxe2khkLZtLa5ViZP2cm6S0sHGl5Ios1z JtykWDweZDURpuBNEmX9Ww== 0000714395-98-000002.txt : 19980515 0000714395-98-000002.hdr.sgml : 19980515 ACCESSION NUMBER: 0000714395-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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: SEC FILE NUMBER: 000-11244 FILM NUMBER: 98620265 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 March 31, 1998 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 May 10, 1998 Common Stock, No par value 5,350,161 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets -- March 31, 1998 and December 31, 1997 Consolidated Statements of Income -- Three Months Ended March 31, 1998 and 1997 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1998 and 1997 Notes to Consolidated Financial Statements -- March 31, 1998 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II. OTHER INFORMATION Item 5. Other Information 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 (unaudited, dollars in thousands except per share data) March 31, December 31, 1998 1997 ASSETS Cash and Due from Banks $13,023 $14,250 Federal Funds Sold 9,800 11,800 Cash and Cash Equivalents 22,823 26,050 Interest-bearing Balances with Banks 261 200 Securities Available-for-Sale, at market 93,320 99,639 Securities Held-to-Maturity, at cost 23,347 24,223 Total Loans 337,724 330,738 Less: Unearned Income (244) (269) Allowance for Loan Losses (6,291) (6,255) Loans, Net 331,189 324,214 Premises, Furniture and Equipment, Net 12,260 12,406 Other Real Estate 168 146 Intangible Assets 1,525 1,572 Accrued Interest Receivable and Other Assets 10,341 10,381 TOTAL ASSETS $495,234 $498,831 LIABILITIES Noninterest-bearing Deposits $46,332 $54,234 Interest-bearing Deposits 383,730 379,714 Total Deposits 430,062 433,948 Short-term Borrowings 4,219 4,933 FHLB Borrowings 1,000 --- Accrued Interest Payable and Other Liabilities 5,821 6,618 TOTAL LIABILITIES 441,102 445,499 SHAREHOLDERS' EQUITY Common Stock, $10 par value, $1 stated value; 20,000,000 shares authorized, and 5,350,161 issued and outstanding in 1998 and 1997 5,350 5,350 Preferred Stock, $10 par value; 500,000 shares authorized, no shares issued --- --- Additional Paid-in Capital 35,018 35,018 Retained Earnings 13,134 12,208 Unrealized Appreciation on Securities Available-for-Sale, net of tax 630 756 TOTAL SHAREHOLDERS' EQUITY 54,132 53,332 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $495,234 $498,831 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited, dollars in thousands except per share data) Three Months Ended March 31, 1998 1997 INTEREST INCOME Interest and Fees on Loans $7,557 $7,036 Interest on Federal Funds Sold 163 101 Interest on Short-term Investments 4 27 Interest and Dividends on Securities 1,783 1,925 TOTAL INTEREST INCOME 9,507 9,089 INTEREST EXPENSE Interest on Deposits 4,319 4,162 Interest on Borrowings 50 99 TOTAL INTEREST EXPENSE 4,369 4,261 NET INTEREST INCOME 5,138 4,828 Provision for Loan Losses 24 139 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,114 4,689 NONINTEREST INCOME Income from Fiduciary Activities 80 66 Service Charges on Deposit Accounts 268 280 Investment Services Income 134 106 Other Noninterest Income 149 95 TOTAL NONINTEREST INCOME 631 547 NONINTEREST EXPENSE Salaries and Employee Benefits 1,971 1,826 Occupancy Expense 274 279 Furniture and Equipment Expense 260 226 Computer Processing Fees 131 125 Professional Fees 144 212 Other Operating Expenses 721 651 TOTAL NONINTEREST EXPENSE 3,501 3,319 Income before Income Taxes 2,244 1,917 Income Tax Expense 730 643 Net Income $1,514 $1,274 Earnings Per Share And Diluted Earnings Per Share $0.28 $0.24 Dividends Paid Per Share $0.11 $0.10 Comprehensive Income (See Note 1) $1,388 $ 797 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, dollar references in thousands) Three Months Ended March 31, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $1,514 $1,274 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Amortization and Accretion of Investments (7) (36) Depreciation and Amortization 299 282 Provision for Loan Losses 24 139 Change in Assets and Liabilities: Unearned Income (25) (53) Deferred Loan Fees 4 (26) Other Assets 141 94 Deferred Taxes (101) 21 Other Liabilities (797) (168) Total Adjustments (462) 253 Net Cash from Operating Activities 1,052 1,527 CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest-bearing Balances with Banks (61) (191) Proceeds from Maturities of Securities Available-for-Sale 28,333 7,336 Purchase of Securities Available-for-Sale (22,147) (12,971) Proceeds from Maturities of Securities Held-to-Maturity 1,215 318 Purchase of Securities Held-to-Maturity (325) (500) Proceeds from Sales of Loans 255 --- Loans Made to Customers net of Payments Received (7,278) (4,822) Property and Equipment Expenditures (106) (337) Proceeds from Sales of Other Real Estate 23 --- Net Cash from Investing Activities (91) (11,167) CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits (3,886) (3,471) Net Change in Short-term Borrowings (714) (5,418) Advances of Long-term Debt 1,000 --- Repayments of Long-term Debt --- (1,000) Dividends Paid (588) (404) Purchase of interests in Fractional Shares --- (5) Exercise of Stock Options --- 2 Net Cash from Financing Activities (4,188) (10,296) Net Change in Cash and Cash Equivalents (3,227) (19,936) Cash and Cash Equivalents at Beginning of Year 26,050 37,734 Cash and Cash Equivalents at End of Period $22,823 $17,798 Cash Paid During the Year for: Interest $4,337 $3,975 Income Taxes 188 171 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1998 (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, 1997 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. Under a new accounting standard, comprehensive income is now reported for all periods. Comprehensive income includes both net income and other comprehensive income. Other comprehensive income includes the change in unrealized appreciation on securities available for sale, net of tax. Note 2 -- Per Share Data The Board of Directors declared and paid a 5 percent stock dividend in 1997. In lieu of issuing fractional shares, the company purchased from shareholders their fractional interest. Additionally, the Board declared and paid a two-for-one stock split in 1997. Earnings per share amounts have been retroactively computed as though these additionally issued shares had been outstanding for all periods presented. Dividends paid per share amounts represent historical dividends declared without restatement for pooling. The computation of Earnings per Share and Diluted Earnings per Share are provided as follows: March 31, 1998 1997 Earnings per Share: Net Income $1,514,000 $1,274,000 Weighted Average Shares Outstanding 5,350,161 5,336,388 Earnings per Share: $ 0.28 $ 0.24 Diluted Earnings per Share Net Income $1,514,000 $1,274,000 Weighted Average Shares Outstanding 5,350,161 5,336,388 Stock Options 32,519 36,692 Assumed Shares Repurchased upon Exercise of Options (16,527) (29,054) Diluted Weighted Average Shares Outstanding 5,366,153 5,344,026 Diluted Earnings per Share $ 0.28 $ 0.24 Note 3 _ Securities The amortized cost and estimated market values of Securities as of March 31, 1998 are as follows (dollars in thousands): Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $51,989 $52,006 Obligations of State and Political Subdivisions 20,175 21,304 Asset-/Mortgage-backed Securities 15,705 15,580 Corporate Securities 4,406 4,416 Other Securities 1 14 Total $92,276 $93,320 Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $500 $500 Obligations of State and Political Subdivisions 20,314 21,227 Asset-/Mortgage-backed Securities 670 677 Corporate Securities 100 96 Other Securities 1,763 1,763 Total $23,347 $24,263 The amortized cost and estimated market values of Securities as of December 31, 1997 are as follows (dollars in thousands): Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $57,795 $57,815 Obligations of State and Political Subdivisions 20,398 21,620 Asset-/Mortgage-backed Securities 15,668 15,661 Corporate Securities 4,528 4,529 Other Securities 1 14 Total $98,390 $99,639 Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $1,500 $1,499 Obligations of State and Political Subdivisions 20,154 21,187 Asset-/Mortgage-backed Securities 695 702 Corporate Securities 111 103 Other Securities 1,763 1,763 Total $24,223 $25,254 At March 31, 1998 and December 31, 1997, U.S. Government Agency structured notes with an amortized cost of $2,000,000 and $5,000,000 respectively, and fair value of $1,992,000 and $4,986,000 respectively, are included in securities available-for-sale. These notes consist primarily of step-up and single-index bonds. Note 4 -- Loans Total loans, as presented on the balance sheet, are comprised of the following classifications (dollars in thousands): March 31, December 31, 1998 1997 Real Estate Loans Secured by 1-4 Family Residential Properties $108,431 $107,943 Agricultural Loans 53,090 53,110 Commercial and Industrial Loans 115,670 107,343 Loans to Individuals for Household, Family and Other Personal Expenditures 59,539 61,297 Lease Financing 994 1,045 Total Loans $337,724 $330,738 The overall loan portfolio is diversified among a variety of borrowers; however, a significant portion of the debtors' ability to honor their contracts is dependent upon the agricultural, poultry and wood furniture manufacturing industries. Although wood furniture manufacturers employ a significant number of people in the market area, there is no concentration of credit to companies engaged in that industry. No unguaranteed concentration of credit in excess of 10 percent of total assets exists within any single industry group. Note 5 -- Allowance for Loan Losses A summary of the activity in the Allowance for Loan Losses is as follows (dollars in thousands): 1998 1997 Balance at January 1 $6,255 $6,528 Provision for Loan Losses 24 139 Recoveries of Prior Loan Losses 87 47 Loan Losses Charged to the Allowance (75) (328) Balance at March 31 $6,291 $6,386 Note 6 _ Subsequent Event During April 1998, the Company's Shareholders approved an amendment of the Articles of Incorporation to change the per share value of the Company's shares from $10.00 to no par value. Note 7 -- Proposed Acquisitions In December 1997, the Company signed a definitive agreement providing for a merger of a Company subsidiary with CSB Bancorp, ("CSB") parent company of the Citizens State Bank of Petersburg, Indiana. Under terms of the agreement, the Company will issue to CSB shareholders between 928,572 and 1,137,500 shares of Company Common Stock. The number of shares to be issued is dependent upon the Company's average common stock price during a period prior to the date of the merger closing, and is also subject to further anti-dilution adjustments in the event of any future stock dividends, splits and the like. The proposed merger is subject to approval by the shareholders of CSB, bank regulatory agencies, and other conditions. The transaction is expected to be accounted for as a pooling of interests, and it is contemplated that the merger will be effective in the second quarter of 1998. At March 31, 1998 CSB had total assets of approximately $75.1 million and total shareholders' equity of approximately $9.0 million. In January 1998, the Company also signed a definitive agreement providing for a merger of a Company subsidiary with FSB Financial Corporation ("FSB") which operates the FSB Bank in Princeton and Francisco, Indiana. Under terms of the agreement, the Company will issue to shareholders of FSB shares of Company Common Stock with market value equal to 150 percent of the sum of FSB's shareholders' equity. The market value of the shares issued will be based upon FSB shareholder equity as of the end of the month immediately preceding the closing date, subject to certain adjustments described in the definitive agreement. The proposed merger is subject to approval by the shareholders of FSB, bank regulatory agencies, and other conditions. The transaction is expected to be accounted for as a pooling of interests, and it is contemplated that the merger will be effective in the second quarter of 1998. At March 31,1998 FSB had total assets of approximately $15.7 million and total shareholders' equity of approximately $1.5 million. 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 March 31, 1998 and December 31, 1997 and the consolidated results of operations for the three months ended March 31, 1998 and 1997. 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, as well as the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's December 31, 1997 Annual Report to Shareholders. RESULTS OF OPERATIONS Net Income: The Company achieved a 19 percent increase in earnings for the first quarter of 1998 over the first quarter of 1997. Net income for the three months ended March 31, 1998 totaled $1,514,000 compared to $1,274,000 for the same period in 1997. Net income was $0.28 per share for the first quarter of 1998 versus $0.24 per share for the first quarter of 1997. Return on assets and return on equity, respectively, were 1.22 percent and 11.28 percent for the 1998 reporting period, compared to 1.06 percent and 10.37 percent for the same period in 1997. The Company's 1998 first quarter results, in comparison to the first quarter of 1997, reflect increases in net interest income, trust fees and brokerage commissions, as well as a reduction in provision for loan loss. Operating expenses increased by 5.5 percent over the same period in the prior year, in part due to increases in the Company's base compensation levels. Despite the increase in expenses, the Company's efficiency ratio improved to 57 percent, in comparison to 58 percent in the first quarter of the previous year. Net Interest Income: The following table summarizes German American Bancorp's net interest income (on a taxable-equivalent basis, at an effective tax rate of 34 percent for each period) for each of the periods presented herein (dollars in thousands): Three Months Change from Ended March 31, Prior Period 1998 1997 Amount % Interest Income $9,849 $9,384 $465 5.0% Interest Expense 4,369 4,261 108 2.5% Net Interest Income $5,480 $5,123 $357 7.0% The increase in net interest income for the three months ended March 31, 1998 compared to the same period of 1997 was primarily due to an increase of loans outstanding, in the mix of average earning assets and higher yields in both the securities and loan portfolios. Net interest income for the first quarter of 1998 includes a recovery of interest on a previously charged-off loan of approximately $68,000. Net interest income on a taxable-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 quarter of 1998, the net interest margin was 4.73 percent compared to 4.51 percent for the comparable period of 1997. 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 $24,000 and $139,000 for the first three months of 1998 and 1997, respectively. The provision for loan losses to be recorded in future periods will be subject to adjustment based on the results of on-going evaluations of the adequacy of the allowance for loan losses. The Company experienced a net recovery of $12,000 in the first quarter of 1998. Net charge-offs for the first quarter of 1997 were $281,000 or 0.08 percent of total loans. Underperforming loans as a percentage of total loans were 0.95 percent and 0.99 percent on March 31, 1998 and December 31, 1997, respectively. See discussion under "Financial Condition" for more information regarding underperforming assets. Noninterest Income: Noninterest income for the first three months of 1998 was $631,000. This was $84,000 greater than the $547,000 recorded for the same three months of 1997. This increase included a $44,000 dividend from an affiliate bank's participation in a real estate limited partnership, and a $30,000 increase in brokerage commissions. Noninterest Expense: Total noninterest expense for the first three months of 1998 was $3,501,000. This was a $187,000 or 5.5 percent increase over the $3,319,000 posted for the same period in 1997. Noninterest expense as an annualized percentage of average total assets was 2.82 percent in 1998 versus 2.75 percent in the prior year. Despite this increase, the Company's efficiency ratio improved to 57 percent for the first quarter of 1998 from 58 percent for the first quarter of 1997. Salaries and Employee Benefits constituted $1,971,000 or 56 percent of total noninterest expense. This was $145,000 or 7.9 percent more than the $1,826,000 recorded for the same period of the prior year. This increase was due to increases in base compensation and selected benefits, including the Company's employee computer purchase program. The Company's active full-time equivalent (FTE) staff was 213 at March 31, 1998 compared to 221 at March 31, 1997. Occupancy expense, combined with Furniture and Equipment expense for the first three months of 1998 totaled $534,000. This was $29,000 greater than the $505,000 incurred for the same period of the prior year. These expenses are expected to continue to be moderately higher in comparison to the prior year, largely as a consequence of upgrading the Company's computer systems. The Company is continuing its 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 by all of its affiliate community banks. Other operating expenses increased from $651,000 in the first three months of 1997 to $721,000 in the quarter ended March 31, 1998. This increase of $70,000 was incurred due to the introduction of new banking products, timing of employee related expenses and a refund of SAIF assessment fees received in the first quarter of 1997. Professional fees for the first three months of 1998 were $144,000. This was a reduction of $68,000 from the $212,000 recorded for the same period of 1997, primarily in merger related expenses. FINANCIAL CONDITION Total assets at March 31, 1998 stood at $495 million. This was a slight decline of $4 million from the December 31, 1997 total asset position and was due to a seasonal decline in deposits. Deposits at March 31, 1998 were at $430 million which was a $4 million, or less than one percent decrease from the total deposits held three months earlier. Transaction deposits experienced a seasonal decline from year-end, while interest-bearing deposits increased $4 million. Combined Short- and Long- term Borrowings at March 31, 1998 were $5.2 million, representing little change from the December 31, 1997 position of $4.9 million. All of the Company's affiliate banks are members of the Federal Home Loan Bank System ("FHLB"). The banks' membership in the FHLB provides an additional source of liquidity for both long and short-term borrowing needs. The Company had $1 million in FHLB borrowings outstanding at March 31, 1998. Underperforming Assets: The following presents an analysis of German American Bancorp's underperforming assets at March 31, 1998 and December 31, 1997 (dollars in thousands): March 31, December 31, 1998 1997 Nonaccrual Loans $292 $562 Loans contractually past due 90 days or more 2,920 2,710 Renegotiated Loans --- --- Total Underperforming Loans 3,212 3,272 Other Real Estate 168 146 Total Underperforming Assets $3,380 $3,418 Allowance for Loan Loss to Underperforming Loans 196% 191% Underperforming Loans to Total Loans 0.95% 0.99% Capital Resources: Shareholders' equity totaled $54,132,000 at March 31, 1998 or 10.9 percent of total assets, and $53,332,000 at December 31, 1997 or 10.7 percent of total assets. 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. The Company is required to maintain minimum levels of capital 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 deferred tax assets defined by bank regulations. Tier 2 capital is defined as the amount of the allowance for loan losses which does not exceed 1.25 percent 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 percent leverage ratio, which is Tier 1 capital divided by defined "total assets"; 4.0 percent Tier 1 capital to risk-adjusted assets; and, an 8.0 percent 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, under-capitalized, significantly under- capitalized, and critically under-capitalized. Under these regulations, a "well-capitalized" entity must achieve a Tier 1 Risk-based capital ratio of at least 6.0 percent; a total capital ratio of at least 10.0 percent; and, a leverage ratio of at least 5.0 percent, and not be under a capital directive order. At March 31, 1998 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 risk-based capital structure and capital ratios under regulatory guidelines (dollars in thousands): March 31, December 31, 1998 1997 Tier 1 Capital: Shareholders' Equity as presented on the Balance Sheet $54,132 $53,332 Less: Unrealized Appreciation on Securities Available-for-Sale (630) (756) Less: Intangible Assets and Ineligible Deferred Tax Assets (1,613) (1,702) Total Tier 1 Capital 51,889 50,874 Tier 2 Capital: Qualifying Allowance for Loan Loss 4,150 4,219 Total Capital $56,039 $55,093 Risk-adjusted Assets $328,263 $333,796 To be Well Capitalized Under Prompt Minimum for Corrective Capital Action Adequacy Provisions March 31, December 31, Purposes (FDICIA) 1998 1997 Leverage Ratio 4.00% 5.00% 10.47% 10.48% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 15.81% 15.24% Total Capital to Risk-adjusted Assets 8.00% 10.00% 17.07% 16.51% LIQUIDITY The Consolidated Statement of Cash Flows details the elements of change in the Company's cash and cash equivalents. During the first three months of 1998, the net cash from operating activities provided $1,052,000 of available cash, which included net income of $1,514,000. Maturities of securities and short-term investments brought in $7,076,000 in cash above the dollar amount of purchases. Major cash outflows experienced during this three month period of 1998 included $588,000 of dividends, property and equipment purchases (primarily related to computer upgrading) of $106,000, and the net funding outlay of loans in the amount of $7,278,000. Decreases experienced in deposits and short-term borrowings, net of an advance on long-term borrowings, reduced cash by $3,600,000. Total cash outflows for the period exceeded inflows by $3,227,000 leaving a cash and cash equivalents balance of $22,823,000 at March 31, 1998. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company's exposure to market risk is reviewed on a regular basis by the Asset/Liability Committee and the Boards of Directors of the holding company and its affiliate banks. There have been no material changes in the quantitative and qualitative disclosures about market risks as of March 31, 1998 from the analysis and disclosures provided in the Company's Form 10-K for the year ended December 31, 1997. PART II. -- OTHER INFORMATION Item 5. Other Information. On April 23, 1998, the shareholders of German American re-elected as directors for terms of two additional years Gene C. Mehne, Robert L. Ruckriegel, Mark A. Schroeder, Larry J. Seger, Joseph F. Steurer and C.L. Thompson, and the shareholders approved an amendment of German American's Articles of Incorporation to change the par value of its capital stock from $10.00 per share to no par value per share. On April 23, 1998, the Board of Directors of German American formalized management succession plans. Mark A. Schroeder, currently the President and Chief Operating Officer of German American, was designated to succeed George W. Astrike as Chief Executive Officer in January 1999. Schroeder, who has 25 years banking experience in Southwest Indiana markets served by German American, served as President/Chief Financial Officer of German American Bank before assuming his position in 1995 with German American. Astrike will continue as Chairman of the Board of both German American and German American Bank following relinquishment of the chief executive officer title in 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 27 Financial Data Schedule for the period ended March 31,1998. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended March 31, 1998, except for an optional report filed February 24, 1998 to provide certain financial statements. 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 May 14, 1998 By/s/Mark A. Schroeder ------------- ----------------------- Mark A. Schroeder President and Chief Operating Officer Date May 14, 1998 By/s/John M. Gutgsell ------------- ------------------------ John M. Gutgsell Controller and Principal Accounting Officer EX-27 2
9 1,000 3-MOS DEC-31-1997 MAR-31-1998 13,023 261 9,800 0 93,320 23,347 24,263 337,480 6,291 495,234 430,062 4,219 5,821 0 0 0 5,350 35,018 495,234 7,557 1,783 167 9,507 4,319 50 5,138 24 0 3,501 2,244 2,244 0 0 1,514 .28 .28 4.49 292 2,920 0 3,212 6,255 75 87 6,291 6,291 0 2,419
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