-----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, M7SNbATSbnf5/74JoXDAjxyCoRHMSGKZIADZNXKlYy8H0hkqTqJudV8KoX8vpzag bB5fO7BI/d2ToCijOVFJPg== 0000927946-00-000056.txt : 20000515 0000927946-00-000056.hdr.sgml : 20000515 ACCESSION NUMBER: 0000927946-00-000056 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 628992 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 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2000 Or [ ] Transition Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from _______________ to ___________________ Commission File Number 0-11244 German American Bancorp (Exact name of registrant as specified in its charter) INDIANA 35-1547518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 711 Main Street, 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 4, 2000 Common Stock, No par value 9,029,109 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 Consolidated Statements of Income and Comprehensive Income -- Three Months Ended March 31, 2000 and 1999 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 2000 and 1999 Notes to Consolidated Financial Statements -- March 31, 2000 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 2. Changes in Securities and Use of Proceeds Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEETS (unaudited, dollars in thousands except per share data) March 31, December 31, 2000 1999 ASSETS Cash and Due from Banks................................................... $19,299 $23,707 Federal Funds Sold and Other Short-term Investments....................... 1,945 1,189 --------- --------- Cash and Cash Equivalents............................................. 21,244 24,896 Interest-bearing Time Deposits with Banks................................. 499 499 Securities Available-for-Sale, at Market ................................ 188,817 188,148 Securities Held-to-Maturity, at Cost ..................................... 29,379 30,191 Loans Held for Sale....................................................... 939 2,845 Total Loans ............................................................ 702,277 694,636 Less: Unearned Income.................................................... (399) (344) Allowance for Loan Losses......................................... (8,948) (8,868) --------- --------- Loans, Net ............................................................. 692,930 685,424 Stock in FHLB of Indianapolis, and Other Restricted Stock, at cost........ 10,157 9,660 Premises, Furniture and Equipment, Net.................................... 19,859 19,782 Other Real Estate......................................................... 2,184 2,434 Intangible Assets......................................................... 2,087 2,161 Accrued Interest Receivable and Other Assets.............................. 25,158 26,595 --------- --------- TOTAL ASSETS....................................................... $993,253 $992,635 ========= ========= LIABILITIES Noninterest-bearing Deposits.............................................. $72,694 $71,671 Interest-bearing Deposits................................................. 626,921 626,590 --------- --------- Total Deposits........................................................ 699,615 698,261 FHLB Advances and Other Borrowings........................................ 195,010 196,017 Accrued Interest Payable and Other Liabilities............................ 10,634 10,870 --------- --------- TOTAL LIABILITIES.................................................. 905,259 905,148 SHAREHOLDERS' EQUITY Common Stock, no par value, $1 stated value; 20,000,000 shares authorized.......................................... 9,029 9,029 Preferred Stock, $10 par value; 500,000 shares authorized, no shares issued .................................. --- --- Additional Paid-in Capital................................................ 53,846 53,846 Retained Earnings......................................................... 29,422 28,559 Accumulated Other Comprehensive Income (Loss) ............................ (4,303) (3,947) --------- --------- TOTAL SHAREHOLDERS' EQUITY......................................... 87,994 87,487 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $993,253 $992,635 ========= ========= End of period shares issued and outstanding............................... 9,029,109 9,029,109 ========= ========= 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, 2000 1999 INTEREST INCOME Interest and Fees on Loans................................................ $14,514 $13,008 Interest on Federal Funds Sold and Short-term Investments................. 64 438 Interest and Dividends on Securities: Taxable................................................................ 2,801 2,198 Non-taxable............................................................ 854 698 ------- ------- TOTAL INTEREST INCOME................................................ 18,233 16,342 INTEREST EXPENSE Interest on Deposits...................................................... 7,332 6,836 Interest on FHLB Advances and Other Borrowings............................ 2,863 1,631 ------- ------- TOTAL INTEREST EXPENSE............................................... 10,195 8,467 ------- ------- NET INTEREST INCOME....................................................... 8,038 7,875 Provision for Loan Losses................................................. 315 369 ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...................................................... 7,723 7,506 NONINTEREST INCOME Trust and Investment Product Fees......................................... 364 175 Service Charges on Deposit Accounts....................................... 430 388 Insurance Commissions and Fees............................................ 509 377 Other Operating Income.................................................... 299 349 Gain on Sales of Loans and Other Real Estate.............................. (41) 205 Net Gain / (Loss) on Sales of Securities.................................. (9) (5) - - TOTAL NONINTEREST INCOME............................................. 1,552 1,489 ------- ------- NONINTEREST EXPENSE Salaries and Employee Benefits............................................ 3,725 3,226 Occupancy Expense......................................................... 449 418 Furniture and Equipment Expense........................................... 462 415 Data Processing Fees...................................................... 216 273 Professional Fees......................................................... 202 224 Advertising and Promotions................................................ 214 157 Supplies.................................................................. 202 175 Other Operating Expenses.................................................. 1,080 991 ------- ------- TOTAL NONINTEREST EXPENSE............................................ 6,550 5,879 ------- ------- Income before Income Taxes................................................ 2,725 3,116 Income Tax Expense........................................................ 688 893 ------- ------- NET INCOME................................................................ $2,037 $2,223 ======= ======= COMPREHENSIVE INCOME...................................................... $1,681 $1,460 ======= ======= Earnings Per Share and Diluted Earnings Per Share......................... $0.23 $0.24 Dividends Per Share....................................................... $0.13 $0.11 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, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net Income.................................................................. $2,037 $2,223 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Depreciation and Amortization.......................................... 550 321 Amortization of Mortgage Servicing Rights.............................. 51 61 Net Change in Loans Held for Sale...................................... 1,858 2,683 Loss on Investment in Limited Partnership.............................. 46 25 Provision for Loan Losses.............................................. 315 369 Loss on Sales of Securities............................................ 9 5 Loss / (Gain) on Sales of Loans and Other Real Estate.................. 41 (205) Change in Assets and Liabilities: Interest Receivable and Other Assets................................. 1,399 1,847 Interest Payable and Other Liabilities............................... (236) (228) -------- -------- Total Adjustments................................................. 4,033 4,878 -------- -------- Net Cash from Operating Activities................................... 6,070 7,101 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest Bearing Balances with Banks........................... --- 233 Proceeds from Maturities of Securities Available-for-Sale................ 3,517 7,534 Proceeds from Sales of Securities Available-for-Sale..................... --- 953 Purchase of Securities Available-for-Sale................................ (4,542) (23,523) Proceeds from Maturities of Securities Held-to-Maturity.................. 803 3,967 Purchase of Securities Held-to-Maturity.................................. (497) --- Purchase of Loans........................................................ (1,443) (4,059) Loans Made to Customers, net of Payments Received........................ (7,215) (2,983) Proceeds from Sales of Other Real Estate................................. 1,035 --- Property and Equipment Expenditures...................................... (553) (648) Acquire Affiliates and Adjust to Conform Fiscal Years.................... --- (155) -------- -------- Net Cash from Investing Activities................................... (8,895) (18,681) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits....................................................... 1,354 6,943 Change in Short-term Borrowings.......................................... (23,766) 4,146 Advances of Long-term Debt............................................... 62,850 2,000 Repayments of Long-term Debt............................................. (40,091) (481) Dividends Paid........................................................... (1,174) (1,052) Purchase of Interest in Fractional Shares................................ --- (9) -------- -------- Net Cash from Financing Activities................................... (827) 11,547 -------- -------- Net Change in Cash and Cash Equivalents..................................... (3,652) (33) Cash and Cash Equivalents at Beginning of Year.............................. 24,896 49,588 -------- -------- Cash and Cash Equivalents at End of Period............................... $21,244 $49,555 ======== ======== See accompanying notes to consolidated financial statements.
GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (unaudited) Note 1 -- Basis of Presentation German American Bancorp operates primarily in the banking industry. The accounting and reporting policies of German American Bancorp and its subsidiaries conform to Generally Accepted Accounting Principles and reporting followed by the banking industry. 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 which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included in the accompanying unaudited consolidated financial statements, and all such adjustments are 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, 1999 Annual Report to Shareholders. Comprehensive income includes both net income and other comprehensive income. Other comprehensive income includes the change in unrealized appreciation/depreciation on securities available-for-sale, net of tax. Note 2 -- Per Share Data Earnings and dividends per share have been retroactively computed as though shares issued for stock dividends had been outstanding for all periods presented. Earnings per share amounts for March 31, 1999 were not restated for the issuance of 8,000 common shares related to the purchase of Smith & Bell in May 1999. The computation of Earnings per Share and Diluted Earnings per Share are provided as follows: Three Months Ended March 31, 2000 1999 Earnings per Share: Net Income $2,037,000 $2,223,000 Weighted Average Shares Outstanding 9,029,109 9,198,534 ---------- ---------- Earnings per Share: $ 0.23 $ 0.24 ========== ========== Diluted Earnings per Share: Net Income $2,037,000 $2,223,000 Weighted Average Shares Outstanding 9,029,109 9,198,534 Stock Options, Net 910 6,060 ---------- ---------- Diluted Weighted Average Shares Outstanding 9,030,019 9,204,594 ---------- ---------- Diluted Earnings per Share $ 0.23 $ 0.24 ========== ========== Note 3 - Securities The amortized cost and estimated market values of Securities as of March 31, 2000 are as follows (dollars in thousands): Estimated Amortized Market Cost Value Securities Available-for-Sale: U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $96,207 $91,989 Obligations of State and Political Subdivisions 28,385 28,363 Asset-/Mortgage-backed Securities 59,271 56,553 Equity Securities 12,080 11,912 -------- -------- Total $195,943 $188,817 ======== ======== Securities Held-to-Maturity: Obligations of State and Political Subdivisions $28,614 $28,300 Asset-/Mortgage-backed Securities 765 766 ------- ------- Total $ 29,379 $29,066 ======== ======= The amortized cost and estimated market values of Securities as of December 31, 1999 are as follows (dollars in thousands): Estimated Amortized Market Cost Value Securities Available-for-Sale: U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $96,205 $92,326 Obligations of State and Political Subdivisions 26,597 26,487 Asset-/Mortgage-backed Securities 61,514 58,967 Equity Securities 10,368 10,368 -------- -------- Total $194,684 $188,148 ======== ======== Securities Held-to-Maturity: Obligations of State and Political Subdivisions $29,288 $28,934 Asset-/Mortgage-backed Securities 903 904 -------- -------- Total $ 30,191 $ 29,838 ======== ======== At March 31, 2000 and December 31, 1999, U.S. Government Agency structured notes with an amortized cost of $7,983 and $7,983 respectively, and fair values of $7,060 and $7,150 respectively, are included in securities available-for-sale. These notes consist of 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, 2000 1999 Real Estate Loans Secured by 1-4 Family Residential Properties $362,611 $356,001 Agricultural Loans 63,203 64,054 Commercial and Industrial Loans 161,497 161,711 Loans to Individuals for Household, Family and Other Personal Expenditures 114,966 112,870 ------- ------- Total Loans $702,277 $694,636 ======== ======== No 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): 2000 1999 Balance at January 1 $8,868 $8,323 Adjustment to Conform Fiscal Years --- 356 Provision for Loan Losses 315 369 Recoveries of Prior Loan Losses 108 181 Loan Losses Charged to the Allowance (343) (481) --- --- Balance at March 31 $8,948 $8,748 ====== ====== Note 6 - Business Combinations In January 1999, the Company issued 2,039,665 shares of common stock for all the outstanding shares of 1ST BANCORP of Vincennes, Indiana and 62,000 shares of common stock for all the outstanding shares of The Doty Agency, Inc. (Doty) of Petersburg, Indiana. These mergers were accounted for as poolings of interest. 1ST BANCORP's subsidiaries included First Federal Bank, First Financial Insurance Agency, Inc., and First Title Insurance Company, Inc. First Federal Bank, now known as First American Bank, is headquartered in Vincennes, Indiana. First Financial Insurance Agency has offices in Vincennes and Princeton, Indiana. Doty is a general multi-line, full-service insurance agency with offices in Pike and Knox counties in Indiana. In May 1999, the Company issued 8,000 shares of common stock and approximately $26,000 in cash for all the outstanding shares of Professional Insurance Markets, Inc. (which did business as Smith & Bell) of Vincennes, Indiana. This merger was accounted for as a purchase. Accordingly, reported operating results for periods prior to the merger have not been restated. Smith & Bell is a general multi-line, full-service insurance agency with offices in Knox County, Indiana. Note 7 -- Proposed Acquisition On March 24, 2000 the Company announced that it had agreed in principle to acquire Holland Bancorp, Inc. ("Holland"), through the merger of Holland with and into the Company, and the simultaneous merger of Holland's sole bank subsidiary, The Holland National Bank, into the Company's subsidiary, The German American Bank. The Holland National Bank operates four banking offices in Dubois County, Indiana. Under the terms of the proposed merger, the shareholders of Holland would receive 3.5 shares of common stock of the Company for each of their Holland shares, or an aggregate of approximately 947,777 shares of common stock of the Company. The proposed merger is subject to the completion of due diligence and execution of a definitive agreement, approval by shareholders of Holland, Holland's receipt of a fairness opinion, approval of the appropriate bank regulatory agencies and other conditions. It is contemplated that the merger will be consummated during the fourth quarter of 2000, and that it will be accounted for under the pooling of interests method of accounting. Note 8 - Segment Information The Company's operations include two primary segments: retail banking and mortgage banking. The retail banking segment involves attracting deposits from the general public and using such funds to originate consumer, commercial, commercial real estate, and single-family residential mortgage loans, primarily in the affiliate bank's local markets. The mortgage banking segment involves the origination and purchase of single-family residential mortgage loans; the sale of such loans in the secondary market; and the servicing of mortgage loans for investors. The retail segment is comprised of community banks with 25 banking offices in Southwestern Indiana. Net interest income from loans and investments funded by deposits and borrowings is the primary revenue of the five affiliate community banks comprising the retail-banking segment. The mortgage-banking segment operates as a division of First American Bank. Primary revenues for the mortgage-banking segment are net interest income from a residential real estate loan portfolio funded primarily by wholesale funding sources. Other revenues are gains on sales of loans and capitalization of mortgage servicing rights (MSR), and loan servicing income. The following segment financial information has been derived from the internal financial statements of German American Bancorp, which are used by management to monitor and manage the financial performance of the Company. The accounting policies of the two segments are the same as those of the Company. The evaluation process for segments does not include holding company income and expense. Holding company and non-banking subsidiaries amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the Other column below, along with minor amounts to eliminate transactions between segments.
Three Months Ended Retail Mortgage Consolidated March 31, 2000 Banking Banking Other Totals ------- ------- ----- ------ Net Interest Income $6,920 $1,027 $91 $8,038 Gain on Sales of Loans and Capitalization of MSR --- 12 --- 12 Servicing Income --- 101 --- 101 Noncash Items: Provision for Loan Losses 173 142 --- 315 MSR Amortization & Valuation --- 51 --- 51 Provision for Income Taxes 1,052 84 (448) 688 Segment Profit 2,284 128 (375) 2,037 Segment Assets 807,092 177,957 8,204 993,253
Three Months Ended Retail Mortgage Consolidated March 31, 1999 Banking Banking Other Totals ------- ------- ----- ------ Net Interest Income $6,618 $1,186 $71 $7,875 Gain on Sales of Loans and Capitalization of MSR --- 212 --- 212 Servicing Income --- 93 --- 93 Noncash Items: Provision for Loan Losses 220 149 --- 369 MSR Amortization & Valuation --- 61 --- 61 Provision for Income Taxes 857 270 (234) 893 Segment Profit 2,186 428 (391) 2,223 Segment Assets 738,703 152,356 10,443 901,502
Note 9 - Subsequent Events On April 27, 2000, the Company's Board of Directors adopted a shareholder rights plan (the "Plan"). Under the Plan, rights attached to the outstanding common shares of the Company at the rate of one right for each share held by shareholders of record at the close of business on May 10, 2000. The rights will become exercisable only if a person or group of affiliated persons (an "Acquiring Person") acquires 15% or more of the Company's common shares or announces a tender offer or exchange offer that would result in the acquisition of 30% or more of the outstanding common shares. At that time, the rights may be redeemed at the election of the Board of Directors of the Company. If not redeemed, then prior to the acquisition by such person of 50% or more of the outstanding common shares of the Company, the Company may exchange the rights (other than rights owned by the Acquiring Person, which would have become void) for common shares (or other securities) of the Company on a one-for-one basis. If not exchanged, the rights may be exercised and the holders may acquire preferred share units or common shares of the Company having a value of two times the exercise price of $75.00. Each preferred share unit carries the same voting rights as one common share. If the Acquiring Person engages in a merger of other business combination with the Company, the rights would entitle the holders to acquire shares of the Acquiring Person having a market value equal to twice the exercise price of the rights. The Plan will expire on April 26, 2010. The distribution of the rights is not a taxable event for shareholders of the Company. In connection with the adoption of the Plan, the Board of Directors also approved the terms of the Series A Preferred Shares and adopted the Restatement of the Articles of Incorporation of the Company designating the relative rights, preferences and limitations of the Series A Preferred Shares. 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. The Company's Common Stock is traded on NASDAQ's National Market System under the symbol GABC. The Company operates five affiliate community banks with 25 banking offices and 5 full-service insurance offices in the eight contiguous Southwestern Indiana counties of Daviess, Dubois, Gibson, Knox, Martin, Perry, Pike and Spencer. The banks' wide range of personal and corporate financial services include making commercial and consumer loans; marketing, originating, and servicing mortgage loans; providing trust, investment advisory and brokerage services; accepting deposits and providing safe deposit facilities. The Company's insurance activities include offering a full range of title, property, casualty, life and credit insurance products. Prior to the acquisition activity in January 1999, the Company operated primarily in the banking industry. This section presents an analysis of the consolidated financial condition of the Company as of March 31, 2000 and December 31, 1999 and the consolidated results of operations for the three month periods ended March 31, 2000 and 1999. This discussion 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, 1999 Annual Report to Shareholders. RESULTS OF OPERATIONS Net Income: Net income was $2,037,000 or $0.23 per share for the quarter ended March 31, 2000 compared to $2,223,000 or $0.24 per share for the first quarter of 1999. The Company's retail banking segment profit, inclusive of associated holding company administrative expenses, increased $77,000 to $1,861,000 for the quarter ended March 31, 2000 compared to $1,784,000 for the quarter ended March 31, 1999. The increase in the retail banking segment profit was offset by a decline in the segment profit from the Company's mortgage banking operation. The decline principally reflected the effects of decreased mortgage loan production resulting from increases in general market interest rates during the latter half of 1999 and the first quarter of 2000. Net Interest Income: The following table summarizes German American Bancorp's net interest income (on a tax-equivalent basis, at an effective tax rate of 34%) for each of the periods presented herein (dollars in thousands):
Three Months Change from Ended March 31, Prior Period 2000 1999 Amount Percent Interest Income (T/E) $18,696 $16,757 $1,939 11.6% Interest Expense 10,195 8,467 1,728 20.4% ------- ------- ------ Net Interest Income (T/E) $8,501 $8,290 $211 2.5% ======= ======= ======
Net interest income increased $163,000 or 2.1% ($211,000 or 2.5% on a tax-equivalent basis) for the quarter ended March 31, 2000 compared with the first quarter of 1999. A significant portion of the increase resulted from loan growth. Net interest margin is tax-equivalent net interest income expressed as a percentage of average earning assets. For the first quarter of 2000, the net interest margin was 3.65% compared to 3.90% for the comparable period of 1999. The decline in net interest margin is attributable to a more competitive pricing environment for loans and deposits and the employment of various asset growth strategies. The Company employed various asset growth strategies in mid and late 1999, whereby affiliate banks invested proceeds from FHLB borrowings in equity securities in order to more effectively utilize capital in excess of requirements. These asset growth strategies have net interest margins ranging from 1.00% to 1.50%, and increased net interest income while reducing the overall net interest margin. 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 levels 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 $315,000 and $369,000 for the three months ended March 31, 2000 and 1999, respectively. The provision for loan losses to be recorded in future periods will be adjusted based on the results of on-going evaluations of the adequacy of the allowance for loan losses. Net charge-offs were $235,000 for the three months ended March 31, 2000 compared with $300,000 for the three months ended March 31, 1999. The majority of net charge-offs during the quarter ended March 31, 2000 were related to the sub-prime residential real estate loans at one affiliate. The Company discontinued new sub-prime out-of-market real estate lending during 1999. Nonperforming loans as a percent of total loans at March 31, 2000 were 1.25% of total loans, representing a slight decline from the 1.27% at December 31, 1999. See discussion under "Financial Condition" for more information regarding nonperforming assets. Noninterest Income: Noninterest income for the first quarter of 2000 increased $63,000 or 4.2% on an annualized basis. Growth occurred in Trust and Investment Product Fees ($189,000), Service Charges on Deposit Accounts ($42,000), and Insurance Commissions and Fees ($132,000). The growth in these areas was tempered by a decline in Gain on Sale of Loans and Other Real Estate ($246,000) and in Other Operating Income ($50,000). The increased Trust and Investment Product Fees for the quarter ended March 31, 2000 compared with the same period of the prior year was partially attributable to the implementation of brokerage services at one affiliate during 1999. Additionally, a significant increase in brokerage activity at another affiliate, due in part to market conditions, also contributed to the increased level of income. Insurance Commissions and Fees also increased for the quarter ended March 31, 2000 compared with the quarter ended March 31, 1999. The increase was due to an overall growth in the insurance operations of the Company and due to the acquisition of Smith & Bell in May 1999. Net Gains on Sales of Loans and Other Real Estate are derived predominantly from the Company's mortgage banking division. The net loss on sales of loans and other real estate in the first quarter of 2000 compared with the net gain during the same period of 1999 was largely attributable to lower volumes in residential real estate loan production and correspondingly lower levels of loan sales caused by a rising market interest rate environment. Also contributing to the net loss of $41,000 in the quarter ended March 31, 2000 was an increased level of sales of other real estate owned. The decline in Other Operating Income was largely attributable to a decline in revenues generated by the Company's title insurance operation. The decline in revenues was the result of a lower volume of residential loan production. In addition, the discontinuance of an Internet access operation at one affiliate contributed to the decline in Other Operating Income. Noninterest Expense: Noninterest expense for the first quarter of 2000 increased $671,000 or 11.4% from the prior year. The increase primarily occurred in Salaries and Employee Benefits ($499,000), Occupancy, Furniture and Equipment Expense ($78,000) and Other Operating Expenses ($89,000). Total Salaries and Benefits Expense increased $499,000 to $3.7 million in the three months ended March 31, 2000 over the prior year total of $3.2 million in the first quarter of 1998. Salary expense increased approximately 7% from merit increases and due to the purchase of Smith and Bell in May 1999. Performance bonuses, along with payroll taxes, 401(k) and associated profit sharing increased in 2000 over the prior year due to improved performance of the retail-banking segment. Total occupancy, furniture and equipment expense for the three months ended March 31, 2000 totaled $911,000 compared with $833,000 during the same period of the prior year. This increase includes depreciation on Citizen State Bank's new main office in Petersburg, Indiana and for the new Cherry Tree branch for Peoples National Bank in Washington, Indiana. These facilities were completed and placed into service during 1999. Also contributing to the increase was the continued implementation of a state-of-the-art wide-area network and associated operating and application systems at the retail banking affiliates during 1999 and the first quarter of 2000. These systems are expected to provide long-term benefits with regard to improved quality of customer service and control of personnel expenses. Computer processing fees decreased $57,000 in the first quarter of 2000 compared with the first quarter of 1999 due primarily to the discontinuance of an Internet access operation at one affiliate. Advertising expenses increased $57,000 due to costs associated with the customer information system implemented during 1999 for all banking affiliates and fluctuations in the normal course of business. Supplies expenses for the first quarter increased $27,000 over the prior year due to normal increases due to volume. First quarter Other Operating Expenses increased $89,000 over the first quarter of 1999. This increase was primarily attributable to collection expenses ($52,000) and telecommunication expenses ($42,000). The increased telecommunication charges were primarily attributable to network charges to support the Company's new technology platforms and operating systems. The increased collection costs were primarily at one affiliate bank, as efforts continue to collect on delinquent sub-prime out-of-market residential real estate loans and to liquidate other real estate owned. The Company discontinued this type of lending during 1999. Income Taxes: The Company's effective income tax rate approximates 30% of pre-tax income in all periods, and is lower than the combined federal and state statutory rate of 39.6%. This lower effective rate results primarily from the Company's tax-exempt investment income on securities and loans, and from income tax credits generated from investments in affordable housing projects. FINANCIAL CONDITION Total assets at March 31, 2000 were flat at $993 million compared with total assets at December 31, 1999. In comparison to year-end totals, loans increased $7.6 million or 1.1% on an annualized basis. Loans held for sale declined $1.9 million or 66.7%. This decline resulted from lower residential real estate loan production and correspondingly lower loans held for sale caused largely by a rising interest rate environment. Investments remained stable at $229 million and cash equivalents declined $3.7 million or 14.7%. Deposits at March 31, 2000 increased $1.4 million or less than one percent compared to December 31, 1999 deposits. Borrowings declined by $1.0 million or less than one percent. 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-term and short-term borrowing needs. Nonperforming Assets: The following is an analysis of the Company's nonperforming assets at March 31, 2000 and December 31, 1999 (dollars in thousands): March 31, December 31, 2000 1999 Nonaccrual Loans $6,051 $7,237 Loans contractually past due 90 days or more 2,759 1,564 Renegotiated Loans --- --- ------- ------- Total Nonperforming Loans 8,810 8,801 ------- ------- Other Real Estate 2,184 2,434 ------- ------- Total Nonperforming Assets $10,994 $11,235 ======= ======= Allowance for Loan Loss to Nonperforming Loans 101.57% 100.76% Nonperforming Loans to Total Loans 1.25% 1.27% Capital Resources: Shareholders' equity totaled $88.0 million at March 31, 2000 or 8.9% of total assets, an increase of $507,000 from December 31, 1999. 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, 2000 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 (dollars in thousands):
To be Well Capitalized Under Prompt Minimum for Corrective Capital Action At At Adequacy Provisions March 31, December 31, Purposes (FDICIA) 2000 1999 Leverage Ratio 4.00% 5.00% 9.07% 9.07% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 13.79% 13.53% Total Capital to Risk-adjusted Assets 8.00% 10.00% 15.04% 14.78%
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 2000, operating activities provided $6.1 million of available cash, which included net income of $2.0 million. Major cash outflows experienced during this three-month period of 2000 included $1.2 million in dividends and net loan outlays in the amount of $8.7 million. Purchases of securities approximated the cash flows from the maturities and sales securities. Total cash outflows for the period exceeded inflows by $3.7 million, leaving cash and cash equivalents of $21.2 million at March 31, 2000. Forward-looking Statements: This Report contains statements relating to the future results of the Company that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, adequacy of allowance for loan losses; simulations of changes in interest rates; litigation results; and dividend policy. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in economic conditions; interest rate fluctuations; competitive product and pricing pressures within the Company's markets; equity and fixed income market fluctuations; and personal and corporate customers' bankruptcies. Results may also differ materially due to inflation; acquisitions and integrations of acquired businesses; technological change; changes in law; changes in fiscal, monetary, regulatory and tax policies; success in gaining regulatory approvals when required; the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends; as well as other risks and uncertainties detailed elsewhere in this Report and from time to time in the filings of the Company with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. 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 Committees and Boards of Directors of the holding company and its affiliate banks. Primary market risks which impact the Company's operations are liquidity risk and interest rate risk. The liquidity of the parent company is dependent upon the receipt of dividends from its bank subsidiaries, which are subject to certain regulatory limitations. The affiliate banks' source of funding is predominately core deposits, maturities of securities, repayments of loan principal and interest, federal funds purchased, securities sold under agreements to repurchase and long-term borrowings from the Federal Home Loan Bank. The Company monitors interest rate risk by the use of computer simulation modeling to estimate the potential impact on its net interest income under various interest rate scenarios, and by estimating its static interest rate sensitivity position. Another method by which the Company's interest rate risk position can be estimated is by computing estimated changes in its net portfolio value ("NPV"). This method estimates interest rate risk exposure from movements in interest rates by using interest rate sensitivity analysis to determine the change in the NPV of discounted cash flows from assets and liabilities. NPV represents the market value of portfolio equity and is equal to the estimated market value of assets minus the estimated market value of liabilities. Computations are based on a number of assumptions, including the relative levels of market interest rates and prepayments in mortgage loans and certain types of investments. These computations do not contemplate any actions management may undertake in response to changes in interest rates, and should not be relied upon as indicative of actual results. In addition, certain shortcomings are inherent in the method of computing NPV. Should interest rates remain or decrease below current levels, the proportion of adjustable rate loans could decrease in future periods due to refinancing activity. In the event of an interest rate change, prepayment levels would likely be different from those assumed in the table. Lastly, the ability of many borrowers to repay their adjustable rate debt may decline during a rising interest rate environment. The table below provides an assessment of the risk to NPV in the event of sudden and sustained 1% and 2% increases and decreases in prevailing interest rates. The table indicates that as of December 31, 1999 the Company's estimated NPV might be expected to decrease in the event of an increase in prevailing interest rates, and might be expected to increase in the event of a decrease in prevailing interest rates (dollars in thousands). Interest Rate Sensitivity as of December 31, 1999 Net Portfolio Value Net Portfolio as a % of Present Value Value of Assets ----- --------- Changes In rates $ Amount $ Change NPV Ratio Change -------- -------- -------- --------- ------ +2% $62,795 (23.0)% 6.66% 161 b.p. +1% 73,014 (10.5) 7.57 70 b.p. Base 81,584 --- 8.27 --- -1% 90,506 10.9 8.95 68 b.p. -2% 87,989 7.9 8.65 38 b.p. The Company's risk profile as of March 31, 2000 does not materially differ from these year-end estimates. Item 3 includes forward-looking statements. See "Forward-looking Statements" included in Item 2 of this Report for a discussion of certain factors that could cause the Company's actual exposure to market risk to vary materially from that expressed or implied above. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds On April 27, 2000, the Company's Board of Directors adopted a shareholder rights plan (the "Plan"). Under the Plan, rights attached to the outstanding common shares of the Company at the rate of one right for each share held by shareholders of record at the close of business on May 10, 2000. The rights will become exercisable only if a person or group of affiliated persons (an "Acquiring Person") acquires 15% or more of the Company's common shares or announces a tender offer or exchange offer that would result in the acquisition of 30% or more of the outstanding common shares. At that time, the rights may be redeemed at the election of the Board of Directors of the Company. If not redeemed, then prior to the acquisition by such person of 50% or more of the outstanding common shares of the Company, the Company may exchange the rights (other than rights owned by the Acquiring Person, which would have become void) for common shares (or other securities) of the Company on a one-for-one basis. If not exchanged, the rights may be exercised and the holders may acquire preferred share units or common shares of the Company having a value of two times the exercise price of $75.00. Each preferred share unit carries the same voting rights as one common share. If the Acquiring Person engages in a merger of other business combination with the Company, the rights would entitle the holders to acquire shares of the Acquiring Person having a market value equal to twice the exercise price of the rights. The Plan will expire on April 26, 2010. The distribution of the rights is not a taxable event for shareholders of the Company. In connection with the adoption of the Plan, the Board of Directors also approved the terms of the Series A Preferred Shares and adopted the Restatement of the Articles of Incorporation of the Company designating the relative rights, preferences and limitations of the Series A Preferred Shares. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed herewith: 3.1 Restatement of Articles of Incorporation of the Registrant. The copy of this exhibit filed as Exhibit 3.01 to Registrant's Current Report on Form 8-K filed May 5, 2000, is incorporated by reference. 3.2 Restated Bylaws of the Registrant as amended August 14, 1990, are incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 1995. 4 Rights Agreement dated as of April 27, 2000 between German American Bancorp and UMB Bank, N.A., as Rights Agent. The copy of this exhibit filed as Exhibit 4.01 to Registrant's Current Report on Form 8-K filed May 5, 2000, is incorporated by reference. 27 Financial Data Schedule (b) Reports on Form 8-K The Registrant filed a Report on Form 8-K on March 24, 2000 to report that it had agreed in principle to acquire Holland Bancorp, Inc., Holland, Indiana. A press release attached as Exhibit 99 to the March 24, 2000 8-K more fully described the proposed transaction. 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 12, 2000 By/s/Mark A. Schroeder --------------------- -------------------------------------- Mark A. Schroeder President and CEO Date May 12, 2000 By/s/Richard E. Trent --------------------- -------------------------------------- Richard E. Trent Chief Financial Officer and Principal Accounting Officer EX-27 2 FDS
9 3-MOS DEC-31-2000 MAR-31-2000 19,299 2,444 0 0 188,817 29,379 29,066 702,817 8,948 993,253 699,615 49,349 10,634 145,661 0 0 9,029 78,965 993,253 14,514 3,719 0 18,233 7,332 10,195 8,038 315 (9) 6,550 2,725 2,725 0 0 2,037 0.23 0.23 3.46 6,051 2,759 0 5,709 8,868 343 108 8,948 8,948 0 1,638
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