-----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, M+2vokR5A+1uWlp1EIophRGBWzkZvCU2byHeP+mwhAi66WeU3GfsjwrgxOSNKcJb oW0TC0uGS1/xYVNwLsKGYQ== /in/edgar/work/0000927946-00-000149/0000927946-00-000149.txt : 20001115 0000927946-00-000149.hdr.sgml : 20001115 ACCESSION NUMBER: 0000927946-00-000149 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GERMAN AMERICAN BANCORP CENTRAL INDEX KEY: 0000714395 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 351547518 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15877 FILM NUMBER: 763807 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 0001.txt 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 September 30, 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 November 4, 2000 ----- ------------------------------- Common Stock, No par value 9,996,355 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 Consolidated Statements of Income and Comprehensive Income -- Three and Nine months Ended September 30, 2000 and 1999 Consolidated Statements of Cash Flows -- Nine months Ended September 30, 2000 and 1999 Notes to Consolidated Financial Statements -- September 30, 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 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES - 2 -
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEETS (dollars in thousands except per share data) September 30, December 31, 2000 1999 ------------- ------------ (unaudited) ASSETS Cash and Due from Banks................................................ $ 22,595 $ 23,707 Federal Funds Sold and Other Short-term Investments.................... 766 1,189 ------------ ----------- Cash and Cash Equivalents......................................... 23,361 24,896 Interest-bearing Time Deposits with Banks.............................. 100 499 Securities Available-for-Sale, at Market ............................. 182,272 188,148 Securities Held-to-Maturity, at Cost .................................. 27,999 30,191 Loans Held for Sale.................................................... 2,188 2,845 Total Loans............................................................ 726,679 694,636 Less: Unearned Income................................................. (549) (344) Allowance for Loan Losses...................................... (8,791) (8,868) ------------ ----------- Loans, Net............................................................. 717,339 685,424 Stock in FHLB of Indianapolis, and Other Restricted Stock, at cost..... 12,684 9,660 Premises, Furniture and Equipment, Net................................. 19,623 19,782 Other Real Estate...................................................... 1,886 2,434 Intangible Assets...................................................... 2,227 2,161 Accrued Interest Receivable and Other Assets........................... 22,883 26,595 ------------ ----------- TOTAL ASSETS.................................................... $ 1,012,562 $ 992,635 ============ =========== LIABILITIES Noninterest-bearing Deposits........................................... $ 76,473 $ 71,671 Interest-bearing Deposits.............................................. 615,619 626,590 ------------ ----------- Total Deposits.................................................... 692,092 698,261 FHLB Advances and Other Borrowings..................................... 218,318 196,017 Accrued Interest Payable and Other Liabilities......................... 10,720 10,870 ------------ ----------- TOTAL LIABILITIES............................................... 921,130 905,148 SHAREHOLDERS' EQUITY Common Stock, no par value, $1 stated value; 20,000,000 shares authorized...................................... 9,049 9,029 Preferred Stock, $10 par value; 500,000 shares authorized, no shares issued .............................. --- --- Additional Paid-in Capital............................................. 54,082 53,846 Retained Earnings...................................................... 31,550 28,559 Accumulated Other Comprehensive Income (Loss) ......................... (3,249) (3,947) ------------ ----------- TOTAL SHAREHOLDERS' EQUITY...................................... 91,432 87,487 ------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................... $ 1,012,562 $ 992,635 ============ =========== End of period shares issued and outstanding............................ 9,048,593 9,029,109 ============ =========== See accompanying notes to consolidated financial statements.
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GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited, dollars in thousands except per share data) Three months Ended September 30, 2000 1999 ---- ---- INTEREST INCOME Interest and Fees on Loans................................................ $ 15,283 $ 13,589 Interest on Federal Funds Sold and Other Short-term Investments........... 18 126 Interest and Dividends on Securities: Taxable................................................................ 2,792 2,683 Non-taxable............................................................ 849 742 --------- --------- TOTAL INTEREST INCOME................................................ 18,942 17,140 INTEREST EXPENSE Interest on Deposits...................................................... 7,606 6,955 Interest on FHLB Advances and Other Borrowings............................ 3,514 2,065 --------- --------- TOTAL INTEREST EXPENSE............................................... 11,120 9,020 --------- --------- NET INTEREST INCOME....................................................... 7,822 8,120 Provision for Loan Losses................................................. 341 298 --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........................................................ 7,481 7,822 NONINTEREST INCOME Trust and Investment Product Fees......................................... 374 192 Service Charges on Deposit Accounts....................................... 525 453 Insurance Commissions and Fees............................................ 605 516 Other Operating Income.................................................... 291 242 Net Gain on Sales of Loans, Mortgage Servicing Rights, and Other Real Estate.................................................. 106 (15) Net Gain / (Loss) on Sales of Securities.................................. --- --- --------- --------- TOTAL NONINTEREST INCOME............................................. 1,901 1,388 --------- --------- NONINTEREST EXPENSE Salaries and Employee Benefits............................................ 3,646 3,307 Occupancy Expense......................................................... 439 450 Furniture and Equipment Expense........................................... 450 428 Data Processing Fees...................................................... 216 243 Professional Fees......................................................... 250 200 Advertising and Promotions................................................ 211 220 Supplies.................................................................. 197 216 Other Operating Expenses.................................................. 1,030 958 --------- --------- TOTAL NONINTEREST EXPENSE............................................ 6,439 6,022 --------- --------- Income before Income Taxes................................................ 2,943 3,188 Income Tax Expense........................................................ 594 874 --------- --------- NET INCOME................................................................ $ 2,349 $ 2,314 ========= ========= COMPREHENSIVE INCOME...................................................... $ 3,556 $ 1,474 ========= ========= Earnings Per Share and Diluted Earnings Per Share......................... $ 0.26 $ 0.25 Dividends Per Share....................................................... $ 0.14 $ 0.12 See accompanying notes to consolidated financial statements.
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GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited, dollars in thousands except per share data) Nine Months Ended September 30, 2000 1999 ---- ---- INTEREST INCOME Interest and Fees on Loans................................................ $ 44,923 $ 39,635 Interest on Federal Funds Sold and Other Short-term Investments........... 115 864 Interest and Dividends on Securities: Taxable................................................................ 8,389 7,357 Non-taxable............................................................ 2,573 2,203 --------- --------- TOTAL INTEREST INCOME................................................ 56,000 50,059 INTEREST EXPENSE Interest on Deposits...................................................... 22,269 20,632 Interest on FHLB Advances and Other Borrowings............................ 9,813 5,446 --------- --------- TOTAL INTEREST EXPENSE............................................... 32,082 26,078 --------- --------- NET INTEREST INCOME....................................................... 23,918 23,981 Provision for Loan Losses................................................. 1,006 939 --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...................................................... 22,912 23,042 NONINTEREST INCOME Trust and Investment Product Fees......................................... 1,071 595 Service Charges on Deposit Accounts....................................... 1,434 1,281 Insurance Commissions and Fees............................................ 1,693 1,441 Other Operating Income.................................................... 894 869 Net Gain on Sales of Loans, Mortgage Servicing Rights, and Other Real Estate.................................................. 157 218 Net Gain / (Loss) on Sales of Securities.................................. (9) (6) --------- --------- TOTAL NONINTEREST INCOME............................................. 5,240 4,398 --------- --------- NONINTEREST EXPENSE Salaries and Employee Benefits............................................ 10,867 9,832 Occupancy Expense......................................................... 1,364 1,305 Furniture and Equipment Expense........................................... 1,365 1,266 Data Processing Fees...................................................... 634 759 Professional Fees......................................................... 690 724 Advertising and Promotions................................................ 625 542 Supplies.................................................................. 584 586 Other Operating Expenses.................................................. 3,180 2,893 --------- --------- TOTAL NONINTEREST EXPENSE............................................ 19,309 17,907 --------- --------- Income before Income Taxes................................................ 8,843 9,533 Income Tax Expense........................................................ 2,148 2,713 --------- --------- NET INCOME................................................................ $ 6,695 $ 6,820 ========= ========= COMPREHENSIVE INCOME...................................................... $ 7,393 $ 3,016 ========= ========= Earnings Per Share and Diluted Earnings Per Share......................... $ 0.74 $ 0.74 Dividends Per Share....................................................... $ 0.41 $ 0.36 See accompanying notes to consolidated financial statements.
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GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, dollar references in thousands) Nine months Ended September 30, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net Income................................................................ $ 6,695 $ 6,820 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Depreciation and Amortization........................................ 1,662 1,583 Amortization of Mortgage Servicing Rights................................. 140 181 Net Change in Loans Held for Sale.................................... 657 6,480 Loss on Investment in Limited Partnership............................ 138 99 Provision for Loan Losses............................................ 1,006 939 Loss on Sales of Securities.......................................... 9 6 Loss / (Gain) on Sales of Loans, Mortgage Servicing Rights and Other Real Estate....................................... (157) (218) Change in Assets and Liabilities: Interest Receivable and Other Assets............................... 2,821 (4,817) Interest Payable and Other Liabilities............................. (150) (503) --------- --------- Total Adjustments............................................... 6,126 3,750 --------- --------- Net Cash from Operating Activities................................. 12,821 10,570 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest Bearing Balances with Banks......................... 399 723 Proceeds from Maturities of Securities Available-for-Sale.............. 11,002 29,221 Proceeds from Sales of Securities Available-for-Sale................... 742 953 Purchase of Securities Available-for-Sale.............................. (4,717) (66,630) Proceeds from Maturities of Securities Held-to-Maturity................ 2,188 5,186 Purchase of Securities Held-to-Maturity................................ (3,024) (3,449) Purchase of Loans...................................................... (1,472) (8,627) Proceeds from Sales of Loans........................................... 500 4,350 Loans Made to Customers, net of Payments Received...................... (35,227) (66,869) Proceeds from Sale of Mortgage Servicing Rights........................ 481 --- Proceeds from Sales of Other Real Estate............................... 3,652 1,065 Property and Equipment Expenditures.................................... (1,266) (3,018) Acquire Affiliates and Adjust to Conform Fiscal Years.................. (298) (310) --------- --------- Net Cash from Investing Activities................................. (27,040) (107,405) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits..................................................... (6,169) 33,460 Change in Short-term Borrowings........................................... (28,913) 12,607 Advances of Long-term Debt............................................. 122,850 58,000 Repayments of Long-term Debt........................................... (71,636) (16,516) Issuance of Common Stock............................................... 256 438 Purchase / Retire Common Stock......................................... --- (737) Dividends Paid......................................................... (3,704) (3,334) Purchase of Interest in Fractional Shares.............................. --- (8) --------- --------- Net Cash from Financing Activities................................. 12,684 83,910 --------- --------- Net Change in Cash and Cash Equivalents................................... (1,535) (12,925) Cash and Cash Equivalents at Beginning of Year............................ 24,896 49,588 --------- --------- Cash and Cash Equivalents at End of Period............................. $ 23,361 $ 36,663 ========= ========= See accompanying notes to consolidated financial statements.
- 6 - GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 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. The computation of Earnings per Share and Diluted Earnings per Share are provided as follows:
Nine months Ended September 30, 2000 1999 ---- ---- Earnings per Share: Net Income $ 2,349,000 $ 2,314,000 Weighted Average Shares Outstanding 9,048,593 9,212,677 ----------- ----------- Earnings per Share: $ 0.26 $ 0.25 =========== =========== Diluted Earnings per Share: Net Income $ 2,349,000 $ 2,314,000 Weighted Average Shares Outstanding 9,048,593 9,212,677 Stock Options, Net 2 4,492 ----------- ----------- Diluted Weighted Average Shares Outstanding 9,048,595 9,217,169 ----------- ----------- Diluted Earnings per Share $ 0.26 $ 0.25 =========== =========== - 7 - Nine months Ended September 30, 2000 1999 ---- ---- Earnings per Share: Net Income $ 6,695,000 $ 6,820,000 Weighted Average Shares Outstanding 9,036,718 9,207,189 ----------- ----------- Earnings per Share: $ 0.74 $ 0.74 =========== =========== Diluted Earnings per Share: Net Income $ 6,695,000 $ 6,820,000 Weighted Average Shares Outstanding 9,036,718 9,207,189 Stock Options, Net 985 4,331 ----------- ----------- Diluted Weighted Average Shares Outstanding 9,037,703 9,211,520 ----------- ----------- Diluted Earnings per Share $ 0.74 $ 0.74 =========== ===========
Note 3 - Securities The amortized cost and estimated market values of Securities as of September 30, 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 $ 96,132 $ 92,716 Obligations of State and Political Subdivisions 26,016 26,323 Asset-/Mortgage-backed Securities 54,063 52,173 Equity Securities 11,441 11,060 ----------- ----------- Total $ 187,652 $ 182,272 =========== =========== Securities Held-to-Maturity: Obligations of State and Political Subdivisions $ 27,438 $ 27,597 Asset-/Mortgage-backed Securities 561 562 ----------- ----------- Total $ 27,999 $ 28,159 =========== ===========
- 8 - 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 ---- ----- 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 =========== ===========
Note 4 -- Loans Total loans, as presented on the balance sheet, are comprised of the following classifications (dollars in thousands):
September 30, December 31, 2000 1999 ---- ---- Commercial and Industrial Loans $ 170,145 $ 161,711 Residential Mortgage Loans 364,726 356,001 Consumer Loans 122,319 112,870 Agricultural Loans 69,489 64,054 ----------- ----------- Total Loans $ 726,679 $ 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 Allowance of Acquired Affiliate --- 356 Provision for Loan Losses 1,006 939 Recoveries of Prior Loan Losses 277 365 Loan Losses Charged to the Allowance (1,360) (1,536) ----------- ----------- Balance at September 30 $ 8,791 $ 8,447 =========== ===========
- 9 - Note 6 - Business Combinations On October 1, 2000 the Company consummated a merger with Holland Bancorp, Inc. ("Holland"). Holland was merged with and into the Company, with 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 operated four banking offices in Dubois County, Indiana. Holland's assets and equity (unaudited) as of September 30, 2000 totaled $60.6 million and $6.5 million, respectively. Under the terms of the merger, the shareholders of Holland received 3.5 shares of common stock of the Company for each of their Holland shares, or an aggregate of 947,762 shares of common stock of the Company. This merger was accounted for as a pooling of interests. These financial statements exclude the effects of this merger transaction. Proforma results of operations for the nine-months ended September 30, 2000 are as follows, including Holland Bancorp: German American Holland Bancorp (as reported) Bancorp Combined Net Interest Income $23,918 $1,748 $25,666 Net Income 6,695 364 7,059 Diluted Earnings Per Share $ 0.74 --- $ 0.71 Note 7 - 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 sources. Other revenues are gains on sales of loans and gain on sales of 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 September 30, 2000 Banking Banking Other Totals ------- ------- ----- ------------ Net Interest Income $ 6,893 $ 877 $ 52 $ 7,822 Gain on Sales of Loans and Gain on Sales/Capitalization of MSR --- 99 --- 99 Servicing Income --- 81 --- 81 Noncash Items: Provision for Loan Losses 203 138 --- 341 MSR Amortization & Valuation --- 41 --- 41 Provision for Income Taxes 1,136 91 (633) 594 Segment Profit 2,448 136 (235) 2,349 Segment Assets 832,116 173,939 6,507 1,012,562
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Three months Ended Retail Mortgage Consolidated September 30, 1999 Banking Banking Other Totals ------- ------- ----- ------------ Net Interest Income $ 7,022 $ 1,025 $ 73 $ 8,120 Gain on Sales of Loans and Gain on Sales/Capitalization of MSR --- 26 --- 26 Servicing Income --- 99 --- 99 Noncash Items: Provision for Loan Losses 95 203 --- 298 MSR Amortization & Valuation --- 60 --- 60 Provision for Income Taxes 994 141 (261) 874 Segment Profit 2,505 115 (306) 2,314 Segment Assets 796,127 171,523 7,496 975,146
Note 7 - Segment Information (continued)
Nine months Ended Retail Mortgage Consolidated September 30, 2000 Banking Banking Other Totals ------- ------- ----- ------------- Net Interest Income $ 20,843 $ 2,857 218 $ 23,918 Gain on Sales of Loans and Gain on Sales/Capitalization of MSR --- 251 --- 251 Servicing Income --- 282 --- 282 Noncash Items: Provision for Loan Losses 598 408 --- 1,006 MSR Amortization & Valuation --- 140 --- 140 Provision for Income Taxes 3,330 319 (1,501) 2,148 Segment Profit 7,194 485 (984) 6,695 Segment Assets 832,116 173,939 6,507 1,012,562 Nine months Ended Retail Mortgage Consolidated September 30, 1999 Banking Banking Other Totals ------- ------- ----- ------------ Net Interest Income $ 20,476 $ 3,312 $193 $ 23,981 Gain on Sales of Loans and Gain on Sales/Capitalization of MSR --- 286 --- 286 Servicing Income --- 289 --- 289 Noncash Items: Provision for Loan Losses 460 479 --- 939 MSR Amortization & Valuation --- 181 --- 181 Provision for Income Taxes 2,897 587 (771) 2,713 Segment Profit 7,049 849 (1,078) 6,820 Segment Assets 796,127 171,523 7,496 975,146
- 11 - Note 8 - New Accounting Pronouncements Beginning January 1, 2001 a new accounting standard will require all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values will be recorded in the income statement. Fair value changes involving hedges will generally be recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. Adoption of this pronouncement is not expected to have a material effect on the Company's financial results, but the effect will depend on derivative holdings when this standard is adopted. Note 9 - Subsequent Events On October 31, 2000 the Company declared its annual 5% stock dividend, payable on or before December 15, 2000 to shareholders of record on November 30, 2000. Since the stock dividend has not yet been issued, earnings and dividends per share amounts have not been restated for this dividend. The Board of Directors also declared a cash dividend of $0.14 per share payable on or before November 20, 2000 to shareholders of record on November 10, 2000. - 12 - 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 agencies 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. This section presents an analysis of the consolidated financial condition of the Company as of September 30, 2000 and December 31, 1999 and the consolidated results of operations for the three and nine month periods ended September 30, 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. This section does not reflect the business combination with Holland Bancorp, Inc. (See Note 6). RESULTS OF OPERATIONS Net Income: Net income remained relatively stable at $2,349,000 or $0.26 per share for the quarter ended September 30, 2000 compared to $2,314,000 or $0.25 per share for the third quarter of 1999. Net income for the nine months ended September 30, 2000 was $6,695,000 or $0.74 per share compared with $6,820,000 or $0.74 per share during the same period in 1999. The Company's retail banking segment profit, inclusive of associated holding company administrative expenses, increased $183,000 to $6,002,000 for the nine months ended September 30, 2000 compared to $5,819,000 for the nine months ended September 30, 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. The rising market interest rates also negatively impacted the net interest margin in the mortgage banking operation by increasing funding costs. 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 September 30, Prior Period 2000 1999 Amount Percent Interest Income (T/E) $ 19,418 $ 17,574 $ 1,844 10.5% Interest Expense 11,120 9,020 2,100 23.3% ----------- ----------- --------- Net Interest Income (T/E) $ 8,298 $ 8,554 $ (256) -3.0% =========== =========== =========
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Nine months Change from Ended September 30, Prior Period 2000 1999 Amount Percent Interest Income (T/E) $ 57,416 $ 51,355 $ 6,061 11.8% Interest Expense 32,082 26,078 6,004 23.0% ----------- ----------- --------- Net Interest Income (T/E) $ 25,334 $ 25,277 $ 57 0.2% =========== =========== =========
Net interest income decreased $298,000 or 3.7% ($256,000 or 3.0% on a tax-equivalent basis) for the quarter ended September 30, 2000 compared with the third quarter of 1999. Net interest margin is tax-equivalent net interest income expressed as a percentage of average earning assets. For the third quarter of 2000, the net interest margin was 3.49% compared to 3.90% for the comparable period of 1999. Net interest income decreased $63,000 or 0.3% ( an increase of $57,000 or 0.2% on a tax-equivalent basis) for the nine months ended September 30, 2000 compared with the same period of 1999. For the nine months ended September 30, 2000, the net interest margin was 3.60% compared to 3.90% for the same period in 1999. The decline in the Company's net interest income is largely attributable to an increased cost of funds. The increased cost of funds is the product of an increased utilization of wholesale sources, such as FHLB advances and public fund deposits, to fund loan growth. These sources of funds represented a total 35% of total funding sources for the nine months ended September 30, 2000 compared with 25% for the same period of the prior year. Further, the mortgage banking division's use of wholesale funding sources in a rising interest rate environment has reduced the division's net interest margin by approximately 60 basis points for the nine months ended September 30, 2000 as compared with the same period of the prior year. Also contributing to the increased cost of funds was the general rise in interest rates during the latter half of 1999 and the first half of 2000. The Company's employment of various asset growth strategies during mid and late 1999 also contributed to the decline in the net interest margin in the nine months ended September 30, 2000. These asset growth strategies consisted of affiliate banks investing proceeds from FHLB borrowings in investment 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% reducing the overall net interest margin, while increasing net interest income. Provision For Loan Losses: The Company provides for loan losses through regular provisions to the allowance for loan losses. These provisions are made at 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 $341,000 and $1,006,000 for the three and nine months ended September 30, 2000, respectively. The consolidated provision for loan losses was $298,000 and $939,000 for the three and nine months ended September 30, 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. - 14 - Net charge-offs were $517,000 or 0.29% annualized of average loans and $1,089,000 or 0.20% annualized of average loans for the three and nine months ended September 30, 2000. Net charge-offs for the third quarter and nine months ended September 30, 1999 were $340,000 or 0.21% annualized of average loans and $1.2 million or 0.25% annualized of average loans, respectively. A majority of net charge-offs during the nine months ended September 30, 2000 was related to the sub-prime residential real estate loans housed in the mortgage banking division. The Company discontinued new sub-prime out-of-market real estate lending during 1999. Nonperforming loans represented 1.27% of total loans at September 30, 2000 and December 31, 1999. See discussion under "Financial Condition" for more information regarding nonperforming assets. Noninterest Income: Noninterest income for the quarter ended September 30, 2000 increased $484,000 or 34.1% on an annualized basis. Growth occurred in nearly all categories of noninterest income compared with the prior year with Trust and Investment Product Fees representing the largest single increase. Noninterest income for the nine months ended September 30, 2000 increased $842,000 or 19.2% on an annualized basis. Growth during this period was primarily in Trust and Investment Product Fees and Insurance Commissions and Fees. The growth in these categories was somewhat tempered by a decline in Gain on Sale of Loans, Mortgage Servicing Rights, and Other Real Estate. Trust and Investment Product Fees increased $182,000 or 94.9% and $476,000 or 80.0% for the three and nine months ended September 30, 2000 compared with the same periods of the prior year. These increases were attributable to increased brokerage activity at the Company's lead bank and the implementation of brokerage services at one affiliate during the second half of 1999. Insurance Commissions and Fees increased $89,000 or 17.2% and $252,000 or 17.5% for the three and nine month periods ended September 30, 2000 compared with the same periods during 1999. The increases were due to an overall growth in the insurance operations of the Company and due to the acquisition of the Smith & Bell agency in May 1999. Net Gains on Sales of Loans, Mortgage Servicing Rights, and Other Real Estate are derived predominantly from the Company's mortgage banking division. The gain on sale increased $92,000 in the quarter ended September 30, 2000 compared with third quarter of 1999 primarily due to an increased level of loan sales in the secondary markets. Loan sales totaled $9.5 million for the three months ended September 30, 2000 compared with $6.7 million in same period of the prior year. Net Gain on Sale of Loans, Mortgage Servicing Rights, and Other Real Estate declined by $61,000 during the nine months ended September 30, 2000 compared with same period of the prior year. The decline was largely attributable to lower volumes in residential real estate loan production and correspondingly lower levels of loan sales. Lower loan production and sales compared with the prior year was largely attributable to higher market interest rates in the second half of 1999 and during 2000 compared with the first half of 1999. Loan sales by the mortgage banking division totaled $20.7 million during the nine months ended September 30, 2000 compared $45.7 million during the same period of the prior year. A mitigating factor to the lower gain on sale of loans was a net gain on of $109,000 on the sale of $42.5 million of mortgage servicing rights during the second quarter of 2000. There were no sales of servicing rights during 1999. - 15 - Noninterest Expense: Noninterest expenses increased $388,000 or 6.4% and $1.4 million or 7.8% for the three and nine months period ended September 30, 2000, respectively, as compared to the same periods of the prior year. The increases primarily occurred in Salaries and Employee Benefits. Total Salaries and Benefit Expenses increased $339,000 or 10.0% during the quarter ended September 30, 2000 compared with the same period in 1999. Salaries and Benefits Expense increased $1.0 million to $10.9 million in the nine months ended September 30, 2000 over the prior year total of $9.9 million. Salary expense increased approximately 7% from merit increases, the purchase of the Smith and Bell insurance agency in May 1999, and staff additions to build necessary infrastructure in technology and support functions. 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, which also contributed to the overall increase in salaries and benefits expenses. Total occupancy, furniture and equipment expense for the three and nine months ended September 30, 2000 totaled $889,000 and $2,729,000 compared with $878,000 and $2,571,000 during the same periods of the prior year. The increase during the nine months ended September 30, 2000 included increased depreciation at new and recently renovated banking locations. These facilities were completed and placed into service during the second half of 1999 and the first half of 2000. Also contributing to the increase was the continued implementation of a wide-area network and associated operating and application systems at the retail banking affiliates during 1999 and 2000. These systems are expected to be implemented in all subsidiaries by early next year, and are expected to provide long-term benefits with regard to improved quality of customer service and control of personnel expenses. Data processing fees decreased $27,000 in the quarter ended September 30, 2000 and $125,000 in the nine months ended September 30, 2000 compared with the same periods of the prior year. These declines were due primarily to the discontinuance of an Internet access operation at one affiliate during the second quarter of 1999. Advertising expenses remained stable during the three months ended September 30, 2000 compared with the same period of 1999. Advertising expenses increase $83,000 for nine months ended September 30, 2000 as compared with 1999 due to costs associated with the customer information system implemented during the last half of 1999 for all banking affiliates and fluctuations in the normal course of business. Other Operating Expenses increased $44,000 and $287,000 during the quarter ended and nine months ended September 30, 2000 compared with 1999. The increases during both the three and nine month periods were primarily attributable to collection and telecommunication expenses. 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 the mortgage banking division, 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 out-of-market lending during 1999. In addition, the Company expensed in the second quarter of 2000, approximately $62,000 in interest charges stemming from an Internal Revenue Service income tax audit of an acquired affiliate. The audit covered periods prior to the affiliate's merger with the Company. Income Taxes: The Company's effective income tax rate approximates 20% and 24% of pre-tax income during the three and nine months ended September 30, 2000 compared with 27% and 28% during the same periods for 1999. The lower effective tax rate was primarily attributable to two factors. First, during the third quarter of 2000 the Company realized a refund of Indiana state income taxes attributable to the 1999 tax year. The state income tax refund was due to a tax law clarification in 2000, which allowed a portion of the Company's revenues to be apportioned outside Indiana. Secondly, the lower effective rates also resulted from the Company's tax-exempt investment income on securities and loans, and from income tax credits generated from investments in affordable housing projects. - 16 - FINANCIAL CONDITION Total assets at September 30, 2000 increased 2.0% to $1.013 billion compared with $992.6 million in total assets at December 31, 1999. Loan growth comprised virtually all of the asset growth during the nine months ended September 30, 2000. Loans, net of unearned income and allowance for loan losses, increased by $31.9 million or 4.7%. Investments declined modestly to $223.0 million at September 30, 2000 compared with $228.0 million at year-end. Cash and cash equivalents also declined modestly to $23.3 million at September 30, 2000 from $24.9 million at year-end. The declines in cash and securities have been used to partially fund the strong loan growth. Deposits at September 30, 2000 decreased by $6.2 million or 1.8% during the nine months ended September 30, 2000. A continued competitive environment for deposits led to the overall decline in deposits. To fund the loan growth experienced during the first nine months of 2000, the Company's affiliate banks have augmented their deposit base with additional borrowings from the FHLB. Borrowings of all types increased by $22.3 million or 11.4% during the nine months ended September 30, 2000. Nonperforming Assets: The following is an analysis of the Company's nonperforming assets at September 30, 2000 and December 31, 1999 (dollars in thousands):
September 30, December 31, 2000 1999 Nonaccrual Loans $ 8,065 $ 7,237 Loans contractually past due 90 days or more 1,142 1,564 Renegotiated Loans --- --- ----------- ---------- Total Nonperforming Loans 9,207 8,801 ----------- ---------- Other Real Estate 1,886 2,434 ----------- ---------- Total Nonperforming Assets $ 11,093 $ 11,235 =========== ========== Allowance for Loan Loss to Nonperforming Loans 95.48% 100.76% Nonperforming Loans to Total Loans 1.27% 1.27%
Capital Resources: Shareholders' equity totaled $91.4 million at September 30, 2000 or 9.0% of total assets, an increase of $3.9 million 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. - 17 - 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 September 30, 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:
To be Well Capitalized Under Prompt Minimum for Corrective Capital Action At At Adequacy Provisions September 30, December 31, Purposes (FDICIA) 2000 1999 Leverage Ratio 4.00% 5.00% 9.19% 9.07% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 13.71% 13.53% Total Capital to Risk-adjusted Assets 8.00% 10.00% 14.96% 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 nine months of 2000, operating activities provided $12.8 million of available cash, which included net income of $6.7 million. Major cash outflows experienced during the nine months ended September 30, 2000 included $3.7 million in dividends and net loan outlays in the amount of $35.2 million. The proceeds from the maturities and sales of securities exceeded the cash outflows from the purchases of securities by approximately $6.2 million. Total cash outflows for the period exceeded inflows by $1.5 million, leaving cash and cash equivalents of $23.4 million at September 30, 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; the effects of new accounting pronouncements; 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. - 18 - 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 June 30, 2000 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). - 19 -
Interest Rate Sensitivity as of June 30, 2000 Net Portfolio Value Net Portfolio as a % of Present Value Value of Assets Changes In rates $ Amount $ Change NPV Ratio Change -------- -------- -------- --------- ------ +2% $64,854 (24.2)% 6.75% (174) b.p. +1% 78,568 (8.1) 7.94 (55) b.p. Base 85,508 --- 8.49 --- -1% 95,970 12.2 9.31 82 b.p. -2% 95,434 11.6 9.20 71 b.p.
The Company's risk profile as of September 30, 2000 does not materially differ these June 30, 2000 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. These factors include possible changes in economic conditions; interest rate fluctuations, competitive product and pricing pressures within the Company's markets; and equity and fixed income market fluctuations. Actual experience may also vary materially to the extent that the Company's assumptions described above prove to be inaccurate. - 20 - PART II. OTHER INFORMATION Item 5. Other Information The Board of Directors has appointed J. David Lett as a director of the Company, to serve the remaining unexpired term of his brother, Michael B. Lett, who retired from the Board of Directors on November 1, 2000. 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 is incorporated by reference to Exhibit 3.01 to Registrant's Current Report on Form 8-K filed May 5, 2000. 3.2 Restated Bylaws of the Registrant as amended April 27, 2000, are incorporated by reference from Exhibit 3.2 to the Registrant's Registration Statement on Form S-4 filed July 19, 2000 (File No. 333-41698). 4.1 Rights Agreement dated April 27, 2000 is incorporated by reference to Exhibit 4.01 to Registrant's Current Report on Form 8-K filed May 5, 2000. 4.2 No long-term debt instrument issued by the Registrant exceeds 10% of consolidated total assets. In accordance with paragraph 4 (iii) of Item 601(b) of Regulation S-K, the Registrant will furnish the Securities and Exchange Commission upon request copes of long-term debt instruments and related agreements. 4.3 Terms of Common Shares and Preferred Shares of German American Bancorp found in Restatement of Articles of Incorporation are incorporated by reference to Exhibit 3.01 to Registrant's Current Report on Form 8-K filed May 5, 2000. 27 Financial Data Schedule (b) Reports on Form 8-K There were no reports on Form 8-K filed during the period ended September 30, 2000. - 21 - 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 November 14, 2000 By /s/ Mark A. Schroeder --------------------------------- --------------------------------- Mark A. Schroeder President and CEO Date November 14, 2000 By /s/Richard E. Trent ---------------------------------- --------------------------------- Richard E. Trent Chief Financial Officer and Principal Accounting Officer - 22 - EX-27 2 0002.txt FDS --
9 0000714395 GERMAN AMERICAN BANCORP 9-MOS DEC-31-2000 SEP-30-2000 22,595 866 0 0 182,272 27,999 28,159 728,318 8,791 1,012,562 692,092 44,202 10,720 174,116 0 0 9,049 82,383 1,012,562 44,923 11,077 0 56,000 22,269 32,082 23,918 1,006 (9) 19,309 8,843 8,843 0 0 6,695 .74 .74 3.30 6,065 1,142 0 5,662 8,868 1,360 277 8,791 8,791 0 1,570
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