-----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, Bc/jsaO9jkOHAcymTwaA//CuidIiYCUK8TV3wJvyfWnPbYhD9zqkEc6uxYASF6vg giHwWho0cFlxRZboeuWZuw== 0000927946-99-000138.txt : 19991115 0000927946-99-000138.hdr.sgml : 19991115 ACCESSION NUMBER: 0000927946-99-000138 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99749646 BUSINESS ADDRESS: STREET 1: 711 MAIN ST STREET 2: P O BOX 810 CITY: JASPER STATE: IN ZIP: 47546 BUSINESS PHONE: 8124821314 MAIL ADDRESS: STREET 1: 711 MAIN STREET CITY: JASPER STATE: IN ZIP: 47546 FORMER COMPANY: FORMER CONFORMED NAME: GAB BANCORP DATE OF NAME CHANGE: 19950510 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 1999 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 10, 1999 Common Stock, No par value 8,713,371 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 Consolidated Statements of Income and Comprehensive Income -- Three Months Ended September 30, 1999 and 1998 Consolidated Statements of Income and Comprehensive Income -- Nine months ended September 30, 1999 and 1998 Consolidated Statements of Cash Flows -- Nine months ended September 30, 1999 and 1998 Notes to Consolidated Financial Statements -- September 30, 1999 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 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEETS (unaudited, dollars in thousands except per share data) September 30, December 31, 1999 1998 ASSETS Cash and Due from Banks $ 23,736 $ 18,097 Interest-bearing Deposits with Banks 12,927 31,316 Federal Funds Sold --- 175 ----------- ----------- Cash and Cash Equivalents 36,663 49,588 Interest-bearing Time Deposits with Banks 599 1,299 Securities Available-for-Sale, at Market 179,097 151,527 Securities Held-to-Maturity, at Cost 30,049 48,346 Loans Held for Sale 3,208 2,449 Total Loans 676,007 598,936 Less: Unearned Income (397) (848) Allowance for Loan Losses (8,447) (8,323) ----------- ----------- Loans, Net 667,163 589,765 Stock in FHLB of Indianapolis, at cost 8,627 7,853 Premises, Furniture and Equipment, Net 19,552 17,796 Other Real Estate 2,284 1,156 Intangible Assets 2,241 1,841 Accrued Interest Receivable and Other Assets 25,663 25,305 ----------- ----------- TOTAL ASSETS $ 975,146 $ 896,925 =========== =========== LIABILITIES Noninterest-bearing Deposits $74,993 $67,218 Interest-bearing Deposits 630,714 597,895 ----------- ----------- Total Deposits 705,707 665,113 Short-term Borrowings 19,635 7,028 FHLB Advances and Other Long-term Debt 149,220 124,381 Accrued Interest Payable and Other Liabilities 9,444 9,127 ----------- ----------- TOTAL LIABILITIES 884,006 805,649 SHAREHOLDERS' EQUITY Common Stock, no par value, $1 stated value; 20,000,000 shares authorized 8,758 8,705 Preferred Stock, $10 par value; 500,000 shares authorized, none issued --- --- Additional Paid-in Capital 48,266 47,844 Retained Earnings 37,109 33,916 Accumulated Other Comprehensive Income (2,993) 811 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 91,140 91,276 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 975,146 $ 896,925 =========== =========== Common Shares issued and outstanding at end of period 8,757,539 8,704,592 =========== =========== 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 September 30, 1999 1998 INTEREST INCOME Interest and Fees on Loans $13,589 $13,012 Interest on Federal Funds Sold --- 152 Interest on Short-term Investments 126 191 Interest and Dividends on Securities 3,425 2,922 ------- ------- TOTAL INTEREST INCOME 17,140 16,277 ------- ------- INTEREST EXPENSE Interest on Deposits 6,955 7,158 Interest on Short-term Borrowings 307 84 Interest on Long-term Debt 1,758 1,395 ------- ------- TOTAL INTEREST EXPENSE 9,020 8,637 ------- ------- NET INTEREST INCOME 8,120 7,640 Provision for Loan Losses 298 177 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,822 7,463 NONINTEREST INCOME Income from Fiduciary Activities 95 76 Service Charges on Deposit Accounts 453 427 Investment Services Income 97 118 Insurance Premiums and Commissions 470 101 Other Charges, Commissions and Fees 288 339 Gain on Sales of Loans and Other Real Estate 61 301 Net Gain/(Loss) on Sales of Securities --- 1 ------- ------- TOTAL NONINTEREST INCOME 1,464 1,363 ------- ------- NONINTEREST EXPENSE Salaries and Employee Benefits 3,307 3,057 Occupancy Expense 450 444 Furniture and Equipment Expense 428 360 Computer Processing Fees 243 276 Professional Fees 200 358 Advertising and Promotions 220 183 Supplies 216 202 Other Operating Expenses 1,034 949 ------- ------- TOTAL NONINTEREST EXPENSE 6,098 5,829 ------- ------- Income before Income Taxes 3,188 2,997 Income Tax Expense 874 850 ------- ------- Net Income $ 2,314 $ 2,147 ======= ======= Earnings Per Share and Diluted Earnings Per Share $ 0.27 $ 0.24 Dividends Paid per Share $ 0.13 $ 0.12 Comprehensive Income $ 1,474 $ 2,537 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) Nine months ended September 30, 1999 1998 INTEREST INCOME Interest and Fees on Loans $39,635 $38,641 Interest on Federal Funds Sold 37 720 Interest on Short-term Investments 827 651 Interest and Dividends on Securities 9,560 8,640 -------- ------- TOTAL INTEREST INCOME 50,059 48,652 INTEREST EXPENSE Interest on Deposits 20,632 21,444 Interest on Short-term Borrowings 718 203 Interest on Long-term Debt 4,728 4,149 -------- ------- TOTAL INTEREST EXPENSE 26,078 25,796 -------- ------- NET INTEREST INCOME 23,981 22,856 Provision for Loan Losses 939 476 -------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 23,042 22,830 NONINTEREST INCOME Income from Fiduciary Activities 231 250 Service Charges on Deposit Accounts 1,281 1,194 Investment Services Income 364 392 Insurance Premiums and Commissions 1,309 403 Other Charges, Commissions and Fees 1,001 941 Gain on Sales of Loans and Other Real Estate 364 475 Net Gain/(Loss) on Sales of Securities (6) 30 -------- ------- TOTAL NONINTEREST INCOME 4,544 3,685 -------- ------- NONINTEREST EXPENSE Salaries and Employee Benefits 9,832 9,062 Occupancy Expense 1,305 1,242 Furniture and Equipment Expense 1,266 1,023 Computer Processing Fees 759 728 Professional Fees 724 771 Advertising and Promotions 542 497 Supplies 586 501 Other Operating Expenses 3,039 2,816 -------- ------- TOTAL NONINTEREST EXPENSE 18,053 16,640 -------- ------- Income before Income Taxes 9,533 9,425 Income Tax Expense 2,713 2,842 -------- ------- Net Income $ 6,820 $ 6,583 ======== ======= Earnings Per Share and Diluted Earnings Per Share $ 0.78 $ 0.75 Dividends Paid per Share $ 0.38 $ 0.33 Comprehensive Income $ 3,016 $ 7,007 See accompanying notes to consolidated financial statements.
GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, dollar references in thousands) Nine months ended September 30, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 6,820 $ 6,583 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Depreciation and Amortization 1,583 1,471 Provision for Loan Losses 939 476 Net Gain (Loss) on Sales of Securities 6 (30) Gain of Sales of Loans and Other Real Estate (364) (475) Net Change in Loans Held for Sale 6,480 11,231 Loss on Investment in Limited Partnership 99 81 Change in Assets and Liabilities: Interest Receivable and Other Assets (4,636) 2,493 Interest Payable and Other Liabilities (503) (871) ---------- ---------- Total Adjustments 3,604 14,376 ---------- ---------- Net Cash from Operating Activities 10,424 20,959 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Change in Time Deposits with Banks 723 400 Proceeds from Maturities of Securities Available-for-Sale 29,221 75,212 Proceeds from Sales of Securities Available-for-Sales 953 45,322 Purchase of Securities Available-for-Sale (66,630) (140,572) Proceeds from Maturities of Securities Held-to-Maturity 5,186 27,015 Proceeds from Sales of Securities Held-to-Maturity --- 377 Purchase of Securities Held-to-Maturity (3,449) (8,093) Proceeds from Sales of Loans 4,350 384 Purchase of Loans (8,627) (3,764) Loans Made to Customers, net of Payments Received (66,723) (50,477) Acquire Affiliate (310) 3,715 Property and Equipment Expenditures (3,018) (1,916) Proceeds from Sales of Other Real Estate 1,065 401 Other --- (458) ---------- ---------- Net Cash from Investing Activities (107,259) (52,454) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits 33,460 (5,859) Change in Short-term Borrowing 12,607 1,831 Advances of Long-term Debt 58,000 54,996 Repayments of Long-term Debt (16,516) (43,911) Dividends Paid (3,334) (2,296) Exercise of Stock Options / Awards 305 --- Purchase / Retire Stock (737) (305) Issue Common Stock 133 102 Purchase Fractional Shares (8) (5) ---------- ---------- Net Cash from Financing Activities 83,910 4,553 ---------- ---------- Net Change in Cash and Cash Equivalents (12,925) (26,942) Cash and Cash Equivalents at Beginning of Year 49,588 60,684 ---------- ---------- Cash and Cash Equivalents at End of Period $ 36,663 $ 33,742 ========== ========== See accompanying notes to consolidated financial statements.
GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999 (unaudited) Note 1 -- Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles have been condensed or omitted. Except for adjustments resulting from the merger transactions described below, all adjustments made by management to these unaudited statements were of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the German American Bancorp's December 31, 1998 Annual Report to Shareholders. German American Bancorp (referred to herein as the "Company," the "Corporation," or the "Registrant") is a multi-bank holding company organized in Indiana in 1982. The Company's principal subsidiaries are The German American Bank, Jasper, Indiana ("German American Bank"), First State Bank, Southwest Indiana, Tell City, Indiana ("First State Bank"), First American Bank, Vincennes, Indiana ("First American"), and German American Holdings Corporation ("GAHC"), an Indiana corporation that owns all of the outstanding capital stock of both Citizens State Bank, Petersburg, Indiana ("Citizens State") and the Peoples National Bank, Washington, Indiana ("Peoples"). The Company, through its five bank subsidiaries, operates 25 banking offices and five full-service insurance offices in eight contiguous counties in southwestern Indiana. On June 1, 1998 the Company consummated mergers with the parent companies of Citizens State and FSB Bank of Francisco, Indiana ("FSB Bank"). FSB Bank and an existing affiliate, Community Trust Bank of Petersburg, Indiana were merged into the Citizens State charter on that date. These mergers were accounted for as poolings of interests. The reported operating results for periods prior to June 1, 1998 have been retroactively adjusted to give the effect to the merger with Citizens State. Prior period results do not include the effect of the merger with FSB Bank, as restatement would not have resulted in a material change in overall financial results. 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 interests. The reported operating results for periods prior to the 1999 merger date have been retroactively adjusted to give effect to the merger with 1ST BANCORP. Prior period results do not include the effect of the merger with Doty, as restatement would not have resulted in a material change in overall financial results. 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 operates an office in Princeton, Indiana. Doty is a general multi-line, full-service insurance agency with offices in Pike, Knox and Dubois counties in Indiana. Prior to 1999, 1ST BANCORP's financial statements were prepared on a June 30 fiscal year. Accordingly, the Company's calendar period financial statements for periods prior to 1999 have been restated to include 1ST BANCORP fiscal period financial statements (i.e., the Company's previously reported December 31, 1998 balances were combined with 1ST BANCORP June 30, 1998 balances). 1ST BANCORP is combined with the Company on a calendar period basis for all 1999 periods. As a result of 1ST BANCORP'S prior fiscal reporting, the 1999 statement of cash flows and Note 5 include "acquired affiliate" amounts to adjust from fiscal to calendar period reporting. 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. Comprehensive income includes both net income and other comprehensive income. Other comprehensive income includes the change in unrealized appreciation on securities available-for-sale, net of tax. Note 2 -- Per Share Data The Board of Directors declared and paid a 5 percent common stock dividend in December 1998. In lieu of issuing fractional shares, the company purchased from shareholders their fractional interest. The Company issued 995,678 common shares related to the mergers with the parent companies of Citizens State and FSB Bank on June 1, 1998 and 2,101,665 common shares related to the mergers of 1ST BANCORP and Doty in January of 1999. Earnings per share amounts have been retroactively computed as though these additionally issued shares had been outstanding for all periods presented. Earnings per share amounts have not been 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 September 30, 1999 1998 Earnings per Share: Net Income $2,314,000 $2,147,000 Weighted Average Shares Outstanding 8,780,735 8,766,103 Earnings per Share: $0.27 $ 0.24 ========== ========== Diluted Earnings per Share: Net Income $2,314,000 $2,147,000 Weighted Average Shares Outstanding 8,780,735 8,766,103 Stock Options, net of Assumed Shares Repurchased upon Exercise of Options 4,278 9,899 ---------- ---------- Diluted Weighted Average Shares Outstanding 8,785,013 8,776,002 ---------- ---------- Diluted Earnings per Share $0.26 $0.24 ========== ==========
Nine months ended September 30, 1999 1998 Earnings per Share: Net Income $6,820,000 $6,583,000 Weighted Average Shares Outstanding 8,775,247 8,764,908 Earnings per Share: $0.78 $0.75 ========== ========== Diluted Earnings per Share: Net Income $6,820,000 $6,583,000 Weighted Average Shares Outstanding 8,775,247 8,764,908 Stock Options, net of Assumed Shares Repurchased upon Exercise of Options 4,008 11,647 ---------- ---------- Diluted Weighted Average Shares Outstanding 8,779,255 8,776,555 ---------- ---------- Diluted Earnings per Share $ 0.78 $ 0.75 ========== ==========
Note 3 - Securities
The amortized cost and estimated market values of Securities as of September 30, 1999 are as follows (dollars in thousands): Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $ 91,202 $ 88,070 Obligations of State and Political Subdivisions 26,493 26,705 Asset-/Mortgage-backed Securities 65,739 64,322 -------- -------- Total $183,434 $179,097 ======== ======== Securities Held-to-Maturity: Obligations of State and Political Subdivisions $ 29,008 $ 28,957 Asset-/Mortgage-backed Securities 1,041 1,043 -------- -------- Total $ 30,049 $ 30,000 ======== ========
The amortized cost and estimated market values of Securities as of December 31, 1998 are as follows (dollars in thousands): Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $ 68,201 $ 68,386 Obligations of State and Political Subdivisions 29,103 30,455 Asset-/Mortgage-backed Securities 52,881 52,686 -------- -------- Total $150,185 $151,527 ======== ======== Securities Held-to-Maturity: U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $ 46,849 $ 47,951 Asset-/Mortgage-backed Securities 1,497 1,511 -------- -------- Total $ 48,346 $ 49,462 ======== ======== At September 30, 1999 and December 31, 1998, U.S. Government Agency structured notes with an amortized cost of $5,985,000 and $5,985,000 respectively, and fair value of $5,280,000 and $5,985,000 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): September 30, December 31, 1999 1998 Real Estate Loans Secured by 1-4 Family Residential Properties $346,863 $303,047 Agricultural Loans 64,564 62,736 Commercial and Industrial Loans 158,597 136,649 Loans to Individuals for Household, Family and Other Personal Expenditures 105,246 95,683 Lease Financing 737 821 -------- -------- Total Loans $676,007 $598,936 ======== ========
Note 5 -- Allowance for Loan Losses A summary of the activity in the Allowance for Loan Losses is as follows (dollars in thousands): 1999 1998 Balance at January 1 $ 8,323 $ 8,645 Allowance of Acquired Affiliate 356 --- Provision for Loan Losses 939 476 Recoveries of Prior Loan Losses 365 285 Loan Losses Charged to the Allowance (1,536) (1,372) -------- -------- Balance at September 30 $ 8,447 $ 8,034 ======== ======== Note 6 - Business Combinations On June 1, 1998 the Company acquired by merger CSB Bancorp of Petersburg, Indiana (and its wholly owned subsidiary, Citizens State Bank of Petersburg) in exchange for 928,475 shares of German American Bancorp common stock. Fractional interests were paid in cash of $3. The transaction was accounted for as a pooling of interests. Also on June 1, 1998 the Company acquired by merger FSB Financial Corporation of Francisco, Indiana (and its wholly owned subsidiary, FSB Bank of Francisco, Indiana) in exchange for 67,203 shares of German American Bancorp common stock. Fractional interests for this transaction were paid in cash of $2. The transaction was accounted for as a pooling of interests; however, results for 1997 do not include the effect of this transaction, as restatement would not have resulted in a material change in overall financial results. Total assets and equity of FSB Bank at the date of merger were $15.5 million and $1.4 million, respectively. Effective the first business day of January 1999, the Company issued 2,039,665 shares for all the outstanding shares of 1ST BANCORP of Vincennes, Indiana and 62,000 shares for all the outstanding shares of The Doty Agency, Inc. (Doty) of Petersburg, Indiana. These mergers were accounted for as poolings of interests. The reported operating results for periods prior to the 1999 merger date have been retroactively adjusted to give effect to the merger with 1ST BANCORP. Prior period results do not include the effect of the merger with Doty, as restatement would not have resulted in a material change in overall financial results. On May 10, 1999 the Company issued 8,000 shares of common stock and approximately $26,000 in cash for all the outstanding shares of the corporate owner of Smith & Bell of Vincennes, Indiana. This merger was accounted for as a purchase, and resulted in the recording of approximately $250,000 in goodwill. The fair value of Smith & Bell's assets and liabilities, respectively, at the date of acquisition were approximately $160,000 and 250,000. Reported operating results for periods prior to the merger have not been restated. The following is a reconciliation of the separate and combined net interest income and net income of German American Bancorp, 1ST BANCORP and Doty for the period prior to the acquisition:
GERMAN AMERICAN BANCORP 1ST (as previously reported) BANCORP DOTY COMBINED For the three months ended September 30, 1998 Net interest income $ 5,999 $1,641 $--- $ 7,640 Net income / (Loss) $ 1,588 $ 559 $--- $ 2,147 For the nine months ended September 30, 1998 Net interest income $18,050 $4,806 $--- $22,856 Net income / (Loss) $ 5,132 $1,451 $--- $ 6,583
Note 7 - Stock Repurchase Plan On July 29, 1999, German American Bancorp announced that its Board of Directors approved a stock repurchase program for up to 425,000 of the outstanding Common Shares of the Company, representing nearly five percent of its outstanding shares. Shares are purchased from time to time in the open market and in large block privately negotiated transactions. The Company commenced bidding for shares on August 3, 1999 and will conclude bids and purchases (even if not all shares authorized under the program have been repurchased) by December 14, 1999. During the period ended September 30, 1999, 37,950 shares of common stock were repurchased at prices ranging from $17.875 to $23.00 per share. Note 8 - Subsequent Events On November 4, 1999 the Company announced that its Board of Directors had declared its annual 5 percent stock dividend, payable on or before December 15, 1999 to shareholders of record on November 30, 1999. Since this 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 $0.13 per share payable on or before November 20, 1999 to shareholders of record on November 10, 1999. ITEM 2. GERMAN AMERICAN BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS German American Bancorp ("the Company") is a multi-bank holding company based in Jasper, Indiana. Its five affiliate banks conduct business in 25 offices in Dubois, Daviess, Gibson, Knox, Martin, Pike, Perry and Spencer Counties in Southwest Indiana. Its full-service insurance agencies operate offices in Dubois, Gibson, Knox and Pike Counties. The banks and insurance agencies provide a wide range of financial services, including accepting deposits; making commercial, mortgage and consumer loans; issuing property and casualty, title, credit life, accident and health insurance; providing trust services for personal and corporate customers; providing safe deposit facilities; and providing investment advisory and brokerage services. This section presents an analysis of the consolidated financial condition of the Company as of September 30, 1999 and December 31, 1998 and the consolidated results of operations for the three and nine month periods ended September 30, 1999 and 1998. 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, 1998 Annual Report to Shareholders. On June 1, 1998 the Company consummated mergers with the parent companies of Citizens State and FSB Bank of Francisco, Indiana ("FSB Bank"). FSB Bank and an existing affiliate, Community Trust Bank of Otwell, Indiana were merged into the Citizens State charter on that date. The reported operating results for periods prior to June 1, 1998 have been retroactively adjusted to give the effect to the merger with Citizens State. Prior year results do not include the effect of the merger with FSB Bank, as restatement would not have resulted in a material change in overall financial results. In January 1999, the Company issued 2,039,665 shares for all the outstanding shares of 1ST BANCORP of Vincennes, Indiana and 62,000 shares for all the outstanding shares of The Doty Agency, Inc. (Doty) of Petersburg, Indiana. These mergers were accounted for as poolings of interests. The reported operating results for periods prior to the 1999 merger date have been retroactively adjusted to give effect to the merger with 1ST BANCORP. Prior period results do not include the effect of the merger with Doty, as restatement would not have resulted in a material change in overall financial results. 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 does 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. RESULTS OF OPERATIONS Net Income: Net income was $2,314,000 or $0.27 per share for the quarter ended September 30, 1999 compared to $2,147,000 or $0.24 per share for the third quarter of 1998. Net interest income increased $480,000, or 6.3 percent. Provision for Loan Losses increased by $121,000. Noninterest income increased $101,000 or 7.4 percent over 1998. Noninterest expense increased $269,000 or 4.6 percent from the prior year. Net income for the nine months ended was $6,820,000 or $0.78 per share compared to $6,583,000 or $0.75 per share for the prior year to date. Net interest income increased $1,125,000, or 4.9 percent. Provision for Loan Losses increased by $463,000 or 97.2 percent. Noninterest income increased $859,000 or 23.3 percent over 1998. Noninterest expense increased $1,413,000 or 8.5 percent from the prior year. Increases in noninterest income and expense were primarily the result of three insurance agency acquisitions in 1999, the 1998 operations of which are not included in the Company's 1998 operating results. 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 percent for each period) for each of the periods presented herein (dollars in thousands):
Three Months Change from Ended September 30, Prior Period 1999 1998 Amount Percent Interest Income (T/E) $17,573 $16,746 $ 827 4.9% Interest Expense 9,020 8,637 383 4.4% ------- ------- ------ Net Interest Income (T/E) $ 8,553 $ 8,109 $ 444 5.5% ======= ======= ====== Nine Months Change from Ended September 30, Prior Period 1999 1998 Amount Percent Interest Income (T/E) $51,354 $49,898 $1,456 2.9% Interest Expense 26,078 25,796 282 1.1% ------- ------- ------ Net Interest Income (T/E) $25,276 $24,102 $1,174 4.9% ======= ======= ======
The increase in net interest income for the three months ended September 30, 1999 compared to the prior year was due to a $577,000 increase in loan income, a $286,000 increase in investment income and a $203,000 decrease in interest expense on deposits, offset by a $586,000 increase in interest expense on borrowings. The increase in net interest income for the year to date ended September 30, 1999 compared to 1998 was due to a $994,000 increase in loan income, a $413,000 increase in investment income and a $812,000 decrease in interest expense on deposits, offset by a $1.1 million increase in interest expense on borrowings. Net interest margin, which represents the average net effective yield on earning assets, is tax-equivalent net interest income expressed as a percentage of average earning assets. For the third quarter of 1999, the net interest margin was 3.88 percent compared to 4.00 percent for the comparable period of 1998. Net interest margin for the nine months ended September 30, 1999 was 3.89 compared to 3.99 in the prior year. These declines were due to a more competitive pricing environment for loans and the effect of capital leverage strategies employed in the investment portfolio. Provision For Loan Losses: The Company provides for estimated 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 $298,000 and $939,000 for the three and nine months ended September 30, 1999. This compares to $177,000 and $476,000 for the same respective periods in 1998. This increase in provision was primarily due to growth in residential real estate mortgage loans and recent charge-off experience in non-conforming mortgage and consumer loans. 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 $340,000 or 0.21 annualized percent of average loans for the three months ended and $1.2 million or 0.25 annualized percent of average loans for the nine months ended September 30, 1999. Net charge-offs for the third quarter and year to date ended September 30, 1998 were $459,000 or 0.10 annualized percent and $1.1 million or 0.25 annualized percent of average loans, respectively. Nonperforming loans as a percent of total loans at September 30, 1999 were 1.09 percent of total loans, which represents a decline from 1.28 percent at June 30, 1999. Also, this is a decrease from 1.16 percent at December 31, 1998. See discussion under "Financial Condition" for more information regarding nonperforming assets. Noninterest Income: Noninterest income for the third quarter of 1999 increased $101,000 or 7.4 percent over the same period in 1998. The primary factors contributing to the overall increase were higher levels of Insurance Premiums & Commissions offset by a lower level of Gains on Sale of Loans & Other Real Estate. The increase in Insurance Premiums and Commissions of $369,000 was primarily due to 1999 insurance acquisitions. Gains on the Sale of Loans and Other Real Estate, which fluctuates based on market conditions, declined $240,000 from the prior year. Year to date noninterest income increased $859,000 or 18.9 percent over 1998. Similar to the quarter ended September 30, 1999, the primary factors contributing to the overall increase were higher levels of Insurance Premiums & Commissions tempered by a lower level of Gain on Sale of Loans and Other Real Estate. Insurance Premiums and Commissions increased $906,000 while the Gain on Sale of Loans and Other Real Estate declined $111,000 for the year to date September 30, 1999. Noninterest Expense: Noninterest expense for the third quarter of 1999 increased $269,000 or 4.6 percent from the prior year. Most of this increase is attributable to higher levels of Salaries & Employee Benefits ($250,000), Furniture and Equipment Expense ($68,000) and Other Operating Expenses ($85,000). These increased levels of expenses were offset by a decline in Professional Fees ($158,000). The Company's insurance operations acquired in 1999 and not included in 1998's results accounted for $269,000 of the net increase in noninterest operating expenses. Year to date noninterest expense increased $1.4 million or 8.5 percent from the prior year. The bulk of this increase occurred in Salaries and Employee Benefits ($770,000), Furniture and Equipment Expense ($243,000) and Other Operating Expenses ($223,000). The Company's insurance operations acquired in 1999 and not included in 1998's results accounted for $731,000 or 52 percent of the total increase. Salaries and Employee Benefits increased $250,000 and $770,000 for the quarter ended and nine months ended September 30, 1999, respectively. Excluding increases due to the Company's acquired insurance operations, these expenses increased approximately $46,000 and $215,000 for the quarter ended and nine months ended September 30, 1999. Total occupancy, furniture and equipment expense for the three and nine months ended September 30, 1999 totaled $878,000 and $2.6 million, respectively. This was approximately $74,000 and $306,000 greater than the same periods of the prior year. These increases include depreciation on Citizens State Bank's new main office in Petersburg, and for branch remodeling at another affiliate. Also included are the costs of upgrading the Company's computer systems at its existing and new affiliates. This strategy is expected, over the long-term, to better control employee related expenses and to improve the quality of customer service provided by all of its affiliate community banks. Computer processing fees decreased $33,000 for the three months ended and increased $31,000 year to date, compared to the same periods in 1998. Increases were due in part to Year 2000 preparation, and also to conversion related expenses at our newest affiliate, which occurred in a prior quarter. Advertising expenses increased $37,000 for the third quarter and $45,000 year to date over comparable periods in the prior year. Supplies expenses for the third quarter increased $14,000 and $85,000 for the nine months ended over the prior year. This included expenses at our newest affiliate, and normal increases due to volume. Year to date Other Operating Expenses increased $223,000 over 1998. $62,000 of this increase related to a net loss on sale and write-downs in Other Real Estate Owned and other miscellaneous assets. Other increases occurred in education and training expenses ($47,000) and telecommunication expenses, including network charges ($151,000). Income Taxes: The Company's effective income tax rate approximates 28% of pre-tax income and is lower than the combined federal and state statutory rate of 39.6%. This lower effective rate results from the Company's tax-exempt investment income on municipal securities and loans, and from net operating loss and other income tax credits generated from investments in affordable housing projects. FINANCIAL CONDITION Total assets at September 30, 1999 were $975 million. This was an increase of $78 million from the December 31, 1998 total asset position. In comparison to year-end totals, loans increased $78 million or 13 percent, investments increased $9 million or 4 percent, and cash equivalents decreased $13 million. Deposits at September 30, 1999 increased $40 million or 6 percent, and borrowings increased $37 million or 28 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. The Company had $149 million in Long-term FHLB borrowings outstanding at September 30, 1999 as compared to $124 million at December 31, 1998. Nonperforming Assets: The following is an analysis of the Company's nonperforming assets at September 30, 1999 and December 31, 1998 (dollars in thousands): September 30, December 31, 1999 1998 Nonaccrual Loans $ 6,162 $ 5,411 Loans contractually past due 90 days or more 1,180 1,522 Renegotiated Loans --- --- Total Nonperforming Loans 7,342 6,933 -------- -------- Other Real Estate 2,284 1,156 -------- -------- Total Nonperforming Assets $ 9,626 $ 8,089 -------- -------- Allowance for Loan Loss to Nonperforming Loans 115.05% 120.05% Nonperforming Loans to Total Loans 1.09% 1.16% The increase in non-performing loans occurred primarily in non-conforming real estate loans. Most of the increase in Other Real Estate related to a group of agricultural loans to a single borrower. Capital Resources: Shareholders' equity totaled $91.1 million at September 30, 1999 or 9.3 percent of total assets. Total equity declined $137,000 from year end due to a $3.3 million decline in the Company's $210 million investment portfolio. This decline in market value is due to a rise in interest rates since year end, and represents less than a 2 percent decline in market value. 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 September 30, 1999 management is not under such a capital directive, nor is it aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have or are reasonably likely to have, a material effect on the Company's liquidity, capital resources or operations. The table below presents the Company's consolidated risk-based capital structure and capital ratios under regulatory guidelines (dollars in thousands): September 30, December 31, 1999 1998 Tier 1 Capital: Shareholders' Equity as presented on the Balance Sheet $ 91,140 $ 91,276 Less: Unrealized Depreciation (Appreciation) on Securities Available-for-Sale 2,993 (811) Less: Intangible Assets and Ineligible Deferred Tax Assets (2,241) (1,497) --------- --------- Total Tier 1 Capital 91,892 88,968 Tier 2 Capital: Qualifying Allowance for Loan Loss 7,885 6,328 --------- --------- Total Capital $ 99,777 $ 95,296 ========= ========= Risk-adjusted Assets $630,211 $583,500
To be Well Capitalized Under Prompt Minimum for Corrective Capital Action At At Adequacy Provisions September 30, December 31, Purposes (FDICIA) 1999 1998 Leverage Ratio 4.00% 5.00% 9.79% 10.28% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 14.58% 15.25% Total Capital to Risk-adjusted Assets 8.00% 10.00% 15.83% 16.33%
The Company has commenced a stock repurchase program as discussed in greater detail in Note 7 to the financial statements included in Part I of this report. 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 1999, operating activities provided $10.4 million of available cash, which included net income of $6.8 million. Deposits and borrowings provided $87.6 million of cash during the period. Major cash outflows experienced during the nine month period of 1999 included $3.3 million in dividends, $3.0 million in property and equipment purchases and net loan outlays in the amount of $71.0 million. Purchases of securities and short-term investments required $34.0 million in cash above the dollar amount of maturities and sales. Total cash outflows for the period exceeded inflows by $12.9 million, leaving cash and cash equivalents of $36.7 million at September 30, 1999. Year 2000: All banks and financial institutions are faced with addressing a potentially materially adverse event should their computer and operating systems fail to accurately process their customers' deposit, loan and other business in the Year 2000. The Company, like any financial institution, would suffer an interruption in its ability to transact business should its systems fail due to Year 2000 programming inaccuracy. During the third quarter, the Company satisfactorily completed testing and implementation procedures on all mission critical systems to address potential Year 2000 issues. The Company's Year 2000 process is subject to banking agency regulatory guidelines and examination. The Company believes itself to be in compliance with all significant regulatory requirements. The Company's service provider for all of its loan and deposit account processing activity is Fiserv, a publicly listed company headquartered in Milwaukee, Wisconsin. The Company designated Fiserv's systems as mission critical for the Year 2000 issue, as that term is defined by bank regulatory requirements. Fiserv is a national service provider for over 3,300 institutions. While the Company has extensively tested Fiserv's systems for Year 2000 capabilities, it can obviously give no absolute assurance as to the actual performance of Fiserv's systems in the Year 2000. However, based on this testing, the Company is unaware of any issues that would cause any material interruption in its ability to transact business. The Company has also completed its assessment of the Year 2000 implications of systems other than its "mission critical" data processing information systems (such as elevators, HVAC, copiers, and the like). The Company expended approximately $500,000 on Year 2000 related items, including approximately $200,000 in cash outlays in 1999. These outlays exclude the cost of implementing the Company's state-of-the-art platform and computer systems upgrade, but include the Company's share of third party systems costs and all other costs to address the Year 2000 issue. For financial statement purposes, the depreciation and operating expenses associated with these outlays will impact the income statement over a period of one to seven years. The Year 2000 issue could also affect the ability of the Company's customers to conduct operations in a timely and effective manner, and as such, could adversely impact the quality of the Company's loan portfolio, its deposits, or other sources of revenue and funding from customers. The Company has completed an assessment of its commercial customers' potential exposure to the Year 2000 issue and their plans to minimize any such exposure. While that assessment can offer no assurances on this matter, the Company is unaware of any specific significant customer Year 2000 issues that are not expected to be resolved prior to the end of the year. The above summary of the Company's Year 2000 preparations includes forward looking statements, concerning the Company's present expectation that its operations will not be materially adversely affected by Year 2000 issues. However, the Year 2000 issue is pervasive, complex and could potentially affect any computer process, including any equipment utilizing embedded technology like microprocessors. Although the Company believes it is taking all necessary steps to address Year 2000 issues, no assurances can be given that some problems will not occur or that the Company will not incur significant additional expenses in future periods, any of which could have a material adverse impact on the Company's results of operations. 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 adverse movements in interest rates by using interest rate sensitivity analysis to determine the change in the NPV of the net present value 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. These estimates were restated from those presented in the Company's 1998 Annual Report for the effect of the January 1999 acquisition, on a pooling of interests basis, of 1ST BANCORP. The Company does not believe that its risk profile as of September 30, 1999 differed materially from these year-end estimates. The table indicates that as of December 31, 1998 the Company's estimated NPV might be expected to decrease in the event of an increase in prevailing interest rates, and that a decrease in prevailing interest rates might have little or no impact on estimated NPV. Change in Estimated Net Portfolio Value As of December 31, 1998 Net Portfolio Value Changes in Rates In Thousands Dollar Change % Change +2%......................$88,621................$(22,784).............(20%) +1%.......................99,131.................(12,274).............(11%) Base......................111,405.....................---...............-- -1%......................112,695...................1,290................1% -2%......................111,844.....................439...............-- PART II. OTHER INFORMATION Item 5. Other Information A.W. Place, Jr., a member of the Board of Directors of the Company since 1990, passed away in September, 1999. The Company has no present plans to fill the vacancy created by his death. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 3.1 Restated Articles of Incorporation of the Registrant as amended April 23, 1998 are incorporated by reference to Exhibit 3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. 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 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. 27 Financial Data Schedule for the periods ended September 30, 1999 and 1998. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended September 30, 1999, except for a report filed August 9, 1999, reporting under Item 5 the Company's adoption of a stock repurchase program. 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 12, 1999 By/s/Mark A. Schroeder -------------------------- ---------------------------- Mark A. Schroeder President/Chief Operating Officer Date November 12, 1999 By/s/John M. Gutgsell --------------------------- ---------------------------- John M. Gutgsell Vice President/Principal Accounting Officer EX-27 2
9 9-MOS SEP-30-1999 SEP-30-1999 23,716 12,927 0 0 179,097 30,049 30,000 678,818 8,447 975,146 705,707 19,635 9,444 149,220 0 0 8,758 82,382 975,146 39,635 10,387 37 50,059 20,632 26,078 23,981 939 (6) 18,053 9,533 9,533 0 0 6,820 .78 .78 3.71 6162 1180 0 1016 8679 1,536 365 8,447 8,447 0 3,164
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