-----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, Ri9Mb3+TQfTS2HySqtD6H6EmIjrgfNO6z8D5g1H5KnU+nodUBw0UffJbnqsyRx4R 4ZodRfPcaSGcjU1ngi2Mtg== 0000941965-98-000123.txt : 19981116 0000941965-98-000123.hdr.sgml : 19981116 ACCESSION NUMBER: 0000941965-98-000123 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98748799 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 GERMAN AMERICAN BANCORP 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, 1998 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, 1998 Common Stock, No par value 6,348,590 2 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets - September 30, 1998 and December 31, 1997 Consolidated Statements of Income -- Three Months Ended September 30, 1998 and 1997 Consolidated Statements of Income -- Nine Months Ended September 30, 1998 and 1997 Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1998 and 1997 Notes to Consolidated Financial Statements -- September 30, 1998 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K SIGNATURES 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEET (unaudited, dollars in thousands except per share data) September 30, December 31, 1998 1997 ASSETS Cash and Due from Banks $ 18,199 $ 20,090 Federal Funds Sold 2,975 20,300 ----------- ----------- Cash and Cash Equivalents 21,174 40,390 Interest-bearing Balances with Banks 2,446 2,798 Securities Available-for-Sale, at market 121,597 100,449 Securities Held-to-Maturity, at cost 30,369 35,382 Total Loans 416,020 378,380 Less: Unearned Income (899) (1,057) Allowance for Loan Losses (6,853) (7,416) ----------- ----------- Loans, Net 408,268 369,907 Premises, Furniture and Equipment, Net 14,525 13,191 Other Real Estate 226 388 Intangible Assets 1,430 1,572 Accrued Interest Receivable and Other Assets 13,234 11,765 ----------- ----------- TOTAL ASSETS $ 613,269 $ 575,842 =========== =========== LIABILITIES Noninterest-bearing Deposits $ 57,535 $ 62,502 Interest-bearing Deposits 473,440 438,531 ----------- ----------- Total Deposits 530,975 501,033 Short-term Borrowings 7,379 5,548 FHLB Borrowings 1,000 -- Accrued Interest Payable and Other Liabilities 6,948 7,182 ----------- ----------- TOTAL LIABILITIES 546,302 513,763 SHAREHOLDERS' EQUITY Common Stock, No par value, $1 stated value; 20,000,000 shares authorized 6,349 6,279 Preferred Stock, $10 par value; 500,000 shares authorized, none issued -- -- Additional Paid-in Capital 39,590 38,088 Retained Earnings 19,898 16,945 Unrealized Appreciation on Securities Available-for-Sale, net of tax 1,130 767 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 66,967 62,079 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 613,269 $ 575,842 =========== =========== Common Shares issued and outstanding at end of period 6,348,590 6,278,636 =========== =========== See accompanying notes to consolidated financial statements. 4 GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited, dollars in thousands except per share data) Three Months Ended September 30, 1998 1997 INTEREST INCOME Interest and Fees on Loans $ 9,085 $ 8,676 Interest on Federal Funds Sold 152 239 Interest on Short-term Investments 38 47 Interest and Dividends on Securities 2,193 2,035 -------- -------- TOTAL INTEREST INCOME 11,468 10,997 -------- -------- INTEREST EXPENSE Interest on Deposits 5,386 5,100 Interest on Borrowings 83 61 -------- -------- TOTAL INTEREST EXPENSE 5,469 5,161 -------- -------- NET INTEREST INCOME 5,999 5,836 Provision for Loan Losses 57 447 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,942 5,389 NONINTEREST INCOME Income from Fiduciary Activities 76 83 Service Charges on Deposit Accounts 377 341 Investment Services Income 118 103 Other Charges, Commissions and Fees 180 231 Gain on Sales of Loans and Other Real Estate 12 6 Net Gain / (Loss) on Sales of Securities (9) -- -------- -------- TOTAL NONINTEREST INCOME 754 764 -------- -------- NONINTEREST EXPENSE Salaries and Employee Benefits 2,305 2,105 Occupancy Expense 352 348 Furniture and Equipment Expense 288 231 Computer Processing Fees 220 145 Professional Fees 292 174 Other Operating Expenses 1,034 845 -------- -------- TOTAL NONINTEREST EXPENSE 4,491 3,848 -------- -------- Income before Income Taxes 2,205 2,305 Income Tax Expense 617 753 -------- -------- Net Income $ 1,588 $ 1,552 ======== ======== Weighted Average Shares Outstanding: Basic 6,348,101 6,339,465 Diluted 6,360,537 6,344,429 Earnings Per Share And Diluted Earnings Per Share $ 0.25 $ 0.24 Dividends Paid Per Share $ 0.12 $ 0.11 Comprehensive Income (See Note 1) $ 2,024 $ 1,832 See accompanying notes to consolidated financial statements. 5 GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited, dollars in thousands except per share data) Nine Months Ended September 30, 1998 1997 INTEREST INCOME Interest and Fees on Loans $ 26,985 $ 25,206 Interest on Federal Funds Sold 720 686 Interest on Short-term Investments 123 129 Interest and Dividends on Securities 6,204 6,302 ----------- ----------- TOTAL INTEREST INCOME 34,032 32,323 ----------- ----------- INTEREST EXPENSE Interest on Deposits 15,782 14,937 Interest on Borrowings 200 248 ----------- ----------- TOTAL INTEREST EXPENSE 15,982 15,185 ----------- ----------- NET INTEREST INCOME 18,050 17,138 Provision for Loan Losses 176 21 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 17,874 17,117 NONINTEREST INCOME Income from Fiduciary Activities 250 256 Service Charges on Deposit Accounts 1,086 978 Investment Services Income 392 326 Other Charges, Commissions and Fees 564 535 Gain on Sales of Loans and Other Real Estate 20 8 Net Gain / (Loss) on Sales of Securities (2) -- ----------- ----------- TOTAL NONINTEREST INCOME 2,310 2,103 ----------- ----------- NONINTEREST EXPENSE Salaries and Employee Benefits 6,944 6,257 Occupancy Expense 1,021 925 Furniture and Equipment Expense 844 756 Computer Processing Fees 549 435 Professional Fees 619 746 Other Operating Expenses 2,790 2,438 ----------- ----------- TOTAL NONINTEREST EXPENSE 12,767 11,557 ----------- ----------- Income before Income Taxes 7,417 7,663 Income Tax Expense 2,285 2,579 ----------- ----------- Net Income $ 5,132 $ 5,084 =========== =========== Weighted Average Shares Outstanding: Basic 6,346,906 6,337,842 Diluted 6,359,342 6,342,806 Earnings Per Share And Diluted Earnings Per Share $ 0.81 $ 0.80 Dividends Paid Per Share $ 0.35 $ 0.33 Comprehensive Income (See Note 1) $ 5,495 $ 5,317 See accompanying notes to consolidated financial statements. 6 GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, dollar references in thousands)
Nine Months Ended September 30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 5,132 $ 5,084 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Amortization and Accretion of Investments (13) 33 Depreciation and Amortization 997 928 Provision for Loan Losses (176) (21) Net Gain / (Loss) on Sales of Securities 2 -- Gain of Sales of Loans and Other Real Estate (20 (8) Change in Assets and Liabilities: Unearned Income (158 (177) Deferred Loan Fees (13 19 Other Assets (1,116 (320) Deferred Taxes (60 54 Other Liabilities (338 505 -------- -------- Total Adjustments (895 1,013 -------- -------- Net Cash from Operating Activities 4,237 6,097 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Cash and Cash Equivalents of Acquired Subsidiary, net of Purchase Price 3,715 -- Change in Interest-bearing Balances with Banks 400 (1,199) Proceeds from Maturities of Other Short-term Investments -- 1,000 Proceeds from Maturities of Securities Available-for-Sale 71,125 32,591 Proceeds from Sales of Securities Available-for-Sale 15,955 -- Purchase of Securities Available-for-Sale (99,825 (28,262) Proceeds from Maturities of Securities Held-to-Maturity 5,500 6,925 Proceeds from Sales of Securities Held-to-Maturity 377 -- Purchase of Securities Held-to-Maturity (7,515 (5,243) Purchase of Loans (3,764 (1,152) Loans Made to Customers net of Payments Received (24,698 (18,680) Proceeds from Sales of Loans 384 19 Property and Equipment Expenditures (1,835 (1,514) Proceeds from Sales of Other Real Estate 227 255 -------- -------- Net Cash from Investing Activities (39,954 (15,260) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits 15,746 5,857 Change in Short-term Borrowings 1,831 (7,235) Advances of Long-term Debt 1,000 -- Repayments of Long-term Debt -- (1,000) Dividends Paid (2,071) (1,695) Issue / (Repurchase) of Common Stock -- 109 Purchase of interests in Fractional Shares (5) (5) Exercise of Stock Options -- 3 -------- -------- Net Cash from Financing Activities 16,501 (3,966) -------- -------- Net Change in Cash and Cash Equivalents (19,216) (13,129) Cash and Cash Equivalents at Beginning of Year 40,390 54,152 -------- -------- Cash and Cash Equivalents at End of Period $ 21,174 $ 41,023 ======== ======== Cash Paid During the Year for: Interest $ 15,958 $ 14,645 Income Taxes 2,031 2,121
See accompanying notes to consolidated financial statements. 7 GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (unaudited) Note 1 -- Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles have been condensed or omitted. 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, 1997 Annual Report to Shareholders. German American Bancorp (referred to herein as the "Company," the "Corporation," or the "Registrant") is a multi-bank holding company organized in Indiana in 1982. The Company's principal subsidiaries are The German American Bank, Jasper, Indiana ("German American Bank"), First State Bank, Southwest Indiana, Tell City, Indiana ("First State Bank"), and German American Holdings Corporation ("GAHC"), an Indiana corporation that owns all of the outstanding capital stock of both Citizens State Bank, Petersburg, Indiana ("Citizens State") and the Peoples National Bank, Washington, Indiana ("Peoples"). The Company, through its four bank subsidiaries, operates 24 banking offices in seven 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. Accordingly, 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. Under a new accounting standard, comprehensive income is now reported for all periods. Comprehensive income includes both net income and other comprehensive income. Other comprehensive income includes the change in unrealized appreciation on securities available for sale, net of tax. Note 2 -- Per Share Data The Board of Directors declared and paid a 5 percent stock dividend in December 1997 and a two-for-one stock split in October 1997. In lieu of issuing fractional shares, the company purchased from shareholders their fractional interest. In addition, the Company issued 995,678 shares related to the mergers with the parent companies of Citizens State and FSB Bank on June 1, 1998. Earnings per share amounts have been retroactively computed as though these additionally issued shares had been outstanding for all periods presented. Dividends paid per share amounts represent historical dividends declared without restatement for pooling. Per share data has not been adjusted for the pending 5 percent stock dividend payable on December 15, 1998 to shareholders of record on November 30, 1998. 8 The computation of Earnings per Share and Diluted Earnings per Share are provided as follows: Three Months Ended September 30, 1998 1997 Earnings per Share: Net Income $ 1,588,000 $ 1,552,000 Weighted Average Shares Outstanding 6,348,101 6,339,465 Earnings per Share: $ 0.25 $ 0.24 Diluted Earnings per Share: Net Income $ 1,588,000 $ 1,552,000 Weighted Average Shares Outstanding 6,348,101 6,339,465 Stock Options 28,612 28,122 Assumed Shares Repurchased upon Exercise of Options (16,176) (23,158) ----------- ----------- Diluted Weighted Average Shares Outstanding 6,360,537 6,344,429 Diluted Earnings per Share $ 0.25 $ 0.24 Nine Months Ended September 30, 1998 1997 Earnings per Share: Net Income $ 5,132,000 $ 5,084,000 Weighted Average Shares Outstanding 6,346,906 6,337,842 Earnings per Share: $ 0.81 $ .80 Diluted Earnings per Share: Net Income $ 5,132,000 $ 5,084,000 Weighted Average Shares Outstanding 6,346,906 6,337,842 Stock Options 28,612 28,122 Assumed Shares Repurchased upon Exercise of Options (16,176) (23,158) ----------- ----------- Diluted Weighted Average Shares Outstanding 6,359,342 6,342,806 Diluted Earnings per Share $ 0.81 $ 0.80 9 Note 3 - Securities The amortized cost and estimated market values of Securities as of September 30, 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 $ 54,448 $ 54,805 Obligations of State and Political Subdivisions 26,701 28,088 Asset-/Mortgage-backed Securities 34,174 34,305 Corporate Securities 4,400 4,399 -------- -------- Total $119,723 $121,597 ======== ======== Estimated Amortized Market Securities Held-to-Maturity: Cost Value Obligations of State and Political Subdivisions $27,974 $29,003 Asset-/Mortgage-backed Securities 339 334 Other Securities 2,056 2,056 ------- ------- Total $30,369 $31,393 ======= ======= On the date of merger with Citizens State, investment securities with an amortized cost of $8.0 million and estimated market value of $8.1 million were reclassified from Held-to-Maturity to Available-for-Sale. This action was taken as a result of the business combination and in order to conform Citizens State's investment portfolio to the Company's asset/liability and interest rate risk position. The amortized cost and estimated market values of Securities as of December 31, 1997 are as follows (dollars in thousands): Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $ 58,544 $ 58,575 Obligations of State and Political Subdivisions 20,448 21,670 Asset-/Mortgage-backed Securities 15,668 15,661 Corporate Securities 4,528 4,529 Other Securities 1 14 -------- -------- Total $ 99,189 $100,449 ======== ======== Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $ 5,598 $ 5,601 Obligations of State and Political Subdivisions 24,980 26,167 Asset-/Mortgage-backed Securities 2,372 2,389 Corporate Securities 311 303 Other Securities 2,121 2,121 ------- ------- Total $35,382 $36,581 ======= ======= 10 At September 30, 1998 and December 31, 1997, U.S. Government Agency structured notes with an amortized cost of $200,000 and $5,000,000 respectively, and fair value of $200,000 and $4,986,000 respectively, are included in securities available-for-sale. These notes consist primarily of step-up and single-index bonds. Securities classified as held-to-maturity with a market value of $204,000 were sold during the second quarter, primarily due to their small block sizes, which were not cost effective to maintain in the Company's investment portfolio. Each of these securities had a de minimus book value relative to the original purchase price at the dates of sale. Note 4 -- Loans Total loans, as presented on the balance sheet, are comprised of the following classifications (dollars in thousands): September 30, December 31, 1998 1997 Real Estate Loans Secured by 1-4 Family Residential Properties $135,063 $126,289 Agricultural Loans 65,482 60,421 Commercial and Industrial Loans 131,254 111,240 Loans to Individuals for Household, Family and Other Personal Expenditures 83,648 79,385 Lease Financing 573 1,045 -------- -------- Total Loans $416,020 $378,380 ======== ======== The overall loan portfolio is diversified among a variety of borrowers; however, a significant portion of the debtors' ability to honor their contracts is dependent upon the wood furniture manufacturing and agriculture industries, including poultry. No unguaranteed concentration of credit in excess of 10 percent of total assets exists within any single industry group. Note 5 -- Allowance for Loan Losses A summary of the activity in the Allowance for Loan Losses is as follows (dollars in thousands): 1998 1997 Balance at January 1 $ 7,416 $ 7,144 Allowance of Acquired Subsidiary 72 -- Provision for Loan Losses 176 21 Recoveries of Prior Loan Losses 283 749 Loan Losses Charged to the Allowance (1,094) (662) ------- ------- Balance at September 30 $ 6,853 $ 7,252 ======= ======= 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. 11 The following is a reconciliation of the separate and combined net interest income and net income of German American Bancorp, CSB Bancorp and FSB Financial Corporation for the periods prior to the acquisition:
GERMAN AMERICAN BANCORP CSB FSB (as previously reported) BANCORP FINANCIAL COMBINED For the period January 1, 1998 through June 1, 1998 Net interest income $8,518 $1,186 $250 $9,954 Net income / (Loss) $2,548 $444 $(64) $2,928 For the three months ended September 30, 1997 Net interest income $5,084 $752 $ --- $5,836 Net income $1,563 $(11) $ --- $1,552 For the nine months ended September 30, 1997 Net interest income $14,936 $2,202 $ --- $17,138 Net income $4,687 $397 $ --- $5,084
Note 7 -- Proposed Acquisitions In August 1998, the Company signed a definitive agreement providing for the merger with 1st Bancorp, a $260 million banking company headquartered in Vincennes, Indiana (Knox County). Under the terms of the agreement, the shareholders of 1ST BANCORP would receive shares of common stock of German American with a targeted aggregate market value of $57,120,000 (based on market prices of German American common stock during a period of 15 trading days ending on the second trading date preceding closing) in a tax-free exchange, or approximately $50.94 per 1ST BANCORP share (assuming exercise of all outstanding options). If the German American share price is less than $28 per share or more than $33 per share during the valuation period, however, then the number of shares to be issued in the transaction will be based on a minimum or maximum share price, as the case may be, of $28 or $33. Accordingly, to the extent that German American's share price during the valuation period is less than $28 or more than $33, then the market value of the transaction could vary from the targeted value. The proposed merger is subject to the approval of 1ST BANCORP's and German American's shareholders as well as the approval of the appropriate bank regulatory agencies, receipt of a fairness opinion and other conditions. The merger is expected to be effective in the first quarter of 1999. 1ST BANCORP has also signed a Stock Option Agreement with German American, giving German American an option to purchase up to 19.9% of 1ST BANCORP's outstanding shares, exercisable at $50.94 per share upon the occurrence of certain events that create the potential for another party to acquire control of 1ST BANCORP. 12 1ST BANCORP's subsidiaries include First Federal Bank, A Federal Savings Bank; First Financial Insurance Agency, Inc.; and First Title Insurance Company, Inc. First Federal Bank operates a loan origination office in Evansville, Indiana. First Financial Insurance Agency has offices in Vincennes and Princeton, Indiana. Following the merger, First Federal Bank and 1ST BANCORP's insurance subsidiaries will remain intact as wholly owned direct or indirect subsidiaries of German American and will continue to serve their existing markets from their present facilities. Note 8 -- Subsequent Events On November 2, 1998 the Company announced that its Board of Directors had declared its annual 5 percent stock dividend, payable on or before December 15, 1998 to shareholders of record on November 30, 1998. The Board of Directors also declared a cash dividend of $0.12 per share payable on or before November 20, 1998 to shareholders of record November 10, 1998. Effective November 10, 1998 1st BANCORP received the fairness opinion of its financial advisor referred to in Note 7. Accordingly, this condition to the 1st BANCORP transaction has been satisfied. 13 ITEM 2. GERMAN AMERICAN BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS German American Bancorp ("the Company") is a multi-bank holding company based in Jasper, Indiana. Its four affiliate banks conduct business in 24 offices in Dubois, Daviess, Gibson, Martin, Pike, Perry and Spencer Counties in Southwest Indiana. The banks provide a wide range of financial services, including accepting deposits; making commercial, mortgage and consumer loans; issuing credit life, accident and health insurance; providing trust services for personal and corporate customers; providing safe deposit facilities; and providing investment advisory and brokerage services. This section presents an analysis of the consolidated financial condition of the Company as of September 30, 1998 and December 31, 1997 and the consolidated results of operations for the periods ended September 30, 1998 and 1997. This review should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's December 31, 1997 Annual Report to Shareholders. On June 1, 1998 the Company consummated mergers with the parent companies of Citizens State and FSB Bank of Francisco, Indiana ("FSB Bank"). Both transactions were accounted for as poolings of interests. FSB Bank and an existing affiliate, Community Trust Bank of Otwell, Indiana were merged into the Citizens State charter on that date. Results for periods prior to June 1, 1998 have been retroactively adjusted to give effect for all stock splits and dividends, and for the merger with the parent company of Citizens State Bank of Petersburg, Indiana. Prior year results exclude the effect of the June 1, 1998 merger with the parent company of FSB Bank of Francisco, Indiana, as restatement would not have resulted in a material change in overall financial results. RESULTS OF OPERATIONS Net Income: Including the unusual items referred to below, reported net income for the quarter and year-to-date ended September 30, 1998 was $1,588,000 or $0.25 per share, and $5,132,000 or $0.81 per share, respectively. This compares to reported net income for the third quarter of 1997 of $1,552,000 or $0.24 per share, and for the year-to-date ended September 30, 1997 of $5,084,000 or $0.80 per share. Net operating results reported above include the effects of certain one-time or unusual items, primarily expenses and charges associated with the Company's merger and acquisition activities. In addition, the third quarter of 1997 included a special provision of $350,000 at one of the Company's affiliates. Year-to-date 1997 also included a negative provision of $750,000 related to the recovery of a single previously charged-off credit at another of the Company's affiliates. As adjusted for the effects of these one-time and unusual items, the Company's operating results were $1,917,000 or $0.30 per share for the third quarter of 1998, and $5,481,000 or $0.86 per share for the year-to-date ended September 30, 1998. This represents a 6% increase from adjusted operating results of $1,808,000 or $0.28 per share for the third quarter of 1997, and $5,182,000 or $0.82 per share for the year-to-date ended September 30, 1997. For further information regarding these one-time or unusual items, see Exhibit 99 which is incorporated herein by reference. 14 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 1998 1997 Amount Percent Interest Income $11,937 $11,328 $ 609 5.4% Interest Expense 5,469 5,161 308 6.0 ------- ------- ------- Net Interest Income $ 6,468 $ 6,167 $ 301 4.9 ======= ======= ======= Nine Months Change from Ended September 30, Prior Period 1998 1997 Amount Percent Interest Income $35,278 $33,324 $ 1,954 5.9% Interest Expense 15,982 15,185 797 5.2 ------- ------- ------ Net Interest Income $19,296 $18,139 $ 1,157 6.4 ======= ======= ======= The increase in net interest income for the three and nine months ended September 30, 1998 compared to the same periods of 1997 was primarily due to an increase of loans, which generally provide a higher yield than investment securities, in the mix of average earning assets. Net interest income, on a tax-equivalent basis expressed as a percentage of average earning assets, is referred to as the net interest margin, which represents the average net effective yield on earning assets. For the first nine months of 1998, the net interest margin declined somewhat to 4.61 percent from 4.65 percent for the comparable period of 1997. Provision For Loan Losses: The Company provides for future loan losses through regular provisions to the allowance for loan losses. These provisions are made at a level which is considered necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of this loan loss reserve is completed quarterly by management. The consolidated provision for loan losses was $176,000 and $21,000 for the first three quarters in 1998 and 1997 and $57,000 and $447,000 in the third quarter in 1998 and 1997. The third quarter of 1997 included a special provision of $350,000 at one of the Company's affiliates. Year to date 1997 also included a negative provision of $750,000 related to the recovery of a single previously charged-off credit at another of the Company's affiliates. The provision for loan losses to be recorded in future periods will be subject to adjustment based on the results of on-going evaluations of the adequacy of the allowance for loan losses. Net charge-offs were $337,000 or 0.08 percent of average loans for the three months ended, and $811,000 or 0.20 percent of loans for the nine months ended September 30, 1998. Net charge-offs (recoveries) for the third quarter of 1997 were $(149,000) or 0.04 percent of loans and were $(87,000) or 0.02 percent of loans for the first nine months of 1997. The bulk of the 1998 charge-offs occurred at Citizens State, in large part based on the results of a bank examination earlier in the year. Citizens State had previously fully reserved a specific allowance against the bulk of these loans. Non-performing loans as a percentage of total loans were 0.85 percent and 0.86 percent, respectively on September 30, 1998 and December 31, 1997. See discussion under "Financial Condition" for more information regarding the allowance for loan losses and non-performing assets. 15 Noninterest Income: Noninterest income increased approximately 9.4 percent over the prior year to date, excluding net gains on sales, and was $751,000 and $2,292,000 for the third quarter and year-to-date ended September 30, 1998. This compares to $758,000 and $2,095,000 for the same periods in 1997. Higher revenues resulted from an 11 percent increase in service charges on deposits, a 20 percent increase in investment services income and an increase of approximately $87,000 from other ventures. Noninterest Expense: The following analysis of changes in noninterest expense includes the effects of one-time or unusual items, primarily expenses and charges associated with the Company's merger and acquisition activities. In addition, 1997 results below and their comparison to 1998 have not been restated for the effect of the June 1, 1998 merger with the parent company of FSB Bank of Francisco, Indiana. Noninterest expense was $4.4 million for the third quarter of 1998 compared to $3.8 million for the third quarter of 1997. Year-to-date 1998 results were $12.8 million versus $11.6 million for the first nine months of 1997. This represented a 17 percent increase for the quarter and 10 percent for the year-to-date ended September 30, 1998 over the comparative periods for the prior year. Noninterest expense slightly increased as an annualized percentage of average total assets to 2.86 percent in 1998 from 2.76 percent in the prior year. Salaries and Employee Benefits totaled $2.3 million and $6.9 million, respectively, for the third quarter and year-to-date ended September 30, 1998 or 54 percent of total noninterest expense. These expenses increased approximately 11 percent over the same periods for 1997, when salaries and employee benefits totaled $2.1 million and $6.3 million, respectively. Increases were incurred in base compensation and selected benefits, including the Company's employee computer purchase program, beginning in late 1997. Total occupancy, furniture and equipment expense for the first nine months of 1998 totaled $1.9 million. This was approximately $184,000 or 11 percent greater than the $1.7 million incurred for the same period of the prior year. These expenses are expected to continue to be higher in comparison to the prior year, largely as a consequence of upgrading the Company's computer systems at its existing and new affiliates. The Company is continuing its strategy to implement state-of-the-art computer processing to provide the opportunities to, over the long-term, better control the level of employee related expenses and improve the quality of customer service provided by all of its affiliate community banks. Computer processing fees increased $114,000 in the first three quarters of 1998 from the first three quarters of 1997. Nearly all of this difference is attributable to conversion of new affiliates to the Company's data processing systems. Professional fees for the first nine months of 1998 totaled $619,000. This was a reduction of $127,000 from the $746,000 recorded for the same period of 1997, primarily due to a reserve for legal fees established in the third quarter of 1997, related to an unasserted potential claim. Other operating expenses increased approximately 15 percent from $845,000 and $2,438,000 in the first three and nine months of 1997 to $1,034,000 and $2,790,000 in the first three and nine months of 1998. These increases were incurred due to the introduction of new banking products, timing of employee related expenses and a refund of SAIF assessment fees received in the first quarter of 1997. 16 FINANCIAL CONDITION Total assets at September 30, 1998 were $613 million. This was an increase of $37 million from the December 31, 1997 total asset position and was due to an increase in the loan portfolio. Deposits at September 30, 1998 were $530 million, which was a $30 million increase from year-end 1997. Transaction deposits experienced a seasonal decline from year-end, while interest-bearing deposits increased $35 million. Combined Short- and Long-term Borrowings at September 30, 1998 were $8.4 million, up $2.8 million from the December 31, 1997 position. All of the Company's affiliate banks are members of the Federal Home Loan Bank System ("FHLB"). The banks' membership in the FHLB provides an additional source of liquidity for both long and short-term borrowing needs. The Company had $1 million in FHLB borrowings outstanding at September 30, 1998. Non-performing Assets: The following is an analysis of the Company's non-performing assets at September 30, 1998 and December 31, 1997 (dollars in thousands): September 30, December 31, 1998 1997 Nonaccrual Loans $ 469 $ 562 Loans contractually past due 90 days or more 3,056 2,710 Renegotiated Loans -- -- ------ ------ Total Non-performing Loans 3,525 3,272 ------ ------ Other Real Estate 226 146 ------ ------ Total Non-performing Assets $3,751 $3,418 ------ ====== Allowance for Loan Losses to Non-performing Loans 194.41% 226.65% Non-performing Loans to Total Loans 0.85% 0.86% Allowance for Loan Losses to Total Loans 1.65% 1.96% Capital Resources: Shareholders' equity totaled $67.0 million at September 30, 1998 or 10.9 percent of total assets, and $62.1 million at December 31, 1997 or 10.8 percent of total assets. Federal banking regulations provide guidelines for determining the capital adequacy of bank holding companies and banks. These guidelines provide for a more narrow definition of core capital and assign a measure of risk to the various categories of assets. The Company is required to maintain minimum levels of capital in proportion to total risk-weighted assets and off-balance sheet exposures such as loan commitments and standby letters of credit. Tier 1, or core capital, consists of shareholders' equity less goodwill, core deposit intangibles, and certain deferred tax assets defined by bank regulations. Tier 2 capital is defined as the amount of the allowance for loan losses which does not exceed 1.25 percent of gross risk adjusted assets. Total capital is the sum of Tier 1 and Tier 2 capital. The minimum requirements under these standards are generally at least a 4.0 percent leverage ratio, which is Tier 1 capital divided by defined "total assets"; 4.0 percent Tier 1 capital to risk-adjusted assets; and, an 8.0 percent total capital to risk-adjusted assets ratios. Under these guidelines, the Company, on a consolidated basis, and each of its affiliate banks individually, have capital ratios that substantially exceed the regulatory minimums. 17 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, 1998 management is not under such a capital directive, nor is it aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have or are reasonably likely to have, a material effect on the Company's liquidity, capital resources or operations. The table below presents the Company's consolidated risk-based capital structure and capital ratios under regulatory guidelines (dollars in thousands): September 30, December 31, 1998 1997 Tier 1 Capital: Shareholders' Equity as presented on the Balance Sheet $ 66,967 $ 62,079 Less: Unrealized Appreciation on Securities Available-for-Sale (1,130) (767) Less: Intangible Assets and Ineligible Deferred Tax Assets (1,525) (1,713) --------- --------- Total Tier 1 Capital 64,312 59,599 Tier 2 Capital: Qualifying Allowance for Loan Loss 5,292 4,786 --------- --------- Total Capital $ 69,604 $ 64,385 ========= ========= Risk-adjusted Assets $ 421,825 $ 378,770
To be Well Capitalized Under Prompt Minimum for Corrective Capital Action Adequacy Provisions September 30, December 31, Purposes (FDICIA) 1998 1997 Leverage Ratio 4.00% 5.00% 10.89% 10.59% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 15.25% 15.73% Total Capital to Risk-adjusted Assets 8.00% 10.00% 16.50% 17.00%
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 1998, operating activities provided $4.2 million of available cash, which included net income of $5.1 million. Major cash outflows experienced during this nine month period of 1998 included $2.1 million in dividends, $1.8 million in property and equipment purchases and net loan outlays in the amount of $28.1 million. The net cash outlay for securities was $14.0 million. Deposits and borrowings increased by $18.6 million during the period. Total cash outflows for the period exceeded inflows by $19.2 million, leaving cash and cash equivalents of $21.2 million at September 30, 1998. 18 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. An on-going formal review of the Company's computer systems and systems providers is continuing, in order to determine the extent to which changes must be implemented to avoid or minimize service issues associated with the Year 2000. The Company has developed a formal plan for the review, testing and implementation of procedures to address certain issues that require attention prior to the Year 2000, in order that its operations will not be materially adversely affected. The Company's Year 2000 process is subject to banking agency regulatory guidelines and examination. At this time the Company believes itself to be in compliance with 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 has designated Fiserv's systems as mission critical for the Year 2000 issue, as that term is defined by bank regulatory requirements. Fiserv, a national service provider for over 3,300 financial institutions, has confirmed to the Company that its renovation and testing of all core systems will be largely completed by December 25, 1998. While the Company can obviously give no assurance as to Fiserv's performance in the completion of this matter, the Company is unaware of any issues that would cause Fiserv to be unable to renovate mission critical systems satisfactorily and therefore has no reason to believe that its reasonably likely worst case scenario would include any material interruption in its ability to transact business. The Company has also reviewed the Year 2000 implications of systems other than its "mission critical" data processing information systems (such as elevators, HVAC, copiers, and the like). While the Company has incurred no material costs to date, approximately $450,000 in cash outlays has been budgeted for the remainder of 1998 and 1999. These outlays exclude the cost of implementing the Company's state-of-the-art computer systems upgrade (previously discussed under Noninterest Expense on page 15), but include the Company's expected share of third party systems costs and all other costs to address the Year 2000 issue. For financial statement purposes, 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. Although the Company has not generally requested information from its customers regarding their potential exposure to the Year 2000 issue or their plans to minimize any such exposure, the Company is not aware of any specific significant customer which does not expect to have this issue resolved prior to the Year 2000. 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 can potentially affect any computer process, including any equipment utilizing embedded technology like microprocessors. Therefore, there can be no assurance that Year 2000 issues will not be encountered or that their effect on the Company's operations, technology expenditures or customer relationships will not be material. 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's exposure to market risk is reviewed on a regular basis by the Asset/Liability Committee and the Boards of Directors of the holding company and its affiliate banks. Other than as a result of the June 1, 1998 mergers with Citizens State and FSB Bank, there have been no material changes in the quantitative and qualitative disclosures about market risks from December 31, 1997. While these acquisitions added $93 million in assets and $10 million in equity to the Company at the date of the mergers, the acquired banks distribution of assets and liabilities do not materially impact the overall market risk profile of the Company which was presented in the analysis and disclosures provided in the Company's Form 10-K for the year ended December 31, 1997. 20 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 2.1 Agreement and Plan of Reorganization between the Registrant, CSB Bancorp, and Affiliates, dated December 8, 1997. This exhibit is incorporated by reference from Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 filed February 26, 1998. 2.2 Agreement and Plan of Reorganization between the Registrant, FSB Financial Corporation, and Affiliates, dated January 30, 1998. This exhibit is incorporated by reference from Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 filed on February 26, 1998. 2.3 Agreement and Plan of Reorganization dated as of August 6, 1998 between 1st Bancorp and the Registrant. This exhibit is incorporated by reference from exhibit 2.3 to the registrants Quarterly report on Form 10Q for the quarter ended June 30, 1998. 2.4 Stock Option Agreement dated as of August 6, 1998 between 1st Bancorp and Registrant. This exhibit is incorporated by reference from exhibit 2.4 to the registrants Quarterly report on Form 10Q for the quarter ended June 30, 1998. 10.1 Stock Option Agreement executed August 3, 1998 between the Registrant and Stan J. Ruhe (306 shares). 10.2 Stock Option Agreement executed August 3, 1998 between the Registrant and Urban R. Giesler (333 shares). 10.3 Stock Option Agreement between the Registrant and George W. Astrike dated September 2, 1998. This exhibit is incorporated by reference from Exhibit 10.9 to the Registrant's Registration Statement on Form S-4 filed October 14, 1998 (No. 333-65633). 27 Financial Data Schedule for the periods ended September 30, 1998 and 1997. 99 German American Bancorp reconciliation of earnings. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended September 30, 1998. 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 13, 1998 By/s/George W. Astrike ------------------------------------ George W. Astrike Chairman Date November 13, 1998 By/s/John M. Gutgsell ------------------------------------ John M. Gutgsell Controller and Principal Accounting Officer EX-10 2 EXHIBIT 10.1 INCENTIVE STOCK OPTION FOR RUHE Exhibit 10.1 HAND DELIVERY August 3, 1998 Mr. Stan J. Ruhe German American Bancorp 711 Main Street P O Box 810 Jasper, IN 47547-0810 RE: Incentive Stock Option Agreement Dear Mr. Ruhe: The Stock Option Committee of the Board of Directors of German American Bancorp (the "Corporation"), pursuant to section 7 of the GAB Bancorp 1992 Stock Option Plan (the "Plan"), hereby grants to you, in replacement of a portion of the shares covered by your options dated April 20, 1993 which has been exercised in part as of this date, a replacement option (the "Option"), which Option shall have the following terms and conditions, in addition to those provided in the Plan: 1. Number of Shares: 306 shares, subject to adjustment as provided in the Plan. 2. Exercise Price: $29.275 per share, subject to adjustment as provided in the Plan. 3. Expiration Date: The Option, to the extent unexercised, shall expire at 12:00 noon, Jasper time, on April 19, 2003. 4. Exercisability. The Option shall become exercisable in full on the first day following the expiration of twelve months following the date of this Option, and shall be canceled, as specified pursuant to Section 7 of the Plan, if you sell shares of common stock of the Company during such twelve-month period, subject to the exceptions expressed in such Section 7. 10.1 - (2) Exhibit 10.1 The Option, which is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, shall be in all respects limited and conditioned as provided in the Plan. A copy of the Plan is enclosed with this letter. During your lifetime, the Option will be exercisable only by you. Neither the Option nor any right thereunder may be transferred other than by will or the laws of descent and distribution. Exercise of the Option shall be subject to your making the representations set forth below and any representations to such other matters as the Committee, in its discretion, may determine to be necessary or advisable to evidence compliance with requirements under the Securities Act of 1933, as amended, or state securities laws for registering or exempting from registration any offer of sale of the Corporation's securities pursuant to the Plan. This letter, upon your delivery of an executed copy to the Corporation, shall constitute a binding incentive stock option agreement between your the Corporation. Very truly yours, GERMAN AMERICAN BANCORP BY THE STOCK OPTION COMMITTEE OF THE BOARD OF DIRECTORS BY: By/s/Joseph F. Steurer Chairman of the Stock Option Committee ACKNOWLEDGMENT AND AGREEMENT I hereby acknowledge receipt of this letter granting me the above Option as well as receipt of a copy of the Plan, and I acknowledge and agree to be bound by the following: 1. I have received a copy of the Plan and agree to be bound by the terms and conditions set for the therein. 10.1 - (3) 2. The Common Shares subject to the Option are being offered pursuant to the "private offering" exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"). In that connection, I agree that I will acquire Common Shares pursuant to this Option for investment purposes for my own account without any view to redistribute them to others. Further, I agree not to sell, pledge, hypothecate, or otherwise transfer Common Shares acquired pursuant to the Option except upon delivery to the Corporation of an opinion of counsel or such other evidence as may be satisfactory to the Corporation that such transfer is exempt from registration under the 1933 Act, as amended, applicable state securities laws, or any rule or regulation promulgated thereunder. 3. The certificates evidencing the Common Shares, including both originally and subsequently issued certificates, will bear a restrictive legend substantially as follows: The Common Shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state and have been acquired in a private offering. Sales, pledges, hypothecations, and other transfers of the Common may be made only upon delivery to the Corporation of an opinion of counsel or other evidence satisfactory to the Corporation that such transfer is exempt from registration under the Securities Act of 1933, as amended, applicable state securities laws, or any rule or regulation promulgated thereunder. 4. The Corporation will issue instructions to its transfer agent, Fifth Third Bank, not to honor request for transfer of Common Shares issued subject to the Option, whether or not evidenced by originally or subsequently issued certificates, unless the conditions set forth in the preceding legend have been satisfied. EXECUTED the 3rd day of August, 1998. By/s/Stan J. Ruhe Stan J. Ruhe EX-10 3 EXHIBIT 10.2 INCENTIVE STOCK OPTION FOR GIESLER EXHIBIT 10.2 HAND DELIVERY August 3, 1998 Mr. Urban R. Giesler German American Bancorp 711 Main Street P O Box 810 Jasper, IN 47547-0810 RE: Incentive Stock Option Agreement Dear Mr. Giesler: The Stock Option Committee of the Board of Directors of German American Bancorp (the "Corporation"), pursuant to section 7 of the GAB Bancorp 1992 Stock Option Plan (the "Plan"), hereby grants to you, in replacement of a portion of the shares covered by your options dated April 20, 1993, which has been exercised in part as of this date, a replacement option (the "Option"), which Option shall have the following terms and conditions, in addition to those provided in the Plan: 1. Number of Shares: 333 shares, subject to adjustment as provided in the Plan. 2. Exercise Price: $29.275 per share, subject to adjustment as provided in the Plan. 3. Expiration Date: The Option, to the extent unexercised, shall expire at 12:00 noon, Jasper time, on April 19, 2003. 4. Exercisability. The Option shall become exercisable in full on the first day following the expiration of twelve months following the date of this Option, and shall be canceled, as specified pursuant to Section 7 of the Plan, if you sell shares of common stock of the Company during such twelve-month period, subject to the exceptions expressed in such Section 7. 10.2 - (2) Exhibit 10-2 The Option, which is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, shall be in all respects limited and conditioned as provided in the Plan. A copy of the Plan is enclosed with this letter. During your lifetime, the Option will be exercisable only by you. Neither the Option nor any right thereunder may be transferred other than by will or the laws of descent and distribution. Exercise of the Option shall be subject to your making the representations set forth below and any representations to such other matters as the Committee, in its discretion, may determine to be necessary or advisable to evidence compliance with requirements under the Securities Act of 1933, as amended, or state securities laws for registering or exempting from registration any offer of sale of the Corporation's securities pursuant to the Plan. This letter, upon your delivery of an executed copy to the Corporation, shall constitute a binding incentive stock option agreement between your the Corporation. Very truly yours, GERMAN AMERICAN BANCORP BY THE STOCK OPTION COMMITTEE OF THE BOARD OF DIRECTORS BY: By/s/Joseph F. Steurer Chairman of the Stock Option Committee ACKNOWLEDGMENT AND AGREEMENT I hereby acknowledge receipt of this letter granting me the above Option as well as receipt of a copy of the Plan, and I acknowledge and agree to be bound by the following: 1. I have received a copy of the Plan and agree to be bound by the terms and conditions set for the therein. 2. The Common Shares subject to the Option are being offered pursuant to the "private offering" exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"). In that connection, I agree that I will acquire Common Shares pursuant to this Option for investment purposes for my own account without any view to redistribute them to others. Further, I agree not to sell, pledge, hypothecate, or otherwise transfer Common Shares acquired pursuant to the Option except upon delivery to the Corporation of an opinion of counsel or such other evidence as may be satisfactory to the Corporation that such transfer is exempt from registration under the 1933 Act, as amended, applicable state securities laws, or any rule or regulation promulgated thereunder. 10.2 - (3) 3. The certificates evidencing the Common Shares, including both originally and subsequently issued certificates, will bear a restrictive legend substantially as follows: The Common Shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state and have been acquired in a private offering. Sales, pledges, hypothecations, and other transfers of the Common may be made only upon delivery to the Corporation of an opinion of counsel or other evidence satisfactory to the Corporation that such transfer is exempt from registration under the Securities Act of 1933, as amended, applicable state securities laws, or any rule or regulation promulgated thereunder. 4. The Corporation will issue instructions to its transfer agent, Fifth Third Bank, not to honor request for transfer of Common Shares issued subject to the Option, whether or not evidenced by originally or subsequently issued certificates, unless the conditions set forth in the preceding legend have been satisfied. EXECUTED the 3rd day of August, 1998. By/s/Urban R. Giesler Urban R. Giesler EX-27 4 FDS -- GERMAN AMERICAN BANCORP
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED IN THE FILER'S QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000714395 German American Bancorp 1,000 9-MOS DEC-31-1998 SEP-30-1998 15,753 2,446 2,975 0 121,597 30,369 31,393 415,121 6,853 613,269 530,975 7,379 6,948 1,000 0 0 6,349 60,618 613,269 26,985 6,327 720 34,032 15,782 15,982 18,050 176 (2) 12,767 7,417 7,417 0 0 5,132 0.81 0.81 4.32 469 3,056 0 0 7,488 1,094 283 6,853 6,853 0 2,402
EX-27 5 EXHIBIT 27 RESTATED FDS GERMAN AMERICAN BANCORP WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 [LEGEND] [/LEGEND] 0000714395 German American Bancorp 1,000 9-MOS DEC-31-1997 SEP-30-1997 20,351 497 20,175 0 95,005 32,751 33,745 376,517 7,252 565,645 493,110 5,852 5,294 0 0 0 3,475 57,914 565,645 25,206 6,431 686 32,323 14,937 15,185 17,138 21 0 11,557 7,663 7,663 0 0 5,084 0.80 0.80 4.40 1,013 1,730 0 0 7,144 662 749 7,252 7,252 0 1,813
EX-99 6 EXHIBIT 99 RECONCILIATION OF EARNINGS EXHIBIT 99 GERMAN AMERICAN BANCORP Reconciliation of Earnings
Three Months Ended Nine Months Ended Ended September 30, Ended September 30, 1998 1997 (1) 1998 1997 (1) Pre-tax Adjustments to Income Merger Related Expenses $189 $46 $312 $236 Pension and Employment Continuation Charges 282 --- 194 --- Provision for Loan Losses --- 350 --- (410) Trust Accrual --- --- --- 200 Total Adjustments to Income $471 $396 $506 $26 Reported Net Income $1,588 $1,552 $5,132 $5,084 After tax impact of Adjustments 329 256 349 98 Adjusted Net Income $1,917 $1,808 $5,481 $5,182 Reported Earnings Per Share $0.25 $0.24 $0.81 $0.80 After tax impact of Adjustments 0.05 0.04 0.05 0.02 Adjusted Earnings Per Share $0.30 $0.28 $0.86 $0.82
(1) Results for periods prior to June 1, 1998 have been retroactively adjusted to give effect for all stock splits and dividends, except for the pending 5 percent stock dividend payable on December 15, 1998 to shareholders of record November 30, 1998. Results have also been retroactively adjusted for the merger with the parent company of Citizens State Bank of Petersburg, Indiana. Prior year results exclude the effect of the June 1, 1998 merger with the parent company of FSB Bank of Francisco, Indiana, as restatement would not have resulted in a material change in overall financial results. -----END PRIVACY-ENHANCED MESSAGE-----