UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
I X I Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act
of 1934 for the Quarterly Period Ended September 30, 1995 Or
I I Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of
1934 for the Transition Period From to
--------------- ----------------
Commission File Number 0-11244
GERMAN AMERICAN BANCORP
(Exact name of registrant as specified in its charter)
INDIANA
35-1547518
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
711 Main Street, Box 810, 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 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, 1995
Common Stock, $10.00 par value
1,738,863
GERMAN AMERICAN BANCORP
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets -- September 30, 1995 and
December 31, 1994
Consolidated Statements of Income -- Three Months Ended
September 30, 1995 and 1994
Consolidated Statements of Income -- Nine Months Ended
September 30, 1995 and 1994
Consolidated Statements of Cash Flows -- Nine Months Ended
September 30, 1995 and 1994
Notes to Consolidated Financial Statements -- September 30, 1995
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART 1. FINANCIAL INFORMATION GERMAN AMERICAN BANCORP
ITEM 1.: FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
(dollar references in thousands
except share data)
September 30, December
31,
1995
1994
ASSETS
Cash and Due from Banks................................... 11,665 $14,636
Federal Funds Sold........................................ 7,950
7,650
Cash and Cash Equivalents ............................... 19,615
22,286
Interest-bearing Balances with Banks...................... 496 1,192
Other Short-term Investments.............................. 7,906 13,415
Securities Available-for-Sale, at Market Value (Note 3)... 34,541 22,043
Securities Held-to-Maturity, at cost (Market Value
of $48,240 and $50,316 on September 30, 1995
and December 31, 1994, respectively) .................... 47,039 51,273
Loans (Note 4)............................................ 235,238 224,650
Less: Unearned Income .................................... (616) (840 )
Allowance for Loan Losses (Note 6) .................... (5,834)
(5,669)
Loans, Net................................................ 228,788 218,141
Premises, Furniture and Equipment, Net.................... 9,685 9,407
Other Real Estate......................................... 498 497
Intangible Assets......................................... 2,046 2,235
Accrued Interest Receivable and Other Assets.............. 6,747
6,037
TOTAL ASSETS ............................................ $357,361 $346,526
LIABILITIES
Noninterest-bearing Deposits.............................. $31,695 $36,448
Interest-bearing Deposits................................. 283,302 265,842
Total Deposits .......................................... 314,997 302,290
Short-term Borrowings..................................... 3,504 9,169
Accrued Interest Payable and Other Liabilities............ 3,430
2,142
TOTAL LIABILITIES ....................................... 321,931 313,601
Commitments and Contingent Liabilities
SHAREHOLDERS' EQUITY
Common Stock, $10 par value; 5,000,000 shares
authorized, 1,738,863 and 1,739,994 issued and outstanding
in 1995 and 1994, respectively .......................... 17,389 17,400
Preferred Stock, $10 par value; 500,000 shares authorized,
no shares issued ........................................ ----- -----
Additional Paid-in Capital................................ 3,596 3,542
Retained Earnings......................................... 14,489 12,641
Unrealized Depreciation on Securities Available-for-Sale
(Net of tax of $28 and $431 in 1995 and 1994, respectively)
(44)......................................... (658 )
TOTAL SHAREHOLDERS' EQUITY .............................. 35,430
32,925
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $357,361 $346,526
See accompanying notes to consolidated financial statements
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(dollar references in thousands except per share data)
Three Months Ended
September 30,
1995
1994
INTEREST INCOME
Interest and Fees on Loans................................ $5,424 $4,350
Interest on Federal Funds Sold............................ 159 84
Interest on Short-term Investments........................ 181 72
Interest and Dividends on Securities...................... 1,159 960
TOTAL INTEREST INCOME ................................... 6,923 5,466
INTEREST EXPENSE
Interest on Deposits...................................... 3,277 2,315
Interest on Short-term Borrowings......................... 36
32
TOTAL INTEREST EXPENSE .................................. 3,313 2,347
NET INTEREST INCOME ..................................... 3,610 3,119
Provision for Loan Losses................................. (213)
105
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ....................................... 3,823 3,014
NONINTEREST INCOME
Income from Fiduciary Activities.......................... 37 48
Service Charges on Deposit Accounts....................... 161 151
Investment Services Income................................ 55 90
Other Charges, Commissions, and Fees...................... 100 106
Gains from Loan and ORE Sales............................. ----- 58
Security Gains............................................ -----
25
TOTAL NONINTEREST INCOME ................................ 353
478
NONINTEREST EXPENSE
Salaries and Employee Benefits............................ 1,350 1,142
Occupancy Expense......................................... 207 173
Furniture and Equipment Expense........................... 187 155
FDIC Premiums............................................. 3 155
Computer Processing Fees.................................. 103 88
Professional Fees......................................... 44 50
Other Operating Expenses.................................. 524
345
TOTAL NONINTEREST EXPENSE ............................... 2,418 2,108
Income before Income Taxes................................ 1,758 1,384
Income Tax Expense........................................ 598
390
Net Income................................................ $1,160 $994
Earnings per Share (Note 2)............................... $0.67 $0.57
Dividends Paid per Share.................................. $0.20 $0.18
See accompanying notes to consolidated financial statements
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(dollar references in thousands except per share data)
Nine Months Ended
September 30,
1995
1994
INTEREST INCOME
Interest and Fees on Loans................................ $15,680 $12,576
Interest on Federal Funds Sold............................ 535 189
Interest on Short-term Investments........................ 610 248
Interest and Dividends on Securities...................... 3,323
3,037
TOTAL INTEREST INCOME ................................... 20,148
16,050
INTEREST EXPENSE
Interest on Deposits...................................... 9,226 6,844
Interest on Short-term Borrowings......................... 168
84
TOTAL INTEREST EXPENSE .................................. 9,394 6,928
NET INTEREST INCOME ..................................... 10,754 9,122
Provision for Loan Losses................................. 15
462
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ....................................... 10,739 8,660
NONINTEREST INCOME
Income from Fiduciary Activities.......................... 142 139
Service Charges on Deposit Accounts....................... 456 410
Investment Services Income................................ 155 328
Other Charges, Commissions, and Fees...................... 133 277
Gains from Loan and ORE Sales............................. 21 84
Security Gains............................................ -----
81
TOTAL NONINTEREST INCOME ................................ 1,107
1,319
NONINTEREST EXPENSE
Salaries and Employee Benefits............................ 3,963 3,299
Occupancy Expense......................................... 606 500
Furniture and Equipment Expense........................... 541 445
FDIC Premiums............................................. 351 477
Computer Processing Fees.................................. 297 257
Professional Fees......................................... 121 205
Other Operating Expenses.................................. 1,484
1,044
TOTAL NONINTEREST EXPENSE ............................... 7,363
6,227
Income before Income Taxes................................ 4,483 3,752
Income Tax Expense........................................ 1,460
1,163
Net Income................................................ $3,023
$2,589
Earnings per Share (Note 2)............................... $1.74 $1.49
Dividends Paid per Share.................................. $0.60 $0.53
See accompanying notes to consolidated financial statements
GERMAN AMERICAN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar references in thousands)
Nine Months Ended
September 30,
1995
1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $3,023 $2,589
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:
Amortization and Accretion on Investments ............... (567) 138
Depreciation and Amortization ........................... 707 448
Provision for Loan Losses ............................... 15 462
Gains on Sales of Securities ............................ ----- (81 )
Gains on Sales of Other Real Estate ..................... (21) (84 )
Change in Assets and Liabilities:
Unearned Income ........................................ (224) (328 )
Interest Receivable ..................................... (377) 92
Other Assets ............................................ (248) (114 )
Interest Payable ........................................ 362 (57 )
Deferred Loan Fees ...................................... 64 148
Income Taxes Payable .................................... 177 318
Deferred Taxes .......................................... (489) (65 )
Other Liabilities ....................................... 749
(202.....................................................)
Total Adjustments ...................................... 148
675....................................................... Net Cash
from Operating Activities................................. 3,171
3,264.....................................................
CASH FLOWS FROM INVESTING ACTIVITIES
Change in Interest-bearing Balances with Banks .......... 696 4,973
Proceeds from Maturities of Other Short-term Investments 46,632 18,552
Purchase of Other Short-term Investments ................ (40,549) (19,298 )
Proceeds from Maturities of Securities Available-for-Sale 3,553 7,239
Proceeds from Sales of Securities Available-for-Sale .... ----- 5,007
Purchase of Securities Available-for-Sale ............... (15,044) (396 )
Proceeds from Maturities of Securities Held-to-Maturity . 6,975 9,614
Proceeds from Sales of Securities Held-to-Maturity ...... ----- -----
Purchase of Securities Held-to-Maturity ................. (2,737) (10,721 )
Purchase of Loans ....................................... (3,509) (2,523 )
Proceeds from Sales of Loans ............................ 500 3,600
Loans Made to Customers net of Payments Received ........ (7,620) (15,851 )
Property and Equipment Expenditures ..................... (796) (432 )
Proceeds from Sales of Other Real Estate ................ 147
328....................................................... Net Cash
from Investing Activities................................. (11,752)
92........................................................
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits ...................................... 12,707 (10,232 )
Change in Short-term Borrowings ......................... (5,665) 1,402
Dividends Paid .......................................... (1,044) (919 )
Exercise of Stock Options .............................. 22 -----
Purchase and Retire Common Stock ....................... (110)
- - -----..................................................... Net Cash
from Financing Activities................................. 5,910
(9,749...................................................)
Net Change in Cash and Cash Equivalents................... (2,671) (6,393 )
Cash and Cash Equivalents at Beginning of Period ........ 22,286
19,400.................................................... Cash and
Cash Equivalents at End of Period......................... $19,615 $13,007
.......................................................
Cash Paid During the Period for:
Interest ................................................ $9,032 $6,985
Income Taxes ............................................ 1,371 1,485
See accompanying notes to consolidated financial statements
GERMAN AMERICAN BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
Note 1 -- Basis of Presentation
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with Generally Accepted Accounting Principles
have been condensed or omitted. All adjustments made by management to these
unaudited statements were of 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, 1994 Annual Report to shareholders.
German American Bancorp (the `Company'') is a multi-bank holding company
based in Jasper, Indiana. Its four affiliate banks conduct business in fifteen
offices in Dubois, Martin, Pike, Perry and Spencer Counties, Indiana.
On April 1, 1994, German American Bancorp acquired Otwell State Bank of
Otwell, Indiana in exchange for 113,286 shares of German American Bancorp Common
Stock. This transaction was accounted for utilizing the pooling of interests
method of accounting. Accordingly, the consolidated financial statements for
all periods presented were retroactively restated to include the assets,
liabilities, equity, revenues and expenses of Otwell on a combined basis with
the Company. Otwell State Bank and another affiliate, Southwestern Indiana,
were immediately merged into Community Trust Bank, a combined banking
institution operating in the Pike County, Indiana market through offices in
Otwell, Petersburg, and Winslow, Indiana.
On October 28, 1994, German American Bancorp acquired the branches of
Regional Federal Savings Bank in the towns of Huntingburg, Rockport and Tell
City, Indiana. This transaction, resulting in the acquisition of approximately
$25,000,000 in assets, was recorded utilizing the purchase method of accounting.
As a result of the Regional acquisition, German American Bancorp recorded
approximately $1,670,000 of intangible assets consisting of $1,353,000 of
goodwill and $317,000 of core deposit intangible. Intangible assets are being
amortized to expense on a straight line basis over a 15 year period in the case
of goodwill and 10 years on an accelerated basis for the core deposit
intangible. Following the Regional branch acquisition, the Huntingburg office
was combined into German American Bancorp's lead bank, The German American Bank.
The Tell City and Rockport offices were combined into German American Bancorp's
newly formed subsidiary bank, First State Bank, Southwest Indiana.
Note 2 -- Per Share Data
The weighted average number of shares used in calculating earnings and
dividends per share amounts were 1,739,169 and 1,738,876 for the third quarters
of 1995 and 1994, respectively. The weighted average number of shares for the
first nine months of 1995 and 1994 were 1,739,667 and 1,738,876, respectively.
Note 3 -- Securities
On January 1, 1994, the Company adopted Financial Accounting Standard No.
115 (FAS 115), `Accounting for Certain Investments in Debt and Equity
Securities.'' Upon adoption of FAS 115, securities were classified by
management as available-for-sale or held-to-maturity, as discussed below. This
classification resulted in the transfer of $32,732 in securities to available-
for-sale. The adoption of FAS 115 in 1994 had no effect on net income, earnings
per share or retained earnings, but did increase shareholders' equity by $274 on
January 1, 1994, which is a market adjustment of $454 less $180 in deferred
taxes. Prior to the adoption of FAS 115, investment securities were carried at
amortized cost, and securities held-for-sale were carried at the lower of cost
or fair market value.
Securities classified as available-for-sale are securities that the Company
intends to hold for an indefinite period of time, but not necessarily until
maturity, and includes securities that management might use as part of its
asset-liability strategy or that may be sold in response to changes in the
interest rates, changes in prepayment risk, or for similar reasons. Such
securities are classified at the time of purchase and are carried at market
value. It is difficult to predict whether changes such as the above will occur
or the degree or specific nature of such changes. The amount of securities
reported as available-for-sale include securities that might be sold if a
condition changes in a given way, whereas those securities might not be sold if
the condition does not change or if it changes in a different way. Accordingly,
many securities reported as available-for-sale may not be sold and thus the
amount reported does not necessarily represent anticipated sales and resulting
cash receipts. Securities available-for-sale are reported at fair market value
with unrealized gains or losses included as a separate component of equity, net
of tax.
Securities classified as held-to-maturity are securities that the Company
has both the ability and positive intent to hold to maturity. Securities held-
to-maturity are carried at amortized cost.
The cost of securities sold is computed on the identified securities
method. Premium amortization is deducted from and discount accretion is added
to interest income.
Note 4 -- Loans
Loans, as presented on the balance sheet, are comprised of the following
classifications:
September 30,
December 31,
1995 1994
(dollar references in
thousands)
Real Estate Loans Secured by 1-4 Family
Residential Properties.................................. $68,774 $67,737
Loans to Finance Poultry Production and
Other Related Operations................................ 25,525 25,599
Loans to Finance Agricultural Production
and Other Loans to Farmers.............................. 28,539 31,959
Commercial and Industrial Loans........................... 77,612 67,662
Loans to Individuals for Household,
Family and Other Personal Expenditures.................. 32,762 29,248
Economic Development Commission Bonds..................... 606 625
Lease Financing........................................... 1,420 1,820
Total Loans............................................. $235,238 $224,650
Note 5 -- Allowance for Loan Losses
A summary of the activity in the Allowance for Loan Losses is as follows:
1995
1994
(dollar references in
thousands)
Balance at January 1...................................... $5,669 $4,935
Provision for Loan Losses................................. 15 462
Recoveries of Prior Loan Losses........................... 430 155
Loan Losses Charged to Allowance.......................... (280)
(215.....................................................)
Balance at September 30................................... $5,834 $5,337
ITEM 2.
GERMAN AMERICAN BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section presents an analysis of the consolidated financial condition
of German American Bancorp (the `Company'') as of September 30, 1995 and
December 31, 1994 and the consolidated results of operations for the quarters
ended September 30, 1995 and 1994 and year-to-date September 30, 1995 and 1994.
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 and the Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report to shareholders and Annual Report on Form 10-K for the
year ended December 31, 1994.
As disclosed in Note 1, German American Bancorp acquired Otwell State Bank
of Otwell, Indiana on April 1, 1994 in exchange for 113,286 shares of German
American Bancorp Common Stock. This transaction was accounted for utilizing the
pooling of interests method of accounting. Accordingly, the consolidated
financial statements for all periods presented were retroactively restated to
include the assets, liabilities, equity, revenues and expenses of Otwell on a
combined basis with the Company. Otwell and another affiliate, Southwestern
Indiana, were then immediately merged into Community Trust Bank, a combined
banking institution operating in the Pike County, Indiana market through offices
in Otwell, Petersburg and Winslow, Indiana.
Also as disclosed in Note 1, on October 28, 1994, German American Bancorp
acquired the branches of Regional Federal Savings in Huntingburg, Rockport and
Tell City, Indiana. This transaction, resulting in the acquisition of
approximately $25,000,000 in assets, was recorded utilizing the purchase method
of accounting. As a result of the Regional acquisition, German American Bancorp
recorded approximately $1,670,000 of intangible assets consisting of $1,353,000
of goodwill and $317,000 of core deposit intangible. Intangible assets are
being amortized to expense on a straight line basis over a 15 year period in the
case of goodwill and 10 years on an accelerated basis for the core deposit
intangible. Following the Regional branch acquisition, the Huntingburg office
was combined into German American Bancorp's lead bank, The German American Bank.
The Tell City and Rockport offices were combined into German American Bancorp's
newly formed subsidiary bank, First State Bank, Southwest Indiana.
RESULTS OF OPERATIONS
Net Income: Earnings for the third quarter of 1995 were $1,160,000 or $.67
per share as compared to $994,000 or $.57 per share for the same period a year
earlier. Net income for the first nine months of 1995 was $3,023,000 or $1.74
per share, which was $434,000 or 16.8 percent greater than the $2,589,000 or
$1.49 per share recorded during the same period in 1994. The earnings gains
for both three month and the nine month periods reflect the after-tax impact of
improved net interest income combined with a significant reduction in FDIC
insurance premiums as well as a materially lower provision for loan loss.
Partially offsetting these factors was an increase in operating expenses largely
associated with the Company's newest affiliate, First State Bank, Southwest
Indiana.
Net Interest Income: Net interest income is the Company's largest component of
income and represents the difference between interest and fees earned on loans
and investments and the interest paid on interest-bearing liabilities. In this
discussion net interest income is presented on a `tax-equivalent'' basis
whereby tax exempt income, such as interest on non-taxable securities of state
and political subdivisions, has been increased to the amount that would have
been earned on a comparable taxable basis. This adjustment places taxable and
non-taxable income on a common basis and allows an accurate comparison of rates
and yields.
The following table summarizes German American Bancorp's net interest
income (on a tax-equivalent basis) for each of the periods presented herein. An
effective tax rate of 34 percent is used on each period presented.
Nine Months Change From
Ended September 30, Prior Period
1995 1994 Amount
Percent
Interest Income......................... $ 20,739 $16,529 $ 4,210 25.5%
Interest Expense........................ 9,394 6,928 2,466 35.6%
Net Interest Income................ $ 11,345$ 9,601 $ 1,744 18.2%
Nine Months Change From
Ended September 30, Prior
Period
1995 1994 Amount
Percent
Interest Income......................... $ 7,126 $ 5,622 $ 1,504 26.8%
Interest Expense........................ 3,313 2,347 966 41.2%
Net Interest Income................ $ 3,813 $ 3,275 $ 538 16.4%
For the first nine months of 1995, the tax-equivalent net interest income of
$11,345,000 exceeded the 1994 amount by $1,744,000 or 18.2%. Operating results
for 1994 do not include First State Bank prior to its October 28, 1994 purchase
date. First State Bank's net interest income for 1995 was $659,000 or 37.8% of
the 1995 increase.
For the third quarter of 1995, tax-equivalent net interest income of
$3,813,000 increased by $538,000 or 16.4% from the 1994 level. First State Bank
contributed $223,000 or 41.4% of this increase.
The annualized tax-equivalent net interest margin for the first three
quarters of 1995 was 4.61% versus 4.30% for 1994. This increase occurred as a
result of the impact of increases in average yields on loans and short-term
investments which react more quickly to a rise in general short-term interest
rates than the average rate paid on interest-bearing liabilities. The higher
level in short-term interest rates which occurred throughout most of 1995,
therefore, resulted in a corresponding increase in both net interest income and
net interest margin.
Provision for Loan Losses:
The provision for loan losses is a charge against current income which
provides a reserve (the allowance for loan losses) to which future loan losses
are charged as those losses become identifiable. The adequacy of the allowance
for loan losses is reviewed and evaluated quarterly by Senior Management.
During the third quarter of 1995 it became evident that a single credit
which was previously charged-off in the amount of $326,000 had returned to
performing status. Accordingly, the full amount of this credit was recognized
as a recovery of prior loan losses, resulting in a negative charge to the
provision for loan loss for the third quarter of 1995. This action was taken in
light of Management's evaluation of the adequacy of allowance for loan losses.
As a result of this action, the provision for loan losses for the first nine
months of 1995 was only $15,000 versus $462,000 for the same period of 1994.
Net recoveries were $150,000 or .07 percent of average loans for the first
nine months of 1995. For the same period of 1994, net charge-offs were $60,000.
Underperforming loans, as a percentage of total loans, were .51 and .71 percent
on September 30, 1995 and December 31, 1994, respectively.
Noninterest Income:
Operating noninterest income, exclusive of gains realized from asset sales,
for the first nine months of 1995 was $1,086,000. This was a $68,000 or 5.9%
decrease from the $1,154,000 of operating noninterest income posted for the same
period of 1994. This decrease was primarily a result of a $173,000 decline in
investment services income. Other charges, commissions and fees for the first
nine months of 1995 rose $56,000 or 20.2% from the $277,000 posted for the same
period of 1994. First State Bank accounted for much of these increases.
Third quarter operating noninterest income, exclusive of asset gains,
decreased by $42,000 in 1995 primarily as a result of a $35,000 decline in
investment services income.
The Company had no security gains during 1995. The 1994 level of security
gains resulted primarily from securities called by the issuers due to the
historically low interest rate environment. The gains on sales of loans and
other real estate were attributable mainly to German American Bank's sale of a
portion of excess real estate adjacent to one of its branch facilities.
Noninterest Expense:
Total noninterest expense for the first three quarters of 1995 was
$7,363,000 which translates to a $1,136,000 or 18.2% increase over the
$6,227,000 posted for the same period in 1994. First State Bank's total
noninterest expense for 1995 was $725,000, or 63.8 percent of the increase. In
the absence of First State, total noninterest expenses would have risen 6.6
percent.
The largest single component of noninterest expense, salaries and employee
benefits, represents 53.8% of total noninterest expenses for 1995. This expense
category was $3,963,000 during the first nine months of 1995, an increase of
$664,000 or 20.1% from the 1994 level of $3,299,000. Occupancy expense
including furniture and equipment expense, for the first nine months of 1995
totaled $1,147,000, increasing by $202,000 or 21.4% from the $945,000 recorded
for the first three quarters of 1994. Again, the opening of First State Bank
accounted for much of these increases.
Goodwill and Core Deposit Intangible Amortization expense, which is
reflected in Other Operating Expense on the income statement, was $109,000
greater during the first nine months of 1995, as compared to the same period of
the prior year. The difference was again as a result of the Regional branch
purchases.
The Federal Deposit Insurance Corporation (FDIC) assessment declined by
$126,000 in 1995 from $477,000 in 1994 to $351,000 in 1995. This reduction was
achieved in connection with the lowering of the assessment rate on insured
deposits covered in the Bank Insurance Fund (BIF) which resulted in a decline in
third quarter premium assessment and a refund of a portion of the previously
expensed second quarter premium. The BIF premium dropped from 23 cents per
$100.00 of insured deposits to four cents per $100.00 of insured deposits on
approximately 91 percent of the Company's deposits. The remaining nine percent
of deposits are connected to the Company's purchase of former deposits of
Regional Federal Savings Bank, which are insured under a separate fund of the
FDIC called Savings Association Insurance Fund (SAIF). The lowering of SAIF
premium rates as occurred in the BIF fund is unlikely.
Total noninterest expense for the third quarter of 1995 was $2,418,000
which represents a $310,000 or 14.7% increase over the $2,108,000 posted for the
same period in 1994. First State Bank's total noninterest expense for the third
quarter of 1995 was $235,000, or 75.8% of the increase. In the absence of First
State, total noninterest expenses would have risen 3.6%.
Salaries and employee benefits were $1,350,000 during the third quarter of
1995, an increase of $208,000 or 18.2% from the 1994 level of $1,142,000.
Occupancy expense including furniture and equipment expense, for the third
quarter of 1995 totaled $394,000, increasing by $66,000 or 20.1% from the
$328,000 recorded for the same period of 1994. Again, the opening of First
State Bank accounted for much of these increases.
FINANCIAL CONDITION
As of September 30, 1995, total assets increased to $357,361,000 compared
to $346,526,000 at December 31, 1994. Deposits rose $12,707,000 in 1995 over
that of year-end 1994. Total loans rose by $10,588,000 or 4.7% from the year-
end mark of $224,650,000.
The following analyzes German American Bancorp's underperforming assets at
September 30, 1995 and December 31, 1994.
September 30,
December 31, 1995
1994
(dollar references in
thousands)
Loans which are contractually
past due 90 days or more........................ $663 $601
Nonaccrual Loans..................................... 526 983
Renegotiated Loans................................... ------ ------
Total Underperforming Loans..................... 1,189 1,584
Other Real Estate.................................... 498 497
Total Underperforming Assets.................... $ 1,687 $ 2,081
Underperforming loans at September 30, 1995 were 24.9% less than the
$1,584,000 of underperforming loans at December 31, 1994. This decline is
attributable to the overall improvement of the loan portfolio and to the
reduction in the balance of an individual credit in the nonaccrual category.
Stated as a percentage of total loans, underperforming loans were .51% and .71%
for September 30, 1995 and December 31, 1994, respectively. The allowance for
loan loss stated as a percentage of underperforming loans equaled 490.7% and
357.9% for the same two dates respectively.
The overall loan portfolio is diversified among a variety of individual
borrowers, with a substantial portion of debtors' ability to honor their
contracts dependent on the agricultural, poultry and wood manufacturing
industries. Although wood manufacturers employ a significant number of people
in the Company's market area, the Company does not have a concentration of
credit to companies engaged in that industry.
Capital Resources:
Capital ratios are used by bank regulators and throughout the industry as a
measure of an institution's financial strength. The Federal Reserve imposes
capital leverage guidelines. The minimum guideline is a 3.0% leverage ratio,
defined as core capital (shareholders' equity, qualifying perpetual preferred
stock, and minority interest in the equity accounts of consolidated
subsidiaries) less goodwill, divided by total assets. The Company had a 9.13%
leverage ratio at September 30, 1995. The minimum total capital to risk-
weighted assets ratio is eight percent. The Company had a tier one capital to
risk-weighted assets ratio of 14.01% and a 15.26% total capital to risk-weighted
asset ratio at September 30, 1995.
At September 30, 1995, management is not 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.
LIQUIDITY
A review of the Consolidated Statement of Cash Flows presented in another
section of this report analyzes the elements of change in the Company's cash and
cash equivalents. During the first three quarters of 1995, the major sources of
cash provided were net income of $3,023,000, an increase of $12,707,000 in the
level of deposits and a $6,779,000 decrease in the level of Short-term
Investments. A less significant source came in the form of $148,000 from
various operating activities all of which yielded a total cash inflow of
$22,657,000.
Major cash outflows during the first nine months of 1995 consisted of
$10,629,000 of loan extensions exceeding customer repayments and $7,253,000 of
security purchases exceeding security maturities. Short-term borrowings
declined by $5,665,000. Other cash flows such as dividends to shareholders and
fixed asset purchases utilized an additional $1,781,000 of cash for a total cash
outlay $25,328,000. As a net result of this activity, cash and cash equivalents
declined by $2,671,000 during 1995.
PART II. OTHER INFORMATION
Item 5. Other Information
The Board of Directors of German American Bancorp has authorized the
officers of the Company to purchase shares of the Company's common stock from
time to time for the purpose of funding the Company's obligation to deliver
shares to person's holding options under the Company's 1992 Stock Option Plan.
During the nine months ended September 30, 1995, the Company has acquired an
aggregate of 3,600 shares pursuant to this authorization for an aggregate
purchase price of $110,700.00. At September 30, 1995, options to purchase an
aggregate of 21,913 shares had been granted and had not yet been exercised. An
aggregate of 3,587 shares, net of shares surrendered by persons exercising
options as payment for exercise price, have been issued upon exercise of options
granted under the 1992 Stock Option Plan since its inception.
The Board of Directors of the Company in October 1995 declared a 5 percent
stock dividend to shareholders of record of the Company as of November 24, 1995,
payable on or by December 22, 1995. In a News Release dated October 13, 1995,
George Astrike, Chairman of German American Bancorp, stated `the institution of
a systematic stock dividend plan represents the latest in a series of
initiatives undertaken during the past several years designed to enhance the
liquidity of our Company's stock. It is our intention to maintain, following
the stock dividend, the current quarterly cash dividend payout of $.20 per share
which will effectively result in a 5 percent increase in cash dividends received
by current shareholders.'' The October 13, 1995, News Release further stated
that the Company's Board of Directors presently intends to consider declaring
and issuing a stock dividend of 5 percent on an annual basis.
Effective November 16, 1995, the Company's registrar and transfer agent for
its common stock will be changed to Fifth Third Bank, Cincinnati, Ohio.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
10.1 Incentive Stock Option Agreement executed July 10, 1995
between the Registrant and Mark A. Schroeder (1,000 shares).
10.2 Schedule of Incentive Stock Option Agreements between the
Registrant and its executive officers dated July 10, 1995.
27 Financial Data Schedule for the period ended September 30, 1995.
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the quarter
ended September 30, 1995.
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 By/S/George W. Astrike
---------------------
George W. Astrike
Chairman
Date By/S/John M. Gutgsell
---------------------
John M. Gutgsell
Controller and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 11,665
<INT-BEARING-DEPOSITS> 496
<FED-FUNDS-SOLD> 7,950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,541
<INVESTMENTS-CARRYING> 47,039
<INVESTMENTS-MARKET> 48,240
<LOANS> 234,622
<ALLOWANCE> 5,834
<TOTAL-ASSETS> 357,361
<DEPOSITS> 314,997
<SHORT-TERM> 3,504
<LIABILITIES-OTHER> 3,430
<LONG-TERM> 0
<COMMON> 17,389
0
0
<OTHER-SE> 18,041
<TOTAL-LIABILITIES-AND-EQUITY> 357,361
<INTEREST-LOAN> 15,680
<INTEREST-INVEST> 3,323
<INTEREST-OTHER> 1,145
<INTEREST-TOTAL> 20,148
<INTEREST-DEPOSIT> 9,226
<INTEREST-EXPENSE> 9,394
<INTEREST-INCOME-NET> 10,754
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,363
<INCOME-PRETAX> 4,483
<INCOME-PRE-EXTRAORDINARY> 4,483
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,023
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.74
<YIELD-ACTUAL> 4.37
<LOANS-NON> 526
<LOANS-PAST> 663
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,756
<ALLOWANCE-OPEN> 5,669
<CHARGE-OFFS> 280
<RECOVERIES> 430
<ALLOWANCE-CLOSE> 5,834
<ALLOWANCE-DOMESTIC> 5,834
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 10.1
GERMAN AMERICAN BANCORP
711 Main Street
P.O. Box 810
Jasper, Indiana 47547-0810
(812) 482-1314
Fax (812) 482-0758
HAND DELIVERY
July 10, 1995
Mr. Mark A. Schroeder
German American Bancorp
711 Main Street
P O Box 810
Jasper, IN 47547-0810
RE: Incentive Stock Option Agreement
Dear Mr. Schroeder:
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 option 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: 1000 shares, subject to adjustment as provided in the
Plan.
2.Exercise Price: $31.20 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.
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 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.
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,
The German American 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 10th day of July, 1995.
By/s/ Mark A. Schroeder
EXHIBIT 10.2
GERMAN AMERICAN BANCORP
Schedule of Incentive Stock Option Agreements between the Registrant and
its executive officers dated July 10, 1995.
Exercise Price
Executive Officer Number of Shares Granted Per Share
George W. Astrike 1,887 $31.20
Mark A. Schroeder 1,000 $31.20
Urban Giesler 300 $31.20
James E. Essany 144 $31.20
Total 3,331
The above options were granted on the same form of agreement as the
