<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended: December 31, 1996
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 (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
711 Main Street, Box 810, Jasper, Indiana 47546
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including area code: (812) 482-1314
Securities registered pursuant to Section 12 (b) of
the Act:
Title of each class Name of each exchange on which
registered
NONE Not Applicable
Securities registered pursuant to Section 12 (g) of
the Act:
Common Shares, $10.00 Par Value
(Title of Class)
Indicate by check mark 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
<PAGE>
<PAGE> 2
The aggregate market value of the voting stock held by
nonaffiliates of the Registrant (assuming solely for
purposes of this calculation that all directors and
executive officers of the Registrant are affiliates)
valued at the last trade price reported by NASDAQ as of
March 7, 1997 was approximately $75,922,000.
As of March 7, 1997, there were outstanding 2,541,552
common shares, $10.00 par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Shareholders
of German American Bancorp for 1996, to the extent
stated herein, are incorporated by reference into Parts
I and II.
(2) Portions of the Proxy Statement of German
American Bancorp for the Annual Meeting of its
Shareholders to be held April 24, 1997, to the extent
stated herein, are incorporated by reference into Part
III.
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (section
229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's
knowledge, in definitive proxy or information
statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. |X|
<PAGE>
<PAGE> 3
PART I
Item 1. Business
General
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, as of March
7, 1997, 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 Community Trust Bank, Otwell,
Indiana ("Community Bank") and The Peoples National
Bank and Trust Company of Washington, Washington,
Indiana ("Peoples"). The Company, through its four
bank subsidiaries (sometimes referred to herein as the
"Banks"), operated as of March 7, 1997, twenty (20)
banking offices in six contiguous counties in
southwestern Indiana and had total consolidated assets
on a pro forma basis (giving effect to the Peoples
acquisition) at year-end 1996 of approximately
$489,000,000.
German American Bank was organized under the law of
Indiana in 1910. At December 31, 1996, German American
Bank was the second largest of the six commercial banks
with offices in Dubois County, Indiana, in terms of
total assets and total deposits. German American Bank
conducts its banking operations from its principal
banking office in Jasper, Indiana, and from seven
branch office locations throughout Dubois County.
Peoples, organized under the National Bank Act in
1888, was acquired by the Company on March 4, 1997
pursuant to a merger of the parent corporation of
Peoples into GAHC. Simultaneously with and as an
integral part of this merger, The Union Bank of
Loogootee, Indiana, a subsidiary of the Company, was
merged with and into Peoples. On a combined basis,
Peoples and Union at December 31, 1996 ranked second in
asset size among the six commercial banks and thrifts
headquartered in Martin and Daviess Counties, Indiana.
The Union Bank had been acquired by the Registrant on
March 8, 1993.
<PAGE>
<PAGE> 4
On April 1, 1993, the Registrant purchased all the
shares of Winslow Bancorporation, Winslow, Indiana,
(which was in 1996 renamed German American Holdings
Corporation), and its subsidiary Southwestern Indiana
Bank in a cash transaction. On April 1, 1994, the
Registrant issued 113,286 shares in exchange for all
the outstanding shares of The Otwell State Bank.
Following the completion of this transaction, Otwell
and Southwestern were merged into Community Trust Bank,
a combined banking institution operating in the Pike
County, Indiana market through three offices.
On October 28, 1994, the Registrant acquired three
branches of Regional Federal Savings Bank of New
Albany, Indiana. The Huntingburg, Indiana branch was
combined with an existing branch of the Registrant's
lead bank, German American Bank. The other two former
branches in Tell City and Rockport, Indiana were
acquired by a new subsidiary bank of the Registrant
named First State Bank, Southwest, Indiana.
Each of the Company's subsidiary banks engages in a
wide range of commercial and personal banking services,
and German American Bank and Peoples provide a wide
range of personal and corporate trust-related services.
In addition, several of the Company's subsidiary banks
share investment services income through an operating
agreement with Invest Financial Corporation, a
subsidiary of First American Corporation, which
provides full-service brokerage operations at German
American Bank's principal banking office and other
affiliate banking offices.
The Company and its subsidiary banks operate
primarily in the banking industry, which accounts for
over ninety percent (90%) of the Company's consolidated
revenues, operating income and identifiable assets.
Through its banking subsidiaries, the Company generates
commercial, installment and mortgage loans and receives
deposits from customers located primarily in the local
market area. The overall loan portfolio is diversified
among a variety of individual borrowers; however, a
significant portion of such debtors depend upon the
agriculture, poultry and wood furniture manufacturing
industries for employment. 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. The
majority of the Company's loans are secured by specific
items of collateral including business assets, consumer
assets and real property.
<PAGE>
<PAGE> 5
Additional information regarding the Company and its
subsidiaries is included in the Company's Annual Report
to Shareholders for 1996, selected portions of which
are filed as Exhibit 13 to this Annual Report on Form
10-K (the "Shareholders' Report") and are incorporated
herein by reference.
Competition
The banking business is highly competitive. The
Company's subsidiary banks compete not only with
financial institutions that have offices in the same
counties but also compete with financial institutions
that are located in other neighboring areas in
obtaining deposits, making loans and providing many
other types of financial services. The banking market
in which the Company's banking subsidiaries operate is
heavily influenced by larger financial institutions
located in Evansville and Indianapolis, Indiana,
Louisville, Kentucky and other cities. In addition to
other commercial banks, the Company's subsidiary banks
compete with savings and loan associations, savings
banks, credit unions, production credit associations,
federal land banks, finance companies, credit card
companies, personal loan companies, money market funds,
mortgage companies and other non-depository financial
intermediaries.
Recent changes in federal and state law have
resulted in and are expected to continue to result in
increased competition. The reductions in legal
barriers to the acquisition of banks by out-of-state
bank holding companies resulting from implementation of
the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 and other recent and proposed
changes are expected to continue to further stimulate
competition in the markets in which the Banks operate,
although it is not possible to predict the extent or
timing of such increased competition.
Employees
At January 31, 1997 the Company and its subsidiaries
employed approximately 174 employees. There are no
collective bargaining agreements, and employee
relations are considered to be good.
<PAGE>
<PAGE> 6
Regulation and Supervision
The Company is subject to the Bank Holding Company
Act of 1956, as amended ("BHC Act"), and is required to
file with the Board of Governors of the Federal Reserve
System ("FRB") annual reports and such additional
information as the FRB may require. The FRB may also
make examinations or inspections of the Company.
The BHC Act prohibits a bank holding company from
engaging in, or acquiring direct or indirect control of
more than 5 percent of the voting shares of any company
engaged in nonbanking activities. One of the principal
exceptions to this prohibition is for activities deemed
by the FRB to be "closely related to banking." Under
current regulations, bank holding companies and their
subsidiaries are permitted to engage in such banking-
related business ventures as sales and consumer
finance, equipment leasing, computer service bureau and
software operations, and mortgage banking.
The BHC Act and Indiana law restrict banking
expansion by banks and bank holding companies. Under
current Indiana law, Indiana banks may establish an
unlimited number of branches anywhere within the State
of Indiana. A holding company may establish non-
banking offices without geographical limitation.
Under the BHC Act, the Company must receive the
prior written approval of the FRB or its delegate
before it may acquire ownership or control of more than
5 percent of the voting shares of another bank, and
under Indiana law it may not acquire 25 percent or more
of the voting shares of another bank without the prior
approval of the Indiana Department of Financial
Institutions ("DFI"). The Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") provides for nationwide interstate
banking and branching. Since September 30, 1995, well-
capitalized bank holding companies have been
authorized, pursuant to the legislation, to acquire
banks and bank holding companies in any state. The
Interstate Act also permits banks to merge across state
lines, thereby creating a main bank in one state with
branches in other sates. Interstate branching-by-
merger provisions will become effective on June 1,
1997, unless a state takes legislative action prior to
<PAGE>
<PAGE> 7
that date. States may pass laws to either "opt in"
before June 1, 1997 or to "opt-out" by expressly
prohibiting merger transactions involving out-of-state
banks, providing the legislative action is taken before
June 1, 1997. Effective March 14, 1996, Indiana "opted
in" to interstate branching provisions of the
Interstate Act.
The Company's subsidiary banks are under the
supervision of and subject to examination by both the
DFI and the Federal Deposit Insurance Corporation
("FDIC"). Regulation and examination by banking
regulatory agencies are primarily for the benefit of
depositors rather than shareholders.
The earnings of commercial banks and their holding
companies are affected not only by general economic
conditions but also by the policies of various
governmental regulatory authorities. In particular,
the FRB regulates money and credit conditions and
interest rates in order to influence general economic
conditions, primarily through open-market operations in
U.S. Government securities, varying the discount rate
on bank borrowings, and setting reserve requirements
against bank deposits. These policies have a
significant influence on overall growth and
distribution of bank loans, investments and deposits,
and affect interest rates charged on loans and earned
on investments or paid for time and savings deposits.
FRB monetary policies have had a significant effect on
the operating results of commercial banks in the past
and this is expected to continue in the future. The
general effect, if any, of such policies upon the
future business and earnings of the Company cannot
accurately be predicted.
The Company is required by the FRB and the FDIC to
maintain minimum levels of capital. These required
capital levels are expressed in terms of capital
ratios, known as the leverage ratio and the capital to
risk-based assets ratios. The Company significantly
exceeds the minimum required capital levels for each
measure of capital adequacy. See "Management's
Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Resources," included
in the Shareholders' Report.
<PAGE>
<PAGE> 8
Also, FDIC regulations define five categories of
financial institutions for purposes of implementing
prompt corrective action and supervisory enforcement
requirements of the Federal Deposit Insurance
Corporation Improvements Act of 1991. The category to
which the most highly capitalized institutions are
assigned is termed "Well Capitalized." Institutions
falling into this category must have a total risk-based
capital ratio (the ratio of total capital to risk-
weighted assets) of at least 10%, a Tier 1 risk-based
capital ratio (the ratio of Tier 1, or "core", capital
to risk-weighted assets) of at least 6%, a leverage
ratio (the ratio of Tier 1 capital to total assets) of
at least 5%, and must not be subject to any written
agreement, order or directive from its regulator
relative to meeting and maintaining a specific capital
level. On December 31, 1996, the Company had a total
risk-based capital ratio of 15.70%, a Tier 1 risk-based
capital ratio of 14.44% (based on Tier 1 capital of
$36,842,000 and total risk-weighted assets of
$255,141,000), and a leverage ratio of 9.56%. The
Company meets all of the requirements of the "Well
Capitalized" category and, accordingly, the Company
does not expect these regulations to significantly
impact operations.
Statistical Disclosures
The following statistical data should be read in
conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations (Item
7), Selected Financial Data (Item 6), and the financial
statements and notes (Item 8) included elsewhere herein
through incorporation by reference to the indicated
pages of the Shareholders' Report.
<PAGE>
<PAGE> 9
Securities (in thousands)
The following tables set forth the amortized cost of
Securities at the dates indicated:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
U.S. Treasury and other
U.S. Government Agencies
and Corporations . . . . . . . . . . . . . --- ---- $17,249
State and Political Subdivisions. . . . . . . $14,653 $9,869 21,237
Mortgage-backed Securities. . . . . . . . . . --- ---- 11,267
Corporate Securities. . . . . . . . . . . . . --- ---- 803
Other Securities. . . . . . . . . . . . . . . 1,014 738 717
_____ _____ _____
Subtotal of Securities
Held-to-Maturity . . . . . . . . . . . $15,667 $10,607 $51,273
======= ======= =======
U.S. Treasury and other U.S.
Government Agencies
and Corporations . . . . . . . . . . . . . $39,182 $23,727 $7,280
State and Political Subdivisions. . . . . . . 17,356 14,232 56
Mortgage-backed Securities. . . . . . . . . . 21,006 33,144 15,584
Corporate Securities. . . . . . . . . . . . . 7,221 6,375 212
----- ----- -----
Subtotal of Securities
Available-for-Sale . . . . . . . . . . 84,765 77,478 23,132
------ ------ ------
Total Securities . . . . . . . . . . . $100,432 $88,085 $74,405
======== ======= =======
</TABLE>
<PAGE>
<PAGE> 10
The following table sets forth the contractual maturities
of securities at December 31, 1996 and the weighted
average yields of such securities (calculated on the
basis of the cost and effective yields weighted for the
maturity of each security.) Contractual maturities may
differ from actual due to rights to prepay or call.
Other securities totaling $1,014 are comprised of
restricted stock which do not have contractual maturities
and are excluded from the table below.
<TABLE>
<CAPTION>
Maturing
Within After One But After Five But After Ten
One Year Within Five Years Within Ten Years Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
other Government
Agencies and
Corporations . . . $1,700 4.29% $29,484 6.33% $7,998 7.08% --- ---
State and Political
Subdivisions . . . 2,090 7.85% 7,749 9.28% 5,119 10.20% $17,051 9.42%
Mortgage-backed
Securities . . . . 264 5.95% 4,025 5.98% 5,924 5.71% 10,793 5.90%
Corporate Securities. --- --- 3,429 6.41% 2,646 6.37% 1,146 7.29%
_____ _____ _____ _____ _____ _____ ______ _____
Totals. . . . . $4,054 6.23% $44,687 6.82% $21,687 7.36% $28,990 8.03%
====== ===== ======= ===== =======
</TABLE>
A tax-equivalent adjustment using a tax rate of 34
percent was used in the above table.
<PAGE>
<PAGE> 11
The following table sets forth for the periods
indicated a summary of the changes in interest earned
and interest paid resulting from changes in volume and
changes in rates:
<TABLE>
<CAPTION>
(dollar references in thousands)
1996 compared to 1995 1995 compared to 1994
Increase / (Decrease) Due to (1) Increase / (Decrease) Due to (1)
Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Federal Funds Sold. . . . . . . . $(96) $(64) $(160) $83 $276 $359
Short-term Investments. . . . . . (504) (61) (565) 308 95 403
Taxable Securities. . . . . . . . 564 154 718 88 291 379
Nontaxable Securities (2) . . . . 641 (230) 411 379 (40) 339
Loans and Leases (3). . . . . . .1,131 (362) 769 1,372 2,529 3,901
----- ----- ----- ----- ----- -----
Total Interest Income . . . . . . .1,736 (563) 1,173 2,230 3,151 5,381
----- ----- ----- ----- ----- -----
Interest Paid:
Savings . . . . . . . . . . . . . 147 62 209 77 290 367
Time Deposits . . . . . . . . . . 465 287 752 1,291 1,581 2,872
Federal Funds Purchased
and Securities Sold
Under Agreements to
Repurchase. . . . . . . . . . (57) --- (57) (99) 66 (33)
Demand Notes Issued to
the U.S. Treasury . . . . . . (18) (6) (24) 12 19 31
Notes Payable . . . . . . . . . . (52) --- (52) 53 --- 53
---- --- ---- ---- --- ----
Total Interest Expense. . . . . . . 485 343 828 1,334 1,956 3,290
---- -- --- ----- ----- -----
Net Interest Earnings . . . . . . .$1,251 $(906) $345 $896 $1,195 $2,091
====== ====== ==== ==== ====== ======
</TABLE>
(1) The change in interest due to both rate and volume
has been allocated to volume and rate changes in
proportion to the relationship of the absolute dollar
amounts of the change in each.
(2) Change in interest income include the effect of
tax equivalent adjustments using a tax rate of 34
percent for all years presented.
(3) Interest income on loans includes loan fees of
$326, $254, and $253 for 1996, 1995, and 1994,
respectively.
<PAGE>
<PAGE> 12
The following is a schedule of loans by major
category for each reported period:
<TABLE>
<CAPTION>
December 31,
(dollar references in thousands)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Real Estate Loans Secured
by 1-4 Family Residential
Properties. . . . . . . . . . . . . $74,818 $68,826 $67,737 $55,225 $47,170
Loans to Finance Poultry
Production and Other Related
Operations. . . . . . . . . . . . . 16,266 23,784 25,599 30,505 30,621
Loans to Finance Agricultural
Production and Other Loans
to Farmers. . . . . . . . . . . . . 30,453 27,310 31,959 24,806 23,844
Commercial and Industrial
Loans . . . . . . . . . . . . . . . 83,491 74,612 67,662 62,321 61,189
Loans to Individuals for
Household, Family and Other
Personal Expenditures . . . . . . . 41,741 34,685 29,248 26,684 24,183
Economic Development
Commission Bonds. . . . . . . . . . 575 608 625 762 1,547
Lease Financings . . . . . . . . . . 580 1,302 1,820 2,323 2,666
------ ------ ------ ------ ------
Total Loans . . . . . . . . . . . . $247,924 $231,127 $224,650 $202,626 $191,220
======== ======== ======== ========= ========
</TABLE>
The following table indicates the amounts of loans
(excluding residential mortgages on 1-4 family
residences, installment loans and lease financing)
outstanding as of December 31, 1996 which, based on
remaining scheduled repayments of principal, are due in
the periods indicated.
<TABLE>
<CAPTION>
Maturing
(dollar references in thousands)
Within After One After
One But Within Five
Year Five Years Years Total
------ ---------- ----- -----
<S> <C> <C> <C> <C>
Commercial, Financial,
Agricultural, and Poultry . . . . . $51,371 $46,659 $32,755 $130,785
Interest Sensitivity
Fixed Variable
Rate Rate
Loans maturing after
one year . . . . . . . . . . . . . . $13,323 $66,091
</TABLE>
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<PAGE> 13
The Provision for Loan Losses provides a reserve (the
Allowance for Loan Losses) to which loan losses are
charged as those losses become identifiable. Management
determines the appropriate level of the Allowance for
Loan Losses on a quarterly basis through an independent
review by the Bank's credit review section done by
employees who have no direct lending responsibilities.
Through this review, all commercial loans with
outstanding balances in excess of $25,000 are analyzed
with particular attention paid to those loans which are
considered by management to have an above-average level
of risk. This analysis is evaluated by Senior Management
and serves as the basis for determining the adequacy of
the Allowance for Loan Losses. Through this review
process a specific portion of the reserve is allocated to
impaired loans and to those loans which are considered to
represent significant exposure to risk, and estimated
potential losses are provided based on historic loan loss
experience for consumer loans, residential mortgage
loans, and commercial loans not specifically reviewed.
In addition, a balance of the reserve is unallocated to
provide an allowance for risk, such as concentrations of
credit to specific industry groups, which are difficult
to quantify in an absolute dollar amount.
The following table presents information concerning the
aggregate amount of underperforming assets.
Underperforming loans comprise: (a) loans accounted for
on a nonaccrual basis ("nonaccrual loans"); (b) loans
contractually past due 90 days or more as to interest or
principal payments (but not included in the loans in (a)
above) ("past due loans"); and (c) loans not included
above which are "troubled debt restructuring" as defined
in Statement of Financial Standards No. 15 "FASB 15",
"Accounting by Debtors and Creditors for Troubled Debt
Restructurings" ("restructured loans").
<TABLE>
<CAPTION>
December 31,
(dollar references in thousands)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C>
Nonaccrual Loans. . . . . . . . . . . . . $1,112 $803 $983 $1,395 $1,693
Past Due Loans. . . . . . . . . . . . . . 1,098 2,683 601 461 665
Restructured Loans. . . . . . . . . . . . --- --- --- --- 6
----- ----- ---- ----- -----
Total Underperforming
Loans. . . . . . . . . . . . . . . . . 2,210 3,486 1,584 1,856 2,364
Other Real Estate . . . . . . . . . . . . 203 286 497 698 660
----- ----- ----- ----- -----
Total Underperforming
Assets . . . . . . . . . . . . . . . . $2,413 $3,772 $2,081 $2,554 $3,024
====== ====== ====== ====== ======
/TABLE
<PAGE>
<PAGE> 14
Loans are placed on nonaccrual status when scheduled
principal or interest payments are past due for 90 days
or more, unless the loan is well secured and in the
process of collection. The gross interest income that
would have been recognized in 1996 on underperforming
loans if the loans had been current in accordance with
their original terms is $224. Interest income recognized
on underperforming loans for 1996 was $127.
Statements of Financial Accounting Standards No. 114
and No. 118 were adopted January 1, 1995. These
standards require recognition of loan impairment if a
loan's full principal or interest payments are not
expected to be received. Loans considered to be impaired
are reduced to the present value of expected future cash
flows or to the fair value of collateral, by allocating
a portion of the allowance for loan losses to such loans.
No increase to the allowance for loan losses was required
at January 1, 1995 as a result of the adoption of these
new standards. The total dollar amount of impaired loans
at December 31, 1996 was $3,472,000. For additional
detail on impaired loans, see Note 3 of the consolidated
financial statements included in the Shareholders' Report
(Exhibit 13.4).
At December 31, 1996, the Company had a total of
$8,758,000 of loans on its commercial loan watch list.
Loans may be placed on the watch list as a result of
delinquent status, concern about the borrower's financial
condition or the value of the collateral securing the
loan, substandard classification during regulatory
examinations or simply as a result of management's desire
to monitor more closely a borrower's financial condition
and performance.
It is management's belief that loans classified for
regulatory purposes as loss, doubtful, substandard, or
special mention that are not included in the table and
discussion above, do not represent or result from trends
or uncertainties which will have a material impact on
future operating results, liquidity or capital resources.
At December 31, 1996 there were no material credits not
already disclosed as underperforming, impaired and as
watch list about which management is aware of possible
credit problems of borrowers which causes management to
have serious doubts as to the ability of such borrowers
to comply with the loan repayment terms. This paragraph
<PAGE>
<PAGE> 15
includes forward-looking statements that are based on
management's assumptions concerning future economic and
business conditions as they affect the local economy in
general and the Company's borrowers in particular, which
economic and business assumptions are inherently
uncertain and subject to risk and may prove to be
invalid. Readers are also cautioned that management
relies upon the truthfulness of statements made by the
borrowers, and that misrepresentation by borrowers is an
inherent risk of the activity of lending money that could
cause these forward-looking statements to be inaccurate.
At December 31, 1996 loans to finance poultry
operations amounted to $16,266 or 6.6% of total loans.
<PAGE>
<PAGE> 16
Summary of Loan Loss Experience
(in thousands)
The following table summarizes changes in the allowance
for loan losses arising from loans charged-off and
recoveries on loans previously charged-off, by loan
category, and additions to the allowance which have been
charged to expense.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance of allowance for possible
losses at beginning of period . . . . . . . $5,933 $5,669 $4,935 $3,862 $3,204
Addition of Affiliate Banks . . . . . . . . . --- --- 195 164 ---
Loans charged-off:
Real Estate Loans Secured by 1-4 Family
Residential Properties. . . . . . . . . 11 221 101 --- 96
Loans to Finance Poultry Production
and Other Related Operations. . . . . . . . 286 --- --- --- ---
Loans to Finance Agricultural Production
and Other Loans to Farmers. . . . . . . . . --- --- --- 12 29
Commercial and Industrial Loans . . . . . . . 312 20 99 378 835
Loans to Individuals for Household, Family
and Other Personal Expenditures . . . . . . 163 98 55 53 76
Economic Development Bonds. . . . . . . . . . --- --- --- --- ---
Term Federal Funds Sold . . . . . . . . . . . --- --- --- --- ---
---- ---- ---- ---- ----
Total Loans charged-off . . . . . . . . . . 772 339 255 443 1,036
---- ---- ---- ---- -----
Recoveries of previously charged-off Loans:
Real Estate Loans Secured by 1-4 Family
Residential Properties. . . . . . . . . 14 6 6 14 46
Loans to Finance Poultry Production and
Other Related Operations. . . . . . . . . . 47 --- --- --- ---
Loans to Finance Agricultural Production
and Other Loans to Farmers. . . . . . . . . 78 538 --- 500 132
Commercial and Industrial Loans . . . . . . . 118 53 186 148 504
Loans to Individuals for Household, Family
and Other Personal Expenditures . . . . . . 38 25 35 37 28
Economic Development Commission Bonds . . . . --- --- --- --- ---
Term Federal Funds Sold . . . . . . . . . . . --- --- --- --- ---
---- ---- ---- ---- ----
Total Recoveries. . . . . . . . . . . . . . 295 622 227 699 710
---- ---- ---- ---- ----
Net Loans recovered / (charged-off). . . . . (477) 283 (28) 256 (326)
----- ---- ---- ---- ------
Additions to allowance charged to expense . . 160 (19) 567 653 984
---- ---- ---- ---- ----
Balance at end of period. . . . . . . . . . . $5,616 $5,933 $5,669 $4,935 $3,862
====== ====== ===== ===== =====
Ratio of net recoveries / (charge-offs) during
the period to average loans outstanding (.20%) .12% (.01%) 0.13% (.17%)
====== ====== ====== ====== ======
</TABLE>
<PAGE>
<PAGE> 17
The following table indicates the breakdown of the
allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
(dollar references in thousands)
December 31, December 31, December 31,
1996 1995 1994
Allowance Ratio of Allowance Ratio of Allowance Ratio of
Loans to Loans to Loans to
Total Total Total
Loans Loans Loans
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans . . . . . . . $311 30.18% $202 29.78% $185 30.15%
Poultry Loans . . . . . . . . . 518 6.56% 1,493 10.29% 918 11.40%
Agricultural Loans. . . . . . . 506 12.28% 726 11.82% 944 14.23%
Commercial and
Industrial Loans. . . . . . . 2,019 33.91% 1,976 32.84% 1,101 30.92%
Loans to Individuals. . . . . . 179 16.84% 152 15.01% 146 13.02%
Economic Development
Commission Bonds. . . . . . . --- 0.23% --- 0.26% --- 0.28%
Term Federal Funds
Sold. . . . . . . . . . . . . --- --- --- --- --- --
Unallocated . . . . . . . . . . 2,083 N/A 1,384 N/A 2,375 N/A
----- ----- ----- ----- ----- -----
Totals. . . . . . . . . . . . . $5,616 100.00% $5,933 100.00% $5,669 100.00%
====== ====== ======
(dollar references in thousands)
December 31, December 31,
1993 1992
Allowance Ratio of Allowance Ratio of
Loans to Loans to
Total Total
Loans Loans
<S> <C> <C> <C> <C>
Real Estate Loans . . . . . . . $118 27.25% $29 24.67%
Poultry Loans . . . . . . . . . 65 15.05% 60 16.01%
Agricultural Loans. . . . . . . 872 12.24% 148 12.47%
Commercial and
Industrial Loans . . . . . . 906 31.91% 1,229 33.39%
Loans to Individuals. . . . . . 128 13.17% 116 12.65%
Economic Development
Commission Bonds . . . . . . --- 0.38% --- .81%
Term Federal Funds
Sold . . . . . . . . . . . . --- --- --- ---
Unallocated . . . . . . . . . . 2,846 N/A 2,280 N/A
----- -----
Totals. . . . . . . . . . . . . $4,935 100.00% $3,862 100.00%
====== ======
</TABLE>
<PAGE>
<PAGE> 18
The average amount of deposits is summarized for the
periods indicated in the following table:
<TABLE>
<CAPTION>
(dollar references in thousands)
December 31,
1996 1995 1994
Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits
Non-interest Bearing . . . . . $35,971 --- $32,576 --- $30,279 ---
Interest Bearing . . . . . . . 38,711 2.14% 40,134 2.29% 41,009 2.30%
Savings Deposits. . . . . . . . . 58,951 3.17% 52,177 3.01% 48,166 2.45%
Time Deposits . . . . . . . . . . 199,813 5.45% 191,202 5.30% 164,422 4.42%
. ------- ------- -------
Totals . . . . . . . . . . . . $333,446 4.08% $316,089 4.00% $283,876 3.31%
======== ======== ========
</TABLE>
Maturities of time certificates of deposit of $100,000 or
more are summarized as follows:
<TABLE>
(in thousands)
December 31,
1996
<S> <C>
3 months or less $9,613
Over 3 through 6 months 5,609
Over 6 through 12 months 3,961
Over 12 months 8,749
-------
Total $27,932
=======
</TABLE>
<PAGE>
<PAGE> 19
Return on Equity and Assets
The ratio of net income to average shareholders' equity
and to average total assets, and certain other ratios,
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Percentage of Net Income to:
Average Shareholders' Equity. . . . . . . . 10.77% 11.68% 10.85%
Average Total Assets. . . . . . . . . . . . 1.08% 1.13% 1.08%
Percentage of Dividends
Declared per Common Share
to Net Income per
Common Share (1). . . . . . . . . . . . . 37.26% 34.55% 35.79%
Percentage of Average
Shareholders' Equity to
Average Total Assets. . . . . . . . . . . . 10.05% 9.65% 9.91%
</TABLE>
(1) Based on historical dividends declared by German
American Bancorp without restatement for pooling.
<PAGE>
<PAGE> 20
FORWARD-LOOKING STATEMENTS
This Form 10-K and future filings made by the Company
with the Securities and Exchange Commission, as well as
other filings, reports and press releases made or issued
by the Company and the Banks, and oral statements made by
executive officers of the Company and the Banks, may
include forward-looking statements relating to such
matters as (a) assumptions concerning future economic and
business conditions and their effect on the economy in
general and on the markets in which the Banks do
business, (b) expectations regarding revenues, expenses,
and earnings for the Company and the Banks, (c) the
impact of future or pending acquisitions, (d) deposit and
loan volume, and (e) new products or services. Such
forward-looking statements are based on assumptions
rather than historical or current facts and, therefore,
are inherently uncertain and subject to risk.
To comply with the terms of a "safe harbor" provided
by the Private Securities Litigation Reform Act of 1995
that protects the making of such forward-looking
statements from liability under certain circumstances,
the Company notes that a variety of factors could cause
the actual results or experience to differ materially
from the anticipated results or other expectations
described or implied by such forward-looking statements.
These risks and uncertainties that may affect the
operations, performance, development and results of the
Company's business include but are not limited to, the
following: (a) the risk of adverse changes in business
conditions generally and in specific markets in which the
Banks operate, which might adversely affect credit
quality and deposit and loan activity; (b) the risk of
rapid increases or decreases in interest rates, which
could adversely affect the Company's net interest margin
if changes in its cost of funds do not correspond to the
changes in income yields; (c) possible changes in the
legislative and regulatory environment that might
negatively impact the Company and the Banks through
increased operating expenses or restrictions on
authorized activities; (d) the possibility of increased
competition from other financial and non-financial
institutions; (e) the risk that borrowers may
misrepresent information to management of the Banks,
leading to loan losses, which is an inherent risk of the
activity of lending money; (f) the risk that banks that
the Company may acquire in the future may be subject to
undisclosed asset quality problems, contingent
<PAGE>
<PAGE> 21
liabilities or other unanticipated problems; and (g)
other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission. The
Company and the Banks do not undertake any obligation to
update or revise any forward-looking statements
subsequent to the date on which they are made.
Item 2. Properties
German American Bank conducts its operations from its
main office building at 711 Main Street, in Jasper,
Indiana. The main office building is owned by German
American and contains approximately 23,600 square feet of
office space. There is no indebtedness on such property
on which German American Bank's main office is located.
German American Bank has seven branches, three of which
are located in Jasper, and one each in the Dubois County
towns of Huntingburg, Ferdinand, Dubois and Ireland. Of
these branch facilities, five are owned by German
American Bank and two are leased.
Peoples operates from its main office in Washington,
Indiana, which contains approximately 22,500 square feet,
and three branch offices, all of which (except for one
leased branch) are owned by Peoples, plus its Union
Banking Division facilities. The office of the Union
Banking Division of Peoples in Loogootee, Indiana,
contains approximately 12,000 square feet of space. The
facility was constructed in 1988 and is owned by Peoples.
Community Bank conducts its operations from three
locations, all of which are owned by Community Bank.
Community Bank's principal banking office is located in
Otwell, Indiana, in a building containing approximately
2,850 square feet.
First State Bank's main office facility, located in
Tell City, Indiana, constructed in 1981, contains
approximately 13,900 square feet. First State has three
branches, two of which are located in Tell City and one
in Rockport, Indiana. Of these branch facilities, two
are owned by First State, with one being leased.
<PAGE>
<PAGE> 22
Item 3. Legal Proceedings.
There are no pending legal proceedings, other than
routine litigation incidental to the business of the
Company's subsidiary banks, of a material nature in
which the Company or any of its subsidiaries is involved.
Item 4. Submission of Matters to a Vote of Security
Holders.
There was no matter submitted during the fourth
quarter of 1996 to a vote of security holders, by
solicitation of proxies or otherwise.<PAGE>
<PAGE> 23
Special Item. Executive Officers of the Registrant.
<TABLE>
<CAPTION>
NAME AGE TITLE AND FIVE YEAR HISTORY
<S> <C> <C>
George W. Astrike (61) Chairman and CEO of the Company since 1995; Chairman and President / CEO
prior thereto. Chairman of German American Bank since 1995; Chairman and
President prior thereto. Director of each of the other Banks since
acquisition by the Company.
Mark A. Schroeder (43) President / Chief Operating Officer / Chief Financial Officer of the
Company since 1995; Vice President / Chief Financial Officer prior thereto.
Director of each of the other Banks since acquisition by the Company.
Urban Giesler (59) Treasurer and Secretary of the Corporation; Senior Vice President -
Personal Banking of German American Bank since January, 1993; Senior Vice
President - Retail Lending of German American Bank prior thereto.
John M. Gutgsell (41) Vice President and Controller of the Company since 1995; Vice President and
Controller of German American Bank prior thereto.
Stan J. Ruhe (45) Executive Vice President - Credit Administration of the Company since 1995.
Executive Vice President of German American Bank since 1995; Senior Vice
President - Credit Administration prior thereto.
James E. Essany (42) Senior Vice President - Marketing of the Company since 1995; Senior Vice
President - Operations / Administration of German American Bank prior
thereto.
</TABLE>
There are no family relationships between any of the
officers of the Corporation. All officers are elected
for a term of one year.
<PAGE>
<PAGE> 24
PART II
The information in Part II of this report is
incorporated by reference to the indicated sections of
the Registrant's annual report to shareholders for the
fiscal year ended December 31, 1996 ("Shareholders'
Report").
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.
See "Market and Dividend Information" on page 37 of
the Shareholders' Report which is filed as Exhibit 13.1
to this report and is incorporated herein by reference.
Item 6. Selected Financial Data.
See "Five Year Summary of Consolidated Financial
Statements and Related Statistics" on page 1 of the
Shareholders' Report which is filed as Exhibit 13.2 to
this report and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages
2 through 16 of the Shareholders' Report which is filed
as Exhibit 13.3 to this report and is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Company and related
notes on pages 17 through 35 of the Shareholders'
Report and the Auditors' Report thereon on page 36 of
the Shareholders' Report, which are filed as Exhibit
13.4 to this report, are incorporated herein by
reference.
The Interim Financial Data on page 3 of the
Shareholders' Report, which is included as Table 1 of
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" filed as
Exhibit 13.3 to this report, is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not Applicable.
<PAGE>
<PAGE> 25
PART III
Item 10. Directors and Executive Officers of the
Registrant.
Information relating to Directors of the
Corporation will be included under the caption
"Election of Directors" in the Corporation's Proxy
Statement for the Annual Meeting of Shareholders to be
held on April 24, 1997 which will be filed with the
Commission within 120 days of the end of the fiscal
year covered by this Report (the "1997 Proxy
Statement"), which section is incorporated herein by
reference in partial answer to this Item.
Information relating to Executive Officers of the
Corporation is included under the caption "Executive
Officers of the Registrant" under Part I of this Report
on Form 10-K.
Item 11. Executive Compensation.
Information relating to compensation of the
Corporation's Executive Officers and Directors will be
included under the captions "Executive Compensation"
and "Election of Directors -- Compensation of
Directors" in the 1997 Proxy Statement of the
Corporation, which sections are incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management.
Information relating to security ownership of
certain beneficial owners and management of the
Corporation will be included under the captions
"Election of Directors" and "Principal Owners of Common
Shares" of the 1997 Proxy Statement of the Corporation,
which sections are incorporated herein by reference.
Item 13. Certain Relationships and Related
Transactions.
Information responsive to this Item 13 will be
included under the captions "Executive Compensation -
Certain Business Relationships and Transactions" and
"Executive Compensation - Compensation Committee
Interlocks and Insider Participation" of the 1997 Proxy
Statement of the Corporation, which sections are
incorporated herein by reference.
<PAGE>
<PAGE> 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
a) The following 1996, 1995, and 1994 consolidated
financial statements of the Corporation, and the
Auditors' Report thereon, included on pages 17 through
36 of the Shareholders' Reports, are incorporated into
Item 8 of this report by reference.
<TABLE>
<CAPTION>
Location in
1. Financial Statements Shareholders' Report
German American Bancorp and Subsidiaries
<S>
Consolidated Balance Sheets at December 31, <C>
1996 and December 31, 1995 Page 17
Consolidated Statements of Income, years
ended December 31, 1996, 1995, and 1994 Page 18
Consolidated Statements of Cash Flows, years
ended December 31, 1996, 1995, and 1994 Page 19
Consolidated Statements of Changes in
Shareholders' Equity, years ended
December 31, 1996, 1995, and 1994 Page 20
Notes to the Consolidated Financial
Statements Pages 21 - 35
Independent Auditors' Report Page 36
</TABLE>
2. Other financial statements and schedules are
omitted because they are not required or because the
required information is included in the consolidated
financial statements or related notes.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three
months ended December 31, 1996.
c) Exhibits:
The Exhibits described in the Exhibit List
immediately following the "Signatures" page of this
report (which is incorporated herein by reference) are
hereby filed as part of this report.
<PAGE>
<PAGE> 27
Pursuant to the requirements of Section 13 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
(Registrant)
Date: March 15, 1997 By/s/George W. Astrike
George W. Astrike,
Chairman of the Board
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below
by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION
<S> <C> <C>
Date: March 15, 1997 By/s/George W. Astrike
George W. Astrike,
Chairman of the
Board and Director (Chief
Executive Officer)
Date: March 15, 1997 By/s/Mark A. Schroeder
Mark A. Schroeder,
President and Director
(Principal Financial
Officer)
Date: March 15, 1997 By/s/David G. Buehler
David G. Buehler, Director
Date: March ___, 1997 By
Michael B. Lett, Director
Date: March 15, 1997 By/s/Gene C. Mehne
Gene C. Mehne, Director
Date: March 15, 1997 By/s/Robert L. Ruckriegel
Robert L. Ruckriegel,
Director
Date: March 15, 1997 By/s/William R. Hoffman
William R. Hoffman,
Director
<PAGE>
<PAGE> 28
Date: March 15, 1997 By/s/Joseph F. Steurer
Joseph F. Steurer,
Director
Date: March __, 1997 By
A. Wayne (Skip) Place Jr.,
Director
Date: March __, 1997 By
Larry J. Seger, Director
Date: March 15, 1997 By/s/John M. Gutgsell
John M. Gutgsell,
Controller (Principal
Accounting Officer)
</TABLE>
<PAGE>
<PAGE> 29
EXHIBIT LIST
<TABLE>
Executive
Compensation
Plans and Exhibit
Arrangements* Number Description of Exhibit
<S> <C> <C>
3.1 Restated Articles of Incorporation of the
Registrant as amended April 24, 1995, are
Incorporated by reference to Exhibit 3.1 to
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995.
3.2 Restated Bylaws of the Registrant, as amended
August 14, 1990, are incorporated by
reference to Exhibit 3.2 to Registrant's Form
10-K for the year ended December 31, 1995.
10.1 Agreement and Plan of Reorganization by and
among Peoples Bancorp of Washington, the
Registrant, and certain affiliates, dated
September 27, 1996, is incorporated by
reference to Exhibit 2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.
10.2 Sublease entered by and between Buehler
Foods, Inc. and The German American Bank
dated January 2, 1987 (Huntingburg Banking
Center Branch) is incorporated by reference
from Exhibit 10.5 to the Registrant's
Registration Statement on Form S-4 filed
February 28, 1994 (No. 33-75762).
10.3 Sublease entered by and between Buehler
Foods, Inc. and the Bank dated August 1, 1990
(The Crossing Shopping Center Branch) is
incorporated by reference to Exhibit 10.12 of
the Registrant's Report on Form 10-K for the
year ended December 31, 1990.
<PAGE>
<PAGE> 30
10.4 Letter dated January 5, 1995 from the German
American Bank to Buehler Foods, Inc.
notifying Buehler Foods, Inc. of exercise of
renewal option on The Crossing Shopping
Center Branch is incorporated by reference to
Exhibit 10.4 of the Registrant's Report on
Form 10-K for the year ended December 31,
1994.
X 10.5 The Company's 1992 Stock Option Plan is
incorporated by reference from Exhibit 10.1
to the Registrant's Registration Statement on
Form S-4 filed January 21, 1993 (No. 33-
55170) (the "Unibancorp S-4")
X 10.6 Schedule identifying material terms of
options (including replacement options)
granted to the Registrant's executive
officers under the Registrant's 1992 Stock
Option Plan.
X 10.7 Executive Deferred Compensation Agreement
dated December 1, 1992, between The German
American Bank and George W. Astrike, is
incorporated herein by reference from Exhibit
10.3 to the Unibancorp S-4.
X 10.8 Director Deferred Compensation Agreement
between The German American Bank and certain
of its Directors, is incorporated herein by
reference from Exhibit 10.4 to the Unibancorp
S-4. (The Agreement entered into by George
W. Astrike, a copy of which was filed as
Exhibit 10.4 to the Unibancorp S-4, is
substantially identical to the Agreements
entered into by the other Directors.) The
schedule following Exhibit 10.4 to the
Unibancorp S-4 lists the Agreements with the
other Directors and sets forth the material
detail in which such Agreements differ from
the Agreement filed as Exhibit 10.4 to the
Unibancorp S-4.
<PAGE>
<PAGE> 31
10.9 Sublease entered by and between Buehler
Foods, Inc. and First State Bank, dated July
25, 1996 (Tell City Branch).
11 Computation of Earnings Per Share.
13.1 Market and Dividend Information (page 37 of
Registrant's Annual Report to Shareholders
for the year ended December 31, 1996).
13.2 Five Year Summary of Consolidated Financial
Statements and Related Statistics (page 1 of
Registrant's Annual Report to Shareholders
for the year ended December 31, 1996).
13.3 Management's Discussion and Analysis of
Financial Condition and Results of Operations
(pages 2 through 16 of Registrant's Annual
Report to Shareholders for the year ended
December 31, 1996).
13.4 Consolidated financial statements and related
notes (pages 17 through 35 of Registrant's
Annual Report to Shareholders for the year
ended December 31, 1996), and Auditors'
Report (page 36 of Registrant's Annual Report
to Shareholders for the year ended December
31, 1996).
21 Subsidiaries of the Registrant.
23 Consent of Crowe Chizek and Company LLP.
27 Financial Data Schedule.
</TABLE>
*Exhibits that describe or evidence all management contracts or
compensatory plans or arrangements required to be filed as exhibits to this
Report are indicated by an "X" in this column.
EXHIBIT 10.6
SCHEDULE IDENTIFYING MATERIAL
TERMS OF OPTIONS GRANTED TO
GERMAN AMERICAN BANCORP EXECUTIVE OFFICERS
UNDER THE 1992
STOCK OPTION PLAN(1)
<TABLE>
<CAPTION>
Name of Grantee
Option
Type of George Mark Stan Urban James Price
Option (2) Astrike Schroeder Ruhe Giesler Essany Per Share
<S> <C> <C> <C> <C> <C> <C> <C>
ORIGINAL GRANT 4/20/93 9,922.5000 8,268.7500 4,961.2500 2,480.6300 2,480.6300 $19.6600
REPLACEMENT(3) 12/30/94 1,192.9100 1,102.5000 0.0000 0.0000 0.0000 $29.3700
REPLACEMENT(3) 7/10/95 2,080.4200 1,102.5000 0.0000 330.7500 158.7600 $28.3000
REPLACEMENT(3) 1/9/96 3,087.0000 0.0000 763.3500 326.5500 330.7500 $29.7600
REPLACEMENT(3) 7/15/96 0.0000 945.0000 593.2500 296.1000 378.0000 $32.8600
</TABLE>
1. Numbers of options and per share exercise prices have been
retroactively adjusted for subsequent stock splits and
dividends.
2. The only new grants of options under the German American
Bancorp 1992 Stock Option Plan (the "Plan") were made on April
20, 1993. All options expire ten years after the date of
grant. The options granted to Mr. Astrike became exercisable
with respect to one-half of the shares immediately upon grant
and with respect to the other one-half of the shares on the
first anniversary of the grant date. The options granted to
the other executive officers became exercisable with respect
to twenty percent of the shares on each of the five
anniversary dates beginning on the first anniversary date
following the date of grant.
3. The Stock Option Plan provides that if the optionee tenders
Common Shares of the Corporation already owned by the optionee
as payment, in whole or in part, of the exercise price for the
shares the optionee has elected to purchase under the option,
then the Corporation is obligated to use its best efforts to
issue a replacement option of the same type (incentive or non-
qualified option), with the same expiration date as the option
that was exercised, and covering a number of Common Shares
equal to the number of Common Shares tendered. The only
grants made under the Plan subsequent to April 20, 1993, are
grant of such replacement options.
SUBLEASE
THIS SUBLEASE, made and entered into as of the 25th
day of July, 1996, by and between BUEHLER FOODS, INC., an
Indiana Corporation, having as its principal address,
1100 West 12th Avenue, Jasper, Indiana, hereinafter
referred to as "Buehler", and First State Bank, an
Indiana financial institution, having its principal
offices at 645 Main Street in Tell City, Indiana,
hereinafter referred to as "Bank" ("Sublease").
WHEREAS, pursuant to a Lease, dated February 1,
1988, between William Tell Homes Company and Kmart
Corporation, as amended by Modification of Leased
Agreement, dated September 26, 1991 (collectively, the
"Master Lease") Kmart leased a building of approximately
84,000 square feet, the "Leased Premises" located on the
property in Tell City, Perry County, Indiana, described
in Exhibit A attached hereto and made a part hereof and
depicted on Exhibit B attached hereto and made a part
hereof, which property, together with the buildings and
improvements thereon, including the Leased Premises, are
defined as the "Kmart Shopping Center", and a memorandum
of the Master Lease was recorded in Miscellaneous Record
21, Pages 122-126 in the Office of the Recorder of Perry
County; and
WHEREAS, Buehler has entered into a sublease for the
Leased Premises, with Kmart Corporation, dated December
<PAGE> 2
4, 1995, which sublease is hereinafter referred to as the
"Master Sublease," and a memorandum of the Master
Sublease was recorded in Miscellaneous Record 33, Pages
644-650 in the Office of the Recorder of Perry County;
and, WHEREAS, Bank desires to sublease from Buehler
a portion of that Leased Premises currently leased by
Buehler, upon which Buehler shall be operating a retail
grocery business. NOW, THEREFORE, it is agreed by the
parties that Bank shall sublease and occupy a portion of
the Leased Premises leased by Buehler under the following
terms and conditions:
ARTICLE I
THE DEMISE
Section 1.01. The Sublet Premises. Buehler does
hereby sublet to Bank, and Bank subleases from Buehler,
upon the terms and conditions herein, a certain portion
of the Leased Premises, including a part of the building
to be occupied as a retail grocery supermarket and a part
of the Common Areas, which subleased premises are more
particularly depicted on "Exhibit B" attached hereto and
made part hereof. That portion sublet under this
Sublease may hereinafter be referred to as being the
"Sublet Premises" and the Sublease thereof by Bank shall
be subject to the terms and conditions set forth in the
Master Lease and Master Sublease above described.
<PAGE> 3
Section 1.02. Common Areas. Bank shall have the
non-exclusive right to use common parking areas currently
existing for use by its customers, but shall require Bank
employees to park in spaces away from Buehler's customer
parking near the place of customer access to Buehler's
store. Bank's employees shall have non-exclusive right
to use restrooms and employee "break" room in the Buehler
store, and Bank's customers shall have access to the
Sublet Premises through the Buehler store during normal
business hours.
Section 1.03. Services. Buehler shall furnish the
Bank with heat, air conditioning; lights and all utility
services except telephone. Such telephone expenses shall
be paid by Bank, except that Buehler shall, in the
construction of the Sublet Premises, provide all
necessary telephone conduits and wiring. Said utilities
shall be adequate to maintain a proper environment for
operation of branch bank facilities.
Buehler shall, at Buehler's expense, maintain the
Sublet Premises and all of the HVAC and other building
equipment not owned by Bank in good condition and repair.
Bank shall, at Bank's expense, provide the day-to-day
janitorial services, including carpet and floor
maintenance, and the upkeep and repair of all interior
<PAGE> 4
leasehold improvements added by Bank. Provided, however,
that Bank also shall be responsible for the repair of any
portion of the Sublet Premises to the extent damaged by
Bank, its employees or representatives. Buehler shall
maintain the driveways and parking areas in good
condition and repair and reasonably free of snow, ice,
dirt and debris as required by the Master Lease and
Master Sublease. No trash, waste or other debris is to
be located or placed by Bank outside the Sublet Premises
or Buehler's store except in closed containers as
provided by Buehler.
Section 1.04. Construction Responsibilities.
Buehler agrees that it will, at its own cost and expense,
cause the construction of such necessary walls, roof and
floor, to create the separate space for the Sublet
Premises, which construction shall, except as otherwise
mutually agreed, be according to the approved plans and
specifications of the Sublet Premises. Buehler also will
provide all heating and air conditioning systems,
electrical system and sprinkler system. The electrical
system shall include hook-up facilities for Bank's
fixtures and banking equipment at locations mutually
agreeable. Bank will furnish and install its own trade
fixtures including, but not limited to, all special
banking equipment, safes, alarm system and other security
devices, interior finish work, furnishings and
<PAGE> 5
decorations, all of which shall remain the property of
the Bank. Bank may not change or alter the Sublet
Premises in a manner which will adversely affect
Buehler's operation without Buehler's prior approval and
any approvals required by the Master Sublease.
Section 1.05. Signs. Subject to provisions in the
Master Lease and Master Sublease, the Bank shall have the
right to erect appropriate signs on the exterior of
Buehler's store, over any walk-up window and at the lobby
entrance in the interior of the Buehler's store;
provided, however, that no such sign shall be erected
until drawings depicting the sign together with
specifications of the methods by which such sign is to be
affixed to the building (as well as approval of location
of each sign), shall have been submitted to and approved
by Buehler, the Master Lessor and Master Sublessor, as
may be required.
Section 1.06. Interior Development. Buehler agrees
that it will not locate its displays of merchandise or
shelving closer to the interior walk--up facilities of
the Bank than the lobby area of the Sublet Premises and
will not block access to the Sublet Premises from
Buehler's store.
Section 1.07. Taxes. Buehler agrees that during
the Term of this Sublease, Buehler will pay all real
estate taxes and assessments accruing against the Sublet
<PAGE> 6
Premises to the extent Buehler shall be responsible for
payment of same under the Master Lease or Master
Sublease. Bank shall pay all such taxes accruing upon
personal property placed thereon by Bank, including trade
fixtures, furniture and equipment.
ARTICLE II
TERM
Section 2.01. The Original Term. The initial term
of this Sublease is for a period of five (5) years
beginning on the Commencement Date, which shall be
referred to hereinafter as the "Original Term."
Section 2.02. Commencement Date. The Commencement
Date of the Original Term shall be July 25, 1996.
Section 2.03. Options for Extensions. If the Bank
shall comply with and not be in default of any of the
terms, provisions and conditions of this Sublease, then,
subject to the terms and conditions of the Master Lease
and Master Sublease, Bank shall have an option to extend
this Sublease for (i) an additional consecutive term
beginning on the next succeeding day after the expiration
of the Original Term and ending on January 29, 2008
("First Extended Term"); (ii) an additional consecutive
term of five (5) years commencing at the expiration of
the First Extended Term ("Second Extended Term"); and an
additional consecutive term of five (5) years commencing
at the expiration of the Second Extended Term ("Third
<PAGE> 7
Extended Term"). The extended term or terms also may be
referred to hereinafter collectively as the "Extended
Term or Extended Terms". The Original Term and any
Extended Term may be referred to hereinafter collectively
as the "Granted Term". Notice of intention to exercise
any extension above described shall be given by Bank to
Buehler in writing at least one hundred eighty (180) days
before the expiration of the Original Term or the prior
Extended Term, and if the Bank fails to give any such
notice within the time limited, any subsequent option or
options to extend shall expire and be of no force or
effect. Notwithstanding the foregoing, the Bank's right
to extend this Sublease shall be subject to the renewal
or extension by Buehler of the Master Sublease. The
Extended Terms granted herein shall not obligate Buehler
to extend the term of the Master Sublease.
Section 2.04. Termination Option. In the event
that the Master Lease or Master Sublease is terminated
for any reason, or if Buehler should make an assignment
of its Master Sublease to any other firm or corporation
other than an affiliated entity, the Marjorie Buehler
Real Estate Trust or a business successor for the
continued operation of a retail grocery business, or if
business operations in that portion of the Leased
Premises occupied by Buehler should be discontinued for
any period of time longer than one (1) month, except in
<PAGE> 8
the instance of fire or other casualty, the Bank shall
have the right to terminate this Sublease upon thirty
(30) days' notice to Buehler. Should William Tell Homes
Company under the Master Lease or Kmart Corporation under
the Master Sublease elect to terminate either the Master
Lease or Master Sublease, nothing herein shall prevent
Bank from entering into a new lease arrangement with
William Tell Homes Company or Kmart Corporation or from
assuming Buehler's obligation under the Master Sublease,
subject to the terms and provisions therein.
Section 2.05. Approval of IDFI. Following the
execution of this Sublease, Bank shall prepare and submit
to the Indiana Department of Financial Institutions
("IDFI") its application for approval to open a branch
office at the Kmart Shopping Center and shall prosecute
same with all due diligence. If Bank is unable to secure
such approval from the IDFI within a period of one
hundred twenty (120) days from the execution of this
Sublease, Bank shall be entitled to cancel this Sublease
by notice given in the manner provided herein at any time
within the eighteen (18) month period following the
initial 120-day period.
<PAGE>
<PAGE> 9
ARTICLE III
RENT
Section 3.01. Rent. The Bank shall pay Buehler, at
its principal office, or at such other place as Buehler
shall designate from time to time in writing, rental:
(a) During the first two (2) years of the Original
Term, Seven Thousand Eight Hundred Dollars ($7,800.00)
per year, payable in advance in equal monthly
installments of Six Hundred Fifty Dollars ($650.00) per
month, on the first day of each month. If the Bank
should be open for business prior to the Commencement
Date, the Bank shall pay a pro rata portion of the rental
for the part of the month prior to the Commencement Date;
and
(b) After the first two (2) years and during the
next three (3) years of the Original Term, Nine Thousand
Three Hundred Dollars ($9,300.00) per year, payable in
advance in equal monthly installments of Seven Hundred
Seventy-Five Dollars ($775.00) per month, on the first
day of each month.
(collectively referred to as "Rent")
Section 3.02. Rent During Extended Terms. In the
event Bank should elect to exercise its option to extend
this Sublease, as provided by Section 2.03, Bank shall
pay rent to Buehler during the First Extended Term as
follows: (i) in an annual amount during the first two
<PAGE> 10
(2) years of Nine Thousand Three Hundred Dollars
($9,300.00) per year payable in advance in equal monthly
installments of Seven Hundred Seventy-Five Dollars
($775.00) per month, on the first day of each month, and
(ii) in an annual amount during the remainder of the
First Extended Term of Ten Thousand Eight Hundred Dollars
($10,800.00) per year, payable in advance in equal
monthly installments of Nine Hundred Dollars ($900.00)
per month, on the first day of each month. In the event
the Bank should elect to exercise its option to extend
this Sublease for the Second Extended Term, as provided
by Section 2.03, Bank shall pay rent to Buehler during
the Second Extended Term in an annual amount of Fourteen
Thousand Four Hundred Dollars ($14,400.00), which sum
shall be payable in advance in equal monthly installments
of One Thousand Two Hundred Dollars ($1,200.00) per month
in the same manner provided in Section 3.01 hereof. In
the event the Bank should elect to exercise its option to
extend this Sublease for the Third Extended Term, as
provided by Section 2.03, Bank shall pay rent to Buehler
during the Third Extended Term in an annual amount of
Eighteen Thousand Dollars ($18,000.00), which sum shall
be payable in advance in equal monthly installments of
One Thousand Five Hundred Dollars ($1,500.00) per month
in the same manner provided in Section 3.01 hereof.
<PAGE>
<PAGE> 11
ARTICLE IV
USE OF THE PREMISES
Section 4.01. Business Use. The Sublet Premises
are to be used and occupied for the operation of a branch
banking facility, said operation being conducted in a
manner consistent with accepted banking practices, and
for no other purpose. The Bank will be entitled to
further underlet the Sublet Premises to another bank or
a saving association or any other financial institution
with Buehler's prior written approval and subject to the
approval and consent of William Tell Homes Company and
Kmart Corporation.
Section 4.02. Hours of Operation. Bank shall open
the Subleased Premises for the transaction of regular
banking business in the Sublet Premises for at least the
same number of hours per week and on the same number of
days per week that a majority of other branch facilities
of the Bank are open for banking business of the same
character (excluding operation of an ATM machine) as that
conducted in the Sublet Premises.
ARTICLE V
SECURITY
Section 5.01. Security Equipment. The Bank shall
install such security equipment as is deemed by it to be
necessary or desirable for prevention of robberies and
thefts in the Sublet Premises. The expense of such
<PAGE> 12
installation and maintenance shall be borne by the Bank
except that Buehler shall furnish the necessary
electricity for operation of such equipment. Buehler
shall not be responsible for attempts to penetrate the
Sublet Premises, even if such attempts occur through the
Buehler store. Buehler shall not furnish any additional
security not required for the protection of its business
solely due to the Bank's presence in the Buehler store.
The Bank shall have the right to retain security
personnel; provided that, if said security personnel are
to operate outside of the Sublet Premises, prior written
consent of Buehler shall be obtained. Buehler shall in
no event be liable for and the Bank hereby releases
Buehler, its successors and assigns, from any liability
for any direct, indirect or consequential losses or
damages suffered or incurred by the Bank due to its lease
of the Sublet Premises, whether by burglary, robbery,
theft, embezzlement, mysterious disappearance or
otherwise, and by reason of failure of the electrical
service supplied by Buehler for operation of the security
devices or equipment.
ARTICLE VI
DAMAGE BY FIRE OR OTHER CASUALTY
Section 6.01. Partial or Total Destruction of
Building. In the event of any damage to any improvement
on the Leased Premises described in the Master Sublease
<PAGE> 13
by fire or other casualty, Buehler's obligation to
rebuild and restore the Leased Premises, including the
Sublet Premises shall be subject to the terms and
provisions of the Master Lease and Master Sublease. In
the event that such damage renders it inadvisable for the
Bank to continue its business during such period of
restoration, all rental under this Sublease shall be
abated during that period in which Bank ceases operation
and until such restoration is completed. In the event
that any such damage should not directly affect the Bank,
but should cause the discontinuance of Buehler's business
operations in the Leased Premises, the Bank shall have
the right to discontinue its operation in the Sublet
Premises until business operations are recommenced by
Buehler, and rental under this Sublease shall be totally
abated while the business operations of the Bank are
suspended. If the Leased Premises should be destroyed or
damaged due to casualty, and if the Master Lease or
Master Sublease should on such occasion be terminated,
then this Sublease also shall be terminated, effective on
the termination of the Master Sublease.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
Section 7.01. Indemnification. Each party agrees
to indemnify and save harmless the other party against
and from any and all claims by or on behalf of any
<PAGE> 14
person, firm or corporation arising from any breach or
default in the performance of any covenant or agreement
on its part to be performed under this Sublease. The
indemnification herein provided shall include all costs,
counsel fees, and expenses or liabilities incurred in
connection with any such claim or action or proceeding
brought thereon. Each party covenants and agrees to pay
and to indemnify the other party against all legal costs
and charges, including counsel fees, lawfully and
reasonably incurred in enforcing any covenant or
agreement contained in this Sublease. In the event of
any litigation between Buehler and the Bank with respect
to the terms of this Sublease or any matter arising
thereunder, the successful party in such litigation shall
be entitled to recover all of is costs, including
attorney's fees, for the other party as a party of the
judgment in such litigation.
Section 7.02. Waiver of Subrogation. Buehler and
the Bank each hereby release the other from any and all
liability or responsibility to the other or anyone
claiming through or under them by way of subrogation or
otherwise, for any loss or damage to property caused by
fire or other casualty, even if said fire or casualty
shall have been the fault or negligence of the other
party or anyone for whom such party may be responsible.
Each party agrees to cause its fire and other hazard
<PAGE> 15
insurance policies to contain provisions recognizing this
release of liability and waiving all rights or
subrogation against the other party to this Sublease.
Section 7.03. Public Liability Insurance. Each
party shall procure and maintain during the Granted Term
such policies of general liability insurance against
claims, demands or actions for personal or bodily injury
or death and for damage to property arising from or
related to or connected with the occupancy of an conduct
of business in and about the Leased Premises and the
Sublet Premises as each party may deem adequate for its
own protection; provided, however, Buehler's policies of
insurance shall comply with the requirements of the
Master Sublease and the Bank's policies of insurance
shall be in an amount not less than Five Hundred Thousand
Dollars ($500,000.00). William Tell Homes Company, Kmart
Corporation and Buehler Foods, Inc. shall be named as an
additional party insured under the Bank's insurance
policy.
Section 7.04. Casualty Insurance. Buehler shall
procure and maintain during the Granted Term fire and
casualty insurance upon the Leased Premises, including
the Sublet Premises, as required under the Master Lease
and Master Sublease. Bank shall procure and maintain
casualty insurance for the personal property placed upon
the Sublet Premises by Bank.
<PAGE> 16
ARTICLE VIII
REMEDIES
Section 8.01. Defaults. The happening of any one
or more of the following events shall be deemed an "Event
of Default":
(a) The institution of proceedings in a court of
competent jurisdiction or by the Indiana Department of
Financial Institutions or the Federal Deposit Insurance
Corporation or any other regulatory agency of state or
federal government for the reorganization, liquidation or
involuntary dissolution of the Bank, or for its
adjudication as being insolvent, or for the appointment
of a receiver or conservator of the property of the Bank,
and said proceedings are not dismissed, and any receiver,
conservator, trustee, or liquidator appointed therein
discharged, within thirty (30) days after the institution
of said proceedings; and
(b) the commission or omission by the Bank of any
act which results in the assertion of a mechanic's lien
claim against the land or building of which the Sublet
Premises is a part and the same is not released or
otherwise provided for by indemnification within sixty
(60) days; and
(c) the failure of the Bank to pay an installment
of rent when due and continuation of such default for ten
(10) days after notice; and
<PAGE> 17
(d) or the failure of the Bank to perform any of
its other covenants under this Sublease and the
continuation of such default for a period of twenty (20)
days after notice. In the event that any such default
(other than a default that can be cured by the payment of
money) cannot be cured within the time limit, no event of
default shall be deemed to have occurred so long as the
Bank is diligently pursuing appropriate action to cure
the default, continues to diligently pursue such action
to cure, and if such action was commenced within the time
limit.
Section 8.02. Rights on Default. Upon the
occurrence of any Event of Default, Buehler may, at its
option, in addition to any other remedy or right it has
hereunder or by law;
(a) Re-enter the Sublet Premises, without demand,
and resume possession by an action in law or equity or by
force or otherwise and without being liable in trespass
or for any damages and without terminating this Sublease.
Buehler may remove all persons and property from the
Sublet Premises after giving Bank ten (10) days' notice.
If such property is not removed within such ten (10)
days, such property shall be deemed abandoned and shall
become the property of Buehler at its election. At any
time after said ten (10) day period, Buehler may remove
all persons and property from the Sublet Premises, with
<PAGE> 18
or without process of law, and Bank shall be liable for
the costs of such removal and storage of same.
(b) Terminate this Sublease at any time upon the
date specified in a notice to Bank. Bank's liability for
damages shall survive such termination. Upon
termination, such damages recoverable by Buehler from
Bank shall, at Buehler's option, be either an amount
equal to "liquidated damages" or an amount equal to
"indemnity payments". "Liquidated damages" means an
amount equal to the excess of the rentals provided for in
this Sublease which would have been payable hereunder by
Bank, had this Sublease not so terminated, for the period
commencing with such termination and ending with the date
set for the expiration of the Original Term granted
(hereinafter referred to as "unexpired term") over the
reasonable rental value of the Sublet Premises for such
unexpired term. "Indemnity payments" means an amount
equal to the rent and other payments provided for in this
Sublease which would have become due and owing thereunder
from time to time during the unexpired term plus the
costs and expenses paid or incurred by Buehler from time
to time in connection with:
(1) Obtaining possession of the Sublet
Premises; and
(2) removal and storage of Bank's property;
and
<PAGE> 19
(3) care, maintenance and repair of the
Sublet Premises while vacant; and
(4) reletting the whole or any part of the
Sublet Premises; and
(5) making all repairs, alterations and
improvements to be made by Bank hereunder and
performing all covenants of the Bank relating to
the condition of the Sublet Premises, less the rent
and other payments, if any, actually collected and
allocable to the Sublet Premises or to the portions
thereof relet by Buehler. Bank shall make
indemnity payments monthly and Buehler can sue for
all indemnity payments as they accrue. Buehler
shall have the duty to sublet the Sublet Premises
upon repossession and Bank shall not be liable for
any rental should Buehler allocate the Sublet
Premises for use as part of Buehler's store.
(c) Without terminating this Sublease, relet the
Sublet Premises without the same being deemed an
acceptance of the surrender of this Sublease nor a waiver
of Buehler's right to remedies and Buehler shall be
entitled to indemnity payments, as heretofore defined
from Bank. Any reletting by Buehler may be for a period
equal to or less than or extending beyond the remainder
of the Original Term, for the whole or any part of the
Sublet Premises, separately or with other premises, or
<PAGE> 20
for any sums, or to any lessee or for any use Buehler
deems appropriate subject to the terms and provisions of
the Master Sublease. Should Buehler allocate the Sublet
Premises to Buehler's store operation, then Bank shall
not be liable for any rent due during that period of
time.
Section 8.03. Advances. In the event of any breach
hereunder by either party, the other party, after thirty
(30) day's written notice to the defaulting party, may
cure such breach for the account and at the expense of
the defaulting party. Any money spent or cost or expense
incurred by either party incurring such a breach or
default for the account of the other party shall be
reimbursed by the defaulting party on the first day of
the month following the payment, with interest at the
rate of twelve percent (12%) per annum, or at four
percent (4%) over the announced prime interest rate of
the Bank, whichever is higher. In the event of the
failure of Buehler to make prompt responses to emergency
notification of the need for immediate repairs in order
to maintain the usability of the Sublet Premises, such
advance may be made by the Bank without the thirty (30)
day written notice; provided, however, that Bank shall
within twenty-four (24) hours following such advance give
Buehler written notice thereof. In the event that
Buehler fails to reimburse the Bank for any such
<PAGE> 21
expenditure as provided herein, the Bank may deduct such
amounts as it has properly expended pursuant to the terms
hereof from the rental payment or payments thereafter
due.
ARTICLE IX
ACCESS TO THE SUBLET PREMISES
Section 9.01. Inspection and Repairs. Buehler
shall have the right to enter upon the Sublet Premises
during all regular business hours for the purpose of
inspecting the same or of making repairs, additions or
alterations thereto. Except in the case of fire or other
emergency, Buehler shall not enter the Sublet Premises
for any purpose at any time other than when the Sublet
Premises are open for business except at a time agreed
upon the Bank, and only when accompanied by an employee
of the Bank. Said right of entry shall inure to the
benefit of the William Tell Homes Company and Kmart
Corporation as well as to Buehler, and William Tell Homes
Company and Kmart Corporation also shall have the right
to enter the Sublet Premises as contained in the Master
Lease and Master Sublease. Any entry shall, however, be
such as to maintain the effectiveness of Bank's security.
ARTICLE X
NOTICES
Section 10.01. Manner of Giving. Whenever under
this Sublease a provision is made for notice of any kind
<PAGE> 22
such notice shall be given in writing and signed by or on
behalf of the party giving or making the same, and it
shall be deemed sufficient notice and service thereof if
such notice is to the Bank and is sent by first-class
mail, postage pre-paid, to the general offices of the
Bank at 645 Main Street, Tell City, Indiana 47586; and if
to Buehler, sent by first-class mail, postage pre-paid,
at 1100 West 12th Avenue, Jasper, Indiana 47546. Either
party hereto may change its address for notification
purposes by written notice to the other party. In the
event of the need for emergency notice to Buehler (e.g.,
failure of HVAC systems, casualty damage, serious roof
leakage, etc.), the Bank may notify one of Buehler's
officers or the store manager by telephone, but shall
within twenty-four (24) hours thereafter give written
notice thereof in the manner above provided.
ARTICLE XI
SURRENDER OF POSSESSION
Section 11.01. Surrender in Good Condition. At the
expiration of the subtenancy created hereunder, whether
by lapse of time or otherwise, the Bank shall surrender
the Sublet Premises in good condition and repair,
reasonable wear and tear, loss by fire and other
casualty, and acts of God excepted. The Bank shall
remove its personal property from the Sublet Premises and
shall repair any damage to the Leased Premises and the
<PAGE> 23
Sublet Premises caused by the installation or removal of
such property. All fixtures, partitions, equipment,
trade fixtures, alterations or changes in the Sublet
Premises installed by the Bank shall be and remain
personal property, regardless of the manner of their
annexation, and may be removed by the Bank, if it so
elects, and shall be removed by the Bank if Buehler,
William Tell Homes Company or Kmart Corporation so
directs, in whole or in part, at the termination of the
Granted Term or the sooner expiration or termination of
the Sublease. Any damage to the Sublet Premises caused
by the installation or removal or any such property shall
be repaired by the Bank. Any such property remaining
with said consent shall become the sole property of
Buehler.
Section 11.02. Holding Over. In the event the Bank
remains in possession of the Sublet Premises with the
consent of Buehler after the expiration of the Granted
Term, and without the execution of a new Sublease, it
shall be deemed to be occupying the Sublet Premises as a
subtenant from month to month at the same monthly rent
and subject to all other conditions and provisions of
this Sublease insofar as the same are applicable to a
month-to-month subtenancy.
<PAGE>
<PAGE> 24
ARTICLE XII
GENERAL PROVISIONS
Section 12.01. Remedies Cumulative - Non-Waiver.
The various rights and remedies herein contained and
reserved to each of the parties shall not be considered
as exclusive of any other right or remedy or such party,
which shall be construed as cumulative and shall be in
addition to every other remedy now or hereafter existing
at law, in equity, or by statute, and such rights and
remedies may be exercised and enforced concurrently and
whenever and as often as occasion therefor arises. No
delay or omission of the right to exercise any power by
either party shall impair any such right or power, or be
construed of a waiver of any default or as acquiescence
therein. One or more waivers of any covenants, term or
condition, of this Sublease by either party shall not be
construed by the other party as a waiver of subsequent or
continuing breaches of the same covenants, term or
condition. The consent or approval by either party to or
of any act by the other party of a nature requiring
consent or approval shall not be deemed to waive or
render unnecessary consent to or approval of any
subsequent similar act.
Section 12.02. Complete Agreement. The headings of
the several articles and sections contained herein are
<PAGE> 25
for convenience only and do not define, limit or construe
the contents of such articles and sections. All
negotiations, considerations, representations and
understandings between the parties are incorporated
herein, and may be modified or altered only by agreement
in writing signed by the party to be bound.
Section 12.03. Agreement Binding on Successors.
The covenants, agreements and obligations herein
contained shall extend to, bind and inure to the benefit
not only of the parties hereto, but their successors and
assigns.
Section 12.04. Authorization. Each party hereto
executes this Sublease by its duly elected officers, who
have been authorized by said party's Board of Directors
to execute this instrument on behalf of that respective
party.
IN WITNESS WHEREOF, the parties have cause this
Sublease to be executed as of the day and year first
above set forth.
"BUEHLER"
BUEHLER FOODS, INC.
By/s/ David G. Buehler
___________________________
David G. Buehler,
President
ATTEST:
/s/ Joseph E. Buehler, Secretary
_________________________________
Joseph E. Buehler, Secretary
<PAGE>
<PAGE> 26
"BANK"
FIRST STATE BANK
By/s/ Clay W. Ewing
____________________________
Clay W. Ewing,
President
ATTEST:
/s/ Grant L. Taylor
_________________________
Grant L. Taylor
Vice President/Cashier
STATE OF INDIANA )
) SS:
COUNTY OF DUBOIS )
Before me, the undersigned, a Notary Public in and for
said County and State, personally appeared the within named
DAVID G. BUEHLER and JOSEPH E. BUEHLER. known to me to be the
President and Secretary, respectively, of BUEHLER FOODS, INC.
who acknowledged the truth of the statements in the foregoing
instrument to be its voluntary act and deed.
WITNESS my hand and seal this 28 day of March, 1997.
/s/ Karen S. Erny
______________________________
Notary Public
Karen S. Erny
______________________________
Printed
County of Residence:
Dubois
_________________________
My Commission Expires:
June 21, 1998
_________________________
<PAGE> 27
STATE OF INDIANA )
) SS:
COUNTY OF PERRY )
Before me, the undersigned, a Notary Public in and for
said County and State, personally appeared the within named
CLAY W. EWING and GRANT L. TAYLOR, known to me to be the
President and Vice President/Cashier, respectively, of FIRST
STATE BANK, who acknowledged the truth of the statements in
the foregoing instrument to be its voluntary act and deed.
WITNESS my hand and seal this 19th day of March, 1997.
/s/ Mary E. Reisz
______________________________
Notary Public
Mary E. Reisz
______________________________
Printed
County of Residence:
Perry
_________________________
My Commission Expires:
August 21, 2000
_________________________
<TABLE>
German American Bancorp
Computation of Earnings Per Share (1)
<CAPTION>
1996 1995 1994
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
<S> <C> <C> <C> <C> <C> <C>
Average Shares:
Outstanding Common Shares. . . . . . .1,920,053 1,920,053 1,916,482 1,916,482 1,915,900 1,915,900
Common Stock Equivalents:
Stock Options (2). . . . . . . . . . 19,965 19,965 21,863 21,863 24,586 24,586
Assumed Repurchase of Shares . . . . . . (15,667) (13,539) (16,200) (15,441) (17,759) (17,185)
Average Common and Common
Equivalent Shares Outstanding. . . . .1,924,351 1,926,479 1,922,145 1,922,904 1,922,727 1,923,301
Net Income in Thousands:
Net Income . . . . . . . . . . . . . . $4,065 $4,065 $4,018 $4,018 $3,474 $3,474
Earnings Per Share: (3)
Net Income . . . . . . . . . . . . . . $2.11 $2.11 $2.09 $2.09 $1.81 $1.81
</TABLE>
(1) Average outstanding common shares and net
income have been restated for all periods presented to
reflect 5% stock dividends in 1996 and 1995.
(2) Stock options of 0, 3,672 and 2,295 have been
excluded from the above calculations as they were anti-
dilutive at December 31, 1996, 1995 and 1994,
respectively.
(3) Stock options are not materially dilutive and
have been excluded from earnings per share reflected in
the consolidated statements of income.
Exhibit 11
AM\GAB10K\9610KGAB.11
EXHIBIT 13.1
MARKET AND DIVIDEND INFORMATION
The following table sets forth (a) the high and low closing
prices for the Company's common stock as reported by NASDAQ by
quarter for 1996 and 1995, and (b) dividends declared per share
on the Company's common stock (not retroactively restated for
pooling of interests transactions) by quarter during 1996 and
1995. All per share information has been retroactively restated
for the Company's 5% stock dividend declared in October 1996 and
October 1995.
<TABLE>
1996 1995
High Low Dividend High Low Dividend
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter $32.26 $28.57 $.19 First Quarter $30.61 $28.12 $.18
Second Quarter $33.81 $30.48 $.20 Second Quarter $29.93 $27.21 $.18
Third Quarter $35.71 $32.14 $.20 Third Quarter $29.48 $27.21 $.18
Fourth Quarter $38.50 $34.76 $.20 Fourth Quarter $31.29 $28.57 $.18
____ ____
$.79 $.72
=== ===
</TABLE>
The Common Stock was held of record by approximately 1,981
shareholders at March 5, 1997.
Funds for payment by the Company of cash dividends are
expected to be obtained from dividends received by the Company
from its subsidiaries. The Company presently intends to follow
its historical policy as to the amount, timing and frequency of
the payment of dividends. In addition, the Company's Board of
Directors presently intends to consider declaring and issuing a
stock dividend of 5% on an annual basis. The declaration and
payment of future dividends, however, will depend upon the
earnings and financial condition of the Company and its
subsidiaries, general economic conditions, compliance with
regulatory requirements and other factors.
THE COMPANY WILL PROVIDE A COPY OF ITS ANNUAL REPORT (FORM 10-K,
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION), WITHOUT
EXHIBITS, FREE OF CHARGE, TO ANY SHAREHOLDER, UPON WRITTEN
REQUEST. SUCH WRITTEN REQUESTS SHOULD BE MADE TO JOHN M.
GUTGSELL, CONTROLLER, GERMAN AMERICAN BANCORP, 711 MAIN STREET,
JASPER, INDIANA, 47546.
EXHIBIT 13.2
Five Year Summary of Consolidated Financial Statements and
Related Statistics
(dollar references in thousands except share data)
The following selected data have been taken from the Company's
consolidated financial statements and should be read in
conjunction with the consolidated financial statements and
related notes included elsewhere in this annual report. See Note
17 to the consolidated financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for information regarding a purchase acquisition
during 1994 which affects the comparability of data. The
historical data does not include a pooling of interests merger
with Peoples Bancorp of Washington which was completed on March
4, 1997; the Company's financial statements on which such data is
based will, however, be retroactively restated for the Peoples
merger in future reports for all periods presented in accordance
with the pooling of interests method. The pro forma selected
data includes the Company and Peoples Bancorp of Washington
combined as of and for the year ended December 31, 1996 as if the
Company's March 4, 1997 acquisition of Peoples had occurred at
the beginning of 1996. The pro forma data is derived from the
Company's financial statements and the historical financial
statements of Peoples and should be read in conjunction with
discussions of the 1997 Peoples acquisition included in Note 17
to the consolidated financial statements and in "Management's
Discussion and Analysis" contained elsewhere in this Annual
Report. The pro forma data may not be indicative of the results
that actually would have occurred if the acquisition of Peoples
had occurred at the beginning of 1996 or may be obtained in the
future.
<PAGE>
<TABLE>
Pro Forma
1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Interest and Fees on Loans. . . . . $27,846 $21,970 $21,210 $17,348 $16,312 $16,903
Interest on Investments . . . . . . 7,515 6,350 6,087 4,722 5,345 6,018
______ ______ ______ ______ ______ _______
Total Interest Income. . . . . . 35,361 28,320 27,297 22,070 21,657 22,921
______ ______ ______ ______ ______ _______
Interest on Deposits. . . . . . . . 16,405 13,594 12,633 9,394 9,844 11,197
Interest on Borrowings . . . . . . 278 51 184 133 50 72
______ ______ ______ ______ ______ _______
Total Interest Expense . . . . . 16,683 13,645 12,817 9,527 9,894 11,269
______ ______ ______ ______ ______ _______
Net Interest Income . . . . . . . . 18,678 14,675 14,480 12,543 11,763 11,652
Provision for Loan Losses . . . . . 210 160 (19) 567 653 984
______ ______ ______ ______ ______ _______
Net Interest Income after Provision for
Loan Losses. . . . . . . . . . . 18,468 14,515 14,499 11,976 11,110 10,668
______ ______ ______ ______ ______ _______
Noninterest Income. . . . . . . . . 2,227 1,772 1,460 1,689 1,569 1,614
Noninterest Expenses. . . . . . . . 13,288 10,344 10,078 8,609 8,589 7,977
______ ______ ______ ______ ______ _______
Income Before Income Taxes and
Cumulative Effect of Change in
Accounting for Income Taxes. . 7,407 5,943 5,881 5,056 4,090 4,305
Income Tax Expense. . . . . . . . . 2,513 1,878 1,863 1,582 1,308 1,403
_____ ______ ______ ______ ______ _______
Income Before Cumulative Effect of
Change in Accounting for Taxes. 4,894 4,065 4,018 3,474 2,782 2,902
Cumulative Effect of Change in
Accounting for Income Taxes. . . --- --- --- --- 150 ---
_____ ______ ______ ______ ______ _______
Net Income. . . . . . . . . . . . . $4,894 $4,065 $4,018 $3,474 $2,932 $2,902
Year-end Balances
Total Assets. . . . . . . . . . . . $489,443 $397,506 $367,763 $346,526 $323,279 $305,022
Total Loans, Net. . . . . . . . . . 306,754 241,995 224,657 218,141 196,465 185,741
Total Long-term Debt. . . . . . . . 1,000 --- --- --- --- ---
Total Deposits. . . . . . . . . . . 422,908 352,749 327,579 302,290 281,510 270,952
Total Shareholders' Equity. . . . . 48,793 39,341 36,956 32,925 31,341 29,470
Per Share Data (1 )
Income Before Cumulative Effect of
Change in Accounting for
Income Taxes . . . . . . . . . $1.93 $2.12 $2.10 $1.81 $1.45 $1.51
Net Income(3) . . . . . . . . . . . 1.93 2.12 2.10 1.81 1.53 1.51
Cash Dividends (2). . . . . . . . . .79 .79 .72 .65 .63 .54
Shareholders' Equity, End of Year . 19.22 20.45 19.28 17.19 16.36 15.38
Other Data at Year-end
Number of Shareholders. . . . . . . 1,981 1,752 1,681 1,634 1,649 1,635
Number of Employees . . . . . . . . 218 174 167 157 143 133
Weighted Average Number of Shares . 2,636,470 1,920,053 1,916,482 1,915,900 1,915,894 1,915,894
</TABLE>
(1) Per share data has been retroactively adjusted to give
effect for stock dividends and stock splits.
(2) Cash dividends represent historical dividends declared per
share without retroactive restatement for pooling.
(3) Pro forma net income per share for Peoples Bancorp and the
Company combining as of January 1, 1994 is $1.91 for 1995
and $1.69 for 1994.
EXHIBIT 13.3
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table summarizes the net interest income (on a tax-
equivalent basis) for each of the past three years. For the tax-
equivalent adjustments, an effective tax rate of 34% was used for all
years presented. (1)
<TABLE> Average Balance Sheet
(Tax-equivalent / dollar references in thousands)
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, 1996 December 31, 1995 December 31, 199
Average Interest Average Interest Average Interest
Principal Income/ Average Principal Income/ Average Principal Income/ Average
Balance Expense Yield Balance Expense Yield Balance Expense Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term Investments:
Interest-bearing Balances
with Banks. . . . . . $ 898 $ 49 5.46% $ 1,024 $ 49 4.79% $ 2,841 $ 123 4.34%
Federal Funds Sold and Securities
Purchased under Agreements
to Resell . . . . . . 10,968 579 5.28% 12,716 739 5.81% 10,688 380 3.56%
Other Short-term Investments 2,115 114 5.39% 11,247 679 6.04% 4,002 202 5.05%
Securities:
Taxable . . . . . . . . 66,222 3,947 5.96% 56,670 3,229 5.70% 55,014 2,850 5.18%
Non-taxable . . . . . . 27,844 2,518 9.04% 20,937 2,107 10.06% 17,175 1,768 10.29%
Total Loans and Leases (2) (3) 242,523 22,071 9.10% 230,143 21,302 9.26% 214,041 17,401 8.13%
_______ ______ _______ ______ _______ ______
TOTAL INTEREST
EARNING ASSETS. . . . . 350,570 29,278 8.35% 332,737 28,105 8.45% 303,761 22,724 7.48%
_______ ______ _______ ______ _______ ______
Cash and Due from Banks . 12,549 11,159 10,222
Premises, Furniture &
Equipment . . . . . . . 9,803 9,668 7,636
Other Assets. . . . . . . 8,641 8,769 6,810
Less: Allowance for Loan Losses (5,991) (5,790) (5,266)
_______ _______ _______
TOTAL ASSETS. . . . . . . $375,572 $356,543 $323,163
======= ======= =======
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Savings and Interest-bearing
Demand Deposits . . . . $ 97,662 2,699 2.76% $ 92,311 2,490 2.70% $ 89,175 2,123 2.38%
Time Deposits . . . . . . 199,813 10,895 5.45% 191,202 10,143 5.30% 164,422 7,271 4.42%
Federal Funds Purchased and
Securities Sold under
Agreements to Repurchase --- ------ 928 57 6.14% 3,572 90 2.52%
Short-term Borrowings . . 989 51 5.16% 2,141 127 5.93% 1,081 43 4.01%
_______ ______ _______ ______ _______ ______
TOTAL INTEREST-BEARING
LIABILITIES . . . . . . 298,464 13,645 4.57% 286,582 12,817 4.47% 258,250 9,527 3.69%
_______ ______ _______ ______ _______ ______
Demand Deposit Accounts . 35,971 32,576 30,279
Other Liabilities . . . . 3,393 2,993 2,603
_______ _______ _______
TOTAL LIABILITIES . . . . 337,828 322,151 291,132
_______ _______ _______
Shareholders' Equity. . . 37,744 34,392 32,031
_______ _______ _______
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY. . $375,572 $356,543 $323,163
======= ======= =======
NET INTEREST INCOME . . . $15,633 $15,288 $13,197
====== ====== ======
NET YIELD ON
EARNING ASSETS. . . . . 4.46% 4.59% 4.34%
</TABLE>
1. Effective tax rates were determined as though interest earned on the
Company's investments in municipal bonds and loans was fully taxable.
2. Nonaccruing loans have been included in the average loans.
3. Interest income on loans includes loan fees of $326, $254, and $253 for
1996, 1995, and 1994, respectively.
<PAGE>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations (continued)
<TABLE>
INTERIM FINANCIAL DATA (Table 1) (Unaudited, $ in thousands except share data)
For the three months ended
December September June March
31 30 30 31
<S> <C> <C> <C> <C>
1996
Interest Income . . . . . . . . . . . . . . . $7,268 $7,072 $7,019 $6,961
Interest Expense. . . . . . . . . . . . . . . 3,536 3,454 3,348 3,307
_____ _____ _____ _____
Net Interest Income . . . . . . . . . . . . 3,732 3,618 3,671 3,654
Provision for Loan Losses . . . . . . . . . . 15 67 68 10
Noninterest Income. . . . . . . . . . . . . . 452 459 467 394
Noninterest Expense . . . . . . . . . . . . . 2,555 2,794 2,544 2,451
_____ _____ _____ _____
Income before Income Taxes. . . . . . . . . 1,614 1,216 1,526 1,587
Income Tax Expense. . . . . . . . . . . . . . 554 359 469 496
_____ _____ _____ _____
Net Income. . . . . . . . . . . . . . . . $1,060 $857 $1,057 $1,091
===== ===== ===== =====
Net Income per Share. . . . . . . . . . . . . $.55 $.45 $.55 $.57
===== ===== ===== =====
Weighted Average Shares . . . . . . . . . . . 1,922,904 1,920,880 1,918,301 1,918,088
========= ========= ========= =========
1995
Interest Income . . . . . . . . . . . . . . . $7,148 $6,923 $6,819 $6,407
Interest Expense. . . . . . . . . . . . . . . 3,422 3,313 3,253 2,829
_____ _____ _____ _____
Net Interest Income . . . . . . . . . . . . 3,726 3,610 3,566 3,578
Provision for Loan Losses . . . . . . . . . . (34) (213) 114 114
Noninterest Income. . . . . . . . . . . . . . 353 353 354 400
Noninterest Expense . . . . . . . . . . . . . 2,715 2,418 2,509 2,436
_____ _____ _____ _____
Income before Income Taxes. . . . . . . . . 1,398 1,758 1,297 1,428
Income Tax Expense. . . . . . . . . . . . . . 403 598 392 470
_____ _____ _____ _____
Net Income. . . . . . . . . . . . . . . . $995 $1,160 $905 $958
===== ===== ===== =====
Net Income per Share. . . . . . . . . . . . . $.52 $.61 $.47 $.50
===== ===== ===== =====
Weighted Average Shares . . . . . . . . . . . 1,915,881 1,916,187 1,916,864 1,917,012
========= ========== ========= =========
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
INTRODUCTION AND OVERVIEW
German American Bancorp ("the Company") is a multi-bank holding
company based in Jasper, Indiana. As the result of its March 4,
1997 acquisition of The Peoples National Bank and Trust Company
of Washington, the Company's four affiliate banks conduct
business in 20 offices in the six contiguous counties of Dubois,
Daviess, Martin, Pike, Perry and Spencer Counties in Southwest
Indiana. The banks provide a wide range of financial services,
including accepting deposits; making commercial and consumer
loans; originating, marketing, and servicing mortgage 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.
The information in this Management's Discussion and Analysis is
presented as an analysis of the major components of the Company's
operations for the years 1994 through 1996 and financial
condition as of December 31, 1996 and 1995. The information
should be used in conjunction with accompanying consolidated
financial statements and footnotes contained elsewhere in this
report. The information has been restated to reflect the merger
with The Otwell State Bank which was accounted for as pooling of
interests as if it had occurred as of the beginning of the first
year presented. The acquisition of certain branches of Regional
Federal Savings Bank ("Regional") have been accounted for as
purchases and included in reported results from the date of
acquisition. (See the discussion below for further information
on mergers and acquisitions.)
SIGNIFICANT EFFECTS OF RECENT PEOPLES BANCORP ACQUISITION
On March 4, 1997, the Company completed a merger with Peoples
Bancorp of Washington, Washington, Indiana, parent company of The
Peoples National Bank and Trust Company of Washington
(collectively, "Peoples") in which the Company issued
approximately 615,417 shares for all the outstanding shares of
Peoples. Concurrently with this transaction, The Union Bank, the
Company's affiliate bank in Loogootee, Indiana, combined with
Peoples under the Peoples name and charter creating a $150
million financial institution to better serve the Daviess and
Martin County area markets.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
As a result of the Peoples acquisition and the issuance of the
additional shares, the Company's operations, loans, total assets,
deposits, total liabilities, and capital resources, have
significantly increased since December 31, 1996. The historical
financial information presented in this report (and analyzed in
this Discussion) has not been restated to reflect the Company's
acquisition of Peoples because the transaction was consummated
after the date of the financial statements presented in this
report. The Company's financial statements will, however, be
retroactively restated for the Peoples merger in future reports
for all periods presented, because the merger was recorded
utilizing the pooling-of-interests method of accounting. For a
pro forma presentation of certain financial data as of and for
the year ended December 31, 1996, which gives effect to the
Peoples merger by combining the separate historical financial
information of Peoples and the Company for 1996, see the data
under the column "Pro Forma 1996" included in the "Five Year
Summary of Consolidated Financial Statements and Related
Statistics" (the "Five Year Summary") which is presented
elsewhere in this report.
As illustrated in the Five Year Summary, and Note 3, thereto, the
Company's net income per share and shareholders' equity per
share, as they will be retroactively restated to give effect to
the Peoples merger, will be materially less for all past years
than the Company's historical net income per share and
shareholders' equity per share for those years reported by the
Company's historical financial statements included in this report
without giving effect to the Peoples merger. Although management
expects that the Peoples merger will yield opportunities for
revenue enhancements and cost savings and other efficiencies that
will over time offset this dilution of per share net income,
management expects that the Peoples merger will continue to have
a dilutive impact on per share net income for at least the
Company's fiscal years ending December 31, 1997, 1998 and 1999.
This is a forward-looking statement, and various factors could
cause the actual period of material dilutive effect of the merger
on per share net income to be longer or shorter than presently
anticipated, including the possibility that actual future
earnings of the separate combining entities may differ compared
to the earnings that were assumed in connection with preparing
management's dilution estimates, and the possibility that the
amounts of expense reduction and the pace by which the Company is
able to achieve expense reductions may differ for various reasons
from the estimated amounts and pace. In order for the merger not
to be dilutive to the Company's net income per share for the year
ended December 31, 1996, management estimates that the Company
would have had to have realized revenue enhancements or
efficiencies from the merger of approximately $785,000.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
OTHER MERGERS AND ACQUISITIONS
On April 1, 1994, the Company acquired The Otwell State Bank,
Otwell, Indiana ("Otwell"), by the issuance of 113,286 shares for
all the outstanding shares of Otwell. This transaction was
recorded utilizing the pooling of interests method of accounting.
Following the completion of the transaction, Otwell and the
Company's existing affiliate, Southwestern Indiana Bank, were
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, the Company acquired the Regional branches
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, the
Company 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 over 10 years on an accelerated basis for the core
deposit intangible. Following the Regional acquisition, the
Huntingburg office was combined into the Company's lead bank,
German American Bank. The Tell City and Rockport offices were
combined into a newly formed subsidiary bank, First State Bank,
Southwest, Indiana ("First State").
The Company plans to continue to aggressively pursue merger and
acquisition opportunities as they become available. The Company's
management believes other community banks located in the
Company's general geographic area will find the concept of the
Company's localized community bank holding company an attractive
alternative to merging with other larger regional multi-bank
holding companies. The Company's approach offers these community
banks the competitive advantages of operational efficiencies
gained through the ability to spread fixed operating costs over a
larger asset base without the loss of flexibility and
independence generally associated with affiliation with the
larger regional multi-bank holding companies. Through the
Company, these community banks can retain ownership control
within a group of shareholders who reside in their general market
areas and who support the bank's commitment to their local
communities. Because of this belief, the Company's management
anticipates that additional mergers and acquisitions with like-
minded community banks may occur in future years.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
RESULTS OF OPERATIONS
NET INCOME
Net Income in 1996 was $4,065,000 or $2.12 per share, an increase
of 1.2% over the $4,018,000 or $2.10 per share reported in 1995.
The comparison of 1996 earnings relative to those of a year
earlier was materially impacted by an increase in net interest
income and an increase in Investment Services Income and Deposit
Service Charges. Partially offsetting these earnings
improvements were an increase in the Provision for Loan Loss and
an increase in Professional fees largely related to the Company's
merger and acquisition activities.
For 1995, net income was 15.7% higher than in 1994. This
increase in 1995 earnings relative to 1994 was impacted by a
$586,000 decline in the required level of Provision for Loan Loss
and a $1,937,000 increase in Net Interest Income. Other factors
materially impacting the earnings comparison of 1995 and 1994
were a decline in Investment Services Income as well as an
increase in Salaries and Benefits largely related to the
inclusion of First State throughout 1995.
NET INTEREST INCOME
Net interest income is the Company's single largest source of
earnings. It represents the difference between interest and fees
realized on earning assets, primarily loans and securities, and
interest paid on deposits and other borrowed funds. The net
interest margin is this difference expressed as a percentage of
average earning assets. Several factors contribute to the
determination of net interest income, including the volume of
earning assets, the mix of earning assets, interest rates, and
income taxes. Many of these factors can be controlled by
management policies and actions. Factors beyond the control of
management include the general level of credit demand, Federal
Reserve Board monetary policy, and changes in tax laws.
Net interest income for 1996 on a tax-equivalent basis was 2.3%
higher than that for 1995 while the net interest margin was 4.46%
for 1996 versus 4.59% for 1995. Tax-equivalent net interest
income for 1995 was 15.8% higher as compared to 1994 with net
interest margin increasing to 4.59% in 1995 from 4.34% in 1994.
Excluding the effect of First State, which was included in all
1996 and 1995 report data but only since October 28, 1994 in the
1994 data, tax-equivalent net interest income was $14,345,000 for
1995, a $1,271,000 or 9.7% increase over the $13,074,000 recorded
in 1994, and net interest margins (exclusive of First State) were
4.73% in 1995 and 4.36% in 1994.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
The increase in net interest income during 1996 and 1995 occurred
as a result of the impact of increases in the level of interest
earning assets and an increase in average yields in 1995 on
loans, short-term investments and securities. Fluctuations in
general short-term interest rates affect the average yields on
most interest earning assets more quickly than the average rate
paid on interest-bearing liabilities. The fluctuations in short-
term interest rates which occurred during the periods presented
resulted in a decline in Net Interest Margin in 1996 following an
increase in the margin in 1995.
See the discussion headed "Interest Rate Management" for a
further explanation of the Company's interest rate sensitivity
position.
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 $160,000 in 1996,
($19,000) in 1995, and $567,000 in 1994. The decline in
provision as compared to that recorded in 1994 primarily resulted
from a negative provision for loan loss at Union Bank of $110,000
in 1996 and $475,000 in 1995. The negative provisions at Union
Bank were due to collections of previous years' charged-off loans
combined with management's determination that an adequate level
of loan loss reserve existed prior to the loan recoveries.
Because of the adequacy of the existing reserve, the recoveries
resulted in the recording of a negative provision.
The amount of future years' provision for loan loss will be
subject to adjustment based on the findings of future evaluations
of the adequacy of the loan loss reserve. The section entitled
RISK MANAGEMENT expands this discussion further.
NONINTEREST INCOME
Exclusive of net security gains and gains on sales of loans and
other real estate ("ORE"), noninterest income increased 20.5% in
1996 to $1,725,000 compared to $1,431,000 in 1995. The primary
source of noninterest income continues to be trust fees (income
from fiduciary activities), service charges on deposit accounts
and investment services income.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
As presented on Table 2 on the following page, trust department
income declined by 2.2% in 1996 while service charges on deposit
accounts increased by 25.0% during 1996 because of a larger
number of transactions and fee generating opportunities for the
Company in this area. Investment services income increased
significantly by $198,000 following a $212,000 decline in 1995.
The level of earnings generated through Investment Services is
directly tied to the customers' utilization and acceptance of the
investment products offered through this service. This
investment services income is generated through a full service
brokerage operation which is available at several of the
Company's affiliate banks through an operating agreement with
INVEST FINANCIAL CORPORATION, a subsidiary of First American
Corporation, Inc. The Company intends to expand the availability
of investment services, as feasible, throughout its affiliate
banks.
Noninterest income exclusive of security gains and gains on sales
of loans and ORE decreased 5.7% in 1995 compared to 1994 largely
as a result of the decrease in the level of Investment Services
Income discussed above.
<TABLE>
NONINTEREST INCOME (Table 2)($ in thousands)
% Change From
Prior Year
______________
1996 1995 1994 1996 1995
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Income from Fiduciary Activities. . . . . . . . $181 $185 $171 (2.2)% 8.2%
Service Charges on Deposit Accounts . . . . . . 775 620 567 25.0 9.4
Investment Services Income. . . . . . . . . . . 406 208 420 95.2 (50.5)
Other Income. . . . . . . . . . . . . . . . . . 363 418 359 (13.2) 16.4
_____ _____ _____
Subtotal . . . . . . . . . . . . . . . . . . 1,725 1,431 1,517 20.5 (5.7)
Gains on Sales of Loans and Other Real Estate . 47 29 92 62.1 (68.5)
Security Gains. . . . . . . . . . . . . . . . . 0 0 80 N/M N/M
_____ _____
TOTAL NONINTEREST INCOME . . . . . . . . . . $1,772 $1,460 $1,689 21.4 (13.6)
===== ===== =====
N/M = Not Meaningful
</TABLE>
NONINTEREST EXPENSE
Total noninterest expense increased 2.6% in 1996 over 1995
levels. As a percentage of average total assets, total
noninterest expense was 2.75% in 1996 compared to 2.83% in 1995
and 2.66% in 1994. Salaries and employee benefits, which comprise
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
approximately 55% of total noninterest expense, increased by 7.3%
in 1996 following an 18.4% increase in 1995. A significant
portion of this increase is attributable to the inclusion of
First State Bank throughout 1996 and 1995 and to effects of
changes in the Company's organizational structure which occurred
in mid 1995. Prior to July 1995, the Company's executive
officers and support functions served both the Company and its
lead affiliate bank, German American Bank. In recognition of the
increased management and administrative demands existing under a
multi-bank holding company environment, the management and
administrative support functions of German American Bank and the
Company were segmented into distinct groups with additional
staffing implemented as deemed appropriate. Although this
organizational change did result in an increased level of
Salaries & Benefits, Company management believes the increased
management focus at both the Bank and Bancorp level will result
in increased operating efficiency.
Occupancy expense and furniture and equipment expense combined,
decreased by $12,000 or .8% in 1996 following a 20.4% increase in
1995. Approximately one-half of the 1995 increase resulted from
First State with the balance of the increased 1995 expense level
attributable to an upgrading of facilities and equipment at the
Company's other affiliate banks.
Computer processing expense increased by 6.0% and 13.4% in 1996
and 1995, respectively, reflecting an increased number of
accounts processed and conversion expenses at the Company's newly
acquired affiliates. Through the utilization of state-of-the-art
equipment and computer processing, the Company's management
believes it will, over the long-term, be able to better control
the level of employee related expenses, the Company's major
noninterest expense category, while improving the quality of
customer service provided throughout the affiliate bank system.
Professional fees increased significantly by $207,000 in 1996
following a $59,000 decrease in 1995 largely as a result of
variations in the level of merger related professional fees.
While it is not possible to predict the level of acquisition
activity and the resulting level of costs associated thereto,
management does intend to pursue acquisition opportunities and,
therefore, increased and continued costs will be likely in future
years.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
During the third quarter of 1996, the FDIC instituted a one-time
special assessment against all deposits insured by the Savings
Association Insurance Fund ("SAIF"). A small portion of the
deposits of German American Bank and all the deposits of First
State Bank are insured under SAIF. Therefore, the Company was
subject to a special assessment of $157,000. Including the
impact of this special assessment, FDIC premiums totaled $227,000
in 1996 as compared to $393,000 and $644,000 in 1995 and 1994,
respectively. Premiums for 1997 are anticipated to be
approximately $43,000 with future years' premiums expected to
stabilize at or near $62,000 based on the current level of
insured deposits. The statements in this paragraph relating to
FDIC premiums for 1997 and future years are forward-looking
statements which may or may not be accurate due to the
impossibility of predicting future Congressional or regulatory
actions or the future capitalization levels of the insurance
funds.
Other operating expenses decreased by 8.1% in 1996 following a
41.2% increase in 1995. The 1995 increase was largely
attributable to the inclusion of the First State operation for
the full year and increased advertising and supplies expenses
related to the Company's introduction, throughout 1995, of a new
company-wide corporate identity program. Additionally,
amortization of goodwill and the core deposit intangible totaled
$216,000, $231,000 and $112,000, for 1996, 1995 and 1994,
respectively. First State Bank's operating results reflected a
significant portion of the amortization expense.
<TABLE>
NONINTEREST EXPENSE (Table 3)($ in thousands)
% Change From
Prior Year
______________
1996 1995 1994 1996 1995
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits. . . . . . . . . $5,738 $5,349 $4,517 7.3% 18.4%
Occupancy, Furniture and Equipment Expense. . . 1,549 1,561 1,297 (.8) 20.4
FDIC Premiums . . . . . . . . . . . . . . . . . 227 393 644 (42.2) (39.0)
Computer Processing Fees. . . . . . . . . . . . 423 399 352 6.0 13.4
Professional Fees . . . . . . . . . . . . . . . 405 198 257 104.5 (23.0)
Other Operating Expenses. . . . . . . . . . . . 2,002 2,178 1,542 (8.1) 41.2
______ ______ _____
TOTAL NONINTEREST EXPENSE. . . . . . . . . . $10,344 $10,078 $8,609 2.6 17.1
</TABLE> ====== ====== =====
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
PROVISION FOR INCOME TAXES
The Company records a provision for income taxes currently
payable, along with a provision for taxes payable in the future.
Such deferred taxes arise from differences in the timing of
certain items for financial statement reporting versus for income
tax reporting. The major difference between the effective tax
rate applied to the Company's financial statement income and the
federal statutory rate of 34% is interest on tax-exempt
securities and loans. Other components affecting this
calculation include state income taxes and nondeductible merger
costs. Note 10 to the consolidated financial statements contains
additional details relative to the Company's income tax
provision. The Company's effective tax rate was 31.6%, 31.7% and
31.3% in 1996, 1995, and 1994, respectively.
CAPITAL RESOURCES
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.
Minimum levels of capital are required to be maintained 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% 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% leverage ratio, which is Tier 1 capital divided by
defined "total assets", 4.0% Tier 1 capital to risk-adjusted
assets and 8.0% total capital to risk-adjusted assets ratios.
Under these guidelines, the Company, on a consolidated basis, and
each of its affiliate banks individually, have capital ratios
that substantially exceed the regulatory minimums.
The Company's shareholders' equity of $39,341,000 and $36,956,000
at December 31, 1996 and December 31, 1995, respectively
represented 9.9% and 10.0% of total assets. The Company paid
cash dividends of $1,518,000 and $1,392,000 during 1996 and 1995,
respectively. The increased level of dividends paid in 1996 and
1995 resulted from the issuance of additional shares in
connection with the Company's Stock Dividend and Dividend
Reinvestment Plan.
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) requires federal regulatory agencies to define capital
tiers. These are: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Under these regulations, a "well-capitalized"
entity must achieve a Tier 2 Risk-based capital ratio of at least
6.0%, a total capital ratio of at least 10.0% and a leverage
ratio of at least 5.0% and not be under a capital directive
order. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on
financial statements. If adequately capitalized, regulatory
approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset
growth and expansion, and plans for capital restoration are
required. At December 31, 1996 the Company and all affiliate
banks were categorized as well capitalized.
At December 31, 1996, management is not aware of any current
recommendations by banking regulatory authorities which, if they
were to be implemented, would have, or are reasonably likely to
have, a material effect on the Company's consolidated liquidity,
capital resources or operations.
The table below presents the Company's consolidated capital
ratios under regulatory guidelines.
RISK BASED CAPITAL STRUCTURE (Table 4) ($ in thousands)
<TABLE>
1996 1995
____ ____
<S> <C> <C>
Tier 1 Capital:
Shareholders' Equity as presented on Balance Sheet . . . . . . . $39,341 $36,956
Subtract: Unrealized Appreciation on Securities Available-for-Sale. (575) (859)
Less: Intangible Assets and Ineligible Deferred Tax Assets. . . . . (1,924) (2,140)
______ ______
Total Tier 1 Capital. . . . . . . . . . . . . . . . . . . . . . . . 36,842 33,957
Tier 2 Capital:
Qualifying Allowance for Loan Loss . . . . . . . . . . . . . . . 3,219 2,943
______ ______
Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,061 $36,900
======= =======
Risk Weighted Assets. . . . . . . . . . . . . . . . . . . . . . . . $255,141 $232,272
</TABLE>
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
<TABLE>
<CAPTION>
RISK BASED CAPITAL STRUCTURE (Table 4) ($ in thousands) (Continued)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
______ _____ ______ _____ ______ _____
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) . . $40,061 15.70% *$20,411 *8.0% *$25,514 *10.0%
Tier 1 Capital
(to Risk Weighted Assets) . . $36,842 14.44% *$10,206 *4.0% *$15,308 * 6.0%
Tier 1 Capital
(to Average Assets) . . . . . $36,842 9.56% *$15,416 *4.0% *$19,270 * 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) . . $36,900 15.89% *$18,582 *8.0% *$23,227 *10.0%
Tier 1 Capital
(to Risk Weighted Assets) . . $33,957 14.62% * $9,291 *4.0% *$13,936 * 6.0%
Tier 1 Capital
(to Average Assets) . . . . . $33,957 9.29% *$14,621 *4.0% *$18,276 * 5.0%
*Greater or equal to amount stated
</TABLE>
SOURCES OF FUNDS
The Company's primary funding source is its base of core customer
deposits, such as noninterest-bearing demand, regular savings and
money market accounts and small denomination certificates of
deposit of less than $100,000. Other shorter term sources of
funds are larger denomination certificates of deposit, overnight
borrowings from other financial institutions, securities sold
under agreements to repurchase, short-term notes payable issued
on an unsecured basis, and short-term borrowings consisting of
interest-bearing demand notes issued to the U.S. Treasury. The
Company did not have any long-term debt during the periods
presented. The membership of the Company's affiliate banks in
the Federal Home Loan Bank System provide an additional source
for both long and short-term borrowings. No such advances were
outstanding during the periods presented. The following page
contains a discussion of changes in these areas. Table 5 below
presents changes between years in the average balances of all
funding sources.
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
<TABLE>
FUNDING SOURCES - AVERAGE BALANCES (Table 5) ($ in thousands)
% Change From
Prior Year
______________
1996 1995 1994 1996 1995
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Demand. . . . . . . . . . . . . . . . . . . . . $35,971 $32,576 $30,279 10.4% 7.6%
Savings and Interest-bearing Checking . . . . . 67,306 69,847 71,765 (3.6) (2.7)
Money Market Accounts . . . . . . . . . . . . . 30,356 22,464 17,410 35.1 29.0
Other Time Deposits . . . . . . . . . . . . . . 171,534 158,428 135,742 8.3 16.7
_______ _______ _______
Total Core Deposits. . . . . . . . . . . . . 305,167 283,315 255,196 7.7 11.0
_______ _______ _______
Certificates of Deposits of $100,000 and Over . 28,279 32,774 28,680 (13.7) 14.3
Federal Funds Purchased and Securities
Sold under Agreement to Repurchase . . . . . --- 928 3,572 N/M (74.0)
Other Short-term Borrowings . . . . . . . . . . 989 2,141 1,081 (53.8) 98.1
_______ _______ _______
Total Funding Sources. . . . . . . . . . . . $334,435 $319,158 $288,529 4.8 10.6
======= ======= =======
N/M = Not Meaningful
</TABLE>
CORE DEPOSITS
The Company's average core deposits have shown steady growth over
the past several years, increasing by 7.7% and 11.0% in 1996 and
1995, respectively. In 1996 and 1995, the Company experienced a
shift in the composition of its deposits toward money market
deposits and longer term certificates of deposit. This movement
is largely attributable to customer reaction to the higher level
of interest rates paid on these products relative to that paid on
the savings and interest-bearing checking products. In total,
average savings, interest-bearing checking and money market
deposits increased by 5.8% and 3.5% in 1996 and 1995,
respectively while other time deposits consisting primarily of
certificates of deposits in denominations of $100,000 or less
increased by 8.3% in 1996 following a 16.7% increase in 1995.
Average noninterest-bearing demand deposits increased by 10.4% in
1996 and 7.6% in 1995. These changes in the mix of deposits are
influenced by customers' tendency to avoid committing to longer
term instruments during periods of low or declining interest
rates and their attempts to lock in rates on longer term
instruments during periods of perceived higher rates. They are
also subject to seasonal and other non-economic factors.
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
OTHER FUNDING SOURCES
Exclusive of core deposits, large denomination certificates of
deposit provide the majority of other funding sources for the
Company. These certificates declined by 13.7% in 1996 following
a 14.3% increase in 1995. The remaining other funding sources
consist of federal funds purchased from other financial
institutions on an overnight basis, secured repurchase agreements
which generally mature within 30 days, short-term notes payable
extended on an unsecured basis, and borrowings under U.S.
Treasury demand notes. These borrowings represent an important
source of temporary short-term liquidity for the Company. These
types of borrowings and large dollar denominated certificates are
considered to be more subject to periodic withdrawals than are
core deposits, and, therefore, are generally not used as a
permanent funding source for loans.
USES OF FUNDS
INVESTMENTS
The Company's securities portfolio, consisting of all components
of the Company's investment securities, mortgage-backed
securities, and securities available-for-sale, includes U.S.
Treasury securities, obligations of U.S. government agencies,
obligations of state and political subdivisions, corporate
investments and mortgage-backed securities issued by U.S.
government agencies and other intermediaries. Money market
securities include federal funds sold, interest-bearing balances
with banks, and other short-term investments. The maturities of
the securities and money market portfolios are a principal source
of funds for loan growth and other liquidity needs. The
Company's available-for-sale portfolio provides an additional
source of funds from which management can respond to liquidity
needs and asset/liability management requirements. During 1996,
a shift occurred in the composition of the Company's securities
portfolio primarily between mortgage-backed securities and
agency securities. As anticipated, a substantial portion of the
Company's mortgage-backed securities were paid-down during the
year. The funds generated from those pay-downs were utilized to
purchase agency insured callable securities at yields generally
equal to or greater than those which were carried in the
mortgage-backed portfolio. During 1995, the Financial Accounting
Standards Board authorized a one-time window of opportunity for
the transfer of securities to available-for-sale portfolios.
Company management utilized this opportunity to transfer a
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
significant portion of its securities portfolio to the available-
for-sale classification. Although management may sell these
securities if the need arises, their designation as available-
for-sale should not be interpreted to indicate that management
anticipates such sales. Securities available-for-sale are
carried at market value. All other securities are carried at
amortized cost because management intends to hold them until
maturity and the Company has the ability to do so. Note 2 to the
consolidated financial statements contains additional details
regarding the Company's securities portfolio in 1996 and 1995.
<TABLE>
SECURITIES PORTFOLIO (Table 6) (carrying value, $ in thousands)
December 31,
1996 % 1995 %
<S> <C> <C> <C> <C>
Money Market Securities . . . . . . . . . $22,176 18.0% $19,376 17.8%
U.S. Treasury and Agency Securities . . . 39,064 31.6 23,787 21.8
Municipal Securities. . . . . . . . . . . 32,674 26.4 25,255 23.2
Corporate Securities. . . . . . . . . . . 7,245 5.9 6,463 5.9
Mortgage-backed Securities. . . . . . . . 21,378 17.3 33,272 30.6
Other Securities. . . . . . . . . . . . . 1,014 .8 738 .7
_______ _____ _______ _____
Total Securities Portfolio . . . . . . $123,551 100.0% $108,891 100.0%
======= ===== ======= =====
</TABLE>
LOANS
Total loans grew by $16,797,000 or 7.3% between 1996 and 1995.
The Company's newest affiliate bank, First State, achieved a
significant market share of the lending opportunities available
within its market. The Company's loan portfolio remains well
diversified with 53% of the portfolio in commercial and
agricultural loans (including economic development bonds), 30% in
1-4 family residential mortgages, and 17% in consumer loans at
December 31, 1996. The Company's affiliate banks lend to
commercial customers in various industries including
agribusiness, manufacturing, health care services, wholesale, and
retailing.
The Company's policy is generally to extend credit to consumer
and commercial borrowers in its primary geographic market area in
Southwestern Indiana. Extensions of credit outside this primary
geographic market area (other than poultry-related loans
described below) are generally concentrated in commercial real
estate loans granted on a selective basis generally within a 120
mile radius of the Company's primary market. Loans outside the
Company's general geographic market area are further limited to
loans guaranteed by either the Small Business Administration
(SBA) or the Farmers Home Administration (FmHA).
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
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 agricultural,
poultry and wood manufacturing industries. Although wood
manufacturers employ a significant number of people in the market
area, there is not a concentration of credit to companies engaged
in that industry. The Company has historically been involved in
the financing of poultry production and other related
operations. Approximately $16,266,000 or 6.6% of total loans at
December 31, 1996 consisted of such loans which compares to a
balance of $23,784,000 or 10.3% of total loans as of December 31,
1995. This decline in outstandings reflects a reduction in
lending opportunities within the poultry industry. This decline
in lending opportunities is expected to continue in coming years.
As a means of controlling risk from concentrations of credit
within this industry, the Company has, during recent years,
utilized guaranties from SBA and FmHA. Typically, the guaranties
provide for SBA and FmHA, in the event of default, to absorb from
85% to 90% of the loan balance remaining after the application of
collateral. Assuming the guarantors perform in accordance with
their guaranties, the Company's net exposure is limited to the
remaining 10% to 15% balance. At December 31, 1996, the net
unguaranteed exposure to poultry and other related loans was
$5,033,000 or 2.0% of total loans. Approximately $12,752,000
of loans to poultry and other related operations, substantially
all of which are covered by 85% to 90% guaranties, were
originated outside the Company's primary business market. No
unguaranteed concentration of credit in excess of 10% of total
assets exists within any single industry group.
The composition of loan portfolio at December 31, 1996 and 1995
is presented in further detail in Note 3 to the consolidated
financial statements and in Table 7 on the following page.
<TABLE>
LOAN PORTFOLIO (Table 7) ($ in thousands)
1996 1995 1994 1993 1992
____ ____ ____ ____ ___
<S> <C> <C> <C> <C> <C>
Commercial and Industrial . . . . . . . . $84,071 $75,914 $69,482 $64,644 $63,855
Agricultural and Poultry. . . . . . . . . 46,719 51,094 57,558 55,311 54,465
Economic Development Bonds. . . . . . . . 575 608 625 762 1,547
Residential Mortgage Loans. . . . . . . . 74,818 68,826 67,737 55,225 47,170
Consumer Loans. . . . . . . . . . . . . . 41,741 34,685 29,248 26,684 24,183
_______ _______ _______ _______ _______
Total Loans. . . . . . . . . . . . . . 247,924 231,127 224,650 202,626 191,220
_______ _______ _______ _______ _______
Less:
Unearned Income. . . . . . . . . . . 313 537 840 1,226 1,617
Allowance for Loan Loss. . . . . . . 5,616 5,933 5,669 4,935 3,862
_______ _______ _______ _______ _______
Loans, Net. . . . . . . . . . . . . . . . $241,995 $224,657 $218,141 $196,465 $185,741
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
RISK MANAGEMENT
Various procedures are employed at the Company's affiliate banks
to monitor risk. The major risk addressed by the Company on a
regular basis is the credit risk inherent in the loan portfolio
and to a lesser extent, the investment portfolio. Another risk
is that associated with changes in interest rates. The following
is a discussion of the Company's philosophies and procedures to
address risk.
LENDING AND LOAN ADMINISTRATION
The primary responsibility and accountability for day-to-day
lending activities rests with the Company's affiliate banks.
Loan personnel at each bank have the authority to extend credit
under guidelines approved by the bank's board of directors. Each
bank also has executive and board loan committees that serve as
vehicles for communication and the pooling of knowledge, judgment
and experience of its members. These committees provide valuable
input to lending personnel and act as an approval body. They
also serve as a monitoring tool of the overall quality of the
loan portfolios. Members of the Company's executive officers
serve on the board loan committees of each of the affiliate banks
to ensure a consistent application of company policies.
The Company maintains a comprehensive loan review program for
its affiliate banks. The purpose of these reviews is to evaluate
loan administration, credit quality, loan documentation and the
adequacy of the allowance for loan losses. This program also
includes regular reviews of problem loan reports, delinquencies
and charge-offs. The adequacy of the allowance for loan losses
is also evaluated at the affiliate bank level on a quarterly
basis. This evaluation of the allowances for loan losses is
based on reviews of specific loans, changes in the type and
volume of the loan portfolios given current and anticipated
economic conditions, and historical loss experience. The review
of specific loans includes loans where the customer's cash flow
or net worth may not be sufficient to repay the loan, the loan
has been criticized in a regulatory examination, the accrual of
interest has been suspended, or for other reasons where either
the ultimate collectibility of the loan is in question or the
loan has characteristics requiring special monitoring.
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
Activity in the allowance for loan losses is summarized in Table
8 on the following page. Table 9 presents data for the
underperforming assets. Underperforming assets consist of 1)
nonaccrual loans; 2) loans which have been renegotiated to
provide for a reduction or deferral of interest or principal
because of a deterioration in the financial condition of the
borrower; 3) loans past due ninety (90) days or more as to
principal or interest; and 4) other real estate owned. Loans are
placed on nonaccrual status when scheduled principal or interest
payments are past due for 90 days or more, unless the loan is
well secured and in the process of collection. Loans are
charged-off when they are deemed uncollectible.
During 1996, the Company's level of underperforming loans
decreased from $3,486,000 or 1.51% of total loans as of December
31, 1995 to $2,210,000 or .89% of total loans at December 31,
1996. During 1996, the allowance for loan loss decreased by
$317,000 which represents the amount by which the current year's
charged-off loans exceeded the amount of recoveries of prior
years' charge-offs and the current year provision for loan loss.
See the discussion entitled "PROVISION FOR LOAN LOSS" elsewhere
in this report for further details regarding the provision.
<TABLE>
ALLOWANCE FOR LOAN LOSSES (Table 8) ($ in thousands)
1996 1995 1994
_____ _____ _____
<S> <C> <C> <C>
Balance as of January 1 . . . . . . . . . . . . $5,933 $5,669 $4,935
Addition of Affiliate Banks . . . . . . . . . . --- --- 195
Provision for Loan Losses . . . . . . . . . . . 160 (19) 567
Recoveries of Prior Loan Losses . . . . . . . . 295 622 227
Loan Losses Charged to the Allowance. . . . . . (772) (339) (255)
_____ _____ _____
Balance as of December 31 . . . . . . . . . . . $5,616 $5,933 $5,669
UNDERPERFORMING ASSETS (Table 9) ($ in thousands)
1996 1995 1994
____ ____ ____
Nonaccrual Loans. . . . . . . . . . . . . . . . $1,112 $803 $983
Past Due Loans (90 days or more). . . . . . . . 1,098 2,683 601
Renegotiated Loans. . . . . . . . . . . . . . . --- --- ---
_____ _____ _____
Total Underperforming Loans. . . . . . . . . 2,210 3,486 1,584
_____ _____ _____
Other Real Estate Owned . . . . . . . . . . . . 203 286 497
_____ _____ _____
Total Underperforming Assets . . . . . . . . $2,413 $3,772 $2,081
===== ===== =====
Allowance for Loan Losses to
Underperforming Loans. . . . . . . . . . . . 254.12% 170.20% 357.89%
Underperforming Loans to Total Loans. . . . . . .89% 1.51% .71%
Allowance for Loan Losses to Total Loans . . . 2.27% 2.57% 2.53%
</TABLE>
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
INVESTMENTS, LIQUIDITY, AND INFLATION
Two of the more important and interrelated areas the Company and
its affiliate banks manage very closely are the Company's
liquidity requirements and its balance between interest-rate-
sensitive assets and interest-rate-sensitive liabilities.
Liquidity needs in a banking organization arise from new loan
demand, the funding of existing loan commitments, and deposit
withdrawals. One important objective in managing the securities
portfolio is to ensure the Company has adequate liquidity. The
purposes of liquidity management are to match sources of funds
with anticipated customer borrowings and withdrawals and other
obligations and to ensure a dependable funding base. As
discussed in the "Investments" discussion contained elsewhere in
this report, management significantly increased the available-
for-sale portfolio during 1995. This action greatly enhanced the
Company's ability to quickly react to changes in liquidity and
asset and liability needs. Failure to properly manage liquidity
requirements can result in the need to satisfy customer
withdrawals and other obligations on less than desirable terms.
The Company's asset and liability structure is substantially
different from that of an industrial company, in that virtually
all assets and liabilities of a financial institution are
monetary in nature. Accordingly, changes in interest rates may
have a significant impact on a financial institution's
performance. Interest rates do not necessarily move in the same
direction, or in the same magnitude, as the prices of other goods
and services.
Attention should be directed to the various analyses and
schedules throughout Management's Discussion and Analysis which
are useful in analyzing how the Company is positioned to react to
changing interest rates.
INTEREST RATE MANAGEMENT
Interest rate sensitivity occurs when assets or liabilities are
subject to rate and yield changes within a designated time
period. The Company performs rate sensitivity analyses which
place each of the Company's balance sheet components in its
appropriate maturity category according to its repricing
frequency. In addition to rate sensitivity analyses, the Company
also utilizes other asset/liability measurements such as computer
generated simulation modeling. This enables management to
measure the effect on earnings of changes in interest rates.
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
Without regular monitoring and management of these critical
areas, a movement in interest rates and its corresponding effect
on the net interest margin may significantly affect
profitability. The degree of any potential consequences of such
interest rate changes can be mitigated by maintaining a proper
asset/liability position given projected interest rates. The
Company's policy is to actively manage its asset / liability
position within a one-year interval with a goal to protect its
earnings from being materially adversely impacted by changes in
interest rates during the coming year.
The Company has a Funds Management Policy which established
guidelines under which the affiliate banks manage their
securities portfolios. Funds Management Committees at each of
the affiliate banks meet quarterly to monitor the established
guidelines. The overall objective of these committees is to
ensure the Company maintains an adequate level of liquidity and
maximizes its net interest margins while implementing and
monitoring programs for the matching of the mix and maturities of
various asset and liability categories so as to avoid undue
interest rate risk. The committees formulate short and long-term
strategies, direct the acquisition and allocation of funds and
monitor the level of interest rate sensitivity within the
established guidelines.
Table 10 reflects the Company's interest rate sensitivity
position (interest rate-sensitive assets minus interest rate-
sensitive liabilities) individually and cumulatively, over
various time horizons. As indicated in the table, a significant
portion of the Company's assets and liabilities reprice within 1-
181 days. While slightly more of its assets than liabilities are
subject to repricing during this period, the Company believes its
asset/liability management program allows adequate reaction time
to adjust to changes in interest rate trends and believes the
current asset/liability position does effectively protect the
Company's net interest margin and the resulting net interest
income from any material adverse impact during 1997 assuming a
moderate rise or decline in interest rates.
<PAGE>
Management's Discussion and
Analysis of Financial
Condition and Results of Operations
(continued)
<TABLE>
ANALYSIS OF INTEREST RATE SENSITIVITY at December 31, 1997 (Table 10) ($ in thousands)
1-3 3-6 6-12 1-5 Beyond
Months Months Months Years 5 Years Total
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Money Market Assets. . . . . . $20,600 $1,376 $200 --- --- $22,176
Securities . . . . . . . . . . 25,764 8,417 11,005 $31,671 $24,518 101,375
Loans (Net of Unearned). . . . 83,337 31,213 65,773 56,248 11,040 247,611
_______ ______ ______ ______ _______ _______
TOTAL EARNING ASSETS. . . . $129,701 $41,006 $76,978 $87,919 $35,558 $371,162
_______ ______ ______ ______ _______ _______
INTEREST BEARING LIABILITIES
Retail Savings Money Market
Deposits. . . . . . . . . . $98,577 --- --- --- --- $98,577
Retail Time Deposits . . . . . 30,671 $20,060 $50,828 $82,700 $127 184,386
Large Dollar Denominated
Time Deposits . . . . . . . 9,613 5,610 3,961 8,748 --- 27,932
Other Borrowings . . . . . . . 2,127 --- --- --- --- 2,127
_______ ______ ______ ______ _______ _______
TOTAL INTEREST BEARING
LIABILITIES. . . . . . . $140,988 $25,670 $54,789 $91,448 $127 $313,022
_______ ______ ______ ______ _______ _______
Periodic GAP. . . . . . . . . . .$(11,287) $15,336 $22,189 $(3,529) $35,431
Cumulative GAP. . . . . . . . . .$(11,287) $4,049 $26,238 $22,709 $58,140
Cumulative Ratio (1). . . . . . . 92% 102% 112% 107% 119%
(1) Rate-sensitive Assets / Rate-sensitive Liabilities
</TABLE>
EXHIBIT 13.4
Consolidated Balance Sheets
(dollar references in thousands except
share data)
<TABLE>
December 31,
____________
1996 1995
____ _____
<S> <C> <C>
ASSETS
Cash and Due from Banks . . . . . . . . . . . . . . . . . . . . $13,109 $15,421
Federal Funds Sold. . . . . . . . . . . . . . . . . . . . . . . 20,600 12,550
______ ______
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . 33,709 27,971
______ ______
Interest-bearing Balances with Banks. . . . . . . . . . . . . . 597 897
Other Short-term Investments. . . . . . . . . . . . . . . . . . 979 5,929
Securities Available-for-Sale, at Market. . . . . . . . . . . . 85,708 78,908
Securities Held-to-Maturity, at Cost (Market Value of $16,270 and
$11,237 on December 31, 1996 and 1995, respectively). . . . . 15,667 10,607
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,924 231,127
Less:
Unearned Income . . . . . . . . . . . . . . . . . . . . . . . (313) (537)
Allowance for Loan Losses . . . . . . . . . . . . . . . . . . (5,616) (5,933)
_______ _______
Loans, Net. . . . . . . . . . . . . . . . . . . . . . . . . . . 241,995 224,657
Premises, Furniture and Equipment, Net. . . . . . . . . . . . . 10,072 9,624
Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . 203 286
Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . 1,774 1,990
Accrued Interest Receivable and Other Assets. . . . . . . . . . 6,802 6,894
_______ _______
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . $397,506 $367,763
======= =======
LIABILITIES
Noninterest-bearing Deposits. . . . . . . . . . . . . . . . . . $41,854 $40,855
Interest-bearing Deposits . . . . . . . . . . . . . . . . . . . 310,895 286,724
_______ _______
Total Deposits. . . . . . . . . . . . . . . . . . . . . . . . 352,749 327,579
Short-term Borrowings . . . . . . . . . . . . . . . . . . . . . 2,127 ---
Accrued Interest Payable and Other Liabilities. . . . . . . . . 3,289 3,228
_______ _______
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . 358,165 330,807
_______ _______
Commitments and Contingent Liabilities
SHAREHOLDERS' EQUITY
Common Stock, $10 par value; 5,000,000 shares authorized,
1,923,774 and 1,825,040 issued and outstanding
in 1996 and 1995, respectively. . . . . . . . . . . . . . . . 19,238 18,250
Preferred Stock, $10 par value; 500,000 shares authorized,
no shares issued. . . . . . . . . . . . . . . . . . . . . . . --- ---
Additional Paid-in Capital. . . . . . . . . . . . . . . . . . . 8,098 5,449
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . 11,430 12,398
Unrealized Appreciation on Securities
Available-for-Sale, Net . . . . . . . . . . . . . . . . . . . 575 859
______ ______
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . 39,341 36,956
_______ ______
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . $397,506 $367,76
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
(dollar references in thousands except earnings per share)
Years ended December 31,
________________________
1996 1995
1994
____ ____
____
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans. . . . . . . . . . . . . . . . . $21,970 $21,210$17,348
Interest on Federal Funds Sold. . . . . . . . . . . . . . . 579 739319
Interest on Short-term Investments. . . . . . . . . . . . . 162 728386
Interest and Dividends on Securities
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . 3,947 3,2292,850
Non-taxable . . . . . . . . . . . . . . . . . . . . . . . 1,662 1,3911,167
______ ____________
TOTAL INTEREST INCOME. . . . . . . . . . . . . . . . . 28,320 27,29722,070
______ ____________
INTEREST EXPENSE
Interest on Deposits. . . . . . . . . . . . . . . . . . . . 13,594 12,6339,394
Interest on Short-term Borrowings . . . . . . . . . . . . . 51 184133
______ ____________
TOTAL INTEREST EXPENSE. . . . . . . . . . . . . . . . . . 13,645 12,8179,527
______ ____________
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . 14,675 14,48012,543
Provision for Loan Losses . . . . . . . . . . . . . . . . . 160 (19)567
______ ____________
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . . . 14,515 14,49911,976
______ ____________
NONINTEREST INCOME
Income from Fiduciary Activities. . . . . . . . . . . . . . 181 185171
Service Charges on Deposit Accounts . . . . . . . . . . . . 775 620567
Investment Services Income. . . . . . . . . . . . . . . . . 406 208420
Other Service Charges, Commissions, and Fees. . . . . . . . 363 418359
Gains on Sales of Loans and Other Real Estate . . . . . . . 47 2992
Security Gains. . . . . . . . . . . . . . . . . . . . . . . --- ---80
______ ____________
TOTAL NONINTEREST INCOME. . . . . . . . . . . . . . . . . 1,772 1,4601,689
______ ____________
NONINTEREST EXPENSE
Salaries and Employee Benefits. . . . . . . . . . . . . . . 5,738 5,3494,517
Occupancy Expense . . . . . . . . . . . . . . . . . . . . . 804 813678
Furniture and Equipment Expense . . . . . . . . . . . . . . 745 748619
FDIC Premiums . . . . . . . . . . . . . . . . . . . . . . . 227 393644
Computer Processing Fees. . . . . . . . . . . . . . . . . . 423 399352
Professional Fees . . . . . . . . . . . . . . . . . . . . . 405 198257
Other Operating Expenses. . . . . . . . . . . . . . . . . . 2,002 2,1781,542
______ ____________
TOTAL NONINTEREST EXPENSE . . . . . . . . . . . . . . . . 10,344 10,0788,609
______ ____________
Income before Income Taxes. . . . . . . . . . . . . . . . . 5,943 5,8815,056
Income Tax Expense. . . . . . . . . . . . . . . . . . . . . 1,878 1,8631,582
______ ____________
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,065 $ 4,018$ 3,474
====== ============
EARNINGS PER SHARE. . . . . . . . . . . . . . . . . . . . . $ 2.12 $ 2.10$ 1.81
====== ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(dollar references in thousands)
Years Ended December 31,
1996 19951994
____ ________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . $4,065 $4,018$3,474
Adjustments to Reconcile Net Income to Net Cash from
Operating Activities
Net Accretion on Investments. . . . . . . . . . . . . . . . (32) (662)(50)
Depreciation and Amortization . . . . . . . . . . . . . . . 937 948712
Provision for Loan Losses . . . . . . . . . . . . . . . . . 160 (19)567
Gain on Sale of Securities. . . . . . . . . . . . . . . . . --- ---(80)
Gain on Sales of Loans and Other Real Estate. . . . . . . . (47) (29)(92)
Change in Assets and Liabilities:
Deferred Taxes . . . . . . . . . . . . . . . . . . . . . 113 5(349)
Deferred Loan Fees . . . . . . . . . . . . . . . . . . . (11) 34(157)
Interest Receivable. . . . . . . . . . . . . . . . . . . (274) (632)(143)
Interest Payable . . . . . . . . . . . . . . . . . . . . 75 34040
Other Assets . . . . . . . . . . . . . . . . . . . . . . 456 (649)316
Other Liabilities. . . . . . . . . . . . . . . . . . . . (14) 163(274)
Unearned Income. . . . . . . . . . . . . . . . . . . . . (224) (303)(386)
_____ _____ _____
Total Adjustments. . . . . . . . . . . . . . . . . . . 1,139 (804)104
_____ _____ _____
Net Cash from Operating Activities . . . . . . . . . . 5,204 3,214 3,578
_____ _____ _____
CASH FLOWS FROM INVESTING ACTIVITIES
Change in Interest-bearing Balances with Banks. . . . . . . 300 295 5,172
Proceeds from Maturities of Other Short-term Investments. . 7,030 52,133 14,835
Purchase of Other Short-term Investments. . . . . . . . . . (1,966) (43,967)(22,049)
Proceeds from Maturities of Securities Available-for-Sale . 35,807 8,518 10,661
Proceeds from Sales of Securities Available-for-Sale. . . . --- --- 3,354
Purchase of Securities Available-for-Sale . . . . . . . . . (43,172) (26,940)(3,391)
Proceeds from Maturities of Securities Held-to-Maturity . . 204 8,967 11,972
Purchase of Securities Held-to-Maturity . . . . . . . . . . (5,268) (4,243)(16,153)
Purchase of Loans . . . . . . . . . . . . . . . . . . . . . (1,576) (3,691)(7,332)
Proceeds from Sales of Loans. . . . . . . . . . . . . . . . 1,870 500 7,625
Loans Made to Customers net of Payments Received. . . . . . (17,579) (3,186)(9,462)
Proceeds from Sales of Other Real Estate. . . . . . . . . . 152 389 415
Property and Equipment Expenditures . . . . . . . . . . . . (1,169) (920)(956)
Cash Acquired / (Paid) in Acquisition of Affiliates . . . . --- --- 8,934
_____ _____ _____
Net Cash from Investing Activities . . . . . . . . . . . (25,367) (12,145)3,625
______ ______ _____
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits. . . . . . . . . . . . . . . . . . . . . 25,170 25,289 (4,088)
Change in Short-term Borrowings . . . . . . . . . . . . . . 2,127 (9,169)1,003
Purchase and Retire Common Stock. . . . . . . . . . . . . . --- (110)---
Issuance of Common Stock. . . . . . . . . . . . . . . . . . 145 --- ---
Dividends Paid. . . . . . . . . . . . . . . . . . . . . . . (1,518) (1,392)(1,232)
Exercise of Stock Options . . . . . . . . . . . . . . . . . 7 22 2
Purchase of Interests in Fractional Shares. . . . . . . . . (30) (24)(2)
_____ _____ _____
Net Cash from Financing Activities . . . . . . . . . . . 25,901 14,616 (4,317)
______ ______ _____
Net Change in Cash and Cash Equivalents . . . . . . . . . . . 5,738 5,685 2,886
Cash and Cash Equivalents at Beginning of Year. . . . . . . 27,971 22,286 19,400
______ ______ ______
Cash and Cash Equivalents at End of Year. . . . . . . . . . $33,709 $27,971 $22,286
======= ==============
Cash Paid During the Year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $13,570 $12,477 $ 9,487
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . 1,719 1,980 1,984
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
(dollar references in thousands except per share data)
Unrealized
Appreciation /
(Depreciation)
Additional on Securities Total
Common Paid-in Retained Available-
Shareholders'
Stock Capital Earnings for-Sale Equity
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1994 . . . . . . $17,389 $3,509 $10,443 $31,341
Net Income for 1994 . . . . . . . . . 3,474 3,474
Change in Accounting for Securities . $274 274
Net Change in Unrealized Appreciation /
(Depreciation) on Securities . . . . (932) (932)
Purchase and Retirement of 2,082 Shares
pursuant to Exercise of
Stock Options . . . . . . . . . . . (21) (4) (42) (67)
Issuance of 3,200 shares upon Exercise of
Stock Options. . . . . . . . . . . . 32 37 69
Purchase of Interest in Fractional Shares (2) (2)
Cash Dividends ($.65 per Common Share )
as restated for pooling of interests (1,232) (1,232)
______ ______ ______ ______ ______
Balances, December 31, 1994 . . . . . 17,400 3,542 12,641 (658) 32,925
Net Income for 1995 . . . . . . . . . 4,018 4,018
Unrealized Appreciation on Securities
Transferred to Available-for-Sale. . 523 523
Net Change in Unrealized Appreciation /
(Depreciation) on Securities . . . . 994 994
Purchase and Retirement of 3,600 Shares of
Common Stock . . . . . . . . . . . . (36) (7) (67) (110)
Purchase and Retirement of 3,331 Shares
pursuant to Exercise of
Stock Options. . . . . . . . . . . . (33) (7) (64) (104)
Issuance of 5,800 Shares upon Exercise
of Stock Options . . . . . . . . . . 58 68 126
5% Stock Dividend (86,177 Shares). . 861 1,853 (2,714) ---
Purchase of Interest in Fractional Shares (24) (24)
Cash Dividends ($.72 per Common Share) (1,392) (1,392)
______ ______ ______ ____ ______
Balances, December 31, 1995 . . . . . 18,250 5,449 12,398 859 36,956
Net Income for 1996 . . . . . . . . . 4,065 4,065
Net Change in Unrealized Appreciation/
(Depreciation) on Securities . . . . (284) (284)
Issuance of 3,899 Shares of Common Stock
Pursuant to Dividend Reinvestment Plan 39 106 145
Purchase and Retirement of 6,400 Shares
pursuant to Exercise of
Stock Options. . . . . . . . . . . . (64) (21) (123) (208)
Issuance of 10,394 Shares upon Exercise of
Stock Options. . . . . . . . . . . . 104 111 215
5% Stock Dividend (90,841 Shares) . . 909 2,453 (3,362) ---
Purchase of Interest in Fractional
Shares . . . . . . . . . . . . . . . (30) (30)
Cash Dividends ($.79 per Common
Share) . . . . . . . . . . . . . . . (1,518) (1,518)
______ _____ ______ ___ ______
Balances, December 31, 1996 . . . . . $19,238 $8,098 $11,430 $575 $39,341
====== ===== ====== === ======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to the
Consolidated Financial Statements
December 31, 1996, 1995, and 1994
(dollar references in thousands)
NOTE 1 - Summary of Significant Accounting Policies
Description of Business and Basis of Presentation
German American Bancorp operates primarily in the banking
industry, which accounts for over 90% of its revenues, operating
income and identifiable assets. German American Bancorp
generates commercial, installment and mortgage loans and receives
deposits from customers through its locations in the Indiana
counties of Dubois, Martin, Pike, Perry and Spencer. The overall
loan portfolio is diversified among a variety of individual
borrowers; however, a significant portion of debtors' ability to
honor their contracts is dependent on the agriculture, 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. The majority of the
Company's loans are secured by specific items of collateral
including business assets, consumer assets and real property.
These financial statements include the accounts of German
American Bancorp and its wholly-owned subsidiaries, The German
American Bank, The Union Bank, German American Holdings
Corporation, Inc., Community Trust Bank (wholly-owned by German
American Holdings Corporation), First State Bank, Southwest
Indiana and GAB Mortgage Corp. Significant intercompany balances
and transactions have been eliminated in consolidation. Certain
items in the 1995 and 1994 financial statements have been
reclassified to correspond with the 1996 presentation.
Use of Estimates
Management must make estimates and assumptions in preparing
financial statements that affect the amounts reported therein and
the disclosures provided. These estimates and assumptions may
change in the future and future results could differ. Estimates
that are susceptible to change in the near term include the
allowance for loan losses, the determination and carrying value
of impaired loans, and the fair value of financial instruments.
Short-term Investments
Short-term Investments consist of interest-bearing balances
with banks, which are generally limited to FDIC insured amounts,
and Bankers Acceptances. These investments generally have terms
to maturity of less than one year and are carried at cost, which
approximates market value.
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 1 - Summary of Significant Accounting Policies (continued)
Securities
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 interest rates,
changes in prepayment risk, or for similar reasons. Securities
available-for-sale are reported at 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.
Premium amortization is deducted from and discount accretion
is added to interest income using the level yield method. The
cost of securities sold is computed on the identified securities
method.
Loans
Interest is accrued over the term of the loans based on the
principal balance outstanding. Loans are placed on a nonaccrual
status when scheduled principal or interest payments are past due
90 days or more, unless the loan is well secured and in the
process of collection.
The carrying values of impaired loans (as explained below in
"Allowance for Loan Losses") are periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and
increases in the present value of expected cash flows due to the
passage of time. Cash payments representing interest income are
reported as such. Other cash payments are reported as reductions
in carrying value, while increases or decreases due to changes in
estimates of future payments and due to the passage of time are
reported as bad debt expense, if reductions, or otherwise as
interest income.
The Company defers loan fees and certain direct loan
origination costs. The amounts deferred are reported in the
balance sheet as part of loans and are recognized into interest
income over the term of the loan using the level yield method.
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 1 - Summary of Significant Accounting Policies (continued)
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance,
increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance
balance required based on past loan loss experience, known and
inherent risks in the portfolio, information about specific
borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may
be made for specific loans, but the entire allowance is available
for any loan that, in management's judgment, should be charged -
off.
Loan impairment is reported when full payment under the loan
terms is not expected. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the
present value of estimated future cash flows using the loan's
existing rate or at the fair value of collateral if repayment is
expected solely from the collateral. Smaller-balance homogenous
loans are evaluated for impairment in total. Such loans include
real estate loans secured by one-to-four family residences and
loans to individuals for household, family and other personal
expenditures. Commercial, agricultural, and poultry loans are
evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that
underlying cash flows of the borrower's business are not adequate
to meet its debt service requirements, the loan is evaluated for
impairment. Often this is associated with a delay or shortfall
in payments of more than 30 days. Nonaccrual loans are generally
also considered impaired. Impaired loans, or portions thereof,
are charged off when deemed uncollectible. The nature of
disclosures for impaired loans is considered generally comparable
to prior nonaccrual and renegotiated loan disclosures.
Premises, Furniture, and Equipment
Premises, Furniture and Equipment are stated at cost less
accumulated depreciation. Premises and related components are
depreciated on the straight-line method with useful lives ranging
from 10 to 40 years. Furniture and equipment are primarily
depreciated using straight-line methods with useful lives ranging
from 3 to 12 years. Maintenance and repairs are expensed and
major improvements are capitalized. At the time of sale or
disposition of an asset, the applicable cost and accumulated
depreciation amounts are removed from the accounting records.
These assets are reviewed for impairment when events indicate
the carrying amount may not be recoverable.
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 1 - Summary of Significant Accounting Policies (continued)
Other Real Estate
Other Real Estate is carried at the lower of cost or fair
value less estimated selling costs. Expenses incurred in
carrying Other Real Estate are charged to operations as incurred.
Intangible Assets
Intangible Assets are comprised of core deposit intangibles
($333 and $434 at December 31, 1996 and 1995, respectively) and
goodwill ($1,441 and $1,556, at December 31, 1996 and 1995,
respectively). Core deposit intangibles is being amortized on an
accelerated method over ten years and goodwill is being amortized
on a straight-line basis over fifteen years. Goodwill and Core
Deposit Intangibles are assessed for impairment based on
estimated undiscounted cash flows, and written down if necessary.
Stock Compensation
Expense for employee compensation under stock option plans
is reported only if options are granted below market price at
grant date. Pro forma disclosures of net income and earnings per
share are provided as if the fair value method of Financial
Accounting Standard No. 123 was used for stock-based
compensation.
Income Taxes
Deferred tax liabilities and assets are determined at each
balance sheet date. They are measured by applying enacted tax
laws to future amounts that will result from differences in the
financial statement and tax basis of assets and liabilities.
Recognition of deferred tax assets is limited by the
establishment of a valuation reserve unless management concludes
that the assets will more likely than not result in future tax
benefits to the Company. Income tax expense is the amount due on
the current year tax returns plus or minus the change in deferred
taxes.
Cash Flow Reporting
The Company reports net cash flows for customer loan
transactions, deposit transactions and deposits made with other
financial institutions. Cash and cash equivalents are defined to
include cash on hand, demand deposits in other institutions and
Federal Funds Sold.
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 1 - Summary of Significant Accounting Policies (continued)
Fair Values of Financial Instruments
Fair values of financial instruments are estimated using
relevant market information and other assumptions, as more fully
disclosed separately in Note 18. Fair value estimates involve
uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could
significantly affect the estimates. The fair value estimates of
existing on-and off-balance sheet financial instruments does not
include the value of anticipated future business or the values of
assets and liabilities not considered financial instruments.
NOTE 2 - Securities
The amortized cost and estimated market values of Securities as
of December 31, 1996 are as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Securities Available-for-Sale: ____________________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies . . . . . . $39,182 $72 $(190) $39,064
Obligations of State and Political Subdivisions . . 17,356 940 (275) 18,021
Corporate Securities. . . . . . . . . . . . . . . . 7,221 42 (18) 7,245
Mortgage-backed Securities. . . . . . . . . . . . . 21,006 481 (109) 21,378
______ _____ ____ ______
Total. . . . . . . . . . . . . . . . . . . . . . $84,765 $1,535 $(592) $85,708
====== ===== ==== ======
Securities Held-to-Maturity:
Obligations of State and Political Subdivisions . . $14,653 $611 $(8) $15,256
Other Securities. . . . . . . . . . . . . . . . . . 1,014 --- --- 1,014
______ _____ ____ ______
Total. . . . . . . . . . . . . . . . . . . . . . $15,667 $611 $(8) $16,270
====== ===== ==== ======
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 2 - Securities (Continued)
The amortized cost and estimated market values of Securities as
of December 31, 1995 are as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Securities Available-for-Sale: ____________________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies . . . . . . $23,727 $172 $(112) $23,787
Obligations of State and Political Subdivisions . . 14,232 1,154 --- 15,386
Corporate Securities. . . . . . . . . . . . . . . . 6,375 88 --- 6,463
Mortgage-backed Securities. . . . . . . . . . . . . 33,144 317 (189) 33,272
______ _____ ____ ______
Total. . . . . . . . . . . . . . . . . . . . . . $77,478 $1,731 $(301) $78,908
====== ===== ==== ======
Securities Held-to-Maturity:
Obligations of State and Political Subdivisions . . $9,869 $659 $(29) $10,499
Other Securities. . . . . . . . . . . . . . . . . . 738 --- --- 738
______ _____ ____ ______
Total. . . . . . . . . . . . . . . . . . . . . . $10,607 $659 $(29) $11,237
====== ===== ==== ======
</TABLE>
The amortized cost and estimated market value of Securities
at December 31, 1996 by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
because some issuers have the right to call or prepay certain
obligations with or without call or prepayment penalties.
Mortgaged-backed and certain other Securities are not due at a
single maturity date and are shown separately.
<TABLE> Estimated
Amortized Market
Cost Value
__________ __________
Securities Available-for-Sale:
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . $3,100 $3,099
Due after one year through five years . . . . . . . 38,442 38,534
Due after five years through ten years. . . . . . . 13,613 13,833
Due after ten years . . . . . . . . . . . . . . . . 8,604 8,864
Mortgage-backed Securities. . . . . . . . . . . . . 21,006 21,378
______ ______
Totals . . . . . . . . . . . . . . . . . . . . . $84,765 $85,708
Securities Held-to-Maturity:
Due in one year or less . . . . . . . . . . . . . . $690 $696
Due after one year through five years . . . . . . . 2,220 2,277
Due after five years through ten years. . . . . . . 2,150 2,305
Due after ten years . . . . . . . . . . . . . . . . 9,593 9,978
Other Securities. . . . . . . . . . . . . . . . . . 1,014 1,014
______ ______
Totals . . . . . . . . . . . . . . . . . . . . . $15,667 $16,270
====== ======
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 2 - Securities (Continued)
<TABLE>
1996 1995 1994
Available- Held-to- Available- Held-to- Available- Held-to-
for-Sale Maturity for-Sale Maturity for-Sale Maturity
________________________________________________________________________
Sales of Securities are summarized below:
<S> <C> <C> <C> <C> <C> <C>
Proceeds from Sales . . . . . . . . . $0 $0 $0 $0 $3,354 $0
Gross Gains on Sales. . . . . . . . . 0 0 0 0 82 0
Gross Losses on Sales . . . . . . . . 0 0 0 0 (2) 0
Income Taxes on Gross Gains . . . . . 0 0 0 0 33 0
Income Taxes on Gross Losses. . . . . 0 0 0 0 (1) 0
</TABLE>
Securities with a carrying value of $7,604 and $8,488 as of
December 31, 1996 and 1995, respectively, were pledged to secure
public and trust deposits and for other purposes as required by
law.
No investment securities of an individual issuer exceeded
ten percent of German American Bancorp shareholders' equity at
December 31, 1996. The total dollar amount of Cash and Due from
Banks, Federal Funds Sold and Other Short-term Investments with
National City Bank, Louisville, Kentucky was $15,415 at December
31, 1996.
Investments in state and political subdivisions and
corporate obligations are generally required by policy to be
investment grade as established by national rating organizations.
However, the purchase of non-rated Indiana municipal securities
is permitted by policy when the inherent quality of the issue is
clearly evident to management. These investments are actively
traded and have a readily available market valuation. Market
values of these investments are reviewed quarterly with market
values being obtained from an independent rating service or
broker.
At December 31, 1996 and 1995, U.S. Government Agency
structured notes with an amortized cost of $3,000 and $9,250 and
fair value of $2,932 and $9,201 are included in securities
available-for-sale, consisting primarily of step-up and single-
index bonds.
Collateralized mortgage obligations (CMO's) and real estate
mortgage investment conduits (REMIC's), all of which are issued
by U.S. Government Agencies and the majority of which are fixed
rate, comprised over 80% of Mortgage-backed securities.
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 3 - Loans
Loans, as presented on the balance sheet, are comprised of the
following classifications as of December 31,
<TABLE>
1996 1995
_____ ______
<S> <C> <C>
Real Estate Loans Secured by 1- 4 Family Residential Properties . . . . . . $74,818 $68,826
Loans to Finance Poultry Production and Other Related Operations. . . . . . 16,266 23,784
Loans to Finance Agricultural Production and Other Loans to Farmers . . . . 30,453 27,310
Commercial and Industrial Loans . . . . . . . . . . . . . . . . . . . . . . 83,491 74,612
Loans to Individuals for Household, Family and Other Personal Expenditures. 41,741 34,685
Economic Development Commission Bonds . . . . . . . . . . . . . . . . . . . 575 608
Lease Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580 1,302
_______ _______
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $247,924 $231,127
======= =======
Information regarding impaired loans is as follows:
1996 1995
_____ ______
Year-end loans with no allowance for loan losses allocated. . . . . . . . . $ 386 $ 215
Year-end loans with allowance for loan losses allocated . . . . . . . . . . 3,086 6,029
Amount of allowance allocated . . . . . . . . . . . . . . . . . . . . . . . 346 898
Average balance of impaired loans during the year . . . . . . . . . . . . . 3,688 4,233
Interest income recognized during impairment. . . . . . . . . . . . . . . . 265 353
Interest income recognized on cash basis. . . . . . . . . . . . . . . . . . 174 270
</TABLE>
Certain directors, executive officers, and principal
shareholders of the Company, including their immediate families
and companies in which they are principal owners, were loan
customers of the Company during 1996. A summary of the activity
of these loans is as follows:
<TABLE>
Balance Changes Deductions Balance
January 1, in Persons December 31,
1996 Additions Included Collected Charged-off 1996
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
$9,878 $3,668 $0 $(2,526) $0 $11,020
</TABLE>
NOTE 4 - Allowance for Loan Losses
A summary of the activity in the Allowance for Loan Losses is as
follows:
<TABLE>
1996 1995 1994
_____ _____ _____
<S> <C> <C> <C>
Balance as of January 1 . . . . . . . . . . . . . . $5,933 $5,669 $4,935
Addition of Affiliate Banks . . . . . . . . . . . . --- --- 195
Provision for Loan Losses . . . . . . . . . . . . . 160 (19) 567
Recoveries of Prior Loan Losses . . . . . . . . . . 295 622 227
Loan Losses Charged to the Allowance. . . . . . . . (772) (339) (255)
_____ _____ _____
Balance as of December 31 . . . . . . . . . . . . . $5,616 $5,933 $5,669
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 5 - Premises, Furniture, and Equipment
Premises, furniture, and equipment as presented on the balance
sheet is comprised of the following classifications:
<TABLE>
1996 1995
_____ ____
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . $1,688 $1,472
Buildings and Improvements. . . . . . . . . . . . . . 9,619 9,160
Furniture and Equipment . . . . . . . . . . . . . . . 5,062 4,578
______ ______
Total Premises, Furniture and Equipment . . . . . . 16,369 15,210
Less: Accumulated Depreciation. . . . . . . . . (6,297) (5,586)
______ ______
Total . . . . . . . . . . . . . . . . . . . . $10,072 $9,624
====== =====
</TABLE>
Depreciation expense was $721, $717 and $614 for 1996, 1995 and
1994.
NOTE 6 - Deposits
The aggregate amount of interest-bearing deposits in
denominations of $100 or more was $27,932 and $26,733 as of
December 31, 1996 and 1995, respectively.
At year-end 1996 interest-bearing deposits includes $98,577 of
demand and savings deposits and $212,318 of time deposits.
Stated maturities of time deposits were as follows:
1997 . . . . . . . . . . . . . . . . . . . . . . . $120,228
1998 . . . . . . . . . . . . . . . . . . . . . . . 64,737
1999 . . . . . . . . . . . . . . . . . . . . . . . 15,958
2000 . . . . . . . . . . . . . . . . . . . . . . . 8,706
2001 . . . . . . . . . . . . . . . . . . . . . . . 2,561
Thereafter . . . . . . . . . . . . . . . . . . . . 128
_______
Total. . . . . . . . . . . . . . . . . . . . . . $212,318
=======
NOTE 7 - Short-term Borrowings
Short-term borrowings of $2,127 at December 31, 1996 consist
entirely of Interest-bearing Demand Notes issued to the U.S.
Treasury.
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 8 - Employee Benefit Plans
During 1996 and 1995, the Company and all its banking
affiliates provided a trusteed noncontributory profit sharing
plan which covered substantially all full-time employees.
Contributions are discretionary and are subject to determination
by the Board of Directors. Contributions to this plan were $200
and $184 for 1996 and 1995, respectively. During 1994, First
State Bank did not participate in the plan. Contributions were
$170 for 1994.
During 1996 and 1995, the Company and all its banking
affiliates offered 401(k) deferred compensation plans under which
the banks agree to match certain employee contributions.
Contributions to this plan were $198 and $196 for 1996 and 1995,
respectively. During 1994, First State Bank did not participate
in this plan. Contributions to these plans were $154 in 1994.
NOTE 9 - Stock Options
Financial Accounting Standard No. 123, which became effective
for 1996, requires pro forma disclosures for companies that do
not adopt its fair value accounting method for stock-based
employee compensation. Accordingly, the following pro forma
information presents net income and earnings per share had the
Standard's fair value method been used to measure compensation
cost for stock option plans. Compensation cost actually
recognized for stock options was $0 for 1996 and 1995.
<TABLE>
1996 1995
____ ____
<S> <C> <C>
Net income as reported. . . . . . . . . . . . . . . . . . . . . . . . $4,065 $4,018
Pro forma net income. . . . . . . . . . . . . . . . . . . . . . . . . $4,052 $4,010
Earnings per share as reported. . . . . . . . . . . . . . . . . . . . $2.12 $2.10
Pro forma earnings per share. . . . . . . . . . . . . . . . . . . . . $2.11 $2.09
</TABLE>
In future years, the pro forma effect of not applying this
standard is expected to increase as additional options are
granted.
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 9 - Stock Options (Continued)
The Company maintains a Stock Option Plan which reserves
80,102 shares of Common Stock (as adjusted for subsequent stock
splits and subject to further customary antidilution adjustments)
for the purpose of grants of options to officers and other
employees of the Company. The date on which options are first
exercisable is determined by the Stock Option Committee of the
Company, but no stock option may be exercised after ten years
from the date of grant. Options may be designated as "incentive
stock options" under the Internal Revenue Code of 1986, or as
nonqualified options. The exercise price of incentive stock
options granted pursuant to the Plan must be no less than the
fair market value of the Common Stock on the date of the grant.
The Plan authorizes an optionee to pay the exercise price of
options in cash or in common shares of the Company or in some
combination of cash or common shares. If an optionee tenders
already-owned common shares to the Company to exercise an option,
the Company is obligated to use its best efforts to issue to such
optionee a replacement option for the number of shares tendered
of the same type (either an incentive stock option or a
nonqualified option) as the option exercised and with the same
expiration date priced at the fair market value of the stock on
that date. Replacement options may not be exercised until one
year from the date of grant.
Changes in options outstanding were as follows, as adjusted to
reflect stock splits and stock dividends:
<TABLE>
Number Weighted-average
of Options Exercise Price
_________ ______________
<S> <C> <C>
Outstanding, beginning of 1994 28,114 $19.66
Granted 2,295 29.36
Exercised (3,528) 19.66
______ ______
Outstanding, end of 1994 26,881 20.49
Granted 3,672 28.30
Exercised (6,395) 19.66
______ ______
Outstanding, end of 1995 24,158 21.90
Granted 6,720 30.78
Exercised (10,913) 19.66
______ ______
Outstanding, end of 1996 19,965 26.11
====== ======
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 9 - Stock Options (Continued)
Options exercisable at year-end are as follows:
<TABLE>
Number Weighted-average
of Options Exercise Price
__________ ________________
<S> <C> <C>
1994. . . . . . . . . . . . . . . . . . . . 10,033 $19.66
1995. . . . . . . . . . . . . . . . . . . . 9,572 21.98
1996. . . . . . . . . . . . . . . . . . . . 5,969 28.71
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 9 - Stock Options (Continued)
For options granted during 1996 and 1995, the weighted-
average fair values at grant date are $1.91 and $2.30.
The fair value of options granted during 1996 and 1995 is
estimated using the following weighted-average information:
risk-free interest rate of 5.41% and 5.43%, expected life of one
year, expected volatility of stock price of .10 percent and
expected dividends of 2.38% and 2.41% per year.
At year-end 1996, options outstanding have a weighted
average remaining life of 6.25 years, with exercise prices
ranging from $19.66 to $32.86.
NOTE 10 - Income Taxes
The provision for income taxes consists of the following:
<TABLE>
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
Currently Payable . . . . . . . . . . . . . . . $1,765 $1,858 $1,931
Deferred. . . . . . . . . . . . . . . . . . . . 160 52 (267)
Net Operating Loss Carryforward . . . . . . . . (47) (47) (82)
_____ _____ _____
Total . . . . . . . . . . . . . . . . . . . . $1,878 $1,863 $1,582
===== ===== =====
</TABLE>
Income tax expense is reconciled to the 34% statutory rate applied to pre-
tax income as follows:
<TABLE>
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
Statutory Rate Times Pre-tax Income . . . . . . . . . $2,021 $2,000 $1,719
Add/(Subtract) the Tax Effect of:
Income from Tax-exempt Loans and Investments. . . . (629) (531) (435)
Non-deductible Merger Costs . . . . . . . . . . . . 48 --- 26
Non-deductible Interest Expense . . . . . . . . . . 62 49 30
State Income Tax, Net of Federal Tax Effect . . . . 354 344 291
Other Differences . . . . . . . . . . . . . . . . . 22 1 (49)
____ _____ _____
Total Income Taxes. . . . . . . . . . . . . . . . . $1,878 $1,863 $1,582
===== ===== =====
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 10 - Income Taxes (continued)
The net deferred tax asset at December 31 consists of the
following:
<TABLE>
1996 1995
____ ____
<S> <C> <C>
Deferred Tax Assets:
Allowance for Loan Losses . . . . . . . . . . . . $1,298 $1,474
Net Operating Loss Carryforwards. . . . . . . . . 234 281
Other . . . . . . . . . . . . . . . . . . . . . . 164 271
_____ _____
Total Deferred Tax Assets . . . . . . . . . . . 1,696 2,026
_____ _____
Deferred Tax Liabilities:
Leasing Activities, Net . . . . . . . . . . . . . (151) (227)
Depreciation. . . . . . . . . . . . . . . . . . . (150) (122)
Purchase Accounting Adjustments . . . . . . . . . (45) (63)
Unrealized Appreciation on Securities . . . . . . (368) (571)
Other . . . . . . . . . . . . . . . . . . . . . . (41) (145)
____ _____
Total Deferred Tax Liabilities. . . . . . . . . (755) (1,128)
___ _____
Valuation Allowance . . . . . . . . . . . . . . . . (48) (48)
___ _____
Net Deferred Tax Asset. . . . . . . . . . . . . . $893 $850
=== =====
</TABLE>
The Company's subsidiary, German American Holdings Corporation, Inc., has
$688 of federal tax net operating loss carryforwards expiring in the following
amounts:
<TABLE>
Year Amount Year Amount Year Amount
<S> <C> <C> <C> <C> <C>
1997 $42 2000 $135 2007 $58
1998 80 2001 129 2008 4
1999 135 2002 105
</TABLE>
NOTE 11 - Per Share Data
In October 1995 and 1996, the Board of Directors declared a
5 percent stock dividend. In lieu of issuing fractional shares,
the Company purchased from shareholders their fractional interest
in both instances. Earnings and dividend per share amounts have
been retroactively computed as though these additionally issued
shares had been outstanding for all periods presented. The
weighted average number of shares used in calculating earnings
and dividends per share amounts were 1,920,053, 1,916,482, and
1,915,900 for 1996, 1995, and 1994, respectively. Stock Options
(see Note 9) are not materially dilutive and have been excluded
from weighted average shares.
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 12 - Lease Commitments
The total rental expense for all leases for the years ended
December 31, 1996, 1995, and 1994 was $83, $73, and $67,
respectively, including amounts paid under short-term cancelable
leases.
At December 31, 1996, the German American Bank and First
State Bank subleased space for three branch banking facilities
from a company controlled by a director and principal shareholder
of the Company. The subleases expire in 2000 and 2001 with
various renewal options provided. Aggregate annual rental
payments to this Director's company totaled $38 for 1996.
Exercise of the Bank's sublease renewal options are contingent
upon the Director's company renewing its primary leases.
The following is a schedule of future minimum lease
payments:
Years Ending December 31:
<TABLE>
Premises Equipment Total
________ _________ ______
<S> <C> <C> <C>
1997. . . . . . . . . . . . . . . . . . . . . . $63 $8 $71
1998. . . . . . . . . . . . . . . . . . . . . . 63 1 64
1999. . . . . . . . . . . . . . . . . . . . . . 62 --- 62
2000. . . . . . . . . . . . . . . . . . . . . . 56 --- 56
2001. . . . . . . . . . . . . . . . . . . . . . 33 --- 33
___ ___ ___
Total. . . . . . . . . . . . . . . . . . . . $277 $9 $286
=== === ===
</TABLE>
NOTE 13 - Commitments and Off-balance Sheet Items
In the normal course of business, there are various commitments
and contingent liabilities, such as guarantees and commitments to
extend credit, which are not reflected in the accompanying
consolidated financial statements. The Company's exposure to
credit loss in the event of nonperformance by the other party to
the financial instruments for commitments to make loans, standby
letters of credit, and financial guarantees is represented by the
contractual amount of those instruments. The Company uses the
same credit policy to make such commitments as it uses for on-
balance sheet items. These financial instruments at December 31,
are summarized as follows:
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 13 - Commitments and Off-balance Sheet Items (Continued)
<TABLE>
1996 1995
____ ____
<S> <C> <C>
Commitments to Fund Loans
Home Equity . . . . . . . . . . . . . . . . . . . . . . . $6,116 $5,760
Credit Card Lines . . . . . . . . . . . . . . . . . . . . 3,277 3,287
Commercial Real Estate Commitments. . . . . . . . . . . . --- 1,516
Commercial Operating Lines. . . . . . . . . . . . . . . . 18,203 22,913
______ ______
Total Commitments to Fund Loans . . . . . . . . . . . $27,596 $33,476
====== ======
Standby Letters of Credit . . . . . . . . . . . . . . . . . $1,671 $3,110
</TABLE>
Since many commitments to make loans expire without being
used, the amount does not necessarily represent future cash
commitments. Collateral obtained upon exercise of the commitment
is determined using management's credit evaluation of the
borrower, and may include accounts receivable, inventory,
property, land and other items. The approximate duration of
these commitments is generally one year or less. The interest
rates associated with these commitments are generally variable
rate.
During 1996, the Company self-insured employee health
benefits for all affiliates. Stop loss insurance covers losses
exceeding $35 per covered individual and approximately $392 in
the aggregate. Management's policy is to establish a reserve for
claims not submitted by a charge to earnings based on prior
experience. Charges to earnings were $326 and $269 for 1996
and 1995, respectively. The charge to earnings for 1994 was
$230, but did not include First State Bank.
At December 31, 1996, the affiliate banks were required to
have $1,946 on deposit with the Federal Reserve or as cash on
hand. These reserves do not earn interest.
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 14 - Non-cash Investing Activities
<TABLE>
1996 1995 1994
____ ____ ____
<S> <C> <C>
Loans Transferred to Other Real Estate. . . . . . . $25 $149 $122
Securities Transferred to Available-for-Sale. . . . 0 35,943 35,132
</TABLE>
The data above should be read in conjunction with the
Consolidated Statements of Cash Flows. In 1994, $32,732 of
Securities were transferred to Available-for-Sale upon adoption
of FAS 115, and $2,400 of Securities were transferred to
Available-for-Sale upon acquisition of The Otwell State Bank.
During December 1995, Securities were transferred from Held-to-
Maturity to Available-for-Sale in accordance with the Financial
Accounting Standards Board Special Report on Implementation of
FAS 115.
NOTE 15 - Parent Company Financial Statements
The condensed financial statements of German American
Bancorp as of December 31, 1996 and 1995, and for each of the
three years ended December 31, 1996, 1995, and 1994 are as
follows:
CONDENSED BALANCE SHEETS
December 31, 1996 AND 1995
<TABLE>
1996 1995
____ ____
<S> <C> <C>
ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $323 $409
Securities Available-for-Sale, at Market. . . . . . . . . . . . . . 1,783 ---
Investment in Subsidiary Banks and Bank Holding Company . . . . . . 36,112 35,833
Investment in GAB Mortgage Corp . . . . . . . . . . . . . . . . . . 278 274
Furniture and Equipment . . . . . . . . . . . . . . . . . . . . . . 785 313
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 204
______ ______
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $39,528 $37,033
====== ======
LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 187 $ 77
______ ______
SHAREHOLDERS' EQUITY
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,238 18,250
Additional Paid-in Capital. . . . . . . . . . . . . . . . . . . . . 8,098 5,449
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . 11,430 12,398
Unrealized Appreciation on Securities Available-for-Sale. . . . . . 575 859
______ ______
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . 39,341 36,956
______ ______
Total Liabilities and Shareholders' Equity . . . . . . . . . . . $39,528 $37,033
====== ======
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements
(Continued)
(dollar references in thousands)
NOTE 15 -- Parent Company Financial Statements (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
INCOME
Dividends from Subsidiary Banks . . . . . . . . . . . . . . $5,106 $2,511 $4,754
Interest Income . . . . . . . . . . . . . . . . . . . . . . 109 18 44
Fee Income. . . . . . . . . . . . . . . . . . . . . . . . . 374 178 ---
______ _____ ______
Total Income . . . . . . . . . . . . . . . . . . . . . . 5,589 2,707 4,798
______ _____ ______
EXPENSES
Salaries and Benefits . . . . . . . . . . . . . . . . . . . 1,330 922 533
Professional Fees . . . . . . . . . . . . . . . . . . . . . 254 95 157
Occupancy and Equipment Expense . . . . . . . . . . . . . . 257 130 2
Other Expenses. . . . . . . . . . . . . . . . . . . . . . . 174 104 24
______ _____ ______
Total Expenses . . . . . . . . . . . . . . . . . . . . . 2,015 1,251 716
______ _____ ______
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED INCOME OF SUBSIDIARIES. . . . . . . . . . . . 3,574 1,456 4,082
Income Tax Benefit. . . . . . . . . . . . . . . . . . . . . . 556 415 286
______ _____ ______
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES. . . . . . . . . . . . . . . . . . . 4,130 1,871 4,368
Equity in Undistributed Income of Subsidiaries. . . . . . . . (65) 2,147 (894)
______ _____ _____
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . $4,065 $4,018 $3,474
===== ===== ======
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . $4,065 $4,018 $3,474
Adjustments to Reconcile Net Income to Net Cash from
Operations Amortization on Securities. . . . . . . . . . 32 --- ---
Depreciation . . . . . . . . . . . . . . . . . . . . . . 117 65 2
Change in Other Assets . . . . . . . . . . . . . . . . . (43) (74) (110)
Change in Other Liabilities. . . . . . . . . . . . . . . 110 73 (66)
Equity in Undistributed Income of Subsidiaries . . . . . 65 (2,147) 894
_____ _____ _____
Total Adjustments. . . . . . . . . . . . . . . . . . . 281 (2,083) 720
_____ _____ _____
Net Cash from Operating Activities . . . . . . . . . . . 4,346 1,935 4,194
_____ _____ _____
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Subsidiaries. . . . . . . . . . . . . . . . . --- --- (3,818)
Capital Contribution to First State Bank. . . . . . . . . . (632) --- ---
Advances made to Subsidiaries . . . . . . . . . . . . . . . --- --- (1,000)
Repayment of Advances by Subsidiaries . . . . . . . . . . . --- --- 2,100
Purchase of Securities Available-for-Sale . . . . . . . . . (1,815) --- ---
Property and Equipment Expenditures . . . . . . . . . . . . (589) (362) (18)
_____ _____ _____
Net Cash from Investing Activities . . . . . . . . . . . (3,036) (362) (2,736)
_____ _____ _____
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid. . . . . . . . . . . . . . . . . . . . . . . (1,518) (1,392) (1,232)
Exercise of Stock Options . . . . . . . . . . . . . . . . . 7 22 2
Purchase and Retire Common Stock. . . . . . . . . . . . . . --- (110) ---
Issuance of Common Stock Pursuant to Dividend
Reinvestment Plan. . . . . . . . . . . . . . . . . . . 145 --- ---
Purchase of Interest in Fractional Shares . . . . . . . . . (30) (24) (2)
_____ _____ _____
Net Cash from Financing Activities . . . . . . . . . . . (1,396) (1,504) (1,232)
_____ _____ _____
Net Change in Cash and Cash Equivalents . . . . . . . . . . . (86) 69 226
Cash and Cash Equivalents at Beginning of Year. . . . . . . 409 340 114
_____ _____ _____
Cash and Cash Equivalents at End of Year. . . . . . . . . . $323 $409 $340
===== ===== =====
</TABLE>
<PAGE>
Notes to the Consolidated
Financial Statements
(continued)
(dollar references in thousands)
NOTE 16 - Capital Requirements
The Company and affiliate Banks are subject to regulatory
capital requirements administered by federal banking agencies.
Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators about
components, risk weightings, and other factors, and the
regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory
action that could have a direct material effect on the financial
statements.
The prompt corrective action regulations provide five
classifications, including well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized,
and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions are
limited, as is asset growth and expansion, and plans for capital
restoration are required. The minimum requirements are:
<TABLE>
Capital to risk- Tier 1 capital
weighted assets to average assets
Total Tier 1
<S> <C> <C> <C>
Well capitalized. . . . . . . . . . . . . . . . . . . . . . 10% 6% 5%
Adequately capitalized. . . . . . . . . . . . . . . . . . . 8% 4% 4%
Undercapitalized. . . . . . . . . . . . . . . . . . . . . . 6% 3% 3%
</TABLE>
<PAGE>
At year end 1996, consolidated and German American Bank
actual capital levels and minimum required levels are presented
below. Capital ratios for the other affiliate banks are
materially consistent with consolidated capital ratios.
<TABLE>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Regulations:
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets)
Consolidated. . . . . . . . . $40,061 15.7% $20,411 8.0% $25,514 10.0%
German American Bank. . . . . $24,183 13.6% $14,208 8.0% $17,759 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated. . . . . . . . . $36,842 14.4% $10,206 4.0% $15,308 6.0%
German American Bank. . . . . $21,953 12.4% $7,104 4.0% $10,656 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated. . . . . . . . . $36,842 9.6% $15,416 4.0% $19,270 5.0%
German American Bank. . . . . $21,953 8.3% $10,559 4.0% $13,199 5.0%
</TABLE>
The Company and all affiliate Banks at year-end 1996 were
categorized as well capitalized.
<PAGE>
Notes to the Consolidated Financial Statements
(continued)
(dollar references in thousands)
NOTE 17 - Business Combinations
On April 1, 1994, the Company acquired all of the
outstanding shares of The Otwell State Bank of Otwell, Indiana in
exchange for 113,286 shares of German American Bancorp common
stock. The Otwell State Bank was subsequently merged into
Community Trust Bank. Fractional interests were paid in cash of
$2. The transaction was accounted for as a pooling of interests.
On October 28, 1994, the Company acquired three Indiana
branches of Regional Federal Savings Bank. The Huntingburg
branch site was subsequently combined into an existing branch of
the German American Bank in Huntingburg, while the other two
sites in Tell City and Rockport were combined into a newly-formed
commercial bank known as First State Bank, Southwest Indiana.
The fair value of assets acquired was $16,048, the fair value of
liabilities assumed was $24,982, and the Company received $8,934
of cash at settlement. Goodwill associated with this purchase
was $1,353 while core deposit intangible was $317.
On March 4, 1997, the Company acquired Peoples Bancorp of
Washington, Indiana and its wholly owned subsidiary, Peoples
National Bank and Trust Company, in a pooling of interests.
Pursuant to the merger, the Company issued 615,417 common
shares. The following summary financial information includes pro
forma information as if the acquisition had occurred at the
beginning of 1996.
<TABLE>
German
American Peoples Pro forma
Bancorp Bancorp Combined
<S> <C> <C> <C>
Total Assets. . . . . . . . . . . . . . $397,506 $91,937 $489,443
Shareholders' Equity. . . . . . . . . . 39,341 9,452 48,793
Net Interest Income . . . . . . . . . . 14,675 4,003 18,678
Net Income. . . . . . . . . . . . . . . 4,065 829 4,894
Earnings per share. . . . . . . . . . . 2.12 --- 1.93
</TABLE>
NOTE 18 - Fair Values of Financial Instruments
The following methods and assumptions were used to estimate
fair values for financial instruments.
For cash, short-term investments, short-term borrowings and
accrued interest, the carrying amount is a reasonable estimate of
fair value. The carrying value of commitments to extend credit
and standby letters of credit, which is zero, is also a
reasonable estimation of fair value. These instruments are
generally short-term or variable rate with minimal fees charged.
<PAGE>
Notes to the Consolidated Financial Statements
(continued)
(dollar references in thousands)
NOTE 18 - Fair Values of Financial Instruments (Continued)
In the case of securities, the fair values are based on
quoted market prices or dealer quotes. If a quoted market price
is not available, fair value is estimated using quoted market
prices for similar instruments.
The fair value of loans is estimated by discounting future
cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings and for the
remaining maturities.
The fair value of demand deposits, savings accounts, and
certain money market deposits, is the amount payable on demand at
the reporting date. The fair value of fixed-maturity time
deposits is estimated using the rates currently offered on
deposits of similar remaining maturities.
<TABLE>
DECEMBER 31, 1996 DECEMBER 31, 1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Short-term Investments. . . . . . . . $35,285 $35,285 $34,797 $34,797
Securities Available-for-Sale. . . . . . . . . 85,708 85,708 78,908 78,908
Securities Held-to-Maturity. . . . . . . . . . 15,667 16,270 10,607 11,237
Loans, net . . . . . . . . . . . . . . . . . . 241,995 241,713 224,657 223,949
Accrued Interest Receivable. . . . . . . . . . 3,641 3,641 3,367 3,367
Financial Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . (352,749) (354,956) (327,579) (329,840)
Short-term Borrowings. . . . . . . . . . . . . (2,127) (2,127) --- ---
Accrued Interest Payable . . . . . . . . . . . (2,047) (2,047) (1,972) (1,972)
Unrecognized Financial Instruments
Commitments to extend Credit . . . . . . . . . --- --- --- ---
Standby Letters of Credit. . . . . . . . . . . --- --- --- ---
</TABLE>
NOTE 19 - Pending Accounting Changes
Financial Accounting Standard No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities, was issued by the Financial Accounting Standards
Board in 1996. It revises the accounting for transfers of
financial assets, such as loans and securities, and for
distinguishing between sales and secured borrowings. It is
effective for some transactions in 1997 and others in 1998. The
effect on the financial statements is not expected to be
material.
<PAGE>
Board of Directors and Shareholders
German American Bancorp
Jasper, Indiana
We have audited the accompanying consolidated balance sheets
of German American Bancorp as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years
in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of German American Bancorp as of December 31,
1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting
principles.
Indianapolis, Indiana
January 30, 1997, except for
Note 17, as to which the
date is March 4, 1997
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
SUBSIDIARIES OF THE REGISTRANT
(AS OF MARCH 7, 1997)
STATE OF
NAME INCORPORATION
THE GERMAN AMERICAN BANK INDIANA
GAB MORTGAGE CORP INDIANA
GERMAN AMERICAN HOLDINGS CORP. INDIANA
COMMUNITY TRUST BANK INDIANA
FIRST STATE BANK, SOUTHWEST INDIANA INDIANA
THE PEOPLES NATIONAL BANK AND
TRUST COMPANY OF WASHINGTON UNITED STATES
PEOPLES INVESTMENT CENTER, INC. INDIANA
Exhibit 21
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
German American Bancorp
Jasper, Indiana
We consent to the incorporation by reference in the Registration
Statement on Form S-3 of German American Bancorp, which relates to
the Dividend Reinvestment and Stock Purchase Plan and which is
included by reference as an Exhibit in the December 31, 1996 Form
10-K, of our Independent Auditor's Report, dated January 30, 1997,
except for Note 17, as to which the date is March 4, 1997, on the
consolidated balance sheets of German American Bancorp as of
December 31, 1995 and 1996 and on the consolidated statements of
income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1996. We also
consent to the use of our name and the statements with respect to
us appearing under the heading "Experts" in the Registration
Statement Form S-3.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Indianapolis, Indiana
March 28, 1997
AM\GAB10K\EXHIBIT.23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FILER'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000714395
<NAME> GERMAN AMERICAN BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,109
<INT-BEARING-DEPOSITS> 597
<FED-FUNDS-SOLD> 20,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 85,708
<INVESTMENTS-CARRYING> 15,667
<INVESTMENTS-MARKET> 16,270
<LOANS> 247,611
<ALLOWANCE> 5,616
<TOTAL-ASSETS> 397,506
<DEPOSITS> 352,749
<SHORT-TERM> 2,127
<LIABILITIES-OTHER> 3,289
<LONG-TERM> 0
0
0
<COMMON> 19,238
<OTHER-SE> 20,103
<TOTAL-LIABILITIES-AND-EQUITY> 397,506
<INTEREST-LOAN> 21,970
<INTEREST-INVEST> 5,609
<INTEREST-OTHER> 741
<INTEREST-TOTAL> 13,645
<INTEREST-DEPOSIT> 13,594
<INTEREST-EXPENSE> 51
<INTEREST-INCOME-NET> 14,675
<LOAN-LOSSES> 160
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,344
<INCOME-PRETAX> 5,943
<INCOME-PRE-EXTRAORDINARY> 5,943
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,065
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.12
<YIELD-ACTUAL> 4.19
<LOANS-NON> 1,112
<LOANS-PAST> 1,098
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,210
<ALLOWANCE-OPEN> 5,933
<CHARGE-OFFS> 772
<RECOVERIES> 295
<ALLOWANCE-CLOSE> 5,616
<ALLOWANCE-DOMESTIC> 5,616
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,083
</TABLE>
