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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, 1998
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________________to_________________________
Commission File Number 0-11244
GERMAN AMERICAN BANCORP
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
INDIANA 35-1547518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 Main Street, 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, No 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
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 8, 1999 was approximately
$160,620,000.
As of March 8, 1999, there were outstanding 8,766,592 common shares, no par
value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Shareholders of German American
Bancorp for 1998, 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 22, 1999, 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. | |
1
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 are The German American
Bank, Jasper, Indiana ("German American Bank"), First State Bank, Southwest
Indiana, Tell City, Indiana ("First State Bank"), and German American Holdings
Corporation ("GAHC"), an Indiana corporation that owns all of the outstanding
capital stock of both Citizens State Bank, Petersburg, Indiana ("Citizens Bank")
and The Peoples National Bank, Washington, Indiana ("Peoples"). Including its
recent mergers with the Doty Agency, Inc. of Petersburg, Indiana and 1ST BANCORP
of Vincennes, Indiana, the Company operates five affiliate community banks with
25 banking offices and five full-service insurance offices in the eight
contiguous Southwestern Indiana counties of Daviess, Dubois, Gibson, Knox,
Martin, Perry, Pike and Spencer.
On June 1, 1998, the Registrant acquired both Citizens State Bank of
Petersburg, Indiana and FSB Bank of Francisco, Indiana. Simultaneously with and
as an integral part of this merger, Community Trust and FSB were merged with and
into Citizens State Bank. This $130 million financial institution serves the
Pike and Gibson County Indiana markets.
In January 1999, the Company acquired 1ST BANCORP of Vincennes, Indiana and
The Doty Agency, Inc. (Doty) of Petersburg, Indiana. 1ST BANCORP's subsidiaries
include First Federal Bank, FSB; First Financial Insurance Agency, Inc.; and
First Title Insurance Company, Inc. First Federal Bank operates two retail
branches in Vincennes, Indiana and a mortgage loan origination office in
Evansville, Indiana. First Financial Insurance Agency has offices in Vincennes
and Princeton, Indiana. Doty is a general multi-line, full-service insurance
agency with offices in Pike and Knox counties in Indiana. The information herein
excludes the results of the mergers with 1ST BANCORP and Doty. Financial
statements for all periods prior to the mergers will be retroactively restated
in all future reports to give effect to these combinations.
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. Prior to the January 1999
merger, the Company operated primarily in the banking industry.
Additional information regarding the Company and its subsidiaries is
included in the Company's Annual Report to Shareholders for 1998, 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.
2
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, 1999 the Company and its subsidiaries, including its recent
acquisitions, employed approximately 385 full-time equivalent employees. There
are no collective bargaining agreements, and employee relations are considered
to be good.
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, the National Bank Act, the Home Owners Loan Act, and Indiana
law restrict expansion by the Company and its bank subsidiaries. Under current
Indiana law and the National Bank Act, the Company's national and state
chartered commercial banks may establish an unlimited number of branches
anywhere within the State of Indiana. Under the Home Owners Loan Act, First
Federal Bank may branch, subject to certain conditions, anywhere within the
United States. Under the BHC Act, the 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
states. Interstate branching-by-merger provisions became effective on June 1,
1997, unless a state took legislative action prior to that date. Effective March
14, 1996, Indiana "opted-in" to the interstate branching provisions of the
Interstate Act.
3
The Company's subsidiary banks are under the supervision of and subject to
examination by one or more of the Indiana Department of Financial Institutions,
the Office of Comptroller of Currency, the Federal Deposit Insurance Corporation
("FDIC") and the Office of Thrift Supervision. 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 and its bank subsidiaries are required by law 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.
Also, federal 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, 1998, the Company had a total risk-based capital
ratio of 16.59%, a Tier 1 risk-based capital ratio of 15.34% (based on Tier 1
capital of $65,114,000 and total risk-weighted assets of $424,605,000), and a
leverage ratio of 10.77%. 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.
4
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. This data does not
include data for 1St BANCORP and the Doty Agency, Inc., which were acquired
subsequent to December 31, 1998.
Securities (in thousands)
The following tables set forth the carrying amount of Securities at the dates
indicated:
December 31,
1998 1997 1996
---- ---- ----
Securities Held-to-Maturity:
U.S. Treasury and other
U.S. Government Agencies
and Corporations................................. --- $5,598 $2,720
State and Political Subdivisions...................... $27,591 24,983 18,253
Asset- / Mortgage-backed Securities................... 1,202 2,369 999
Corporate Securities.................................. --- 311 47
Other Securities...................................... 2,084 2,121 1,798
----- ----- -----
Subtotal of Securities
Held-to-Maturity............................. $30,877 $35,382 $23,817
------- ------- -------
Securities Available-for-Sale:
U.S. Treasury and other U.S.
Government Agencies
and Corporations................................. $63,788 $58,575 $54,191
State and Political Subdivisions...................... 30,455 21,670 24,250
Asset- / Mortgage-backed Securities................... 41,780 15,661 24,078
Corporate Securities.................................. --- 4,529 7,245
Other Securities..................................... --- 14 7
--- -- -
Subtotal of Securities
Available-for-Sale........................... 136,023 100,449 109,771
------- ------- -------
Total Securities............................. $166,900 $135,831 $133,588
======== ======== ========
5
Statistical Disclosures (continued)
The following table sets forth the contractual maturities of securities at
December 31, 1998 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 $2,084 are comprised of restricted stock
which do not have contractual maturities and are excluded from the table below.
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
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and
other Government
Agencies and
Corporations.......... $502 5.99% $27,372 5.95% $29,929 6.15% $5,985 6.26%
State and Political
Subdivisions.......... 4,691 8.80% 12,835 8.46% 14,223 8.41% 26,297 8.68%
Asset- / Mortgage-backed
Securities............ 801 6.53% 4,816 6.36% 2,680 6.25% 34,685 6.44%
--- ----- ----- ------
Totals............. $5,994 8.26% $45,023 6.71% $46,832 6.84% $66,967 7.30%
====== ======= ======= =======
A tax-equivalent adjustment using a tax rate of 34 percent was used in the above
table.
6
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:
(dollar references in thousands)
1998 compared to 1997 1997 compared to 1996
--------------------- ---------------------
Increase / (Decrease) Due to (1) Increase / (Decrease) Due to (1)
------------------------------------------------------------------------
Volume Rate Net Volume Rate Net
Interest Income:
Federal Funds Sold..................... $(208) $40 $(168 ) (196) 135 (61)
Short-term Investments................. 163 (6) 157 (68) (2) (70)
Taxable Securities..................... (101) (156) (257 ) 204 439 643
Nontaxable Securities (2).............. 625 (2) 623 444 (15) 429
Loans and Leases (3)................... 3,318 (888) 2,430 1,712 (231) 1,481
-------------------------------------------------------------------------------
Total Interest Income..................... 3,797 (1,012) 2,785 2,096 326 2,422
-----------------------------------------------------------------------------
Interest Paid:
Savings and Interest-bearing
Demand............................. 196 (317) (121 ) 14 62 76
Time Deposits.......................... 1,248 (111) 1,137 1,143 (57) 1,086
Short-term Borrowings.................. 9 (3) 6 (98) (13) (111)
Notes Payable.......................... 141 (4) 137 (121) 30 (91)
--------------------------------------------------------------------------------
Total Interest Expense.................... 1,594 (435) 1,159 938 22 960
--------------------------------------------------------------------------------
Net Interest Earnings..................... $2,203 $(577) $1,626 1,158 304 1,462
================================================================================
(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 $827, $610, and $658 for
1998, 1997, and 1996, respectively.
7
Statistical Disclosures (continued)
The following is a schedule of loans by major category for each reported
period:
December 31,
(dollar references in thousands)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Real Estate Loans Secured
by 1-4 Family Residential
Properties................................ $138,710 $126,287 $110,448 $102,348 $99,225
Loans to Finance Agricultural
Production, Poultry and Other
Loans to Farmers.......................... 62,736 60,421 64,415 69,000 75,041
Commercial and Industrial
Loans..................................... 127,384 110,749 113,092 101,021 93,588
Loans to Individuals for
Household, Family and Other
Personal Expenditures..................... 81,891 79,378 67,980 59,613 46,997
Economic Development
Commission Bonds.......................... 500 500 575 608 625
Lease Financings............................ 821 1,045 1,279 2,167 2,603
--- ----- ----- ----- ------
Total Loans............................... $412,042 $378,380 $357,789 $334,757 $318,079
======== ======== ======== ======== ========
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, 1998 which, based on remaining scheduled
repayments of principal, are due in the periods indicated.
8
Maturing
(dollar references in thousands)
Within After One After
One But Within Five
Year Five Years Years Total
Commercial, Agricultural
and Poultry................................ $71,404 $66,708 $52,508 $190,620
Interest Sensitivity
Fixed Variable
Rate Rate
Loans maturing after
one year............................. $36,319 $82,897
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.
9
The following table presents information concerning the aggregate amount of
nonperforming assets. Nonperforming 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
Restructuring" ("restructured loans").
December 31,
(dollar references in thousands)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Nonaccrual Loans................................. $1,920 $1,238 $2,003 $1,891 $1,695
Past Due Loans................................... 1,169 2,832 1,168 2,753 664
Restructured Loans............................... --- --- --- 122 26
--- --- --- --- ---
Total Nonperforming Loans.................... 3,089 4,070 3,171 4,766 2,385
Other Real Estate................................ 226 388 529 823 1,156
--- --- --- --- -----
Total Nonperforming
Assets....................................... $3,315 $4,458 $3,700 $5,589 $3,541
====== ====== ====== ====== ======
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 1998 on nonperforming loans if the loans had been current in
accordance with their original terms is $293. Interest income recognized on
nonperforming loans for 1998 was $187.
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, 1998
was $1,156,000. 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, 1998, the Company had a total of $9,475,000 of loans on its
commercial loan watch list. All loans on the watch list that are on non-accrual
or are past due 90 days or more are included in the table above. 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.
10
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, 1998 there were no material
credits not already disclosed as nonperforming, impaired or 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 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.
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.
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance of allowance for possible
losses at beginning of period...................... $7,416 $7,144 $7,552 $7,325 $6,487
Addition of Affiliate Banks........................... 80 --- --- --- 195
Loans charged-off:
Real Estate Loans Secured by 1-4 Family
Residential Properties......................... 238 41 37 221 113
Loans to Finance Agricultural Production, Poultry
and Other Loans to Farmers......................... --- --- 286 --- ---
Commercial and Industrial Loans....................... 342 401 481 107 147
Loans to Individuals for Household, Family
and Other Personal Expenditures.................... 1,003 505 269 249 175
Economic Development Bonds............................ --- --- --- --- ---
--- --- --- --- ---
Total Loans charged-off............................ 1,583 947 1,073 577 435
----- --- ----- --- ---
Recoveries of previously charged-off Loans:
Real Estate Loans Secured by 1-4 Family
Residential Properties......................... 74 --- 14 6 15
Loans to Finance Agricultural Production, Poultry
and Other Loans to Farmers......................... 19 66 125 560 ---
Commercial and Industrial Loans....................... 73 665 126 66 290
Loans to Individuals for Household, Family
and Other Personal Expenditures.................... 196 88 55 75 61
Economic Development Commission Bonds................. --- --- --- --- ---
--- --- --- --- ---
Total Recoveries................................... 362 819 320 707 366
--- --- --- --- ----
Net Loans recovered / (charged-off).................. (1,221) (128) (753) 130 (69)
------ ----- ----- --- ----
Additions to allowance charged to expense............. 583 400 345 97 712
--- --- --- -- ---
Balance at end of period.............................. $6,858 $7,416 $7,144 $7,552 $7,325
====== ====== ====== ====== ======
Ratio of net recoveries / (charge-offs) during
the period to average loans outstanding.......... (0.30)% (0.03)% (0.21)% 0.04% (0.02)%
===== ===== ===== ==== =====
11
The following table indicates the breakdown of the allowance for loan losses for
the periods indicated:
(dollar references in thousands)
December 31, December 31, December
31,
1998 1997 1996
---- ---- ----
Allowance Ratio of Allowance Ratio of Allowance Ratio of
Loans to Loans to Loans to
Total Total Total
Loans Loans Loans
Residential Real Estate.............. $388 33.66% $373 33.38% $364 30.87%
Agricultural Loans................... 902 15.23% 1,001 15.97% 1,322 18.00%
Commercial and
Industrial Loans.................. 2,386 31.12% 2,576 29.54% 2,461 31.97%
Loans to Individuals................. 800 19.87% 909 20.98% 702 19.00%
Economic Development
Commission Bonds.................. --- 0.12% --- 0.13% --- 0.16%
Unallocated.......................... 2,382 N/A 2,557 N/A 2,295 N/A
----- ----- -----
Totals............................... $6,858 100.00% $7.416 100.00% $7,144 100.00%
====== ====== ======
(dollar references in thousands)
December 31, December 31,
1995 1994
---- ----
Allowance Ratio of Allowance Ratio of
Loans to Loans to
Total Total
Loans Loans
Residential Real Estate.............. $268 30.94% $255 31.21%
Agricultural Loans................... 2,693 20.33% 2,256 23.32%
Commercial and
Industrial Loans................. 2,163 30.61% 1,389 29.35%
Loans to Individuals................. 683 17.94% 682 15.93%
Economic Development
Commission Bonds................. --- 0.18% --- .19%
Unallocated.......................... 1,745 N/A 2,743 N/A
----- -----
Totals ............................. $7.552 100.00% $7,325 100.00%
====== ======
12
The average amount of deposits is summarized for the periods indicated in the
following table:
(dollar references in thousands)
December 31,
1998 1997 1996
---- ---- ----
Average Average Average
Balance Rate Balance Rate Balance Rate
Demand Deposits
Non-interest Bearing............... $56,249 --- $53,911 --- $51,332 ---
Interest Bearing................... 62,734 1.71% 61,900 2.11% 61,655 2.25%
Savings Deposits....................... 85,779 3.08% 79,156 3.19% 78,859 3.00%
Time Deposits.......................... 319,054 5.46% 296,218 5.50% 275,424 5.52%
------- ------- -------
Totals............................. $523,816 4.04% $491,185 4.10% $467,270 4.06%
======== ======== ========
Maturities of time certificates of deposit of $100,000 or more are summarized
as follows:
December 31,
1998
(in thousands)
3 months or less............................... $16,807
Over 3 through 6 months........................ 5,008
Over 6 through 12 months....................... 8,437
Over 12 months................................. 9,232
-----
Total....................................... $39,484
=======
13
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:
Year Ended December 31,
1998 1997 1996
---- ---- ----
Percentage of Net Income to:
Average Shareholders' Equity..................... 10.16% 10.79% 10.08%
Average Total Assets............................. 1.10% 1.15% 1.04%
Percentage of Dividends
Declared per Common Share
to Net Income per
Common Share (1)............................... 45.00% 39.18% 35.29%
Percentage of Average
Shareholders' Equity to
Average Total Assets............................. 10.81% 10.61% 10.36%
(1) Based on historical dividends declared by German American Bancorp without
restatement for pooling.
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.
14
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 and economic conditions
generally and in the 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 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 Corporation 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.
The Company conducts its operations from the main office building of
German American Bank at 711 Main Street, in Jasper, Indiana. The main office
building contains approximately 23,600 square feet of office space. The Banks
and other subsidiaries conduct their operations from 31 other locations in
Southwest Indiana.
Item 3. Legal Proceedings.
There are no material pending legal proceedings, other than routine
litigation incidental to the business of the Company's subsidiary banks to which
the Company or any of its subsidiaries is a party or of which any of their
property is the subject.
15
Item 4. Submission of Matters to a Vote of Security Holders.
There was no matter submitted during the fourth quarter of 1998 to a vote
of security holders, by solicitation of proxies or otherwise, except that the
Company's shareholders approved the merger of 1ST BANCORP into the Company at a
special meeting held December 15, 1998, by the following vote:
FOR ............................................. 4,315,895
AGAINST OR WITHHELD................................. 14,988
ABSTENTION OR BROKER NONVOTE........................ 37,492
Special Item. Executive Officers of the Registrant.
NAME AGE TITLE AND FIVE YEAR HISTORY
George W. Astrike (63) Chairman of the Company since January 1, 1999; Chairman and CEO
of the Company from 1995 through 1998; 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 (45) President and Chief Executive Officer since January 1, 1999;
President and Chief Operating Officer of the Company from 1995
through 1998; Vice President / Chief Operating Officer prior
thereto. Director of each of the other Banks since acquisition
by the Company.
Richard E. Trent (40) Vice President / Chief Financial Officer of the Company since
December, 1997; Vice President, Budgets & Financial Analysis of
CNB Bancshares from January, 1997; Manager of Finance and
Planning, Wells Fargo Bank from August, 1996; Various financial
officer capacities within American General Finance, Inc. and
subsidiaries prior thereto.
Urban Giesler (61) Treasurer and Secretary of the Corporation; Senior Vice President -
Personal Banking of German American Bank.
Stan J. Ruhe (47) 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 (44) Senior Vice President - Marketing of the Company since 1995;
Senior Vice President - Operations / Administration of German
American Bank prior thereto.
John M. Gutgsell (43) Vice President and Controller of the Company / Chief Accounting
Officer since 1995; Vice President and Controller of German American Bank prior
thereto.
There are no family relationships between any of the officers of the
Corporation. All officers are elected for a term of one year.
16
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, 1998 ("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.
During the three years ended December 31, 1998, the Company issued an
aggregate of 63,714 shares of its common stock to executive officers upon their
exercise of stock options granted to them under the Company's 1992 Stock Option
Plan. These shares were sold without registration under the Securities Act of
1933 in reliance upon the section 4(2) exemption for offers and sales not
involving a public offering.
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 15 of the Shareholders' Report which
is filed as Exhibit 13.3 to this report and is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committees and Boards of Directors of the holding company and
its affiliate banks. Primary market risks which impact the Company's operations
are liquidity risk and interest rate risk.
The liquidity of the parent company is dependent upon the receipt of
dividends from its bank subsidiaries, which are subject to certain regulatory
limitations explained in Note 17 to the consolidated financial statements in the
Company's Annual Report. The affiliate banks source of funding is predominately
core deposits, maturities of securities, repayments of loan principal and
interest, federal funds purchased, securities sold under agreements to
repurchase and long-term borrowings from the Federal Home Loan Bank. Further
detail is provided in the sections entitled SOURCES OF FUNDS and USES OF FUNDS
contained in Management's Discussion and Analysis in the Company's Annual
Report.
The Company monitors interest rate risk by the use of computer simulation
modeling to estimate the potential impact on its net interest income under
various interest rate scenarios, and by estimating its static interest rate
sensitivity position. Management's approach to monitoring and mitigating these
risks is explained in the LIQUIDITY AND INTEREST RATE RISK MANAGEMENT section of
Management's Discussion and Analysis in the Company's Annual Report.
17
Another method by which the Company's interest rate risk position can be
estimated is by computing estimated changes in its net portfolio value ("NPV").
This method estimates interest rate risk exposure from movements in interest
rates by using interest rate sensitivity analysis to determine the change in the
NPV of discounted cash flows from assets and liabilities.
NPV represents the market value of portfolio equity and is equal to the
estimated market value of assets minus the estimated market value of
liabilities. Computations are based on a number of assumptions, including the
relative levels of market interest rates and prepayments in mortgage loans and
certain types of investments. These computations do not contemplate any actions
management may undertake in response to changes in interest rates, and should
not be relied upon as indicative of actual results. In addition, certain
shortcomings are inherent in the method of computing NPV. Should interest rates
remain or decrease below current levels, the proportion of adjustable rate loans
could decrease in future periods due to refinancing activity. In the event of an
interest rate change, prepayment levels would likely be different from those
assumed in the table. Lastly, the ability of many borrowers to repay their
adjustable rate debt may decline during a rising interest rate environment.
The table below provides an assessment of the risk to NPV in the event of
sudden and sustained 1% and 2% increases and decreases in prevailing interest
rates. The table indicates that as of December 31, 1998 the Company's estimated
NPV might be expected to decrease in the event of an increase in prevailing
interest rates, and might be expected to increase in the event of a decrease in
prevailing interest rates.
Net Portfolio Value
Changes in Rates In Thousands Dollar Change % Change
+2% $57,625 $(22,159) (28%)
+1% 67,056 (12,728) (16%)
Base 79,784 --- ---
-1% 82,865 3,081 4%
-2% 84,268 4,484 6%
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Company and related notes on pages 16
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.
18
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 Company's Proxy Statement for
the Annual Meeting of Shareholders to be held on April 22, 1999 which will be
filed with the Commission within 120 days of the end of the fiscal year covered
by this Report (the "1999 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
1999 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 1999 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 1999 Proxy Statement of the Corporation, which
sections are incorporated herein by reference.
19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
a) The following 1998, 1997, and 1996 consolidated financial statements of
the Corporation, and the Auditors' Report therein, included on pages 16 through
37 of the Shareholders' Report, are incorporated into Item 8 of this report by
reference.
Location in
1. Financial Statements Shareholders' Report
German American Bancorp and Subsidiaries
Consolidated Balance Sheets at December 31,
1998 and December 31, 1997 Page 16
Consolidated Statements of Income, years
ended December 31, 1998, 1997, and 1996 Page 17
Consolidated Statements of Cash Flows, years
ended December 31, 1998, 1997, and 1996 Page 18
Consolidated Statements of Changes in
Shareholders' Equity, years ended
December 31, 1998, 1997, and 1996 Page 19
Notes to the Consolidated Financial
Statements Pages 20 - 35
Independent Auditors' Report Page 36
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 by the Registrant during the quarter
ended December 31, 1998 except a report filed November 6, 1998 reporting certain
recent financial information under Item 5.
c) Exhibits:
The Exhibits described in the Exhibit List immediately following the
"Signatures" pages of this report (which are incorporated herein by reference)
are hereby filed as part of this report.
20
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 26, 1999 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.
Date: March 26, 1999 /s/Mark A. Schroeder
Mark A. Schroeder, President and Director
(Chief Executive Officer)
Date: March 26, 1999 /s/George W. Astrike
George W. Astrike, Director
Date: March 26, 1999 /s/David G. Buehler
David G. Buehler, Director
Date: March 26, 1999 /s/David B. Graham
David B. Graham, Director
Date: March 26, 1999 /s/William R. Hoffman
William R. Hoffman, Director
Date:
Michael B. Lett, Director
Date:
James C. McCormick, Director
Date: March 26, 1999 /s/Gene C. Mehne
Gene C. Mehne, Director
Date: March 26, 1999 /s/A.W. Place Jr.
A. W. Place Jr., Director
Date: March 26, 1999 /s/Robert L. Ruckriegel
Robert L. Ruckriegel, Director
Date: March 26, 1999 /s/Larry J. Seger
Larry J. Seger, Director
Date: March 26, 1999 /s/Joseph F. Steurer
Joseph F. Steurer, Director
Date: March 26, 1999 /s/C.L. Thompson
C.L. Thompson, Director
Date: March 26, 1999 /s/Michael J. Voyles
Michael J. Voyles, Director
Date: March 26, 1999 /s/Richard E. Trent
Richard E. Trent, Vice President
(Chief Financial Officer)
Date: March 26, 1999 /s/John M. Gutgsell
John M. Gutgsell, Controller
(Principal Accounting Officer)
21
Executive
Compensation
Exhibit Plans and
Number Arrangements* Exhibit List
2.1 Agreement of Merger dated December 8, 1997, among the Registrant,
CSB Bancorp and the Citizens State Bank of Petersburg, as
amended, is incorporated by reference from Exhibit 2.1 to the
Registrant's Registration Statement on Form S-4 filed February
26, 1998.
2.2 Agreement of Merger dated January 30, 1998, among the Registrant,
FSB Corporation and the FSB Bank of Francisco, as amended, is
incorporated by reference from Exhibit 2.2 to the Registrant's
Registration Statement on Form S-4 filed February 26, 1998.
2.3 Agreement and Plan of Reorganization between the Registrant and
1ST BANCORP dated August 6, 1998, is incorporated by reference
from Exhibit 2 to the Registrant's Registration Statement on Form
S-4 filed October 14, 1998.
3.1 Restated Articles of Incorporation of the Registrant as amended
April 23, 1998 are Incorporated by reference to Exhibit 3 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
3.2 Restated Bylaws of the Registrant as amended August 14, 1990, are
incorporated by reference to Exhibit 3.2 to Registrant's Form
10-K for the year ended December 31, 1995.
10.1 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.)
10.2 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.
10.3 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.
10.4 X The Registrant's 1992 Stock Option Plan, as ammended, is
incorporated by reference from Exhibit 10.1 to the Registrant's
Registration Statement on Form S-4 filed October 14, 1998.
10.5 X Schedule identifying material terms of Incentive Stock Options
(including replacement options) granted to the Registrant's
executive officers under the Registrant's 1992 Stock Option Plan.
10.6 X 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
Registrant's Registration Statement on Form S-4 filed January 21,
1993.
22
10.7 X 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 Registrant's
Registration Statement on Form S-4 filed January 21, 1993 (The
Agreement entered into by George W. Astrike, a copy of which was
filed as Exhibit 10.4 to the Registrant's Registration Statement
on Form S-4 filed January 21, 1993, is substantially identical to
the Agreements entered into by the other Directors.) The schedule
following Exhibit 10.4 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.
10.8 X Sublease entered by and between Buehler Foods, Inc. and First
State Bank, dated July 25, 1996 (Tell City Branch) is
incorporated by reference to Exhibit 10.9 of the Registrant's
Report on Form 10-K for the year ended December 31, 1996.
10.9 X Stock Option Agreement between the Registrant and George W.
Astrike dated September 2, 1998 is incorporated by reference or
from Exhibit 10.9 to the Registrant's Registration Statement on
Form S-4 filed October 14, 1998.
10.10 X Non-Qualified Index Executive Supplemental Agreement dated
September 1, 1998 between the Registant and George W. Astrike.
10.11 X Split Dollar Life Insurance Plan Agreement dated November 5, 1998
between the Registrant and George W. Astrike.
13.1 Market and Dividend Information (page 37) of the Registrant's
Annual Report to Shareholders for the year ended December 31,
1998.
13.2 Five Year Summary of Consolidated Financial Statements and
Related Statistics (page 1) of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1998.
13.3 Management's Discussion and Analysis of Financial Condition and
Results of Operations (pages 2 through 15) of the Registrant's
Annual Report to Shareholders for the year ended December 31,
1998.
13.4 Consolidated financial statements and related notes (pages 16
through 35), Auditor's Report (page 36) of the Registrant's
Annual Report to Shareholders for the year ended December 31,
1998.
21 Subsidiaries of the Registrant.
23.1 Consent of Crowe, Chizek and Company LLP
23.2 Consent of Gaither, Rutherford & Co., LLP
27 Financial Data Schedule
99 Opinion of Gaither, Rutherford & Co., LLP
*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.