Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - GERMAN AMERICAN BANCORP, INC. | exhibit322-q32017.htm |
| EX-32.1 - EXHIBIT 32.1 - GERMAN AMERICAN BANCORP, INC. | exhibit321-q32017.htm |
| EX-31.2 - EXHIBIT 31.2 - GERMAN AMERICAN BANCORP, INC. | exhibit312-q32017.htm |
| EX-31.1 - EXHIBIT 31.1 - GERMAN AMERICAN BANCORP, INC. | exhibit311-q32017.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 2017
Commission File Number 001-15877
German American Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Indiana | 35-1547518 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
711 Main Street, Jasper, Indiana 47546
(Address of Principal Executive Offices and Zip Code)
Registrant’s telephone number, including area code: (812) 482-1314
Indicate by check 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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company:
Large accelerated filer ¨ | Accelerated filer x | Non-accelerated filer ¨ | Smaller reporting company ¨ | Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
YES ¨ NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at November 1, 2017 | |
Common Shares, no par value | 22,930,017 | |
CAUTION REGARDING FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Information included in or incorporated by reference in this Quarterly Report on Form 10-Q, our other filings with the Securities and Exchange Commission (the “SEC”) and our press releases or other public statements, contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the discussions of our forward-looking statements and associated risks in our Annual Report on Form 10-K for the year ended December 31, 2016, in Item 1, “Business – Forward-Looking Statements and Associated Risks” and our discussion of risk factors in Item 1A, “Risk Factors” of that Annual Report on Form 10-K, as updated from time to time in our subsequent SEC filings, including by Item 2 of Part I of this Report (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) at the conclusion of that Item 2 under the heading “Forward-Looking Statements and Associated Risks.”
2
*****
INDEX
PART I. FINANCIAL INFORMATION | ||
Item 1. | Unaudited Financial Statements | |
Consolidated Balance Sheets – September 30, 2017 and December 31, 2016 | ||
Consolidated Statements of Income – Three Months Ended September 30, 2017 and 2016 | ||
Consolidated Statements of Income – Nine Months Ended September 30, 2017 and 2016 | ||
Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2017 and 2016 | ||
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2017 and 2016 | ||
Notes to Consolidated Financial Statements – September 30, 2017 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
PART II. OTHER INFORMATION | ||
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
SIGNATURES | ||
INDEX OF EXHIBITS | ||
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, dollars in thousands except share and per share data)
September 30, 2017 | December 31, 2016 | |||||||
ASSETS | ||||||||
Cash and Due from Banks | $ | 44,804 | $ | 48,467 | ||||
Federal Funds Sold and Other Short-term Investments | 9,758 | 16,349 | ||||||
Cash and Cash Equivalents | 54,562 | 64,816 | ||||||
Securities Available-for-Sale, at Fair Value | 741,710 | 709,786 | ||||||
Loans Held-for-Sale, at Fair Value | 8,484 | 15,273 | ||||||
Loans | 2,089,713 | 1,993,404 | ||||||
Less: Unearned Income | (3,388 | ) | (3,449 | ) | ||||
Allowance for Loan Losses | (15,321 | ) | (14,808 | ) | ||||
Loans, Net | 2,071,004 | 1,975,147 | ||||||
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost | 13,048 | 13,048 | ||||||
Premises, Furniture and Equipment, Net | 51,355 | 48,230 | ||||||
Other Real Estate | 568 | 242 | ||||||
Goodwill | 54,058 | 54,058 | ||||||
Intangible Assets | 2,320 | 2,835 | ||||||
Company Owned Life Insurance | 46,104 | 46,642 | ||||||
Accrued Interest Receivable and Other Assets | 29,676 | 25,917 | ||||||
TOTAL ASSETS | $ | 3,072,889 | $ | 2,955,994 | ||||
LIABILITIES | ||||||||
Non-interest-bearing Demand Deposits | $ | 589,315 | $ | 571,989 | ||||
Interest-bearing Demand, Savings, and Money Market Accounts | 1,454,073 | 1,399,381 | ||||||
Time Deposits | 381,184 | 378,181 | ||||||
Total Deposits | 2,424,572 | 2,349,551 | ||||||
FHLB Advances and Other Borrowings | 261,941 | 258,114 | ||||||
Accrued Interest Payable and Other Liabilities | 25,751 | 18,062 | ||||||
TOTAL LIABILITIES | 2,712,264 | 2,625,727 | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
Preferred Stock, no par value; 500,000 shares authorized, no shares issued | — | — | ||||||
Common Stock, no par value, $1 stated value; 45,000,000 shares authorized (1) | 22,930 | 15,261 | ||||||
Additional Paid-in Capital | 164,987 | 171,744 | ||||||
Retained Earnings | 169,859 | 149,666 | ||||||
Accumulated Other Comprehensive (Loss) Income | 2,849 | (6,404 | ) | |||||
TOTAL SHAREHOLDERS’ EQUITY | 360,625 | 330,267 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 3,072,889 | $ | 2,955,994 | ||||
End of period shares issued and outstanding (1) | 22,930,017 | 22,904,157 | ||||||
(1) Share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.
See accompanying notes to consolidated financial statements.
4
GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands except per share data)
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
INTEREST INCOME | ||||||||
Interest and Fees on Loans | $ | 23,182 | $ | 22,311 | ||||
Interest on Federal Funds Sold and Other Short-term Investments | 46 | 25 | ||||||
Interest and Dividends on Securities: | ||||||||
Taxable | 2,688 | 2,491 | ||||||
Non-taxable | 2,070 | 1,907 | ||||||
TOTAL INTEREST INCOME | 27,986 | 26,734 | ||||||
INTEREST EXPENSE | ||||||||
Interest on Deposits | 1,959 | 1,323 | ||||||
Interest on FHLB Advances and Other Borrowings | 1,110 | 851 | ||||||
TOTAL INTEREST EXPENSE | 3,069 | 2,174 | ||||||
NET INTEREST INCOME | 24,917 | 24,560 | ||||||
Provision for Loan Losses | 250 | — | ||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 24,667 | 24,560 | ||||||
NON-INTEREST INCOME | ||||||||
Trust and Investment Product Fees | 1,301 | 1,191 | ||||||
Service Charges on Deposit Accounts | 1,608 | 1,612 | ||||||
Insurance Revenues | 1,728 | 1,661 | ||||||
Company Owned Life Insurance | 317 | 247 | ||||||
Interchange Fee Income | 1,186 | 965 | ||||||
Other Operating Income | 608 | 1,246 | ||||||
Net Gains on Sales of Loans | 952 | 1,004 | ||||||
Net Gains on Securities | 575 | 458 | ||||||
TOTAL NON-INTEREST INCOME | 8,275 | 8,384 | ||||||
NON-INTEREST EXPENSE | ||||||||
Salaries and Employee Benefits | 11,570 | 10,572 | ||||||
Occupancy Expense | 1,694 | 1,656 | ||||||
Furniture and Equipment Expense | 678 | 568 | ||||||
FDIC Premiums | 241 | 373 | ||||||
Data Processing Fees | 1,067 | 1,261 | ||||||
Professional Fees | 551 | 777 | ||||||
Advertising and Promotion | 1,315 | 687 | ||||||
Intangible Amortization | 230 | 280 | ||||||
Other Operating Expenses | 2,425 | 2,479 | ||||||
TOTAL NON-INTEREST EXPENSE | 19,771 | 18,653 | ||||||
Income before Income Taxes | 13,171 | 14,291 | ||||||
Income Tax Expense | 3,511 | 4,106 | ||||||
NET INCOME | $ | 9,660 | $ | 10,185 | ||||
Basic Earnings per Share (1) | $ | 0.42 | $ | 0.45 | ||||
Diluted Earnings per Share (1) | $ | 0.42 | $ | 0.45 | ||||
Dividends per Share (1) | $ | 0.13 | $ | 0.12 | ||||
(1) Per share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.
See accompanying notes to consolidated financial statements.
5
GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands except per share data)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
INTEREST INCOME | ||||||||
Interest and Fees on Loans | $ | 68,046 | $ | 63,645 | ||||
Interest on Federal Funds Sold and Other Short-term Investments | 100 | 62 | ||||||
Interest and Dividends on Securities: | ||||||||
Taxable | 8,109 | 7,055 | ||||||
Non-taxable | 6,165 | 5,502 | ||||||
TOTAL INTEREST INCOME | 82,420 | 76,264 | ||||||
INTEREST EXPENSE | ||||||||
Interest on Deposits | 5,028 | 3,804 | ||||||
Interest on FHLB Advances and Other Borrowings | 2,937 | 2,445 | ||||||
TOTAL INTEREST EXPENSE | 7,965 | 6,249 | ||||||
NET INTEREST INCOME | 74,455 | 70,015 | ||||||
Provision for Loan Losses | 1,100 | 1,200 | ||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 73,355 | 68,815 | ||||||
NON-INTEREST INCOME | ||||||||
Trust and Investment Product Fees | 3,894 | 3,435 | ||||||
Service Charges on Deposit Accounts | 4,570 | 4,379 | ||||||
Insurance Revenues | 6,112 | 5,993 | ||||||
Company Owned Life Insurance | 1,051 | 709 | ||||||
Interchange Fee Income | 3,365 | 2,626 | ||||||
Other Operating Income | 2,095 | 2,481 | ||||||
Net Gains on Sales of Loans | 2,598 | 2,607 | ||||||
Net Gains on Securities | 575 | 1,426 | ||||||
TOTAL NON-INTEREST INCOME | 24,260 | 23,656 | ||||||
NON-INTEREST EXPENSE | ||||||||
Salaries and Employee Benefits | 34,474 | 32,357 | ||||||
Occupancy Expense | 4,813 | 4,649 | ||||||
Furniture and Equipment Expense | 1,965 | 1,680 | ||||||
FDIC Premiums | 712 | 1,040 | ||||||
Data Processing Fees | 3,122 | 4,607 | ||||||
Professional Fees | 2,267 | 2,875 | ||||||
Advertising and Promotion | 2,723 | 1,860 | ||||||
Intangible Amortization | 725 | 800 | ||||||
Other Operating Expenses | 7,002 | 7,364 | ||||||
TOTAL NON-INTEREST EXPENSE | 57,803 | 57,232 | ||||||
Income before Income Taxes | 39,812 | 35,239 | ||||||
Income Tax Expense | 10,757 | 10,120 | ||||||
NET INCOME | $ | 29,055 | $ | 25,119 | ||||
Basic Earnings per Share (1) | $ | 1.27 | $ | 1.13 | ||||
Diluted Earnings per Share (1) | $ | 1.27 | $ | 1.13 | ||||
Dividends per Share (1) | $ | 0.39 | $ | 0.36 | ||||
(1) Per share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.
See accompanying notes to consolidated financial statements.
6
GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, dollars in thousands)
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
NET INCOME | $ | 9,660 | $ | 10,185 | ||||
Other Comprehensive Income (Loss): | ||||||||
Unrealized Gains (Losses) on Securities | ||||||||
Unrealized Holding Gain (Loss) Arising During the Period | (1,450 | ) | 1,898 | |||||
Reclassification Adjustment for Gains Included in Net Income | (575 | ) | (458 | ) | ||||
Tax Effect | 714 | (510 | ) | |||||
Net of Tax | (1,311 | ) | 930 | |||||
Total Other Comprehensive Income (Loss) | (1,311 | ) | 930 | |||||
COMPREHENSIVE INCOME | $ | 8,349 | $ | 11,115 | ||||
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
NET INCOME | $ | 29,055 | $ | 25,119 | ||||
Other Comprehensive Income: | ||||||||
Unrealized Gains on Securities | ||||||||
Unrealized Holding Gain Arising During the Period | 14,862 | 14,241 | ||||||
Reclassification Adjustment for Gains Included in Net Income | (575 | ) | (1,426 | ) | ||||
Tax Effect | (5,034 | ) | (4,502 | ) | ||||
Net of Tax | 9,253 | 8,313 | ||||||
Total Other Comprehensive Income | 9,253 | 8,313 | ||||||
COMPREHENSIVE INCOME | $ | 38,308 | $ | 33,432 | ||||
See accompanying notes to consolidated financial statements.
7
GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income | $ | 29,055 | $ | 25,119 | ||||
Adjustments to Reconcile Net Income to Net Cash from Operating Activities: | ||||||||
Net Amortization on Securities | 2,591 | 2,794 | ||||||
Depreciation and Amortization | 3,496 | 3,366 | ||||||
Loans Originated for Sale | (95,278 | ) | (95,244 | ) | ||||
Proceeds from Sales of Loans Held-for-Sale | 104,639 | 95,765 | ||||||
Provision for Loan Losses | 1,100 | 1,200 | ||||||
Gain on Sale of Loans, net | (2,598 | ) | (2,607 | ) | ||||
Gain on Securities, net | (575 | ) | (1,426 | ) | ||||
Loss (Gain) on Sales of Other Real Estate and Repossessed Assets | (8 | ) | (95 | ) | ||||
Loss on Disposition and Donation of Premises and Equipment | 873 | 5 | ||||||
Increase in Cash Surrender Value of Company Owned Life Insurance | (1,089 | ) | (769 | ) | ||||
Equity Based Compensation | 941 | 796 | ||||||
Change in Assets and Liabilities: | ||||||||
Interest Receivable and Other Assets | (1,985 | ) | 4,805 | |||||
Interest Payable and Other Liabilities | 2,656 | (911 | ) | |||||
Net Cash from Operating Activities | 43,818 | 32,798 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of Other Short-term Investments | — | (1,000 | ) | |||||
Proceeds from Maturity of Other Short-term Investments | — | 1,248 | ||||||
Proceeds from Maturities, Calls, Redemptions of Securities Available-for-Sale | 61,763 | 74,179 | ||||||
Proceeds from Sales of Securities Available-for-Sale | 48,343 | 141,451 | ||||||
Purchase of Securities Available-for-Sale | (129,760 | ) | (166,857 | ) | ||||
Proceeds from Maturities of Securities Held-to-Maturity | — | 95 | ||||||
Purchase of Federal Home Loan Bank Stock | — | (1,350 | ) | |||||
Purchase of Loans | (211 | ) | (5,608 | ) | ||||
Proceeds from Sales of Loans | — | 1,063 | ||||||
Loans Made to Customers, net of Payments Received | (97,976 | ) | (116,801 | ) | ||||
Proceeds from Sales of Other Real Estate | 912 | 1,071 | ||||||
Property and Equipment Expenditures | (7,277 | ) | (2,855 | ) | ||||
Proceeds from Sales of Property and Equipment | 2 | — | ||||||
Acquisition of River Valley Bancorp | — | (793 | ) | |||||
Net Cash from Investing Activities | (124,204 | ) | (76,157 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Change in Deposits | 75,211 | 98,036 | ||||||
Change in Short-term Borrowings | (20,354 | ) | (19,189 | ) | ||||
Advances in Long-term Debt | 75,000 | — | ||||||
Repayments of Long-term Debt | (50,834 | ) | (24,883 | ) | ||||
Issuance of Common Stock | (29 | ) | 54 | |||||
Dividends Paid | (8,862 | ) | (7,884 | ) | ||||
Net Cash from Financing Activities | 70,132 | 46,134 | ||||||
Net Change in Cash and Cash Equivalents | (10,254 | ) | 2,775 | |||||
Cash and Cash Equivalents at Beginning of Year | 64,816 | 52,009 | ||||||
Cash and Cash Equivalents at End of Period | $ | 54,562 | $ | 54,784 | ||||
Cash Paid During the Period for | ||||||||
Interest | $ | 7,823 | $ | 6,201 | ||||
Income Taxes | 10,661 | 7,064 | ||||||
Supplemental Non Cash Disclosures | ||||||||
Loans Transferred to Other Real Estate | $ | 1,230 | $ | 55 | ||||
Reclassification of Land to Other Assets | 330 | — | ||||||
See accompanying notes to consolidated financial statements.
8
GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(unaudited, dollars in thousands except share and per share data)
NOTE 1 – Basis of Presentation
German American Bancorp, Inc. operates primarily in the banking industry. The accounting and reporting policies of German American Bancorp, Inc. and its subsidiaries (hereinafter collectively referred to as the "Company") conform to U.S. generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included in the accompanying unaudited consolidated financial statements, and all such adjustments are of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. Certain items included in the prior period financial statements were reclassified to conform to the current presentation. There was no effect on net income or total shareholders' equity based on these reclassifications.
NOTE 2 - Common Stock Split
On March 27, 2017, the Company declared a 3-for-2 stock split on the Company's authorized and outstanding common shares. The stock split was distributed on April 21, 2017, to shareholders of record as of April 6, 2017. All share and per share data in this Quarterly Report on Form 10-Q relating to a date or period that precedes April 21, 2017 have been adjusted to retroactively reflect the stock split.
NOTE 3 – Per Share Data
The computation of Basic Earnings per Share and Diluted Earnings per Share are as follows:
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Basic Earnings per Share: | ||||||||
Net Income | $ | 9,660 | $ | 10,185 | ||||
Weighted Average Shares Outstanding (1) | 22,929,864 | 22,886,721 | ||||||
Basic Earnings per Share | $ | 0.42 | $ | 0.45 | ||||
Diluted Earnings per Share: | ||||||||
Net Income | $ | 9,660 | $ | 10,185 | ||||
Weighted Average Shares Outstanding (1) | 22,929,864 | 22,886,721 | ||||||
Potentially Dilutive Shares, Net | — | — | ||||||
Diluted Weighted Average Shares Outstanding (1) | 22,929,864 | 22,886,721 | ||||||
Diluted Earnings per Share | $ | 0.42 | $ | 0.45 | ||||
For the three months ended September 30, 2017 and 2016, there were no anti-dilutive shares.
9
GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(unaudited, dollars in thousands except share and per share data)
NOTE 3 - Per Share Data (continued)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Basic Earnings per Share: | ||||||||
Net Income | $ | 29,055 | $ | 25,119 | ||||
Weighted Average Shares Outstanding (1) | 22,922,724 | 22,221,780 | ||||||
Basic Earnings per Share | $ | 1.27 | $ | 1.13 | ||||
Diluted Earnings per Share: | ||||||||
Net Income | $ | 29,055 | $ | 25,119 | ||||
Weighted Average Shares Outstanding (1) | 22,922,724 | 22,221,780 | ||||||
Potentially Dilutive Shares, Net | — | 2,639 | ||||||
Diluted Weighted Average Shares Outstanding (1) | 22,922,724 | 22,224,419 | ||||||
Diluted Earnings per Share | $ | 1.27 | $ | 1.13 | ||||
(1) Share and per share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.
For the nine months ended September 30, 2017 and 2016, there were no anti-dilutive shares.
NOTE 4 – Securities
The amortized cost, unrealized gross gains and losses recognized in accumulated other comprehensive income (loss), and fair value of Securities Available-for-Sale at September 30, 2017 and December 31, 2016, were as follows:
Securities Available-for-Sale: | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
September 30, 2017 | ||||||||||||||||
Obligations of State and Political Subdivisions | $ | 258,244 | $ | 8,822 | $ | (570 | ) | $ | 266,496 | |||||||
MBS/CMO - Residential | 478,595 | 1,189 | (4,923 | ) | 474,861 | |||||||||||
Equity Securities | 353 | — | — | 353 | ||||||||||||
Total | $ | 737,192 | $ | 10,011 | $ | (5,493 | ) | $ | 741,710 | |||||||
December 31, 2016 | ||||||||||||||||
Obligations of State and Political Subdivisions | $ | 247,350 | $ | 3,847 | $ | (3,678 | ) | $ | 247,519 | |||||||
MBS/CMO - Residential | 471,852 | 480 | (10,418 | ) | 461,914 | |||||||||||
Equity Securities | 353 | — | — | 353 | ||||||||||||
Total | $ | 719,555 | $ | 4,327 | $ | (14,096 | ) | $ | 709,786 | |||||||
Equity securities that do not have readily determinable fair values are included in the above totals, are carried at historical cost and are evaluated for impairment on a periodic basis. All mortgage-backed securities in the above table are residential mortgage-backed securities and guaranteed by government sponsored entities.
10
GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(unaudited, dollars in thousands except share and per share data)
NOTE 4 - Securities (continued)
The amortized cost and fair value of securities at September 30, 2017 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. Mortgage-backed and Equity Securities are not due at a single maturity date and are shown separately in the table below.
Securities Available-for-Sale: | Amortized Cost | Fair Value | ||||||
Due in one year or less | $ | 1,680 | $ | 1,699 | ||||
Due after one year through five years | 19,818 | 20,716 | ||||||
Due after five years through ten years | 78,342 | 81,862 | ||||||
Due after ten years | 158,404 | 162,219 | ||||||
MBS/CMO - Residential | 478,595 | 474,861 | ||||||
Equity Securities | 353 | 353 | ||||||
Total | $ | 737,192 | $ | 741,710 | ||||
Proceeds from the Sales of Securities are summarized below:
Three Months Ended | Three Months Ended | |||||||
September 30, 2017 | September 30, 2016 | |||||||
Proceeds from Sales | $ | 48,343 | $ | 36,112 | ||||
Gross Gains on Sales | 575 | 458 | ||||||
Income Taxes on Gross Gains | 201 | 160 | ||||||
Nine Months Ended | Nine Months Ended | |||||||
September 30, 2017 | September 30, 2016 | |||||||
Proceeds from Sales | $ | 48,343 | $ | 141,451 | ||||
Gross Gains on Sales | 575 | 1,426 | ||||||
Income Taxes on Gross Gains | 201 | 499 | ||||||
The carrying value of securities pledged to secure repurchase agreements, public and trust deposits, and for other purposes as required by law was $165,767 and $186,572 as of September 30, 2017 and December 31, 2016, respectively.
Below is a summary of securities with unrealized losses as of September 30, 2017 and December 31, 2016, presented by length of time the securities have been in a continuous unrealized loss position:
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
September 30, 2017 | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
Obligations of State and Political Subdivisions | $ | 33,584 | $ | (337 | ) | $ | 6,115 | $ | (233 | ) | $ | 39,699 | $ | (570 | ) | |||||||||
MBS/CMO - Residential | 294,132 | (3,665 | ) | 47,985 | (1,258 | ) | 342,117 | (4,923 | ) | |||||||||||||||
Equity Securities | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | 327,716 | $ | (4,002 | ) | $ | 54,100 | $ | (1,491 | ) | $ | 381,816 | $ | (5,493 | ) | |||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
December 31, 2016 | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
Obligations of State and Political Subdivisions | $ | 108,918 | $ | (3,678 | ) | $ | — | $ | — | $ | 108,918 | $ | (3,678 | ) | ||||||||||
MBS/CMO - Residential | 356,040 | (8,782 | ) | 47,271 | (1,636 | ) | 403,311 | (10,418 | ) | |||||||||||||||
Equity Securities | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | 464,958 | $ | (12,460 | ) | $ | 47,271 | $ | (1,636 | ) | $ | 512,229 | $ | (14,096 | ) | |||||||||
11
GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(unaudited, dollars in thousands except share and per share data)
NOTE 4 - Securities (continued)
Securities are written down to fair value when a decline in fair value is not considered temporary. In estimating other-than-temporary losses, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The Company does not intend to sell or expect to be required to sell these securities, and the decline in fair value is largely due to changes in market interest rates. Therefore, the Company does not consider these securities to be other-than-temporarily impaired. All mortgage-backed securities and collateralized mortgage obligations (MBS/CMO - Residential) in the Company’s portfolio are guaranteed by government sponsored entities, are investment grade, and are performing as expected.
The Company's equity securities consist of one non-controlling investment in a single banking organization at September 30, 2017 and December 31, 2016. The original investment totaled $1,350 and other-than-temporary impairment was previously recorded totaling $997. When a decline in fair value below cost is deemed to be other-than-temporary, the unrealized loss must be recognized as a charge to earnings.
NOTE 5 – Derivatives
The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of these interest rate swaps and the offsetting counterparty derivative instruments were $88.3 million at September 30, 2017 and $67.9 million at December 31, 2016. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions with approved, reputable, independent counterparties with substantially matching terms. The agreements are considered stand alone derivatives and changes in the fair value of derivatives are reported in earnings as non-interest income.
Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Company’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. There are provisions in the agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, the Company minimizes credit risk through credit approvals, limits, and monitoring procedures.
The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of:
September 30, 2017 | December 31, 2016 | |||||||||||||||
Notional Amount | Fair Value | Notional Amount | Fair Value | |||||||||||||
Included in Other Assets: | ||||||||||||||||
Interest Rate Swaps | $ | 88,303 | $ | 1,750 | $ | 67,902 | $ | 1,291 | ||||||||
Included in Other Liabilities: | ||||||||||||||||
Interest Rate Swaps | $ | 88,303 | $ | 1,848 | $ | 67,902 | $ | 1,238 | ||||||||
The following table presents the effect of derivative instruments on the Consolidated Statements of Income for the periods presented:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Interest Rate Swaps: | ||||||||||||||||
Included in Other Operating Income | $ | 101 | $ | 670 | $ | 449 | $ | 828 | ||||||||
12
GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(unaudited, dollars in thousands except share and per share data)
NOTE 6 – Loans
Loans were comprised of the following classifications at September 30, 2017 and December 31, 2016:
September 30, 2017 | December 31, 2016 | |||||||
Commercial: | ||||||||
Commercial and Industrial Loans and Leases | $ | 474,917 | $ | 457,372 | ||||
Commercial Real Estate Loans | 898,752 | 856,094 | ||||||
Agricultural Loans | 327,026 | 303,128 | ||||||
Retail: | ||||||||
Home Equity Loans | 145,877 | 133,575 | ||||||
Consumer Loans | 63,660 | 59,945 | ||||||
Residential Mortgage Loans | 179,481 | 183,290 | ||||||
Subtotal | 2,089,713 | 1,993,404 | ||||||
Less: Unearned Income | (3,388 | ) | (3,449 | ) | ||||
Allowance for Loan Losses | (15,321 | ) | (14,808 | ) | ||||
Loans, Net | $ | 2,071,004 | $ | 1,975,147 | ||||
The following tables present the activity in the allowance for loan losses by portfolio class for the three months ended September 30, 2017 and 2016:
September 30, 2017 | Commercial and Industrial Loans and Leases | Commercial Real Estate Loans | Agricultural Loans | Home Equity Loans | Consumer Loans | Residential Mortgage Loans | Unallocated | Total | ||||||||||||||||||||||||
Beginning Balance | $ | 3,672 | $ | 5,316 | $ | 4,829 | $ | 300 | $ | 254 | $ | 353 | $ | 596 | $ | 15,320 | ||||||||||||||||
Provision for Loan Losses | 204 | (81 | ) | (10 | ) | 37 | 135 | 56 | (91 | ) | 250 | |||||||||||||||||||||
Recoveries | 1 | 4 | 9 | 6 | 78 | 3 | — | 101 | ||||||||||||||||||||||||
Loans Charged-off | (140 | ) | (6 | ) | — | — | (204 | ) | — | — | (350 | ) | ||||||||||||||||||||
Ending Balance | $ | 3,737 | $ | 5,233 | $ | 4,828 | $ | 343 | $ | 263 | $ | 412 | $ | 505 | $ | 15,321 | ||||||||||||||||
September 30, 2016 | Commercial and Industrial Loans and Leases | Commercial Real Estate Loans | Agricultural Loans | Home Equity Loans | Consumer Loans | Residential Mortgage Loans | Unallocated | Total | ||||||||||||||||||||||||
Beginning Balance | $ | 4,190 | $ | 6,533 | $ | 2,704 | $ | 350 | $ | 242 | $ | 559 | $ | 726 | $ | 15,304 | ||||||||||||||||
Provision for Loan Losses | (378 | ) | (1,111 | ) | 1,408 | 20 | 119 | (7 | ) | (51 | ) | — | ||||||||||||||||||||
Recoveries | 1 | 2 | — | 1 | 59 | 2 | — | 65 | ||||||||||||||||||||||||
Loans Charged-off | — | — | (10 | ) | (15 | ) | (173 | ) | (17 | ) | — | (215 | ) | |||||||||||||||||||
Ending Balance | $ | 3,813 | $ | 5,424 | $ | 4,102 | $ | 356 | $ | 247 | $ | 537 | $ | 675 | $ | 15,154 | ||||||||||||||||
13
GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(unaudited, dollars in thousands except share and per share data)
NOTE 6 - Loans (continued)
The following tables present the activity in the allowance for loan losses by portfolio class for the nine months ended September 30, 2017 and 2016:
September 30, 2017 | Commercial and Industrial Loans and Leases | Commercial Real Estate Loans | Agricultural Loans | Home Equity Loans | Consumer Loans | Residential Mortgage Loans | Unallocated | Total | ||||||||||||||||||||||||
Beginning Balance | $ | 3,725 | $ | 5,452 | $ | 4,094 | $ | 283 | $ | 235 | $ | 329 | $ | 690 | $ | 14,808 | ||||||||||||||||
Provision for Loan Losses | 151 | (62 | ) | 725 | 70 | 307 | 94 | (185 | ) | 1,100 | ||||||||||||||||||||||
Recoveries | 10 | 43 | 9 | 8 | 205 | 38 | — | 313 | ||||||||||||||||||||||||
Loans Charged-off | (149 | ) | (200 | ) | — | (18 | ) | (484 | ) | (49 | ) | — | (900 | ) | ||||||||||||||||||
Ending Balance | $ | 3,737 | $ | 5,233 | $ | 4,828 | $ | 343 | $ | 263 | $ | 412 | $ | 505 | $ | 15,321 | ||||||||||||||||
September 30, 2016 | Commercial and Industrial Loans and Leases | Commercial Real Estate Loans | Agricultural Loans | Home Equity Loans | Consumer Loans | Residential Mortgage Loans | Unallocated | Total | ||||||||||||||||||||||||
Beginning Balance | $ | 4,242 | $ | 6,342 | $ | 2,115 | $ | 383 | $ | 230 | $ | 414 | $ | 712 | $ | 14,438 | ||||||||||||||||
Provision for Loan Losses | (453 | ) | (923 | ) | 1,997 | 60 | 212 | 344 | (37 | ) | 1,200 | |||||||||||||||||||||
Recoveries | 29 | 5 | — | 2 | 147 | 11 | — | 194 | ||||||||||||||||||||||||
Loans Charged-off | (5 | ) | — | (10 | ) | (89 | ) | (342 | ) | (232 | ) | — | (678 | ) | ||||||||||||||||||
Ending Balance | $ | 3,813 | $ | 5,424 | $ | 4,102 | $ | 356 | $ | 247 | $ | 537 | $ | 675 | $ | 15,154 | ||||||||||||||||
In determining the adequacy of the allowance for loan loss, general allocations are made for pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss. General allocations of the allowance are primarily made based on historical averages for loan losses for these portfolios, judgmentally adjusted for current economic factors and portfolio trends.
Loan impairment is reported when full repayment under the terms of the loan is not expected. This methodology is used for all loans, including loans acquired with deteriorated credit quality if such loans perform worse than what was expected at the time of acquisition. For purchased loans, the assessment is made at the time of acquisition as well as over the life of loan. 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. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous 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. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
Specific allocations on impaired loans are determined by comparing the loan balance to the present value of expected cash flows or expected collateral proceeds. Allocations are also applied to categories of loans not considered individually impaired but for which the rate of loss is expected to be greater than historical averages, including non-performing consumer or residential real estate loans. Such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values.
14
GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(unaudited, dollars in thousands except share and per share data)
NOTE 6 - Loans (continued)
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of September 30, 2017 and December 31, 2016:
September 30, 2017 | Total | Commercial and Industrial Loans and Leases | Commercial Real Estate Loans | Agricultural Loans | Home Equity Loans | Consumer Loans | Residential Mortgage Loans | Unallocated | ||||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||||||
Ending Allowance Balance Attributable to Loans: | ||||||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | 1,843 | $ | 323 | $ | 1,450 | $ | 70 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Collectively Evaluated for Impairment | 13,467 | 3,411 | 3,780 | 4,758 | 343 | 263 | 407 | 505 | ||||||||||||||||||||||||
Acquired with Deteriorated Credit Quality | 11 | 3 | 3 | — | — | — | 5 | — | ||||||||||||||||||||||||
Total Ending Allowance Balance | $ | 15,321 | $ | 3,737 | $ | 5,233 | $ | 4,828 | $ | 343 | $ | 263 | $ | 412 | $ | 505 | ||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Loans Individually Evaluated for Impairment | $ | 9,289 | $ | 4,127 | $ | 4,771 | $ | 391 | $ | — | $ | — | $ | — | n/m(2) | |||||||||||||||||
Loans Collectively Evaluated for Impairment | 2,080,338 | 471,095 | 889,674 | 330,323 | 146,393 | 63,816 | 179,037 | n/m(2) | ||||||||||||||||||||||||
Loans Acquired with Deteriorated Credit Quality | 9,099 | 945 | 6,492 | 768 | — | — | 894 | n/m(2) | ||||||||||||||||||||||||
Total Ending Loans Balance(1) | $ | 2,098,726 | $ | 476,167 | $ | 900,937 | $ | 331,482 | $ | 146,393 | $ | 63,816 | $ | 179,931 | n/m(2) | |||||||||||||||||
(1)Total recorded investment in loans includes $9,013 in accrued interest.
(2)n/m = not meaningful
December 31, 2016 | Total | Commercial and Industrial Loans and Leases | Commercial Real Estate Loans | Agricultural Loans | Home Equity Loans | Consumer Loans | Residential Mortgage Loans | Unallocated | ||||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||||||
Ending Allowance Balance Attributable to Loans: | ||||||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | 255 | $ | 24 | $ | 231 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Collectively Evaluated for Impairment | 14,448 | 3,698 | 5,172 | 4,046 | 283 | 230 | 329 | 690 | ||||||||||||||||||||||||
Acquired with Deteriorated Credit Quality | 105 | 3 | 49 | 48 | — | 5 | — | — | ||||||||||||||||||||||||
Total Ending Allowance Balance | $ | 14,808 | $ | 3,725 | $ | 5,452 | $ | 4,094 | $ | 283 | $ | 235 | $ | 329 | $ | 690 | ||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Loans Individually Evaluated for Impairment | $ | 1,239 | $ | 113 | $ | 832 | $ | 294 | $ | — | $ | — | $ | — | n/m(2) | |||||||||||||||||
Loans Collectively Evaluated for Impairment | 1,989,128 | 456,769 | 849,510 | 305,946 | 134,032 | 60,046 | 182,825 | n/m(2) | ||||||||||||||||||||||||
Loans Acquired with Deteriorated Credit Quality | 11,048 | 1,656 | 7,688 | 706 | — | 53 | 945 | n/m(2) | ||||||||||||||||||||||||
Total Ending Loans Balance(1) | $ | 2,001,415 | $ | 458,538 | $ | 858,030 | $ | 306,946 | $ | 134,032 | $ | 60,099 | $ | 183,770 | n/m(2) | |||||||||||||||||
(1)Total recorded investment in loans includes $8,011 in accrued interest.
(2)n/m = not meaningful
15
GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(unaudited, dollars in thousands except share and per share data)
NOTE 6 - Loans (continued)
The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2017 and December 31, 2016:
September 30, 2017 | Unpaid Principal Balance(1) | Recorded Investment | Allowance for Loan Losses Allocated | |||||||||
With No Related Allowance Recorded: | ||||||||||||