0001445305-14-003548.txt : 20140808 0001445305-14-003548.hdr.sgml : 20140808 20140808153453 ACCESSION NUMBER: 0001445305-14-003548 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20140630 FILED AS OF DATE: 20140808 DATE AS OF CHANGE: 20140808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GERMAN AMERICAN BANCORP, INC. CENTRAL INDEX KEY: 0000714395 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 351547518 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15877 FILM NUMBER: 141027305 BUSINESS ADDRESS: STREET 1: 711 MAIN ST STREET 2: P O BOX 810 CITY: JASPER STATE: IN ZIP: 47546 BUSINESS PHONE: 8124821314 MAIL ADDRESS: STREET 1: 711 MAIN STREET CITY: JASPER STATE: IN ZIP: 47546 FORMER COMPANY: FORMER CONFORMED NAME: GERMAN AMERICAN BANCORP DATE OF NAME CHANGE: 19950510 FORMER COMPANY: FORMER CONFORMED NAME: GAB BANCORP DATE OF NAME CHANGE: 19950510 10-Q 1 gabc-2014630x10q.htm 10-Q GABC-2014.6.30-10Q
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 June 30, 2014
 
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, or a smaller reporting company:
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
 
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 August 1, 2014
Common Shares, no par value
 
13,210,395



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, 2013, 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.
Financial Statements
 
 
 
 
Consolidated Balance Sheets – June 30, 2014 and December 31, 2013
 
 
 
 
Consolidated Statements of Income – Three Months Ended June 30, 2014 and 2013
 
 
 
 
Consolidated Statements of Income – Six Months Ended June 30, 2014 and 2013
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2014 and 2013
 
 
 
 
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2014 and 2013
 
 
 
 
Notes to Consolidated Financial Statements – June 30, 2014
 
 
 
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 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
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)
 
 
June 30,
2014
 
December 31,
2013
ASSETS
 
 

 
 

Cash and Due from Banks
 
$
40,391

 
$
37,370

Federal Funds Sold and Other Short-term Investments
 
16,723

 
22,762

Cash and Cash Equivalents
 
57,114

 
60,132

 
 
 
 
 
Interest-bearing Time Deposits with Banks
 
100

 
100

Securities Available-for-Sale, at Fair Value
 
615,392

 
606,032

Securities Held-to-Maturity, at Cost (Fair value of $186 and $271 on June 30, 2014 and December 31, 2013, respectively)
 
184

 
268

 
 
 
 
 
Loans Held-for-Sale, at Fair Value
 
8,812

 
9,265

 
 
 
 
 
Loans
 
1,413,331

 
1,385,212

Less: Unearned Income
 
(3,846
)
 
(2,830
)
Allowance for Loan Losses
 
(15,550
)
 
(14,584
)
Loans, Net
 
1,393,935

 
1,367,798

 
 
 
 
 
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost
 
9,096

 
9,004

Premises, Furniture and Equipment, Net
 
40,479

 
40,430

Other Real Estate
 
935

 
1,029

Goodwill
 
20,536

 
20,536

Intangible Assets
 
2,655

 
3,328

Company Owned Life Insurance
 
31,591

 
31,178

Accrued Interest Receivable and Other Assets
 
12,744

 
14,727

TOTAL ASSETS
 
$
2,193,573

 
$
2,163,827

 
 
 
 
 
LIABILITIES
 
 

 
 

Non-interest-bearing Demand Deposits
 
$
398,621

 
$
400,024

Interest-bearing Demand, Savings, and Money Market Accounts
 
1,010,367

 
1,063,098

Time Deposits
 
333,391

 
349,034

Total Deposits
 
1,742,379

 
1,812,156

 
 
 
 
 
FHLB Advances and Other Borrowings
 
225,546

 
140,770

Accrued Interest Payable and Other Liabilities
 
11,310

 
10,804

TOTAL LIABILITIES
 
1,979,235

 
1,963,730

 
 
 
 
 
SHAREHOLDERS’ EQUITY
 
 

 
 

Preferred Stock, no par value; 500,000 shares authorized, no shares issued
 

 

Common Stock, no par value, $1 stated value; 30,000,000 shares authorized
 
13,210

 
13,174

Additional Paid-in Capital
 
108,356

 
108,022

Retained Earnings
 
92,934

 
84,164

Accumulated Other Comprehensive Loss
 
(162
)
 
(5,263
)
TOTAL SHAREHOLDERS’ EQUITY
 
214,338

 
200,097

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
2,193,573

 
$
2,163,827

End of period shares issued and outstanding
 
13,210,395

 
13,173,793


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 
 June 30,
 

2014

2013
INTEREST INCOME

 


 

Interest and Fees on Loans

$
16,142


$
15,035

Interest on Federal Funds Sold and Other Short-term Investments

3


13

Interest and Dividends on Securities:

 


 

Taxable

2,654


2,771

Non-taxable

1,026


639

TOTAL INTEREST INCOME

19,825


18,458








INTEREST EXPENSE

 


 

Interest on Deposits

1,037


1,154

Interest on FHLB Advances and Other Borrowings

467


592

TOTAL INTEREST EXPENSE

1,504


1,746








NET INTEREST INCOME

18,321


16,712

Provision for Loan Losses

200


(200
)
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

18,121


16,912








NON-INTEREST INCOME

 


 

Trust and Investment Product Fees

905


814

Service Charges on Deposit Accounts

1,191


1,050

Insurance Revenues

1,482


1,379

Company Owned Life Insurance

192


217

Interchange Fee Income

512


513

Other Operating Income

590


861

Net Gains on Sales of Loans

386


809

Net Gains on Securities

244


467

TOTAL NON-INTEREST INCOME

5,502


6,110








NON-INTEREST EXPENSE

 


 

Salaries and Employee Benefits

7,886


7,627

Occupancy Expense

1,198


1,099

Furniture and Equipment Expense

500


466

FDIC Premiums

276


260

Data Processing Fees

947


672

Professional Fees

553


525

Advertising and Promotion

544


516

Intangible Amortization

325


348

Other Operating Expenses

1,910


1,748

TOTAL NON-INTEREST EXPENSE

14,139


13,261








Income before Income Taxes

9,484


9,761

Income Tax Expense

2,797


3,229

NET INCOME

$
6,687


$
6,532








Basic Earnings Per Share

$
0.51


$
0.52

Diluted Earnings Per Share

$
0.51


$
0.52








Dividends Per Share

$
0.16


$
0.15

 
See accompanying notes to consolidated financial statements.

5


GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands except per share data)
 
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
INTEREST INCOME
 
 

 
 

Interest and Fees on Loans
 
$
32,086

 
$
29,920

Interest on Federal Funds Sold and Other Short-term Investments
 
6

 
23

Interest and Dividends on Securities:
 
 

 
 

Taxable
 
5,413

 
5,612

Non-taxable
 
2,001

 
1,273

TOTAL INTEREST INCOME
 
39,506

 
36,828

 
 
 
 
 
INTEREST EXPENSE
 
 

 
 

Interest on Deposits
 
2,073

 
2,388

Interest on FHLB Advances and Other Borrowings
 
916

 
1,503

TOTAL INTEREST EXPENSE
 
2,989

 
3,891

 
 
 
 
 
NET INTEREST INCOME
 
36,517

 
32,937

Provision for Loan Losses
 
550

 
150

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
 
35,967

 
32,787

 
 
 
 
 
NON-INTEREST INCOME
 
 

 
 

Trust and Investment Product Fees
 
1,827

 
1,631

Service Charges on Deposit Accounts
 
2,252

 
2,005

Insurance Revenues
 
4,038

 
3,163

Company Owned Life Insurance
 
393

 
483

Interchange Fee Income
 
959

 
943

Other Operating Income
 
980

 
1,152

Net Gains on Sales of Loans
 
862

 
1,563

Net Gains on Securities
 
472

 
1,080

TOTAL NON-INTEREST INCOME
 
11,783

 
12,020

 
 
 
 
 
NON-INTEREST EXPENSE
 
 

 
 

Salaries and Employee Benefits
 
16,310

 
15,411

Occupancy Expense
 
2,514

 
2,204

Furniture and Equipment Expense
 
1,009

 
941

FDIC Premiums
 
551

 
515

Data Processing Fees
 
1,957

 
1,337

Professional Fees
 
1,245

 
1,186

Advertising and Promotion
 
1,022

 
1,006

Intangible Amortization
 
673

 
715

Other Operating Expenses
 
3,948

 
3,408

TOTAL NON-INTEREST EXPENSE
 
29,229

 
26,723

 
 
 
 
 
Income before Income Taxes
 
18,521

 
18,084

Income Tax Expense
 
5,529

 
5,743

NET INCOME
 
$
12,992

 
$
12,341

 
 
 
 
 
Basic Earnings Per Share
 
$
0.98

 
$
0.98

Diluted Earnings Per Share
 
$
0.98

 
$
0.97

 
 
 
 
 
Dividends Per Share
 
$
0.32

 
$
0.30


See accompanying notes to consolidated financial statements.


6


GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, dollars in thousands)
 
 
 
Three Months Ended 
 June 30,
 
 
2014
 
2013
 
 
 
 
 
NET INCOME
 
$
6,687

 
$
6,532

 
 
 
 
 
Other Comprehensive Income (Loss):
 
 

 
 

Unrealized Gains (Losses) on Securities
 
 

 
 

Unrealized Holding Gain (Loss) Arising During the Period
 
4,647

 
(14,462
)
Reclassification Adjustment for Losses (Gains) Included in Net Income
 
(244
)
 
(467
)
Tax Effect
 
(1,566
)
 
5,275

Net of Tax
 
2,837

 
(9,654
)
 
 
 
 
 
Total Other Comprehensive Income (Loss)
 
2,837

 
(9,654
)
 
 
 
 
 
COMPREHENSIVE INCOME (LOSS)
 
$
9,524

 
$
(3,122
)
 

 
 


GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, dollars in thousands)
 
 
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
 
 
 
 
 
NET INCOME
 
$
12,992

 
$
12,341

 
 
 
 
 
Other Comprehensive Income (Loss):
 
 

 
 

Unrealized Gains (Losses) on Securities
 
 

 
 

Unrealized Holding Gain (Loss) Arising During the Period
 
8,380

 
(17,297
)
Reclassification Adjustment for Losses (Gains) Included in Net Income
 
(472
)
 
(1,080
)
Tax Effect
 
(2,807
)
 
6,487

Net of Tax
 
5,101

 
(11,890
)
 
 
 
 
 
Total Other Comprehensive Income (Loss)
 
5,101

 
(11,890
)
 
 
 
 
 
COMPREHENSIVE INCOME (LOSS)
 
$
18,093

 
$
451








See accompanying notes to consolidated financial statements.

7


GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
 
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net Income
 
$
12,992

 
$
12,341

Adjustments to Reconcile Net Income to Net Cash from Operating Activities:
 
 

 
 

Net Amortization on Securities
 
976

 
1,731

Depreciation and Amortization
 
2,422

 
2,224

Loans Originated for Sale
 
(43,022
)
 
(99,547
)
Proceeds from Sales of Loans Held-for-Sale
 
44,295

 
98,490

Provision for Loan Losses
 
550

 
150

Gain on Sale of Loans, net
 
(862
)
 
(1,563
)
Gain on Securities, net
 
(472
)
 
(1,080
)
Loss on Sales of Other Real Estate and Repossessed Assets
 
44

 
253

Gain on Disposition and Impairment of Premises and Equipment
 

 
(70
)
Increase in Cash Surrender Value of Company Owned Life Insurance
 
(413
)
 
(478
)
Equity Based Compensation
 
320

 
170

Change in Assets and Liabilities:
 
 

 
 

Interest Receivable and Other Assets
 
(4,120
)
 
3,529

Interest Payable and Other Liabilities
 
520

 
(1,648
)
Net Cash from Operating Activities
 
13,230

 
14,502

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from Maturity of Other Short-term Investments
 

 
1,445

Proceeds from Maturities, Calls, Redemptions of Securities Available-for-Sale
 
41,415

 
81,734

Proceeds from Sales of Securities Available-for-Sale
 
7,237

 
100,721

Purchase of Securities Available-for-Sale
 
(47,284
)
 
(180,647
)
Proceeds from Maturities of Securities Held-to-Maturity
 
84

 
78

Proceeds from Redemption of Federal Home Loan Bank Stock
 
(92
)
 

Purchase of Loans
 

 
(712
)
Proceeds from Sales of Loans
 

 
2,000

Loans Made to Customers, net of Payments Received
 
(27,673
)
 
(40,420
)
Proceeds from Sales of Other Real Estate
 
1,036

 
459

Property and Equipment Expenditures
 
(1,743
)
 
(1,606
)
Proceeds from Sales of Property and Equipment
 

 
88

Net Cash used in Investing Activities
 
(27,020
)
 
(36,860
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Change in Deposits
 
(69,757
)
 
986

Change in Short-term Borrowings
 
64,453

 
35,371

Advances in Long-term Debt
 
21,500

 
30,000

Repayments of Long-term Debt
 
(1,252
)
 
(50,805
)
Issuance of Common Stock
 
50

 
9

Dividends Paid
 
(4,222
)
 
(3,795
)
Net Cash from Financing Activities
 
10,772

 
11,766

 
 
 
 
 
Net Change in Cash and Cash Equivalents
 
(3,018
)
 
(10,592
)
Cash and Cash Equivalents at Beginning of Year
 
60,132

 
49,087

Cash and Cash Equivalents at End of Period
 
$
57,114

 
$
38,495

 
 
 
 
 
Cash Paid During the Period for
 
 

 
 

Interest
 
$
2,980

 
$
4,349

Income Taxes
 
1,769

 
6,609

 
 
 
 
 
Supplemental Non Cash Disclosures
 
 

 
 

Loans Transferred to Other Real Estate
 
$
986

 
$
626

Accounts Receivable Transferred to Securities
 
(3,323
)
 
(45,803
)
See accompanying notes to consolidated financial statements.

8


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(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 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 German American Bancorp, Inc. December 31, 2013 Annual Report on Form 10-K.   

NOTE 2 – Per Share Data
 
The computations of Basic Earnings per Share and Diluted Earnings per Share are as follows:
 
 
Three Months Ended 
 June 30,
 
 
2014
 
2013
Basic Earnings per Share:
 
 

 
 

Net Income
 
$
6,687

 
$
6,532

Weighted Average Shares Outstanding
 
13,210,150

 
12,666,315

Basic Earnings per Share
 
$
0.51

 
$
0.52

 
 
 
 
 
Diluted Earnings per Share:
 
 

 
 

Net Income
 
$
6,687

 
$
6,532

 
 
 
 
 
Weighted Average Shares Outstanding
 
13,210,150

 
12,666,315

Potentially Dilutive Shares, Net
 
20,662

 
16,812

Diluted Weighted Average Shares Outstanding
 
13,230,812

 
12,683,127

Diluted Earnings per Share
 
$
0.51

 
$
0.52

 
For the three months ended June 30, 2014 and 2013, there were no anti-dilutive shares.
 
The computations of Basic Earnings per Share and Diluted Earnings per Share are as follows:
 
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
Basic Earnings per Share:
 
 

 
 

Net Income
 
$
12,992

 
$
12,341

Weighted Average Shares Outstanding
 
13,194,754

 
12,654,146

Basic Earnings per Share
 
$
0.98

 
$
0.98

 
 
 
 
 
Diluted Earnings per Share:
 
 

 
 

Net Income
 
$
12,992

 
$
12,341

 
 
 
 
 
Weighted Average Shares Outstanding
 
13,194,754

 
12,654,146

Potentially Dilutive Shares, Net
 
21,330

 
17,560

Diluted Weighted Average Shares Outstanding
 
13,216,084

 
12,671,706

Diluted Earnings per Share
 
$
0.98

 
$
0.97

 
For the six months ended June 30, 2014 and 2013, there were no anti-dilutive shares.


9


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 3 – 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 June 30, 2014 and December 31, 2013, were as follows:
Securities Available-for-Sale: 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 Fair
Value
 
 
 

 
 

 
 

 
 

June 30, 2014
 
 

 
 

 
 

 
 

U.S. Treasury and Agency Securities
 
$
20,000

 
$

 
$
(679
)
 
$
19,321

Obligations of State and Political Subdivisions
 
125,265

 
4,850

 
(159
)
 
129,956

Mortgage-backed Securities - Residential
 
469,919

 
3,733

 
(7,890
)
 
465,762

Equity Securities
 
353

 

 

 
353

Total
 
$
615,537

 
$
8,583

 
$
(8,728
)
 
$
615,392

 
 
 
 
 
 
 
 
 
December 31, 2013
 
 

 
 

 
 

 
 

U.S. Treasury and Agency Securities
 
$
20,000

 
$

 
$
(1,048
)
 
$
18,952

Obligations of State and Political Subdivisions
 
112,008

 
2,388

 
(899
)
 
113,497

Mortgage-backed Securities - Residential
 
481,724

 
3,497

 
(11,991
)
 
473,230

Equity Securities
 
353

 

 

 
353

Total
 
$
614,085

 
$
5,885

 
$
(13,938
)
 
$
606,032

 
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.
 
The carrying amount, unrecognized gains and losses and fair value of Securities Held-to-Maturity at June 30, 2014 and December 31, 2013, were as follows:
Securities Held-to-Maturity:
 
Carrying
Amount
 
Gross
Unrecognized
Gains
 
Gross
Unrecognized
Losses
 
Fair
Value
 
 
 

 
 

 
 

 
 

June 30, 2014
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
184

 
$
2

 
$

 
$
186

 
 
 
 
 
 
 
 
 
December 31, 2013
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
268

 
$
3

 
$

 
$
271
















10


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 3 - Securities (continued)

The amortized cost and fair value of Securities at June 30, 2014 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.
Securities Available-for-Sale:
 
Amortized
Cost
 
Fair
Value
 
 
 
 
 
Due in one year or less
 
$
3,685

 
$
3,720

Due after one year through five years
 
20,649

 
20,574

Due after five years through ten years
 
62,544

 
64,374

Due after ten years
 
58,387

 
60,609

Mortgage-backed Securities - Residential
 
469,919

 
465,762

Equity Securities
 
353

 
353

Total
 
$
615,537

 
$
615,392

 

Securities Held-to-Maturity:
 
Carrying
Amount
 
Fair
Value
 
 
 
 
 
Due in one year or less
 
$

 
$

Due after one year through five years
 
184

 
186

Due after five years through ten years
 

 

Due after ten years
 

 

Total
 
$
184

 
$
186

 
Proceeds from the Sales of Securities are summarized below:
 
 
Three Months
Ended
 
Three Months
Ended
 
 
June 30, 2014
 
June 30, 2013
 
 
 
 
 
Proceeds from Sales
 
$
6,983

 
$
25,972

Gross Gains on Sales
 
244

 
467

Income Taxes on Gross Gains
 
85

 
163


 
 
Six Months
Ended
 
Six Months
Ended
 
 
June 30, 2014
 
June 30, 2013
 
 
 
 
 
Proceeds from Sales
 
$
7,237

 
$
100,721

Gross Gains on Sales
 
472

 
1,080

Income Taxes on Gross Gains
 
165

 
378




11


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 3 - Securities (continued)

Below is a summary of securities with unrealized losses as of June 30, 2014 and December 31, 2013, presented by length of time the securities have been in a continuous unrealized loss position:
 
 
Less than 12 Months
 
12 Months or More
 
Total
June 30, 2014
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and Agency Securities
 
$

 
$

 
$
19,321

 
$
(679
)
 
$
19,321

 
$
(679
)
Obligations of State and Political Subdivisions
 
7,935

 
(33
)
 
4,835

 
(126
)
 
12,770

 
(159
)
Mortgage-backed Securities - Residential
 
80,549

 
(762
)
 
232,035

 
(7,128
)
 
312,584

 
(7,890
)
Equity Securities
 

 

 

 

 

 

Total
 
$
88,484

 
$
(795
)
 
$
256,191

 
$
(7,933
)
 
$
344,675

 
$
(8,728
)

 
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2013
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and Agency Securities
 
$
18,952

 
$
(1,048
)
 
$

 
$

 
$
18,952

 
$
(1,048
)
Obligations of State and Political Subdivisions
 
38,878

 
(899
)
 

 

 
38,878

 
(899
)
Mortgage-backed Securities - Residential
 
346,028

 
(11,903
)
 
1,735

 
(88
)
 
347,763

 
(11,991
)
Equity Securities
 

 

 

 

 

 

Total
 
$
403,858

 
$
(13,850
)
 
$
1,735

 
$
(88
)
 
$
405,593

 
$
(13,938
)
 
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 doesn’t 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 in the Company’s portfolio are guaranteed by government sponsored entities, are investment grade, and are performing as expected.
 
NOTE 4 – 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 $23.3 million at June 30, 2014 and $17.9 million at December 31, 2013. 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.
 

12


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 4 - Derivatives (continued)

The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of:
 
 
June 30, 2014
 
December 31, 2013
 
 
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
Included in Other Assets:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
23,335

 
$
449

 
$
17,853

 
$
866

 
 
 
 
 
 
 
 
 
Included in Other Liabilities:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
23,335

 
$
388

 
$
17,853

 
$
737

 
The following tables present the effect of derivative instruments on the Consolidated Statements of Income for the periods presented:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
 
2014
 
2013
Interest Rate Swaps:
 
 

 
 

 
 

 
 

Included in Interest Income / (Expense)
 
$

 
$

 
$

 
$

Included in Other Income / (Expense)
 
116

 
549

 
78

 
551


NOTE 5 – Loans
 
Loans were comprised of the following classifications at June 30, 2014 and December 31, 2013: 
 
 
June 30,
2014
 
December 31,
2013
Commercial:
 
 

 
 

Commercial and Industrial Loans and Leases
 
$
366,101

 
$
350,955

Commercial Real Estate Loans
 
594,681

 
582,066

Agricultural Loans
 
188,155

 
192,880

Retail:
 
 

 
 

Home Equity Loans
 
83,584

 
81,504

Consumer Loans
 
46,706

 
49,124

Residential Mortgage Loans
 
134,104

 
128,683

Subtotal
 
1,413,331

 
1,385,212

Less: Unearned Income
 
(3,846
)
 
(2,830
)
Allowance for Loan Losses
 
(15,550
)
 
(14,584
)
Loans, Net
 
$
1,393,935

 
$
1,367,798

 

13


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

The following tables present the activity in the allowance for loan losses by portfolio class for the three months ending June 30, 2014 and 2013:
June 30, 2014
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
5,374

 
$
7,870

 
$
930

 
$
209

 
$
186

 
$
257

 
$
658

 
$
15,484

Provision for Loan Losses
 
365

 
(695
)
 
86

 
181

 
171

 
255

 
(163
)
 
200

Recoveries
 
9

 
27

 

 
42

 
39

 
4

 

 
121

Loans Charged-off
 
(87
)
 
(3
)
 

 
(14
)
 
(70
)
 
(81
)
 

 
(255
)
Ending Balance
 
$
5,661

 
$
7,199

 
$
1,016

 
$
418

 
$
326

 
$
435

 
$
495

 
$
15,550

June 30, 2013
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
4,753

 
$
8,879

 
$
766

 
$
118

 
$
189

 
$
300

 
$
729

 
$
15,734

Provision for Loan Losses
 
(452
)
 
(53
)
 
51

 
196

 
43

 
(16
)
 
31

 
(200
)
Recoveries
 
10

 
27

 

 

 
16

 
1

 

 
54

Loans Charged-off
 
(53
)
 
(217
)
 

 
(1
)
 
(49
)
 
(5
)
 

 
(325
)
Ending Balance
 
$
4,258

 
$
8,636

 
$
817

 
$
313

 
$
199

 
$
280

 
$
760

 
$
15,263


The following tables present the activity in the allowance for loan losses by portfolio class for the six months ending June 30, 2014 and 2013:
June 30, 2014
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
3,983

 
$
8,335

 
$
946

 
$
239

 
$
188

 
$
281

 
$
612

 
$
14,584

Provision for Loan Losses
 
1,687

 
(1,752
)
 
70

 
181

 
219

 
262

 
(117
)
 
550

Recoveries
 
78

 
730

 

 
42

 
86

 
8

 

 
944

Loans Charged-off
 
(87
)
 
(114
)
 

 
(44
)
 
(167
)
 
(116
)
 

 
(528
)
Ending Balance
 
$
5,661

 
$
7,199

 
$
1,016

 
$
418

 
$
326

 
$
435

 
$
495

 
$
15,550

June 30, 2013
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
4,555

 
$
8,931

 
$
989

 
$
141

 
$
214

 
$
186

 
$
504

 
$
15,520

Provision for Loan Losses
 
(257
)
 
(47
)
 
(172
)
 
237

 
36

 
97

 
256

 
150

Recoveries
 
13

 
78

 

 

 
71

 
3

 

 
165

Loans Charged-off
 
(53
)
 
(326
)
 

 
(65
)
 
(122
)
 
(6
)
 

 
(572
)
Ending Balance
 
$
4,258

 
$
8,636

 
$
817

 
$
313

 
$
199

 
$
280

 
$
760

 
$
15,263


In determining the adequacy of the allowance for loan loss, general allocations are made for other 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 a three-year historical average for loan losses for these portfolios, judgmentally adjusted for current economic factors and portfolio trends. 
 

14


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

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. 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.
 
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 June 30, 2014 and December 31, 2013:
June 30, 2014
 
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
 
$
1,549

 
$
213

 
$
1,336

 
$

 
$

 
$

 
$

 
$

Collectively Evaluated for Impairment
 
13,995

 
5,448

 
5,857

 
1,016

 
418

 
326

 
435

 
495

Acquired with Deteriorated Credit Quality
 
6

 

 
6

 

 

 

 

 

Total Ending Allowance Balance
 
$
15,550

 
$
5,661

 
$
7,199

 
$
1,016

 
$
418

 
$
326

 
$
435

 
$
495


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
7,108

 
$
2,245

 
$
4,863

 
$

 
$

 
$

 
$

 
$

Loans Collectively Evaluated for Impairment
 
1,399,929

 
364,083

 
581,919

 
190,368

 
83,888

 
46,708

 
132,963

 

Loans Acquired with Deteriorated Credit Quality
 
11,552

 
591

 
9,332

 

 

 
126

 
1,503

 

Total Ending Loans Balance(1)
 
$
1,418,589

 
$
366,919

 
$
596,114

 
$
190,368

 
$
83,888

 
$
46,834

 
$
134,466

 
$


(1)Total recorded investment in loans includes $5,258 in accrued interest.

15


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

December 31, 2013
 
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
 
$
3,095

 
$
45

 
$
3,050

 
$

 
$

 
$

 
$

 
$

Collectively Evaluated for Impairment
 
11,481

 
3,938

 
5,277

 
946

 
239

 
188

 
281

 
612

Acquired with Deteriorated Credit Quality
 
8

 

 
8

 

 

 

 

 

Total Ending Allowance Balance
 
$
14,584

 
$
3,983

 
$
8,335

 
$
946

 
$
239

 
$
188

 
$
281

 
$
612


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
8,458

 
$
2,114

 
$
6,344

 
$

 
$

 
$

 
$

 
$

Loans Collectively Evaluated for Impairment
 
1,367,591

 
347,808

 
566,389

 
195,171

 
81,812

 
49,131

 
127,280

 

Loans Acquired with Deteriorated Credit Quality
 
14,753

 
1,981

 
10,871

 

 

 
134

 
1,767

 

Total Ending Loans Balance(1)
 
$
1,390,802

 
$
351,903

 
$
583,604

 
$
195,171

 
$
81,812

 
$
49,265

 
$
129,047

 
$

 
(1)Total recorded investment in loans includes $5,590 in accrued interest.
 
The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2014 and December 31, 2013:
June 30, 2014
 
Unpaid Principal Balance(1)
 
 Recorded Investment
 
Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
2,043

 
$
2,032

 
$

Commercial Real Estate Loans
 
3,843

 
2,843

 

Agricultural Loans
 

 

 

Subtotal