0001628280-15-006305.txt : 20150807 0001628280-15-006305.hdr.sgml : 20150807 20150807154410 ACCESSION NUMBER: 0001628280-15-006305 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20150630 FILED AS OF DATE: 20150807 DATE AS OF CHANGE: 20150807 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: 151037169 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-2015630x10q.htm 10-Q GABC-2015.6.30-10Q
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, 2015
 
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, 2015
Common Shares, no par value
 
13,259,594



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, 2014, 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 – June 30, 2015 and December 31, 2014
 
 
 
 
Consolidated Statements of Income – Three Months Ended June 30, 2015 and 2014
 
 
 
 
Consolidated Statements of Income – Six Months Ended June 30, 2015 and 2014
 
 
 
 
Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2015 and 2014
 
 
 
 
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2015 and 2014
 
 
 
 
Notes to Consolidated Financial Statements – June 30, 2015
 
 
 
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,
2015
 
December 31,
2014
ASSETS
 
 

 
 

Cash and Due from Banks
 
$
31,538

 
$
33,481

Federal Funds Sold and Other Short-term Investments
 
20,729

 
8,965

Cash and Cash Equivalents
 
52,267

 
42,446

 
 
 
 
 
Interest-bearing Time Deposits with Banks
 
100

 
100

Securities Available-for-Sale, at Fair Value
 
618,796

 
630,995

Securities Held-to-Maturity, at Cost (Fair value of $95 and $186 on June 30, 2015 and December 31, 2014, respectively)
 
95

 
184

 
 
 
 
 
Loans Held-for-Sale, at Fair Value
 
10,622

 
6,311

 
 
 
 
 
Loans
 
1,476,468

 
1,451,990

Less: Unearned Income
 
(3,822
)
 
(4,008
)
Allowance for Loan Losses
 
(15,258
)
 
(14,929
)
Loans, Net
 
1,457,388

 
1,433,053

 
 
 
 
 
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost
 
8,122

 
7,040

Premises, Furniture and Equipment, Net
 
38,707

 
39,930

Other Real Estate
 
317

 
356

Goodwill
 
20,536

 
20,536

Intangible Assets
 
1,627

 
2,074

Company Owned Life Insurance
 
32,467

 
32,043

Accrued Interest Receivable and Other Assets
 
18,642

 
22,031

TOTAL ASSETS
 
$
2,259,686

 
$
2,237,099

 
 
 
 
 
LIABILITIES
 
 

 
 

Non-interest-bearing Demand Deposits
 
$
425,547

 
$
428,016

Interest-bearing Demand, Savings, and Money Market Accounts
 
1,014,013

 
1,018,320

Time Deposits
 
323,205

 
333,425

Total Deposits
 
1,762,765

 
1,779,761

 
 
 
 
 
FHLB Advances and Other Borrowings
 
240,072

 
206,064

Accrued Interest Payable and Other Liabilities
 
19,799

 
22,450

TOTAL LIABILITIES
 
2,022,636

 
2,008,275

 
 
 
 
 
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
 
13,259

 
13,216

Additional Paid-in Capital
 
109,178

 
108,660

Retained Earnings
 
114,190

 
104,058

Accumulated Other Comprehensive Income
 
423

 
2,890

TOTAL SHAREHOLDERS’ EQUITY
 
237,050

 
228,824

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
2,259,686

 
$
2,237,099

End of period shares issued and outstanding
 
13,259,594

 
13,215,800





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,
 

2015

2014
INTEREST INCOME

 


 

Interest and Fees on Loans

$
16,537


$
16,142

Interest on Federal Funds Sold and Other Short-term Investments

4


3

Interest and Dividends on Securities:

 


 

Taxable

2,219


2,654

Non-taxable

1,418


1,026

TOTAL INTEREST INCOME

20,178


19,825








INTEREST EXPENSE

 


 

Interest on Deposits

1,022


1,037

Interest on FHLB Advances and Other Borrowings

450


467

TOTAL INTEREST EXPENSE

1,472


1,504








NET INTEREST INCOME

18,706


18,321

Provision for Loan Losses

250


200

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

18,456


18,121








NON-INTEREST INCOME

 


 

Trust and Investment Product Fees

939


905

Service Charges on Deposit Accounts

1,220


1,191

Insurance Revenues

1,515


1,482

Company Owned Life Insurance

207


192

Interchange Fee Income

563


512

Other Operating Income

631


590

Net Gains on Sales of Loans

784


386

Net Gains on Securities

262


244

TOTAL NON-INTEREST INCOME

6,121


5,502








NON-INTEREST EXPENSE

 


 

Salaries and Employee Benefits

8,259


7,886

Occupancy Expense

1,201


1,198

Furniture and Equipment Expense

482


500

FDIC Premiums

284


276

Data Processing Fees

870


947

Professional Fees

642


553

Advertising and Promotion

484


544

Intangible Amortization

202


325

Other Operating Expenses

1,891


1,910

TOTAL NON-INTEREST EXPENSE

14,315


14,139








Income before Income Taxes

10,262


9,484

Income Tax Expense

2,937


2,797

NET INCOME

$
7,325


$
6,687








Basic Earnings Per Share

$
0.55


$
0.51

Diluted Earnings Per Share

$
0.55


$
0.51








Dividends Per Share

$
0.17


$
0.16

 


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,
 
 
2015
 
2014
INTEREST INCOME
 
 

 
 

Interest and Fees on Loans
 
$
32,836

 
$
32,086

Interest on Federal Funds Sold and Other Short-term Investments
 
7

 
6

Interest and Dividends on Securities:
 
 

 


Taxable
 
4,654

 
5,413

Non-taxable
 
2,681

 
2,001

TOTAL INTEREST INCOME
 
40,178

 
39,506

 
 
 
 
 
INTEREST EXPENSE
 
 

 
 

Interest on Deposits
 
2,015

 
2,073

Interest on FHLB Advances and Other Borrowings
 
908

 
916

TOTAL INTEREST EXPENSE
 
2,923

 
2,989

 
 
 
 
 
NET INTEREST INCOME
 
37,255

 
36,517

Provision for Loan Losses
 
500

 
550

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
 
36,755

 
35,967

 
 
 
 
 
NON-INTEREST INCOME
 
 

 
 

Trust and Investment Product Fees
 
1,923

 
1,827

Service Charges on Deposit Accounts
 
2,357

 
2,252

Insurance Revenues
 
4,060

 
4,038

Company Owned Life Insurance
 
412

 
393

Interchange Fee Income
 
1,046

 
959

Other Operating Income
 
1,207

 
980

Net Gains on Sales of Loans
 
1,533

 
862

Net Gains on Securities
 
725

 
472

TOTAL NON-INTEREST INCOME
 
13,263

 
11,783

 
 
 
 
 
NON-INTEREST EXPENSE
 
 

 
 

Salaries and Employee Benefits
 
17,084

 
16,310

Occupancy Expense
 
2,427

 
2,514

Furniture and Equipment Expense
 
961

 
1,009

FDIC Premiums
 
566

 
551

Data Processing Fees
 
1,707

 
1,957

Professional Fees
 
1,286

 
1,245

Advertising and Promotion
 
927

 
1,022

Intangible Amortization
 
447

 
673

Other Operating Expenses
 
3,743

 
3,948

TOTAL NON-INTEREST EXPENSE
 
29,148

 
29,229

 
 
 
 
 
Income before Income Taxes
 
20,870

 
18,521

Income Tax Expense
 
6,239

 
5,529

NET INCOME
 
$
14,631

 
$
12,992

 
 
 
 
 
Basic Earnings Per Share
 
$
1.11

 
$
0.98

Diluted Earnings Per Share
 
$
1.10

 
$
0.98

 
 
 
 
 
Dividends Per Share
 
$
0.34

 
$
0.32




See accompanying notes to consolidated financial statements.

6


GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, dollars in thousands)
 
 
 
Three Months Ended 
 June 30,
 
 
2015
 
2014
 
 
 
 
 
NET INCOME
 
$
7,325

 
$
6,687

 
 
 
 
 
Other Comprehensive Income (Loss):
 
 

 
 

Unrealized Gains (Losses) on Securities
 
 

 
 

Unrealized Holding Gain (Loss) Arising During the Period
 
(8,955
)
 
4,647

Reclassification Adjustment for Losses (Gains) Included in Net Income
 
(262
)
 
(244
)
Tax Effect
 
3,253

 
(1,566
)
Net of Tax
 
(5,964
)
 
2,837

 
 
 
 
 
Total Other Comprehensive Income (Loss)
 
(5,964
)
 
2,837

 
 
 
 
 
COMPREHENSIVE INCOME
 
$
1,361

 
$
9,524

 

 
 




 
 
Six Months Ended 
 June 30,
 
 
2015
 
2014
 
 
 
 
 
NET INCOME
 
$
14,631

 
$
12,992

 
 
 
 
 
Other Comprehensive Income (Loss):
 
 

 
 

Unrealized Gains (Losses) on Securities
 
 

 
 

Unrealized Holding Gain (Loss) Arising During the Period
 
(3,087
)
 
8,380

Reclassification Adjustment for Losses (Gains) Included in Net Income
 
(725
)
 
(472
)
Tax Effect
 
1,345

 
(2,807
)
Net of Tax
 
(2,467
)
 
5,101

 
 
 
 
 
Total Other Comprehensive Income (Loss)
 
(2,467
)
 
5,101

 
 
 
 
 
COMPREHENSIVE INCOME
 
$
12,164

 
$
18,093










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,
 
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net Income
 
$
14,631

 
$
12,992

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

 
 

Net Amortization on Securities
 
1,225

 
976

Depreciation and Amortization
 
2,207

 
2,422

Loans Originated for Sale
 
(76,344
)
 
(43,022
)
Proceeds from Sales of Loans Held-for-Sale
 
73,482

 
44,295

Provision for Loan Losses
 
500

 
550

Gain on Sale of Loans, net
 
(1,533
)
 
(862
)
Gain on Securities, net
 
(725
)
 
(472
)
Loss on Sales of Other Real Estate and Repossessed Assets
 
37

 
44

Loss on Disposition and Impairment of Premises and Equipment
 
29

 

Increase in Cash Surrender Value of Company Owned Life Insurance
 
(424
)
 
(413
)
Equity Based Compensation
 
509

 
320

Change in Assets and Liabilities:
 
 

 
 

Interest Receivable and Other Assets
 
3,472

 
(4,120
)
Interest Payable and Other Liabilities
 
(1,306
)
 
520

Net Cash from Operating Activities
 
15,760

 
13,230

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from Maturities, Calls, Redemptions of Securities Available-for-Sale
 
50,842

 
41,415

Proceeds from Sales of Securities Available-for-Sale
 
18,999

 
7,237

Purchase of Securities Available-for-Sale
 
(61,954
)
 
(47,284
)
Proceeds from Maturities of Securities Held-to-Maturity
 
89

 
84

Purchase of Federal Home Loan Bank Stock
 
(1,082
)
 
(92
)
Purchase of Loans
 
(1,852
)
 

Loans Made to Customers, net of Payments Received
 
(23,781
)
 
(27,673
)
Proceeds from Sales of Other Real Estate
 
800

 
1,036

Property and Equipment Expenditures
 
(499
)
 
(1,743
)
Net Cash from Investing Activities
 
(18,438
)
 
(27,020
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Change in Deposits
 
(16,988
)
 
(69,757
)
Change in Short-term Borrowings
 
29,021

 
64,453

Advances in Long-term Debt
 
25,000

 
21,500

Repayments of Long-term Debt
 
(20,087
)
 
(1,252
)
Issuance of Common Stock
 
52

 
50

Dividends Paid
 
(4,499
)
 
(4,222
)
Net Cash from Financing Activities
 
12,499

 
10,772

 
 
 
 
 
Net Change in Cash and Cash Equivalents
 
9,821

 
(3,018
)
Cash and Cash Equivalents at Beginning of Year
 
42,446

 
60,132

Cash and Cash Equivalents at End of Year
 
$
52,267

 
$
57,114

 
 
 
 
 
Cash Paid During the Year for
 
 

 
 

Interest
 
$
2,996

 
$
2,980

Income Taxes
 
2,976

 
1,769

 
 
 
 
 
Supplemental Non Cash Disclosures
 
 

 
 

Loans Transferred to Other Real Estate
 
$
798

 
$
986

Securities Transferred to Accounts Receivable
 

 
(3,323
)
See accompanying notes to consolidated financial statements.

8


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(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, 2014. 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 shareholder’s equity based on these reclassifications.

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,
 
 
2015
 
2014
Basic Earnings per Share:
 
 

 
 

Net Income
 
$
7,325

 
$
6,687

Weighted Average Shares Outstanding
 
13,256,026

 
13,210,150

Basic Earnings per Share
 
$
0.55

 
$
0.51

 
 
 
 
 
Diluted Earnings per Share:
 
 

 
 

Net Income
 
$
7,325

 
$
6,687

 
 
 
 
 
Weighted Average Shares Outstanding
 
13,256,026

 
13,210,150

Potentially Dilutive Shares, Net
 
7,578

 
20,662

Diluted Weighted Average Shares Outstanding
 
13,263,604

 
13,230,812

Diluted Earnings per Share
 
$
0.55

 
$
0.51

 
For the three months ended June 30, 2015 and 2014, 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,
 
 
2015
 
2014
Basic Earnings per Share:
 
 

 
 

Net Income
 
$
14,631

 
$
12,992

Weighted Average Shares Outstanding
 
13,238,836

 
13,194,754

Basic Earnings per Share
 
$
1.11

 
$
0.98

 
 
 
 
 
Diluted Earnings per Share:
 
 

 
 

Net Income
 
$
14,631

 
$
12,992

 
 
 
 
 
Weighted Average Shares Outstanding
 
13,238,836

 
13,194,754

Potentially Dilutive Shares, Net
 
7,523

 
21,330

Diluted Weighted Average Shares Outstanding
 
13,246,359

 
13,216,084

Diluted Earnings per Share
 
$
1.10

 
$
0.98


For the six months ended June 30, 2015 and 2014, there were no anti-dilutive shares.

9


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(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, 2015 and December 31, 2014, were as follows:
Securities Available-for-Sale: 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 Fair
Value
 
 
 

 
 

 
 

 
 

June 30, 2015
 
 

 
 

 
 

 
 

U.S. Treasury and Agency Securities
 
$
10,000

 
$

 
$
(110
)
 
$
9,890

Obligations of State and Political Subdivisions
 
178,386

 
4,812

 
(1,110
)
 
182,088

Mortgage-backed Securities - Residential
 
429,257

 
2,174

 
(4,966
)
 
426,465

Equity Securities
 
353

 

 

 
353

Total
 
$
617,996

 
$
6,986

 
$
(6,186
)
 
$
618,796

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 

 
 

 
 

 
 

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

 
$

 
$
(439
)
 
$
19,561

Obligations of State and Political Subdivisions
 
147,321

 
6,515

 
(59
)
 
153,777

Mortgage-backed Securities - Residential
 
458,709

 
3,615

 
(5,020
)
 
457,304

Equity Securities
 
353

 

 

 
353

Total
 
$
626,383

 
$
10,130

 
$
(5,518
)
 
$
630,995

 

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, 2015 and December 31, 2014, were as follows:
Securities Held-to-Maturity:
 
Carrying
Amount
 
Gross
Unrecognized
Gains
 
Gross
Unrecognized
Losses
 
Fair
Value
 
 
 

 
 

 
 

 
 

June 30, 2015
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
95

 
$

 
$

 
$
95

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
184

 
$
2

 
$

 
$
186


The amortized cost and fair value of Securities at June 30, 2015 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
 
$
6,173

 
$
6,270

Due after one year through five years
 
18,574

 
18,694

Due after five years through ten years
 
65,573

 
68,131

Due after ten years
 
98,066

 
98,883

Mortgage-backed Securities - Residential
 
429,257

 
426,465

Equity Securities
 
353

 
353

Total
 
$
617,996

 
$
618,796

 

10


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 3 - Securities (continued)

Securities Held-to-Maturity:
 
Carrying
Amount
 
Fair
Value
 
 
 
 
 
Due in one year or less
 
$
95

 
$
95

Due after one year through five years
 

 

Due after five years through ten years
 

 

Due after ten years
 

 

Total
 
$
95

 
$
95

 
Proceeds from the Sales of Securities are summarized below:
 
 
Three Months Ended
 
Three Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
 
 
 
 
Proceeds from Sales
 
$
9,191

 
$
6,983

Gross Gains on Sales
 
262

 
244

Income Taxes on Gross Gains
 
92

 
85

 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
 
 
 
 
Proceeds from Sales
 
$
18,999

 
$
7,237

Gross Gains on Sales
 
725

 
472

Income Taxes on Gross Gains
 
254

 
165


Below is a summary of securities with unrealized losses as of June 30, 2015 and December 31, 2014, 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, 2015
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and Agency Securities
 
$

 
$

 
$
9,890

 
$
(110
)
 
$
9,890

 
$
(110
)
Obligations of State and Political Subdivisions
 
55,209

 
(1,102
)
 
351

 
(8
)
 
55,560

 
(1,110
)
Mortgage-backed Securities - Residential
 
122,094

 
(1,134
)
 
144,206

 
(3,832
)
 
266,300

 
(4,966
)
Equity Securities
 

 

 

 

 

 

Total
 
$
177,303

 
$
(2,236
)
 
$
154,447

 
$
(3,950
)
 
$
331,750

 
$
(6,186
)

 
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2014
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and Agency Securities
 
$

 
$

 
$
19,561

 
$
(439
)
 
$
19,561

 
$
(439
)
Obligations of State and Political Subdivisions
 
3,765

 
(25
)
 
4,298

 
(34
)
 
8,063

 
(59
)
Mortgage-backed Securities - Residential
 
26,606

 
(191
)
 
209,679

 
(4,829
)
 
236,285

 
(5,020
)
Equity Securities
 

 

 

 

 

 

Total
 
$
30,371

 
$
(216
)
 
$
233,538

 
$
(5,302
)
 
$
263,909

 
$
(5,518
)
 

11


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 3 - 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 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 $21.2 million at June 30, 2015 and $23.1 million at December 31, 2014. 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:

 
 
June 30, 2015
 
December 31, 2014
 
 
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
Included in Other Assets:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
21,192

 
$
440

 
$
23,104

 
$
507

 
 
 
 
 
 
 
 
 
Included in Other Liabilities:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
21,192

 
$
401

 
$
23,104

 
$
508

 

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,
 
 
2015
 
2014
 
2015
 
2014
Interest Rate Swaps:
 
 

 
 

 
 

 
 

Included in Interest Income / (Expense)
 
$

 
$

 
$

 
$

Included in Other Income / (Expense)
 
107

 
116

 
165

 
78



12


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 5 – Loans
 
Loans were comprised of the following classifications at June 30, 2015 and December 31, 2014: 
 
 
June 30,
2015
 
December 31,
2014
Commercial:
 
 

 
 

Commercial and Industrial Loans and Leases
 
$
396,741

 
$
380,079

Commercial Real Estate Loans
 
584,426

 
583,086

Agricultural Loans
 
222,298

 
216,774

Retail:
 
 

 
 

Home Equity Loans
 
88,303

 
86,234

Consumer Loans
 
47,571

 
48,613

Residential Mortgage Loans
 
137,129

 
137,204

Subtotal
 
1,476,468

 
1,451,990

Less: Unearned Income
 
(3,822
)
 
(4,008
)
Allowance for Loan Losses
 
(15,258
)
 
(14,929
)
Loans, Net
 
$
1,457,388

 
$
1,433,053

 
The following table presents the activity in the allowance for loan losses by portfolio class for the three months ending June 30, 2015 and 2014:
June 30, 2015
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
4,747

 
$
7,229

 
$
1,142

 
$
318

 
$
389

 
$
673

 
$
671

 
$
15,169

Provision for Loan Losses
 
(114
)
 
54

 
81

 
57

 
5

 
128

 
39

 
250

Recoveries
 
26

 
43

 

 
6

 
54

 
9

 

 
138

Loans Charged-off
 

 
(11
)
 

 
(31
)
 
(66
)
 
(191
)
 

 
(299
)
Ending Balance
 
$
4,659

 
$
7,315

 
$
1,223

 
$
350

 
$
382

 
$
619

 
$
710

 
$
15,258


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



13


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(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 six months ending June 30, 2015 and 2014:
June 30, 2015
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
4,627

 
$
7,273

 
$
1,123

 
$
246

 
$
354

 
$
622

 
$
684

 
$
14,929

Provision for Loan Losses
 
(13
)
 
2

 
100

 
129

 
40

 
216

 
26

 
500

Recoveries
 
67

 
51

 

 
6

 
154

 
11

 

 
289

Loans Charged-off
 
(22
)
 
(11
)
 

 
(31
)
 
(166
)
 
(230
)
 

 
(460
)
Ending Balance
 
$
4,659

 
$
7,315

 
$
1,223

 
$
350

 
$
382

 
$
619

 
$
710

 
$
15,258


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


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 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. 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.
 

14


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

The following table presents 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, 2015 and December 31, 2014:
June 30, 2015
 
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
 
$
1,603

 
$
103

 
$
1,500

 
$

 
$

 
$

 
$

 
$

Collectively Evaluated for Impairment
 
13,645

 
4,556

 
5,805

 
1,223

 
350

 
382

 
619

 
710

Acquired with Deteriorated Credit Quality
 
10

 

 
10

 

 

 

 

 

Total Ending Allowance Balance
 
$
15,258

 
$
4,659

 
$
7,315

 
$
1,223

 
$
350

 
$
382

 
$
619

 
$
710


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
6,065

 
$
2,029

 
$
4,024

 
$
12

 
$

 
$

 
$

 
n/m(2)

Loans Collectively Evaluated for Impairment
 
1,468,603

 
395,321

 
575,765

 
224,579

 
88,639

 
47,700

 
136,599

 
n/m(2)

Loans Acquired with Deteriorated Credit Quality
 
7,217

 
403

 
5,934

 

 

 

 
880

 
n/m(2)

Total Ending Loans Balance(1)
 
$
1,481,885

 
$
397,753

 
$
585,723

 
$
224,591

 
$
88,639

 
$
47,700

 
$
137,479

 
n/m(2)


(1)Total recorded investment in loans includes $5,417 in accrued interest.
(2)n/m = not meaningful
December 31, 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
 
$
1,532

 
$
87

 
$
1,445

 
$

 
$

 
$

 
$

 
$

Collectively Evaluated for Impairment
 
13,343

 
4,540

 
5,818

 
1,123

 
246

 
354

 
578

 
684

Acquired with Deteriorated Credit Quality
 
54

 

 
10

 

 

 

 
44

 

Total Ending Allowance Balance
 
$
14,929

 
$
4,627

 
$
7,273

 
$
1,123

 
$
246

 
$
354

 
$
622

 
$
684


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
6,044

 
$
1,964

 
$
4,080

 
$

 
$

 
$

 
$

 
n/m(2)

Loans Collectively Evaluated for Impairment
 
1,443,363

 
378,533

 
573,961

 
219,640

 
86,570

 
48,614

 
136,045

 
n/m(2)

Loans Acquired with Deteriorated Credit Quality
 
8,361

 
354

 
6,385

 

 

 
118

 
1,504

 
n/m(2)

Total Ending Loans Balance(1)
 
$
1,457,768

 
$
380,851

 
$
584,426

 
$
219,640

 
$
86,570

 
$
48,732

 
$
137,549

 
n/m(2)

 
(1)Total recorded investment in loans includes $5,778 in accrued interest.
(2)n/m = not meaningful 

15


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2015 and December 31, 2014:
June 30, 2015
 
Unpaid Principal Balance(1)
 
 Recorded Investment
 
Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
502

 
$
498

 
$

Commercial Real Estate Loans
 
1,276

 
1,126

 

Agricultural Loans
 
12

 
12

 

Subtotal
 
1,790

 
1,636

 

With An Allowance Recorded:
 
 

 
 

 


Commercial and Industrial Loans and Leases
 
1,516

 
1,531

 
103