German American Bancorp, Inc. (GABC) Posts 9th Consecutive Year of Record Annual Earnings & Announces 13% Cash Dividend Increase

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German American Bancorp, Inc. (NASDAQ: GABC) reported that the Company has achieved record annual earnings for the year ended on December 31, 2018, marking the 9th consecutive year of record performance.  This level of annual earnings performance resulted in a 12.1% return on shareholders’ equity for 2018, noting the 14th consecutive fiscal year in which the Company has delivered double-digit returns on shareholders’ equity.  The Company also announced a 13% increase in its quarterly cash dividend.

2018 was a year of growth and progress for the Company in many areas of its operations.  During the fourth quarter, the Company completed its acquisition of First Security Bank, which was headquartered in Owensboro, Kentucky.  The inclusion of the First Security branch footprint expanded German American’s branch network into Bowling Green, Lexington and Owensboro, three vibrant, growing markets within the Commonwealth of Kentucky.  Additionally, the Company completed a five-branch acquisition in the Columbus, Indiana market area during the second quarter of 2018, as well as continuing to deliver organic growth throughout its Southern Indiana footprint, particularly within its newest market area in the Indiana portion of the Louisville, Kentucky metropolitan area.

On a year-over-year basis, as of December 31, 2018, total assets, total loans, and total deposits each increased by approximately 25% from the 2017 year-end levels.  This impressive level of growth was attributable to both the aforementioned acquisitions and organic growth within the Company’s existing Indiana branches.  Approximately 20% of the balance sheet growth in 2018 was attributable to the acquisition growth, with the Company’s existing branch network delivering 5% organic growth.

The Company’s 2018 record net income of $46.5 million, or $1.99 per share, was an increase of approximately $5.9 million, or 12% on a per share basis, over its previous record annual net income of $40.7 million, or $1.77 per share, reported in 2017.  Current year fourth quarter earnings totaled $11.0 million, or $0.44 per share, compared to 2017 fourth quarter net income of $11.6 million, or $0.51 per share.  The 2018 reported fourth quarter and year-to-date net income were impacted by acquisition-related expenses of approximately $3.1 million (which equated to $2.3 million, or $0.09 per share on an after-tax basis) in the fourth quarter and $4.6 million (which represents $3.5 million, or $0.15 on an after-tax basis) during 2018.

Commenting on the Company’s continuation of its trend of consecutive years of record financial performance and historic growth in 2018, Mark A. Schroeder, German American’s Chairman & CEO, stated, "This financial performance and the historic level of growth of approximately $600 million in both loans and deposits in 2018 would not have been possible without the commitment and dedication of our team of over 800 employees and the acceptance of the German American brand and product offerings by our loyal customers throughout our footprint.  Our continued expansion and organic growth in our Southern Indiana markets and our entry into the very exciting Bowling Green, Lexington and Owensboro, Kentucky markets in 2018 positions our Company extremely well for a continuation of our trend of consistent, impressive financial performance in the coming years.”

The Company also announced a 13% increase in its regular quarterly cash dividend, as its Board of Directors declared a regular quarterly cash dividend of $0.17 per share, which will be payable on February 20, 2019 to shareholders of record as of February 10, 2019.

Balance Sheet Highlights

The Company completed a five-branch acquisition of locations of First Financial Bancorp (formerly branch locations of Mainsource Financial Group, Inc. prior to its merger with First Financial Bancorp) on May 18, 2018.  Four of the branches are located in Columbus, Indiana, and one in Greensburg, Indiana.  In addition, on October 15, 2018, the Company completed its acquisition of First Security, Inc. ("First Security") and its subsidiary bank, First Security Bank, Inc.  First Security was based in Owensboro, Kentucky, and operated 11 retail banking offices in Owensboro, Bowling Green, Franklin and Lexington, Kentucky and in Evansville and Newburgh, Indiana.

Total assets for the Company increased to $3.929 billion at December 31, 2018, representing an increase of $565.3 million, compared with September 30, 2018 and an increase of $784.7 million, or 25%, compared with December 31, 2017.  The increase in total assets as of year-end 2018 compared to September 30, 2018 was driven largely by the acquisition of First Security.  The increase in total assets as of year-end 2018 compared with the prior year end was driven by the acquisition of First Security and the five-branch network in the Columbus and Greensburg, Indiana markets as well as organic loan growth.

December 31, 2018 total loans increased $391.6 million compared with September 30, 2018 and increased $586.7 million compared with December 31, 2017.  As of December 31, 2018, outstanding loans from the  First Security transaction, which closed in October 2018, totaled $374.5 million.  At December 31, 2018, the loans acquired as a part of the branch acquisition, which closed in May 2018, totaled $106.0 million.

Total loans from the Company's existing branch network, excluding the acquired First Security loans, grew by approximately $17.1 million, or 3% on an annualized basis, during the fourth quarter of 2018 compared with September 30, 2018 total loans.  Included in this fourth quarter of 2018 loan growth, excluding First Security, was an increase of approximately $22.4 million, or 9% on an annualized basis, of commercial and industrial loans and a modest increase in retail loans of $0.2 million, or less than 1% on an annualized basis, which was partially mitigated by a decline of $4.2 million, or 3% on an annualized basis, of commercial real estate loans, and a decline in agricultural loans of approximately $1.3 million, or 2% on an annualized basis.

Total loans from the Company's existing branch network, excluding the acquired First Security loans and the loans acquired in the branch acquisition, grew by approximately $106.2 million, or 5%, at year-end 2018 compared with year-end 2017 total loans.  Included in this 2018 loan growth, excluding First Security and the branch acquisition, was an increase of approximately $16.1 million, or 3% on an annualized basis, of commercial and industrial loans, an increase of $56.8 million, or 6%, of commercial real estate loans, an increase of $22.0 million, or 7%, in agricultural loans, and an increase of $11.3 million, or 3%, of retail loans.  The level of organic loan growth in the last half of 2018 from the Company’s existing branch network was impacted by an increased level of large balance pay-offs (approximately $52.0 million), which were largely driven by borrowers’ sales of individual properties and businesses.

             
End of Period Loan Balances   12/31/2018   9/30/2018   12/31/2017
(dollars in thousands)            
             
Commercial & Industrial Loans   $ 543,761     $ 527,938     $ 486,668  
Commercial Real Estate Loans   1,208,646     985,915     926,729  
Agricultural Loans   365,208     358,543     333,227  
Consumer Loans   285,534     247,861     219,662  
Residential Mortgage Loans   328,592     219,916     178,733  
    $ 2,731,741     $ 2,340,173     $ 2,145,019  
             

Non-performing assets totaled $13.5 million at December 31, 2018 compared to $8.6 million at September 30, 2018 and $11.9 million at December 31, 2017.  Non-performing assets represented 0.34% of total assets at December 31, 2018 compared to 0.26% of total assets at September 30, 2018 and 0.38% of total assets at December 31, 2017.  Non-performing loans totaled $13.2 million at December 31, 2018 compared to $8.5 million at September 30, 2018 and $11.8 million at December 31, 2017.  Non-performing loans represented 0.48% of total loans at December 31, 2018 compared to 0.36% at September 30, 2018 and 0.55% at December 31, 2017. The increase in non-performing assets and non-performing loans at year-end 2018 was primarily attributable to the loans acquired in the First Security transaction which closed effective October 15, 2018.  Non-performing assets and non-performing loans from the Company’s existing branch network, excluding First Security, were both $8.5 million as of December 31, 2018 compared to non-performing assets of $8.6 million and non-performing loans of $8.5 million as of September 30, 2018

           
Non-performing Assets          
(dollars in thousands)          
  12/31/2018   9/30/2018   12/31/2017
Non-Accrual Loans $ 12,579     $ 8,428     $ 11,091  
Past Due Loans (90 days or more) 633     69     719  
    Total Non-Performing Loans 13,212     8,497     11,810  
Other Real Estate 286     100     54  
    Total Non-Performing Assets $ 13,498     $ 8,597     $ 11,864  
           
Restructured Loans $ 121     $ 122     $ 149  
           

The Company’s allowance for loan losses totaled $15.8 million at December 31, 2018 compared to $16.1 million at September 30, 2018 and $15.7 million at December 31, 2017.  The allowance for loan losses represented 0.58% of period-end loans at December 31, 2018 compared with 0.69% of period-end loans at September 30, 2018 and 0.73% of period-end loans at December 31, 2017.  From time to time, the Company has acquired loans through bank and branch acquisitions with the most recent being the First Security acquisition during the fourth quarter of 2018 and a five-branch acquisition in the second quarter of 2018.  Under acquisition accounting treatment, loans acquired are recorded at fair value which includes a credit risk component, and therefore the allowance on loans acquired is not carried over from the seller.  The Company held a net discount on acquired loans of $19.5 million at December 31, 2018, $9.0 million at September 30, 2018 and $7.6 million at December 31, 2017.

December 31, 2018 total deposits increased $431.8 million compared with September 30, 2018 and increased $588.6 million compared with December 31, 2017.  As of December 31, 2018, deposits from the First Security transaction which closed on October 15, 2018 totaled $348.8 million.  At December 31, 2018, the deposits acquired as a part of the branch acquisition which closed May 18, 2018, totaled $124.8 million.

Total deposits, excluding the acquired First Security deposits, grew by approximately $83.0 million, or 13% on an annualized basis, during the fourth quarter of 2018 compared with September 30, 2018 total deposits.  Total deposits, excluding the acquired First Security deposits and the deposits acquired in the branch acquisition, grew by approximately $115.0 million, or 5%, at year-end 2018 compared with year-end 2017 total deposits.

             
End of Period Deposit Balances   12/31/2018   9/30/2018   12/31/2017
(dollars in thousands)            
             
Non-interest-bearing Demand Deposits   $ 715,972     $ 634,421     $ 606,134  
IB Demand, Savings, and MMDA Accounts   1,768,177     1,605,818     1,490,033  
Time Deposits < $100,000   249,309     189,405     198,646  
Time Deposits > $100,000   339,174     211,203     189,239  
    $ 3,072,632     $ 2,640,847     $ 2,484,052  
             

Results of Operations Highlights - Year ended December 31, 2018

Net income for the year ended December 31, 2018 totaled $46,529,000 or $1.99 per share, an increase of $5,853,000, or approximately 12% on a per share basis, from the year ended December 31, 2017 net income of $40,676,000 or $1.77 per share.

Net income for 2018 was positively impacted by lower federal income tax rates that became effective January 1, 2018, as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The lower federal income tax rates had a positive impact of approximately $0.26 per share for the year ended December 31, 2018.

Net income for 2018 was also impacted by merger and acquisition activity during the year.  The year ended December 31, 2018 included acquisition-related expenses of approximately $4,592,000 (approximately $3,526,000 or $0.15 per share, on an after tax basis) for the aforementioned acquisitions.

During the fourth quarter of 2017, as a result of the enactment of the Tax Act, the Company revalued its deferred tax assets and deferred tax liabilities.  The revaluation resulted in a net tax benefit of $2,284,000, or approximately $0.10 per share during 2017.

                         
Summary Average Balance Sheet                        
(Tax-equivalent basis / dollars in thousands)                        
    Year Ended December 31, 2018   Year Ended December 31, 2017
                         
     Principal
Balance
   Income/
Expense
   Yield/Rate    Principal
Balance
   Income/
Expense
   Yield/Rate
Assets                        
Federal Funds Sold and Other                        
  Short-term Investments   $ 18,587     $ 308     1.65 %   $ 12,405     $ 134     1.09 %
Securities   768,361     23,739     3.09 %   744,985     23,595     3.17 %
Loans and Leases   2,339,089     112,437     4.81 %   2,036,717     92,449     4.54 %
Total Interest Earning Assets   $ 3,126,037     $ 136,484     4.36 %   $ 2,794,107     $ 116,178     4.16 %
                         
Liabilities                        
Demand Deposit Accounts   $ 640,865             $ 572,356          
IB Demand, Savings, and                        
  MMDA Accounts   $ 1,616,558     $ 7,709     0.48 %   $ 1,442,474     $ 3,971     0.28 %
Time Deposits   459,289     5,916     1.29 %   380,316     3,123     0.82 %
FHLB Advances and Other Borrowings   257,737     5,514     2.14 %   233,315     4,027     1.73 %
Total Interest-Bearing Liabilities   $ 2,333,584     $ 19,139     0.82 %   $ 2,056,105     $ 11,121     0.54 %
                         
Cost of Funds           0.61 %           0.40 %
Net Interest Income       $ 117,345             $ 105,057      
Net Interest Margin           3.75 %           3.76 %
                         

During the year ended December 31, 2018, net interest income totaled $114,610,000 representing an increase of $14,701,000, or 15%, from the year ended December 31, 2017 net interest income of $99,909,000. The increased level of net interest income during 2018 compared with 2017 was driven primarily by a higher level of earning assets resulting from organic loan growth, the previously discussed merger and acquisition activity and improvement in the net interest margin.

The tax equivalent net interest margin for the year ended December 31, 2018 was 3.75% compared to 3.76% in 2017.  The lower federal income tax rates during 2018 had an approximately 9 basis point negative impact on the Company's net interest margin.  The improvement in the net interest margin, excluding the impact of the lower federal tax rates, during 2018 compared to 2017 was related to the positive impact on earning asset yields caused by the continued increase in short-term market interest rates partially offset by an increased cost of funds also related to the increased short-term interest rates.  Accretion of loan discounts on acquired loans contributed approximately 8 basis points to the net interest margin during 2018 and 9 basis points in 2017.

During the year ended December 31, 2018, the Company recorded a provision for loan loss of $2,070,000 compared with a provision for loan loss of $1,750,000 during 2017.  The provision during all periods was done in accordance with the Company's standard methodology for determining the adequacy of its allowance for loan loss.

During the year ended December 31, 2018, non-interest income increased $5,216,000, or 16%, from the year ended December 31, 2017.

    Year Ended   Year Ended
Non-interest Income   12/31/2018   12/31/2017
(dollars in thousands)        
         
Trust and Investment Product Fees   $ 6,680     $ 5,272  
Service Charges on Deposit Accounts   7,044     6,178  
Insurance Revenues   8,330     7,979  
Company Owned Life Insurance   1,243     1,341  
Interchange Fee Income   7,278     4,567  
Other Operating Income   2,785     2,641  
    Subtotal   33,360     27,978  
Net Gains on Loans   3,004     3,280  
Net Gains on Securities   706     596  
Total Non-interest Income   $ 37,070     $ 31,854  
         

Trust and investment product fees increased $1,408,000, or 27%, during 2018 compared with 2017.  The increase in 2018 compared with 2017 was largely attributable to increased assets under management in the Company's wealth management group.

Service charges on deposit accounts increased $866,000, or 14%, during 2018 compared with 2017.  The increase during 2018 compared with 2017 was positively impacted by the acquisition activity completed during 2018.

Interchange fees increased $2,711,000, or 59%, during 2018 compared to 2017.  The increase during 2018 was largely attributable to increased card utilization by customers, the acquisition activity completed during 2018 and to the adoption of the new revenue recognition standard effective January 1, 2018.  While the adoption of the standard did not have a significant impact on the Company's financial results, the recording of revenue gross versus net of certain expenses, in accordance with the standard, did result in the reclassification of some expenses associated with the interchange fee revenue during 2018.

During 2018, non-interest expense totaled $93,553,000, an increase of $15,750,000, or 20%, compared with 2017.  2018 included operating expenses related to the branch acquisition completed during the second quarter of 2018 as well as related to the bank acquisition completed early in the fourth quarter of 2018.  2018 also included acquisition-related expenses of a non-recurring nature of approximately $4,592,000 (approximately $3,526,000 or $0.15 per share, on an after tax basis) related to the aforementioned merger and acquisition activity.

    Year Ended   Year Ended
Non-interest Expense   12/31/2018   12/31/2017
(dollars in thousands)        
         
Salaries and Employee Benefits   $ 51,306     $ 46,642  
Occupancy, Furniture and Equipment Expense   10,877     9,230  
FDIC Premiums   1,033     954  
Data Processing Fees   6,942     4,276  
Professional Fees   5,362     2,817  
Advertising and Promotion   3,492     3,543  
Intangible Amortization   1,752     942  
Other Operating Expenses   12,789     9,399  
Total Non-interest Expense   $ 93,553     $ 77,803  
         

Salaries and benefits increased $4,664,000, or 10%, during 2018 compared with 2017.  The increase during 2018 compared with 2017 was primarily attributable to an increased number of full-time equivalent employees due in part to the acquisition transactions during 2018.

Occupancy, furniture and equipment expense increased $1,647,000, or 18%, during 2018 compared with 2017.  The increase during 2018 compared to 2017 was primarily due to operating costs related to the acquisition activity during 2018 as well as other facilities the Company has placed into service over the past several quarters.

Data processing fees increased $2,666,000, or 62%, during 2018 compared to 2017.  The increase was largely related to costs associated with merger and acquisition activities which totaled approximately $2,002,000 during 2018.

Professional fees increased $2,545,000, or 90%, during 2018 compared with 2017.  The increase was primarily due to professional fees related to merger and acquisition activities which totaled $1,738,000 during 2018.

Intangible amortization increased $810,000, or 86%, during 2018 compared with 2017.  The increase in intangible amortization was attributable to the previously discussed acquisition transactions completed during 2018.

Other operating expenses increased $3,390,000, or 36%, during 2018 compared with 2017.  The increase during 2018 was largely attributable to the operating costs related to the acquisitions completed in 2018 and to the adoption of the revenue recognition standard effective January 1, 2018 and the reclassification of expenses as previously discussed.

The Company’s effective income tax rate was 17.0% during the year ended December 31, 2018 compared with an effective tax rate of 22.1% during 2017.  The Company's effective tax rate and provision for income tax was positively impacted during 2018 by the reduction of federal income tax rates from a statutory rate of 35% to 21% effective January 1, 2018 related to the enactment of the Tax Act during the fourth quarter of 2017.  As a result of the enactment of the Tax Act, the Company revalued its deferred tax assets and deferred tax liabilities during the fourth quarter of 2017 which resulted in a net tax benefit of $2,284,000 and consequently impacted the effective tax rate for 2017 as well.

Results of Operations Highlights – Quarter ended December 31, 2018

Net income for the quarter ended December 31, 2018 totaled $10,980,000, or $0.44 per share, a decline of 20% on a per share basis compared with third quarter 2018 net income of $12,639,000, or $0.55 per share, and a decline of 14% on a per share basis compared with the fourth quarter 2017 net income of $11,621,000, or $0.51 per share.

Fourth quarter 2018 net income was impacted by merger and acquisition activity during the year.  The fourth quarter 2018 results of operations included acquisition-related expenses of approximately $3,107,000 (approximately $2,343,000 or $0.09 per share, on an after tax basis) for the aforementioned acquisitions.

As previously discussed, as a result of the enactment of the Tax Act, the revaluation of the Company’s deferred tax assets and deferred tax liabilities resulted in a net tax benefit of $2,284,000, or approximately $0.10 per share, during the fourth quarter of 2017.

                                     
Summary Average Balance Sheet                                    
(Tax-equivalent basis / dollars in thousands)                                    
     Quarter Ended    Quarter Ended    Quarter Ended
    December 31, 2018   September 30, 2018   December 31, 2017
                                     
     Principal
Balance
   Income/
Expense
   Yield/
Rate
   Principal
Balance
   Income/
Expense
   Yield/
Rate
   Principal
Balance
   Income/
Expense
   Yield/
Rate
Assets                                    
Federal Funds Sold and Other                                    
  Short-term Investments   $ 20,925     $ 97     1.83 %   $ 20,745     $ 101     1.94 %   $ 10,268     $ 34     1.33 %
Securities   812,191     6,447     3.18 %   755,793     5,826     3.08 %   755,659     6,001     3.18 %
Loans and Leases   2,662,502     33,771     5.04 %   2,318,657     28,240     4.84 %   2,100,432     23,872     4.51 %
Total Interest Earning Assets   $ 3,495,618     $ 40,315     4.58 %   $ 3,095,195     $ 34,167     4.39 %   $ 2,866,359     $ 29,907     4.15 %
                                     
Liabilities                                    
Demand Deposit Accounts   $ 714,504             $ 636,989             $ 598,107          
IB Demand, Savings, and                                    
  MMDA Accounts   $ 1,794,891     $ 2,808     0.62 %   $ 1,617,768     $ 2,028     0.50 %   $ 1,488,671     $ 1,177     0.31 %
Time Deposits   593,615     2,151     1.44 %   425,783     1,507     1.40 %   376,585     889     0.94 %
FHLB Advances and Other Borrowings   271,834     1,654     2.42 %   257,460     1,392     2.14 %   226,437     1,090     1.91 %
Total Interest-Bearing Liabilities   $ 2,660,340     $ 6,613     0.99 %   $ 2,301,011     $ 4,927     0.85 %   $ 2,091,693     $ 3,156     0.60 %
                                     
Cost of Funds           0.75 %           0.63 %           0.44 %
Net Interest Income       $ 33,702             $ 29,240             $ 26,751      
Net Interest Margin           3.83 %           3.76 %           3.71 %
                                     

During the quarter ended December 31, 2018, net interest income totaled $32,983,000, which represented an increase of $4,435,000, or 16%, from the quarter ended September 30, 2018 net interest income of $28,548,000 and an increase of $7,529,000, or 30%, compared with the quarter ended December 31, 2017 net interest income of $25,454,000. The increased level of net interest income during the fourth quarter of 2018 compared with both the third quarter of 2018 and the fourth quarter of 2017 was driven primarily by a higher level of average earning assets and an improved tax equivalent net interest margin.  The increased level of average earning assets in the fourth quarter of  2018, compared with the third quarter of 2018, was driven primarily by the completed acquisition of First Security on October 15, 2018.

The tax equivalent net interest margin for the quarter ended December 31, 2018 was 3.83% compared with 3.76% in the third quarter of 2018 and 3.71% in the fourth quarter of 2017.  The lower federal income tax rates during 2018 had an approximately 9 basis point negative impact on the Company's net interest margin in both the third and fourth quarters of 2018.  Accretion of loan discounts on acquired loans contributed approximately 13 basis points to the net interest margin on an annualized basis in the fourth quarter of 2018, 8 basis points in the third quarter of 2018, and 6 basis points in the fourth quarter of 2017.

During the quarter ended December 31, 2018, the Company recorded no provision for loan loss compared with a provision for loan loss of $500,000 in the third quarter of 2018 and $650,000 in the fourth quarter of 2017.  The provision during all periods was done in accordance with the Company's standard methodology for determining the adequacy of its allowance for loan loss.

During the quarter ended December 31, 2018, non-interest income totaled $9,733,000, an increase of $770,000, or 9%, compared with the quarter ended September 30, 2018, and an increase of $2,139,000, or 28%, compared with the fourth quarter of 2017.

             
    Quarter Ended   Quarter Ended   Quarter Ended
Non-interest Income   12/31/2018   9/30/2018   12/31/2017
(dollars in thousands)            
             
Trust and Investment Product Fees   $ 1,645     $ 1,585     $ 1,378  
Service Charges on Deposit Accounts   2,072     1,858     1,608  
Insurance Revenues   1,877     1,827     1,867  
Company Owned Life Insurance   420     251     290  
Interchange Fee Income   2,235     1,847     1,202  
Other Operating Income   629     639     546  
    Subtotal   8,878     8,007     6,891  
Net Gains on Loans   583     866     682  
Net Gains on Securities   272     90     21  
Total Non-interest Income   $ 9,733     $ 8,963     $ 7,594  
             

Service charges on deposit accounts increased $214,000, or 12%, during the fourth quarter of 2018 compared with the third quarter of 2018 and increased $464,000, or 29%, compared with the fourth quarter of 2017.  The increase during the fourth quarter of 2018 compared with both the third quarter of 2018 and fourth quarter of 2017 was largely attributable to the acquisitions completed during 2018.

Interchange fees increased $388,000, or 21%, during the fourth quarter of 2018 compared with the third quarter of 2018 and increased $1,033,000, or 86%, compared with the fourth quarter of 2017.  The increase during the fourth quarter of 2018 compared with the third quarter of 2018  was primarily attributable to increased card utilization by customers and the bank acquisition completed during fourth quarter.  The increase during the fourth quarter of 2018 compared with the fourth quarter of 2017 was attributable to increased card utilization by customers, the acquisitions completed during 2018 and the adoption of the new revenue recognition standard effective January 1, 2018.

Net gains on sales of loans declined $283,000, or 33%, during the fourth quarter of 2018 compared with the third quarter of 2018 and declined $99,000, or 15%, compared with the fourth quarter of 2017.  The decline in the net gain on sale during the fourth quarter of 2018 compared with the third quarter 2018 was largely attributable to lower pricing levels on loans sold and a decline in volume of loans sold.  Loan sales totaled $35.7 million during the fourth quarter of 2018, compared with $37.6 million during the third quarter of 2018 and $28.9 million during the fourth quarter of 2017.

During the quarter ended December 31, 2018, non-interest expense totaled $29,814,000, an increase of $8,238,000, or 38%, compared with the quarter ended September 30, 2018, and an increase of $9,814,000, or 49%, compared with the fourth quarter of 2017.  The fourth quarter of  2018 included operating expenses related to the branch acquisition completed during the second quarter of 2018 as well as operating expenses related to the bank acquisition completed early in the fourth quarter of 2018.  The fourth quarter of 2018 included acquisition-related expenses of a non-recurring nature of approximately $3,107,000 (approximately $2,343,000 or $0.09 per share, on an after tax basis) while the third quarter of 2018 included acquisition-related expenses of approximately $396,000  (approximately $317,000 or $0.01 per share, on an after-tax basis) related to the previously discussed acquisitions.

             
    Quarter Ended   Quarter Ended   Quarter Ended
Non-interest Expense   12/31/2018   9/30/2018   12/31/2017
(dollars in thousands)            
             
Salaries and Employee Benefits   $ 15,027     $ 12,134     $ 12,168  
Occupancy, Furniture and Equipment Expense   3,203     2,738     2,452  
FDIC Premiums   234     324     242  
Data Processing Fees   3,108     1,309     1,154  
Professional Fees   2,337     793     550  
Advertising and Promotion   1,083     851     820  
Intangible Amortization   810     430     217  
Other Operating Expenses   4,012     2,997     2,397  
Total Non-interest Expense   $ 29,814     $ 21,576     $ 20,000  
             

Salaries and benefits increased $2,893,000, or 24%, during the quarter ended December 31, 2018 compared with the third quarter of 2018 and increased $2,859,000, or 24%, compared with the fourth quarter of 2017.  The increase in salaries and benefits during the fourth quarter of 2018 compared with both the third quarter of 2018 and the fourth quarter of 2017 was primarily attributable to an increased number of full-time equivalent employees due in part to the acquisition transactions completed during 2018.  The fourth quarter of 2018 also included approximately $474,000 of acquisition-related salary and benefit costs of a non-recurring nature.

Occupancy, furniture and equipment expense increased $465,000, or 17%, during the fourth quarter of 2018 compared with the third quarter of 2018 and increased $751,000, or 31%, compared to the fourth quarter of 2017.  The increase during the fourth quarter of 2018 compared to the third quarter of 2018 was primarily related to the acquisition transaction completed early in the fourth quarter of 2018.  The increase during the fourth quarter of 2018 compared with the fourth quarter of 2017 was primarily due to operating costs related to the acquisitions completed during 2018 as well as other facilities the Company has placed into service over the past several quarters.

Data processing fees increased $1,799,000, or 137%, during the fourth quarter of 2018 compared with the third quarter of 2018 and increased $1,954,000, or 169%, compared to the fourth quarter of 2017.  The increase during the fourth quarter of 2018 compared with both the third quarter of 2018 and the fourth quarter of 2017 was driven by acquisition and conversion-related costs associated with the aforementioned bank acquisition which totaled approximately $1,668,000 during the fourth quarter of 2018.

Professional fees increased $1,544,000, or 195%, during the fourth quarter of 2018 compared with the third quarter of 2018 and increased $1,787,000, or 325%, compared to the fourth quarter of 2017.  The increase during the fourth quarter of 2018 compared to both periods was due in part to professional fees related to merger and acquisition activity during 2018.  Merger and acquisition related professional fees totaled approximately $730,000 in the fourth quarter of 2018 and $248,000 during the third quarter of 2018 while there were no professional fee costs for acquisitions during the fourth quarter of 2017.  Professional fees during the fourth quarter of 2018 also included approximately $930,000 in fees related to certain contract negotiations.

Intangible amortization increased $380,000, or 88%, during the quarter ended December 31, 2018 compared with the third quarter of 2018 and increased $593,000, or 273%, compared with the fourth quarter of 2017.  The increase in intangible amortization was attributable to the previously discussed acquisitions completed during 2018.

Other operating expenses increased $1,015,000, or 34%, during the fourth quarter of 2018 compared with the third quarter of 2018 and increased $1,615,000, or 67%, compared with the fourth quarter of 2017.  The increase in the fourth quarter of 2018 compared with the third quarter of 2018 was attributable to the bank acquisition completed in the fourth quarter of 2018.   The increase during the fourth quarter of 2018 compared with the fourth quarter of 2017 was largely attributable to the operating costs related to the acquisitions completed in 2018 and to the adoption of the revenue recognition standard effective January 1, 2018 and the reclassification of expense as previously discussed.

The Company’s effective income tax rate was 14.9% during the three months ended December 31, 2018 compared with an effective tax rate of 18.1% during the third quarter of 2018 and 6.3% during the fourth quarter of 2017.  The Company's effective tax rate and provision for income tax was positively impacted during 2018 by the reduction of federal income tax rates from a statutory rate of 35% to 21% effective January 1, 2018 related to the enactment of the Tax Act during the fourth quarter of 2017.  As a result of the enactment of the Tax Act, the Company revalued its deferred tax assets and deferred tax liabilities during the fourth quarter of 2017 which resulted in a net tax benefit of $2,284,000 and consequently significantly impacted the effective tax rate for the fourth quarter of 2017.

About German American

German American Bancorp, Inc. is a NASDAQ-traded (symbol: GABC) bank holding company based in Jasper, Indiana.  German American, through its banking subsidiary German American Bank, operates 65 banking offices in 20 contiguous southern Indiana counties and four counties in Kentucky.  The Company also owns an investment brokerage subsidiary (German American Investment Services, Inc.) and a full line property and casualty insurance agency (German American Insurance, Inc.).

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Readers are cautioned that, by their nature, forward-looking statements are based on assumptions and are subject to risks, uncertainties, and other factors. Actual results and experience could differ materially from the anticipated results or other expectations expressed or implied by these forward-looking statements as a result of a number of factors, including but not limited to, those discussed in this press release. Factors that could cause actual experience to differ from the expectations expressed or implied in this press release include the unknown future direction of interest rates and the timing and magnitude of any changes in interest rates; changes in competitive conditions; the introduction, withdrawal, success and timing of asset/liability management strategies or of mergers and acquisitions and other business initiatives and strategies; changes in customer borrowing, repayment, investment and deposit practices; changes in fiscal, monetary and tax policies; changes in financial and capital markets; potential deterioration in general economic conditions, either nationally or locally, resulting in, among other things, credit quality deterioration; capital management activities, including possible future sales of new securities, or possible repurchases or redemptions by the Company of outstanding debt or equity securities; risks of expansion through acquisitions and mergers, such as unexpected credit quality problems of the acquired loans or other assets, unexpected attrition of the customer base of the acquired institution or branches, and difficulties in integration of the acquired operations; factors driving impairment charges on investments; the impact, extent and timing of technological changes; potential cyber-attacks, information security breaches and other criminal activities; litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future; actions of the Federal Reserve Board; changes in accounting principles and interpretations; potential increases of federal deposit insurance premium expense, and possible future special assessments of FDIC premiums, either industry wide or specific to the Company’s banking subsidiary; actions of the regulatory authorities under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and the Federal Deposit Insurance Act and other possible legislative and regulatory actions and reforms; impacts resulting from possible amendments or revisions to the Dodd-Frank Act and the regulations promulgated thereunder, or to Consumer Financial Protection Bureau rules and regulations; the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends; and other risk factors expressly identified in the Company’s filings with the United States Securities and Exchange Commission. Such statements reflect our views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements. It is intended that these forward-looking statements speak only as of the date they are made. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.

 

GERMAN AMERICAN BANCORP, INC.
(unaudited, dollars in thousands except per share data)
           
Consolidated Balance Sheets
           
  December 31, 2018   September 30, 2018   December 31, 2017
ASSETS          
  Cash and Due from Banks $ 64,549     $ 50,980     $ 58,233  
  Short-term Investments 32,251     14,604     12,126  
  Investment Securities 812,964     739,980     740,994  
           
  Loans Held-for-Sale 4,263     9,178     6,719  
           
  Loans, Net of Unearned Income 2,728,059     2,336,625     2,141,638  
  Allowance for Loan Losses (15,823 )   (16,051 )   (15,694 )
    Net Loans 2,712,236     2,320,574     2,125,944  
           
  Stock in FHLB and Other Restricted Stock 13,048     13,048     13,048  
  Premises and Equipment 80,627     69,267     54,246  
  Goodwill and Other Intangible Assets 113,645     65,548     56,160  
  Other Assets 95,507     80,590     76,890  
  TOTAL ASSETS $ 3,929,090     $ 3,363,769     $ 3,144,360  
           
LIABILITIES          
  Non-interest-bearing Demand Deposits $ 715,972     $ 634,421     $ 606,134  
  Interest-bearing Demand, Savings, and Money Market Accounts 1,768,177     1,605,818     1,490,033  
  Time Deposits 588,483     400,608     387,885  
    Total Deposits 3,072,632     2,640,847     2,484,052  
           
  Borrowings 376,409     327,039     275,216  
  Other Liabilities 21,409     19,760     20,521  
  TOTAL LIABILITIES 3,470,450     2,987,646     2,779,789  
           
SHAREHOLDERS' EQUITY          
  Common Stock and Surplus 254,314     189,195     188,222  
  Retained Earnings 211,424     204,188     178,969  
  Accumulated Other Comprehensive Income (Loss) (7,098 )   (17,260 )   (2,620 )
SHAREHOLDERS' EQUITY 458,640     376,123     364,571  
           
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,929,090     $ 3,363,769     $ 3,144,360  
           
END OF PERIOD SHARES OUTSTANDING 24,967,458     22,968,078     22,934,403  
           
TANGIBLE BOOK VALUE PER SHARE (1) $ 13.81     $ 13.52     $ 13.45  
           
 
(1) Tangible Book Value per Share is defined as Total Shareholders' Equity less Goodwill and Other Intangible Assets divided by End of Period Shares Outstanding.

 

GERMAN AMERICAN BANCORP, INC.
(unaudited, dollars in thousands except per share data)
                     
Consolidated Statements of Income
                     
    Three Months Ended   Year Ended
    December 31,
2018
  September 30,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
INTEREST INCOME                  
  Interest and Fees on Loans $ 33,678     $ 28,148     $ 23,699     $ 112,084     $ 91,745  
  Interest on Short-term Investments 97     101     34     308     134  
  Interest and Dividends on Investment Securities 5,821     5,226     4,877     21,357     19,151  
  TOTAL INTEREST INCOME 39,596     33,475     28,610     133,749     111,030  
                     
INTEREST EXPENSE                  
  Interest on Deposits 4,959     3,535     2,066     13,625     7,094  
  Interest on Borrowings 1,654     1,392     1,090     5,514     4,027  
  TOTAL INTEREST EXPENSE 6,613     4,927     3,156     19,139     11,121  
                     
  NET INTEREST INCOME 32,983     28,548     25,454     114,610     99,909  
  Provision for Loan Losses     500     650     2,070     1,750  
  NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 32,983     28,048     24,804     112,540     98,159  
                     
NON-INTEREST INCOME                  
  Net Gain on Sales of Loans 583     866     682     3,004     3,280  
  Net Gain on Securities 272     90     21     706     596  
  Other Non-interest Income 8,878     8,007     6,891     33,360     27,978  
  TOTAL NON-INTEREST INCOME 9,733     8,963     7,594     37,070     31,854  
                     
NON-INTEREST EXPENSE                  
  Salaries and Benefits 15,027     12,134     12,168     51,306     46,642  
  Other Non-interest Expenses 14,787     9,442     7,832     42,247     31,161  
  TOTAL NON-INTEREST EXPENSE 29,814     21,576     20,000     93,553     77,803  
                     
  Income before Income Taxes 12,902     15,435     12,398     56,057     52,210  
  Income Tax Expense 1,922     2,796     777     9,528     11,534  
                     
NET INCOME $ 10,980     $ 12,639     $ 11,621     $ 46,529     $ 40,676  
                     
BASIC EARNINGS PER SHARE $ 0.44     $ 0.55     $ 0.51     $ 1.99     $ 1.77  
DILUTED EARNINGS PER SHARE $ 0.44     $ 0.55     $ 0.51     $ 1.99     $ 1.77  
                     
WEIGHTED AVERAGE SHARES OUTSTANDING 24,962,878     22,968,047     22,930,666     23,381,616     22,924,726  
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 24,962,878     22,968,047     22,930,666     23,381,616     22,924,726  
                     

 

GERMAN AMERICAN BANCORP, INC.
(unaudited, dollars in thousands except per share data)
                       
      Three Months Ended   Year Ended
      December 31,   September 30,   December 31,   December 31,   December 31,
      2018   2018   2017   2018   2017
EARNINGS PERFORMANCE RATIOS                    
  Annualized Return on Average Assets   1.15 %   1.52 %   1.51 %   1.38 %   1.35 %
  Annualized Return on Average Equity   10.05 %   13.47 %   12.83 %   12.07 %   11.59 %
  Net Interest Margin   3.83 %   3.76 %   3.71 %   3.75 %   3.76 %
  Efficiency Ratio (1)   68.64 %   56.48 %   58.23 %   60.59 %   56.83 %
  Net Overhead Expense to Average Earning Assets (2)   2.30 %   1.63 %   1.73 %   1.81 %   1.64 %
                       
ASSET QUALITY RATIOS                    
  Annualized Net Charge-offs to Average Loans   0.03 %   0.01 %   0.05 %   0.08 %   0.04 %
  Allowance for Loan Losses to Period End Loans   0.58 %   0.69 %   0.73 %        
  Non-performing Assets to Period End Assets   0.34 %   0.26 %   0.38 %        
  Non-performing Loans to Period End Loans   0.48 %   0.36 %   0.55 %        
  Loans 30-89 Days Past Due to Period End Loans   0.54 %   0.65 %   0.32 %        
                       
SELECTED BALANCE SHEET & OTHER FINANCIAL DATA                    
  Average Assets   $ 3,834,251     $ 3,333,005     $ 3,078,875     $ 3,380,409     $ 3,002,695  
  Average Earning Assets   $ 3,495,618     $ 3,095,195     $ 2,866,359     $ 3,126,037     $ 2,794,107  
  Average Total Loans   $ 2,662,502     $ 2,318,657     $ 2,100,432     $ 2,339,089     $ 2,036,717  
  Average Demand Deposits   $ 714,504     $ 636,989     $ 598,107     $ 640,865     $ 572,356  
  Average Interest Bearing Liabilities   $ 2,660,340     $ 2,301,011     $ 2,091,693     $ 2,333,584     $ 2,056,105  
  Average Equity   $ 437,177     $ 375,255     $ 362,356     $ 385,476     $ 350,913  
                       
  Period End Non-performing Assets (3)   $ 13,498     $ 8,597     $ 11,864          
  Period End Non-performing Loans (4)   $ 13,212     $ 8,497     $ 11,810          
  Period End Loans 30-89 Days Past Due (5)   $ 14,815     $ 15,110     $ 6,865          
                       
  Tax Equivalent Net Interest Income   $ 33,702     $ 29,240     $ 26,751     $ 117,345     $ 105,057  
  Net Charge-offs during Period   $ 228     $ 86     $ 277     $ 1,941     $ 864  
                       
(1) Efficiency Ratio is defined as Non-interest Expense divided by the sum of Net Interest Income, on a tax equivalent basis, and Non-interest Income.        
(2) Net Overhead Expense is defined as Total Non-interest Expense less Total Non-interest Income.        
(3) Non-performing assets are defined as Non-accrual Loans, Loans Past Due 90 days or more, Restructured Loans, and Other Real Estate Owned.        
(4) Non-performing loans are defined as Non-accrual Loans, Loans Past Due 90 days or more, and Restructured Loans.        
(5) Loans 30-89 days past due and still accruing.                    

 

For additional information, contact:
Mark A Schroeder, Chairman & Chief Executive Officer of German American Bancorp, Inc.
Bradley M Rust, Executive Vice President/CFO of German American Bancorp, Inc.
(812) 482-1314

 

 


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