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German American Bancorp, Inc. (GABC) Reports Solid Third Quarter Earnings, Record Year-to-Date Earnings and Strong Third Quarter Loan Growth

JASPER, Ind., Oct. 30, 2017 (GLOBE NEWSWIRE) -- German American Bancorp, Inc. (NASDAQ:GABC) reported another quarter of solid earnings of $9.7 million, or $0.42 per share, during the third quarter of 2017, resulting in record 2017 year-to-date net income of $29.1 million, or $1.27 per share, for the nine months ended on September 30, 2017. On a comparative per share basis, this level of quarterly earnings was a 2.3% decline from reported net income of $9.7 million, or $0.43 per share, in the second quarter of 2017. The 2017 year-to-date earnings comparison reflects a 12.4% increase, on a per share basis, over 2016 year-to-date net income of $25.1 million, or $1.13 per share, for the nine months ended on September 30, 2016.

The Company also experienced strong loan growth of $54.6 million, or 10.7% on a linked quarter annualized basis, during the current quarter, as measured from June 30, 2017 end of period loan balances. This quarterly growth in loans follows a similar level of loan growth in the second quarter of 2017 of $48.2 million, or 9.7% on a linked quarter annualized basis. Year-to-date third quarter 2017 earnings performance, relative to the same period 2016 results, was enhanced by an increase of $4.4 million, or approximately 6.3%, of net interest income, driven in part, by the aforementioned loan growth.

Commenting on the Company’s continued strong financial performance, Mark A. Schroeder, German American’s Chairman & CEO, stated, "While there were several revenue and expense items, recorded in the third quarter related to the disposition of two former branch facilities closed in the current year, that made quarterly earnings comparisons difficult, we are very encouraged about the level of our current year-to-date earnings and future earnings potential. The strong level of both loan and deposit growth we’ve experienced during the past two quarters is reflective of the economic growth and vitality throughout our southern Indiana market area, which we believe bodes well for the Company’s future profitability. We are extremely pleased by the strong double-digit growth we’ve reported in 2017 year-to-date net income, and anticipate this positive current year to prior year comparison will continue in the fourth quarter.”

The Company also announced the declaration of a regular quarterly cash dividend of $0.13 per share, which will be payable on November 20, 2017 to shareholders of record as of November 10, 2017.

Balance Sheet Highlights

Total assets for the Company increased to $3.073 billion at September 30, 2017, representing an increase of $68.1 million, or 9% on an annualized basis, compared with June 30, 2017 and an increase of $93.3 million, or 3%, compared with September 30, 2016.

At September 30, 2017, total loans increased $54.6 million, or 11% on an annualized basis, compared with June 30, 2017 and increased $83.6 million, or 4%, compared with September 30, 2016. The increase during the third quarter of 2017 was largely related to an increase of approximately $7.2 million, or 6% on an annualized basis, of commercial and industrial loans, an increase of $28.7 million, or 13% on an annualized basis, of commercial real estate loans, an increase of $13.8 million, or 18% on an annualized basis, of agricultural loans and an increase of $5.0 million, or 5% on annualized basis, of retail loans. The increase was broadly based across the Company's entire market area.

End of Period Loan Balances 9/30/2017 6/30/2017 9/30/2016
(dollars in thousands)
Commercial & Industrial Loans $474,917 $467,754 $469,255
Commercial Real Estate Loans 898,752 870,100 862,998
Agricultural Loans 327,026 313,254 299,080
Consumer Loans 209,537 202,562 186,854
Residential Mortgage Loans 179,481 181,477 187,903
$2,089,713 $2,035,147 $2,006,090

Non-performing assets totaled $10.2 million at September 30, 2017 compared to $4.4 million of non-performing assets at June 30, 2017 and $5.5 million at September 30, 2016. Non-performing assets represented 0.33% of total assets at September 30, 2017 compared to 0.15% of total assets at June 30, 2017 and 0.18% of total assets at September 30, 2016. Non-performing loans totaled $9.7 million at September 30, 2017 compared to $3.2 million at June 30, 2017 and $5.1 million of non-performing loans at September 30, 2016. Non-performing loans represented 0.46% of total loans at September 30, 2017 compared to 0.16% at June 30, 2017 and 0.25% at September 30, 2016. The increase in non-performing assets during the third quarter of 2017 was primarily attributable to a single commercial lending relationship that was downgraded during the quarter.

Non-performing Assets
(dollars in thousands)
9/30/2017 6/30/2017 9/30/2016
Non-Accrual Loans$
9,177 $3,097 $4,906
Past Due Loans (90 days or more)474 62 191
Total Non-Performing Loans9,651 3,159 5,097
Other Real Estate568 1,289 355
Total Non-Performing Assets$10,219 $4,448 $5,452
Restructured Loans$152 $154 $50

The Company’s allowance for loan losses totaled $15.3 million at September 30, 2017 compared to $15.3 million at June 30, 2017 and $15.2 million at September 30, 2016. The allowance for loan losses represented 0.73% of period-end loans at September 30, 2017 compared with 0.75% of period-end loans at June 30, 2017 and 0.76% of period-end loans at September 30, 2016. 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 $8.0 million as of September 30, 2017, $8.4 million at June 30, 2017 and $11.1 million at September 30, 2016.

Total deposits increased $61.3 million, or 10% on an annualized basis, as of September 30, 2017 compared with June 30, 2017 and increased $94.9 million, or 4%, compared with September 30, 2016.

End of Period Deposit Balances 9/30/2017 6/30/2017 9/30/2016
(dollars in thousands)
Non-interest-bearing Demand Deposits $589,315 $557,535 $534,620
IB Demand, Savings, and MMDA Accounts 1,454,073 1,453,512 1,361,522
Time Deposits < $100,000 204,946 203,923 214,235
Time Deposits > $100,000 176,238 148,351 219,286
$2,424,572 $2,363,321 $2,329,663

Results of Operations Highlights – Quarter ended September 30, 2017

Net income for the quarter ended September 30, 2017 totaled $9,660,000, or $0.42 per share, which represented a decline of approximately 2% on a per share basis compared with the second quarter 2017 net income of $9,839,000, or $0.43 per share, and a decline of 7% on a per share basis compared with the third quarter 2016 net income of $10,185,000, or $0.45 per share.


Summary Average Balance Sheet
(Tax-equivalent basis / dollars in thousands)
Quarter Ended Quarter Ended Quarter Ended
September 30, 2017 June 30, 2017 September 30, 2016
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 $13,543 $46 1.38% $13,268 $27 0.79% $22,709 $25 0.44%
Securities 748,754 5,872 3.14% 743,354 5,887 3.17% 734,869 5,426 2.95%
Loans and Leases 2,058,453 23,358 4.51% 2,011,518 22,780 4.54% 1,982,291 22,475 4.51%
Total Interest Earning Assets $2,820,750 $29,276 4.13% $2,768,140 $28,694 4.15% $2,739,869 $27,926 4.07%
Liabilities
Demand Deposit Accounts $572,204 $560,763 $522,994
IB Demand, Savings, and
MMDA Accounts $1,447,693 $1,117 0.31% $1,446,994 $939 0.26% $1,363,654 $671 0.20%
Time Deposits 382,827 842 0.87% 360,938 687 0.76% 416,968 652 0.62%
FHLB Advances and Other Borrowings 246,698 1,110 1.79% 233,197 962 1.65% 274,365 851 1.23%
Total Interest-Bearing Liabilities $2,077,218 $3,069 0.59% $2,041,129 $2,588 0.51% $2,054,987 $2,174 0.42%
Cost of Funds 0.43% 0.37% 0.32%
Net Interest Income $26,207 $26,106 $25,752
Net Interest Margin 3.70% 3.78% 3.75%

During the quarter ended September 30, 2017, net interest income totaled $24,917,000, which represented an increase of $104,000, or slightly under 1%, from the quarter ended June 30, 2017 net interest income of $24,813,000 and an increase of $357,000, or just over 1%, compared with the quarter ended September 30, 2016 net interest income of $24,560,000.

The tax equivalent net interest margin for the quarter ended September 30, 2017 was 3.70% compared with 3.78% in the second quarter of 2017 and 3.75% in the third quarter of 2016. The decline in the stated net interest margin was largely attributable to a decline in the accretion of loan discounts on acquired loans and to an increase in Company's cost of funds. Accretion of loan discounts on acquired loans contributed approximately 5 basis points to the net interest margin on an annualized basis in the third quarter of 2017, 10 basis points in the second quarter of 2017, and 9 basis points in the third quarter of 2016. The Company's cost of funds increased approximately 6 basis points in the third quarter of 2017 compared with the second quarter of 2017 and 11 basis points compared with the third quarter of 2016. The higher cost of funds was largely attributable to an increase in short-term market interest rates over the past several quarters.

During the quarter ended September 30, 2017, the Company recorded a provision for loan loss of $250,000 compared with a provision for loan loss of $350,000 during the second quarter of 2017 and no provision for loan loss in the third quarter of 2016. 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 September 30, 2017, non-interest income totaled $8,275,000, an increase of $478,000, or 6%, compared with the quarter ended June 30, 2017, and a decline of $109,000, or 1%, compared with the third quarter of 2016.

Quarter Ended Quarter Ended Quarter Ended
Non-interest Income9/30/2017 6/30/2017 9/30/2016
(dollars in thousands)
Trust and Investment Product Fees $1,301 $1,350 $1,191
Service Charges on Deposit Accounts 1,608 1,478 1,612
Insurance Revenues 1,728 1,744 1,661
Company Owned Life Insurance 317 480 247
Interchange Fee Income 1,186 1,156 965
Other Operating Income 608 630 1,246
Subtotal 6,748 6,838 6,922
Net Gains on Loans 952 959 1,004
Net Gains on Securities 575 458
Total Non-interest Income $8,275 $7,797 $8,384

Company owned life insurance income decreased $163,000, or 34%, during the quarter ended September 30, 2017, compared with the second quarter of 2017 and increased $70,000, or 28%, compared with the third quarter of 2016. The increase or decrease in company owned life insurance income, as the case may be, was attributable to corresponding changes in the level of death benefits received from policies during the comparative periods.

Interchange fee income increased $30,000, or 3%, during the third quarter of 2017 compared with the second quarter of 2017 and $221,000, or 23%, compared with the third quarter of 2016. The increase during the third quarter of 2017 compared with the third quarter of 2016 was largely attributable to increased card utilization by customers.

Other operating income decreased $22,000, or 3%, during the quarter ended September 30, 2017 compared with the second quarter of 2017 and decreased $638,000, or 51%, compared with the third quarter of 2016. The decline in the third quarter of 2017 compared with the third quarter of 2016 was largely attributable to decreased fees associated with swap transactions with loan customers.

While the overall variance in other operating income for the third quarter of 2017 compared with the second quarter of 2017 was minimal, non-interest income was impacted by the disposal of two former branch facilities that were closed during 2017. The net loss on the disposition of these branches totaled approximately $86,000. The loss was derived from the write-off of leasehold improvements of $553,000 on one of the branches, which was partially mitigated by the donation of another branch facility to a municipality in one of the Company's market areas that resulted in a net gain on the disposition of fixed assets of approximately $467,000. This donated branch had a book value of $306,000 and a fair value of $773,000 at the time of disposition. A corresponding contribution expense of $773,000 was recognized in advertising and promotion expense of the Company's income statement for the former branch facility that was donated.

The Company realized $575,000 in gains on sales of securities during the third quarter of 2017 compared with no gains during the second quarter of 2017 and gains of $458,000 in the third quarter of 2016.

During the quarter ended September 30, 2017, non-interest expense totaled $19,771,000, an increase of $775,000, or 4%, compared with the quarter ended June 30, 2017, and an increase of $1,118,000, or 6%, compared with the third quarter of 2016.

Quarter Ended Quarter Ended Quarter Ended
Non-interest Expense9/30/2017 6/30/2017 9/30/2016
(dollars in thousands)
Salaries and Employee Benefits $11,570 $11,460 $10,572
Occupancy, Furniture and Equipment Expense 2,372 2,224 2,224
FDIC Premiums 241 232 373
Data Processing Fees 1,067 1,044 1,261
Professional Fees 551 913 777
Advertising and Promotion 1,315 630 687
Intangible Amortization 230 242 280
Other Operating Expenses 2,425 2,251 2,479
Total Non-interest Expense $19,771 $18,996 $18,653

Salaries and benefits increased $110,000, or 1%, during the quarter ended September 30, 2017 compared with the second quarter of 2017 and increased $998,000, or 9%, compared with the third quarter of 2016. The increase in salaries and benefits during the third quarter of 2017 compared with the third quarter of 2016 was primarily attributable to an increased number of full-time equivalent employees and higher levels of employee benefit costs including incentive compensation plan costs and health insurance costs.

Professional fees decreased $362,000, or 40%, during the quarter ended September 30, 2017 compared with the second quarter of 2017 and $226,000, or 29%, compared with the third quarter of 2016. The decline in the third quarter of 2017 compared with the second quarter of 2017 was primarily attributable to costs incurred during the second quarter of 2017 associated with the three-for-two stock split completed during the second quarter of 2017.

Advertising and promotion increased $685,000 during the quarter ended September 30, 2017 compared with the second quarter of 2017 and increased $628,000 compared with the third quarter of 2016. The primary driver of the increase in advertising and promotion was the aforementioned recognition of a contribution expense of $773,000 related to the donation of a former branch facility to a municipality in one of the Company's market areas.

The income tax provision during third quarter of 2017 was impacted by approximately $476,000 related to the previously discussed donation of a former branch facility and previously discussed write-off of leasehold improvements of an additional branch location that were both closed during 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 Bancorp, operates 53 banking offices in 19 contiguous southern Indiana counties and one northern Kentucky county. 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 and the Federal Deposit Insurance Act and other possible legislative and regulatory actions and reforms; 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
September 30, 2017 June 30, 2017 September 30, 2016
ASSETS
Cash and Due from Banks$44,804 $36,833 $38,329
Short-term Investments9,758 7,204 16,455
Interest-bearing Time Deposits with Banks 744
Investment Securities741,710 740,578 732,911
Loans Held-for-Sale8,484 9,844 12,967
Loans, Net of Unearned Income2,086,325 2,031,743 2,002,380
Allowance for Loan Losses(15,321) (15,320) (15,154)
Net Loans2,071,004 2,016,423 1,987,226
Stock in FHLB and Other Restricted Stock13,048 13,048 13,048
Premises and Equipment51,355 49,249 48,074
Goodwill and Other Intangible Assets56,378 56,607 56,767
Other Assets76,348 75,017 73,019
TOTAL ASSETS$3,072,889 $3,004,803 $2,979,540
LIABILITIES
Non-interest-bearing Demand Deposits$589,315 $557,535 $534,620
Interest-bearing Demand, Savings, and Money Market Accounts1,454,073 1,453,512 1,361,522
Time Deposits381,184 352,274 433,521
Total Deposits2,424,572 2,363,321 2,329,663
Borrowings261,941 263,469 279,110
Other Liabilities25,751 23,059 29,776
TOTAL LIABILITIES2,712,264 2,649,849 2,638,549
SHAREHOLDERS' EQUITY
Common Stock and Surplus187,917 187,613 186,519
Retained Earnings169,859 163,181 142,347
Accumulated Other Comprehensive Income2,849 4,160 12,125
TOTAL SHAREHOLDERS' EQUITY360,625 354,954 340,991
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$3,072,889 $3,004,803 $2,979,540
END OF PERIOD SHARES OUTSTANDING (1)22,930,017 22,929,627 22,900,575
TANGIBLE BOOK VALUE PER SHARE (1) (2)$13.27 $13.01 $12.41
(1) As Adjusted for the 3 for 2 Stock Split distributed on April 21, 2017.
(2) 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
Nine Months Ended
September 30,
2017
June 30,
2017
September 30,
2016
September 30,
2017
September 30,
2016
INTEREST INCOME
Interest and Fees on Loans$23,182 $22,602 $22,311 $68,046 $63,645
Interest on Short-term Investments and Time Deposits46 27 25 100 62
Interest and Dividends on Investment Securities4,758 4,772 4,398 14,274 12,557
TOTAL INTEREST INCOME27,986 27,401 26,734 82,420 76,264
INTEREST EXPENSE
Interest on Deposits1,959 1,626 1,323 5,028 3,804
Interest on Borrowings1,110 962 851 2,937 2,445
TOTAL INTEREST EXPENSE3,069 2,588 2,174 7,965 6,249
NET INTEREST INCOME24,917 24,813 24,560 74,455 70,015
Provision for Loan Losses250 350 1,100 1,200
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES24,667 24,463 24,560 73,355 68,815
NON-INTEREST INCOME
Net Gain on Sales of Loans952 959 1,004 2,598 2,607
Net Gain on Securities575 458 575 1,426
Other Non-interest Income6,748 6,838 6,922 21,087 19,623
TOTAL NON-INTEREST INCOME8,275 7,797 8,384 24,260 23,656
NON-INTEREST EXPENSE
Salaries and Benefits11,570 11,460 10,572 34,474 32,357
Other Non-interest Expenses8,201 7,536 8,081 23,329 24,875
TOTAL NON-INTEREST EXPENSE19,771 18,996 18,653 57,803 57,232
Income before Income Taxes13,171 13,264 14,291 39,812 35,239
Income Tax Expense3,511 3,425 4,106 10,757 10,120
NET INCOME$9,660 $9,839 $10,185 $29,055 $25,119
BASIC EARNINGS PER SHARE (1)$0.42 $0.43 $0.45 $1.27 $1.13
DILUTED EARNINGS PER SHARE (1)$0.42 $0.43 $0.45 $1.27 $1.13
WEIGHTED AVERAGE SHARES OUTSTANDING (1)22,929,864 22,929,426 22,886,721 22,922,724 22,221,780
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (1)22,929,864 22,929,426 22,886,721 22,922,724 22,224,419
(1)As Adjusted for the 3 for 2 Stock Split distributed on April 21, 2017.


GERMAN AMERICAN BANCORP, INC.
(unaudited, dollars in thousands except per share data)
Three Months Ended Nine Months Ended
September 30,
2017
June 30,
2017
September 30,
2016
September 30,
2017
September 30,
2016
EARNINGS PERFORMANCE RATIOS
Annualized Return on Average Assets1.27% 1.32% 1.38% 1.30% 1.20%
Annualized Return on Average Equity10.78% 11.34% 12.07% 11.16% 10.60%
Net Interest Margin3.70% 3.78% 3.75% 3.78% 3.75%
Efficiency Ratio (1)57.34% 56.03% 54.64% 56.36% 59.00%
Net Overhead Expense to Average Earning Assets (2)1.63% 1.62% 1.50% 1.61% 1.71%
ASSET QUALITY RATIOS
Annualized Net Charge-offs to Average Loans0.05% 0.04% 0.03% 0.04% 0.03%
Allowance for Loan Losses to Period End Loans0.73% 0.75% 0.76%
Non-performing Assets to Period End Assets0.33% 0.15% 0.18%
Non-performing Loans to Period End Loans0.46% 0.16% 0.25%
Loans 30-89 Days Past Due to Period End Loans0.48% 0.26% 0.39%
SELECTED BALANCE SHEET & OTHER FINANCIAL DATA
Average Assets$3,033,055 $2,970,745 $2,943,564 $2,977,023 $2,797,677
Average Earning Assets$2,820,750 $2,768,140 $2,739,869 $2,769,758 $2,612,284
Average Total Loans$2,058,453 $2,011,518 $1,982,291 $2,015,245 $1,871,134
Average Demand Deposits$572,204 $560,763 $522,994 $563,679 $497,620
Average Interest Bearing Liabilities$2,077,218 $2,041,129 $2,054,987 $2,044,112 $1,958,222
Average Equity$358,299 $347,035 $337,449 $347,057 $315,895
Period End Non-performing Assets (3)$10,219 $4,448 $5,452
Period End Non-performing Loans (4)$9,651 $3,159 $5,097
Period End Loans 30-89 Days Past Due (5)$10,089 $5,238 $7,776
Tax Equivalent Net Interest Income$26,207 $26,106 $25,752 $78,306 $73,354
Net Charge-offs during Period$249 $196 $150 $587 $484


(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

Source:German American Bancorp, Inc.