GABC-2014.3.31-10Q
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 March 31, 2014
 
Commission File Number 001-15877
 
German American Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Indiana
 
35-1547518
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
711 Main Street, Jasper, Indiana 47546
(Address of Principal Executive Offices and Zip Code)
 
Registrant’s telephone number, including area code: (812) 482-1314
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
YES   x      NO ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
YES   x      NO ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): 
YES   ¨      NO x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at May 1, 2014
Common Shares, no par value
 
13,210,395


CAUTION REGARDING FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
 
Information included in or incorporated by reference in this Quarterly Report on Form 10-Q, our other filings with the Securities and Exchange Commission (the “SEC”) and our press releases or other public statements, contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the discussions of our forward-looking statements and associated risks in our annual report on Form 10-K for the year ended December 31, 2013, in Item 1, “Business – Forward-Looking Statements and Associated Risks” and our discussion of risk factors in Item 1A, “Risk Factors” of that annual report on Form 10-K, as updated from time to time in our subsequent SEC filings, including by Item 2 of Part I of this Report (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) at the conclusion of that Item 2 under the heading “Forward-Looking Statements and Associated Risks.”

2

*****
 
INDEX
 
PART I.            FINANCIAL INFORMATION
 
 
 
Item 1.
Financial Statements
 
 
 
 
Consolidated Balance Sheets – March 31, 2014 and December 31, 2013
 
 
 
 
Consolidated Statements of Income – Three Months Ended March 31, 2014 and 2013
 
 
 
 
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2014 and 2013
 
 
 
 
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2014 and 2013
 
 
 
 
Notes to Consolidated Financial Statements – March 31, 2014
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4. 
Controls and Procedures
 
 
 
PART II.             OTHER INFORMATION
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
 
SIGNATURES
 
 
 
INDEX OF EXHIBITS

3

PART  I.         FINANCIAL INFORMATION
Item 1.           Financial Statements
GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, dollars in thousands except share and per share data)
 
 
March 31,
2014
 
December 31,
2013
ASSETS
 
 

 
 

Cash and Due from Banks
 
$
44,159

 
$
37,370

Federal Funds Sold and Other Short-term Investments
 
8,991

 
22,762

Cash and Cash Equivalents
 
53,150

 
60,132

 
 
 
 
 
Interest-bearing Time Deposits with Banks
 
100

 
100

Securities Available-for-Sale, at Fair Value
 
613,170

 
606,032

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

 
268

 
 
 
 
 
Loans Held-for-Sale, at Fair Value
 
9,844

 
9,265

 
 
 
 
 
Loans
 
1,367,184

 
1,385,212

Less: Unearned Income
 
(2,679
)
 
(2,830
)
Allowance for Loan Losses
 
(15,484
)
 
(14,584
)
Loans, Net
 
1,349,021

 
1,367,798

 
 
 
 
 
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost
 
9,004

 
9,004

Premises, Furniture and Equipment, Net
 
39,983

 
40,430

Other Real Estate
 
770

 
1,029

Goodwill
 
20,536

 
20,536

Intangible Assets
 
2,980

 
3,328

Company Owned Life Insurance
 
31,389

 
31,178

Accrued Interest Receivable and Other Assets
 
16,259

 
14,727

TOTAL ASSETS
 
$
2,146,390

 
$
2,163,827

 
 
 
 
 
LIABILITIES
 
 

 
 

Non-interest-bearing Demand Deposits
 
$
409,630

 
$
400,024

Interest-bearing Demand, Savings, and Money Market Accounts
 
1,015,711

 
1,063,098

Time Deposits
 
342,434

 
349,034

Total Deposits
 
1,767,775

 
1,812,156

 
 
 
 
 
FHLB Advances and Other Borrowings
 
159,991

 
140,770

Accrued Interest Payable and Other Liabilities
 
11,883

 
10,804

TOTAL LIABILITIES
 
1,939,649

 
1,963,730

 
 
 
 
 
SHAREHOLDERS’ EQUITY
 
 

 
 

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

 
—

Common Stock, no par value, $1 stated value; 30,000,000 shares authorized
 
13,208

 
13,174

Additional Paid-in Capital
 
108,171

 
108,022

Retained Earnings
 
88,361

 
84,164

Accumulated Other Comprehensive Loss
 
(2,999
)
 
(5,263
)
TOTAL SHAREHOLDERS’ EQUITY
 
206,741

 
200,097

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
2,146,390

 
$
2,163,827

End of period shares issued and outstanding
 
13,208,240

 
13,173,793


See accompanying notes to consolidated financial statements.

4

GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands except per share data)
 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
INTEREST INCOME
 
 

 
 

Interest and Fees on Loans
 
$
15,944

 
$
14,885

Interest on Federal Funds Sold and Other Short-term Investments
 
3

 
10

Interest and Dividends on Securities:
 
 

 
 

Taxable
 
2,759

 
2,841

Non-taxable
 
975

 
634

TOTAL INTEREST INCOME
 
19,681

 
18,370

 
 
 
 
 
INTEREST EXPENSE
 
 

 
 

Interest on Deposits
 
1,036

 
1,234

Interest on FHLB Advances and Other Borrowings
 
449

 
911

TOTAL INTEREST EXPENSE
 
1,485

 
2,145

 
 
 
 
 
NET INTEREST INCOME
 
18,196

 
16,225

Provision for Loan Losses
 
350

 
350

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
 
17,846

 
15,875

 
 
 
 
 
NON-INTEREST INCOME
 
 

 
 

Trust and Investment Product Fees
 
922

 
817

Service Charges on Deposit Accounts
 
1,061

 
955

Insurance Revenues
 
2,556

 
1,784

Company Owned Life Insurance
 
201

 
266

Interchange Fee Income
 
447

 
430

Other Operating Income
 
390

 
291

Net Gains on Sales of Loans
 
476

 
754

Net Gains on Securities
 
228

 
613

TOTAL NON-INTEREST INCOME
 
6,281

 
5,910

 
 
 
 
 
NON-INTEREST EXPENSE
 
 

 
 

Salaries and Employee Benefits
 
8,424

 
7,784

Occupancy Expense
 
1,316

 
1,105

Furniture and Equipment Expense
 
509

 
475

FDIC Premiums
 
275

 
255

Data Processing Fees
 
1,010

 
665

Professional Fees
 
692

 
661

Advertising and Promotion
 
478

 
490

Intangible Amortization
 
348

 
367

Other Operating Expenses
 
2,038

 
1,660

TOTAL NON-INTEREST EXPENSE
 
15,090

 
13,462

 
 
 
 
 
Income before Income Taxes
 
9,037

 
8,323

Income Tax Expense
 
2,732

 
2,514

NET INCOME
 
$
6,305

 
$
5,809

 
 
 
 
 
Basic Earnings Per Share
 
$
0.48

 
$
0.46

Diluted Earnings Per Share
 
$
0.48

 
$
0.46

 
 
 
 
 
Dividends Per Share
 
$
0.16

 
$
0.15

 
See accompanying notes to consolidated financial statements.

5

GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, dollars in thousands)
 
 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
 
 
 
 
 
NET INCOME
 
$
6,305

 
$
5,809

 
 
 
 
 
Other Comprehensive Income (Loss):
 
 

 
 

Unrealized Gains (Losses) on Securities
 
 

 
 

Unrealized Holding Gain (Loss) Arising During the Period
 
3,733

 
(2,835
)
Reclassification Adjustment for Losses (Gains) Included in Net Income
 
(228
)
 
(613
)
Tax Effect
 
(1,241
)
 
1,212

Net of Tax
 
2,264

 
(2,236
)
 
 
 
 
 
Total Other Comprehensive Income (Loss)
 
2,264

 
(2,236
)
 
 
 
 
 
COMPREHENSIVE INCOME
 
$
8,569

 
$
3,573

 

 
 





























See accompanying notes to consolidated financial statements.

6

GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net Income
 
$
6,305

 
$
5,809

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

 
 

Net Amortization on Securities
 
479

 
939

Depreciation and Amortization
 
1,216

 
1,099

Loans Originated for Sale
 
(22,414
)
 
(51,090
)
Proceeds from Sales of Loans Held-for-Sale
 
22,255

 
43,299

Provision for Loan Losses
 
350

 
350

Gain on Sale of Loans, net
 
(476
)
 
(754
)
Gain on Securities, net
 
(228
)
 
(613
)
Loss (Gain) on Sales of Other Real Estate and Repossessed Assets
 
2

 
142

Loss (Gain) on Disposition and Impairment of Premises and Equipment
 
1

 
(70
)
Increase in Cash Surrender Value of Company Owned Life Insurance
 
(211
)
 
(264
)
Equity Based Compensation
 
158

 
85

Change in Assets and Liabilities:
 
 

 
 

Interest Receivable and Other Assets
 
606

 
1,722

Interest Payable and Other Liabilities
 
1,079

 
(23
)
Net Cash from Operating Activities
 
9,122

 
631

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from Maturities, Calls, Redemptions of Securities Available-for-Sale
 
18,315

 
43,537

Proceeds from Sales of Securities Available-for-Sale
 
254

 
74,749

Purchase of Securities Available-for-Sale
 
(25,776
)
 
(119,536
)
Proceeds from Maturities of Securities Held-to-Maturity
 
84

 
78

Purchase of Loans
 
—

 
(712
)
Loans Made to Customers, net of Payments Received
 
18,240

 
13,158

Proceeds from Sales of Other Real Estate
 
444

 
308

Property and Equipment Expenditures
 
(396
)
 
(693
)
Proceeds from Sales of Property and Equipment
 
—

 
88

Net Cash from Investing Activities
 
11,165

 
10,977

 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Change in Deposits
 
(44,369
)
 
18,982

Change in Short-term Borrowings
 
19,240

 
(47,274
)
Advances in Long-term Debt
 
1,500

 
30,000

Repayments of Long-term Debt
 
(1,557
)
 
(31,545
)
Issuance of Common Stock
 
25

 
—

Dividends Paid
 
(2,108
)
 
(1,896
)
Net Cash from Financing Activities
 
(27,269
)
 
(31,733
)
 
 
 
 
 
Net Change in Cash and Cash Equivalents
 
(6,982
)
 
(20,125
)
Cash and Cash Equivalents at Beginning of Year
 
60,132

 
49,087

Cash and Cash Equivalents at End of Period
 
$
53,150

 
$
28,962

 
 
 
 
 
Cash Paid During the Period for
 
 

 
 

Interest
 
$
1,588

 
$
2,608

Income Taxes
 
—

 
4

 
 
 
 
 
Supplemental Non Cash Disclosures
 
 

 
 

Loans Transferred to Other Real Estate
 
$
187

 
$
543

Reclassification of Loan to Secured Borrowing
 
—

 
2,006

Securities Transferred to Accounts Receivable
 
3,323

 
—

Accounts Receivable Transferred to Securities
 
—

 
(45,803
)
See accompanying notes to consolidated financial statements.

7

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)


NOTE 1 – Basis of Presentation
 
German American Bancorp, Inc. operates primarily in the banking industry. The accounting and reporting policies of German American Bancorp, Inc. and its subsidiaries conform to U.S. generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included in the accompanying unaudited consolidated financial statements, and all such adjustments are of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the German American Bancorp, Inc. December 31, 2013 Annual Report on Form 10-K.   

NOTE 2 – Per Share Data
 
The computations of Basic Earnings per Share and Diluted Earnings per Share are as follows:
 
 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
Basic Earnings per Share:
 
 

 
 

Net Income
 
$
6,305

 
$
5,809

Weighted Average Shares Outstanding
 
13,179,188

 
12,641,842

Basic Earnings per Share
 
$
0.48

 
$
0.46

 
 
 
 
 
Diluted Earnings per Share:
 
 

 
 

Net Income
 
$
6,305

 
$
5,809

 
 
 
 
 
Weighted Average Shares Outstanding
 
13,179,188

 
12,641,842

Potentially Dilutive Shares, Net
 
24,513

 
19,850

Diluted Weighted Average Shares Outstanding
 
13,203,701

 
12,661,692

Diluted Earnings per Share
 
$
0.48

 
$
0.46

 
For the three months ended March 31, 2014 and 2013, there were no anti-dilutive shares.
 


8

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 3 – Securities 
 
The amortized cost, unrealized gross gains and losses recognized in accumulated other comprehensive income (loss), and fair value of Securities Available-for-Sale at March 31, 2014 and December 31, 2013, were as follows:
Securities Available-for-Sale: 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 Fair
Value
 
 
 

 
 

 
 

 
 

March 31, 2014
 
 

 
 

 
 

 
 

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

 
$
—

 
$
(871
)
 
$
19,129

Obligations of State and Political Subdivisions
 
113,429

 
3,451

 
(324
)
 
116,556

Mortgage-backed Securities - Residential
 
483,937

 
3,289

 
(10,094
)
 
477,132

Equity Securities
 
353

 
—

 
—

 
353

Total
 
$
617,719

 
$
6,740

 
$
(11,289
)
 
$
613,170

 
 
 
 
 
 
 
 
 
December 31, 2013
 
 

 
 

 
 

 
 

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

 
$
—

 
$
(1,048
)
 
$
18,952

Obligations of State and Political Subdivisions
 
112,008

 
2,388

 
(899
)
 
113,497

Mortgage-backed Securities - Residential
 
481,724

 
3,497

 
(11,991
)
 
473,230

Equity Securities
 
353

 
—

 
—

 
353

Total
 
$
614,085

 
$
5,885

 
$
(13,938
)
 
$
606,032

 
Equity securities that do not have readily determinable fair values are included in the above totals, are carried at historical cost and are evaluated for impairment on a periodic basis. All mortgage-backed securities in the above table are residential mortgage-backed securities and guaranteed by government sponsored entities.
 
The carrying amount, unrecognized gains and losses and fair value of Securities Held-to-Maturity at March 31, 2014 and December 31, 2013, were as follows:
Securities Held-to-Maturity:
 
Carrying
Amount
 
Gross
Unrecognized
Gains
 
Gross
Unrecognized
Losses
 
Fair
Value
 
 
 

 
 

 
 

 
 

March 31, 2014
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
184

 
$
2

 
$
—

 
$
186

 
 
 
 
 
 
 
 
 
December 31, 2013
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
268

 
$
3

 
$
—

 
$
271
















9

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 3 - Securities (continued)

The amortized cost and fair value of Securities at March 31, 2014 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay certain obligations with or without call or prepayment penalties. Mortgage-backed and Equity Securities are not due at a single maturity date and are shown separately.
Securities Available-for-Sale:
 
Amortized
Cost
 
Fair
Value
 
 
 
 
 
Due in one year or less
 
$
3,447

 
$
3,499

Due after one year through five years
 
10,882

 
11,145

Due after five years through ten years
 
70,604

 
71,210

Due after ten years
 
48,496

 
49,831

Mortgage-backed Securities - Residential
 
483,937

 
477,132

Equity Securities
 
353

 
353

Total
 
$
617,719

 
$
613,170

 

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

 
$
—

Due after one year through five years
 
184

 
186

Due after five years through ten years
 
—

 
—

Due after ten years
 
—

 
—

Total
 
$
184

 
$
186

 
Proceeds from the Sales of Securities are summarized below:
 
 
Three Months
Ended
 
Three Months
Ended
 
 
March 31, 2014
 
March 31, 2013
 
 
 
 
 
Proceeds from Sales
 
$
254

 
$
74,749

Gross Gains on Sales
 
228

 
613

Income Taxes on Gross Gains
 
80

 
215




10

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 3 - Securities (continued)

Below is a summary of securities with unrealized losses as of March 31, 2014 and December 31, 2013, presented by length of time the securities have been in a continuous unrealized loss position:

 
 
Less than 12 Months
 
12 Months or More
 
Total
March 31, 2014
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and Agency Securities
 
$
19,129

 
$
(871
)
 
$
—

 
$
—

 
$
19,129

 
$
(871
)
Obligations of State and Political Subdivisions
 
15,580

 
(268
)
 
700

 
(56
)
 
16,280

 
(324
)
Mortgage-backed Securities - Residential
 
264,004

 
(6,501
)
 
78,365

 
(3,593
)
 
342,369

 
(10,094
)
Equity Securities
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
298,713

 
$
(7,640
)
 
$
79,065

 
$
(3,649
)
 
$
377,778

 
$
(11,289
)
 
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2013
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and Agency Securities
 
$
18,952

 
$
(1,048
)
 
$
—

 
$
—

 
$
18,952

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

 
(899
)
 
—

 
—

 
38,878

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

 
(11,903
)
 
1,735

 
(88
)
 
347,763

 
(11,991
)
Equity Securities
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
403,858

 
$
(13,850
)
 
$
1,735

 
$
(88
)
 
$
405,593

 
$
(13,938
)
 
Securities are written down to fair value when a decline in fair value is not considered temporary. In estimating other-than-temporary losses, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The Company doesn’t intend to sell or expect to be required to sell these securities, and the decline in fair value is largely due to changes in market interest rates, therefore, the Company does not consider these securities to be other-than-temporarily impaired. All mortgage-backed securities in the Company’s portfolio are guaranteed by government sponsored entities, are investment grade, and are performing as expected.
 
NOTE 4 – Derivatives
 
The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of these interest rate swaps and the offsetting counterparty derivative instruments were $17.8 million at March 31, 2014 and $17.9 million at December 31, 2013. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions with approved, reputable, independent counterparties with substantially matching terms. The agreements are considered stand alone derivatives and changes in the fair value of derivatives are reported in earnings as non-interest income. 
 
Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Company’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. There are provisions in the agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, the Company minimizes credit risk through credit approvals, limits, and monitoring procedures.
 

11

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 4 - Derivatives (continued)

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

 
 

 
 

 
 

Interest Rate Swaps
 
$
17,753

 
$
536

 
$
17,853

 
$
866

 
 
 
 
 
 
 
 
 
Included in Other Liabilities:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
17,753

 
$
444

 
$
17,853

 
$
737

 





The following tables present the effect of derivative instruments on the Consolidated Statements of Income for the periods presented:
 
 
Three Months Ended
March 31,
 
 
2014
 
2013
Interest Rate Swaps:
 
 

 
 

Included in Interest Income / (Expense)
 
$
—

 
$
—

Included in Other Income / (Expense)
 
(38
)
 
2


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

 
 

Commercial and Industrial Loans and Leases
 
$
344,045

 
$
350,955

Commercial Real Estate Loans
 
589,193

 
582,066

Agricultural Loans
 
174,651

 
192,880

Retail:
 
 

 
 

Home Equity Loans
 
81,228

 
81,504

Consumer Loans
 
46,796

 
49,124

Residential Mortgage Loans
 
131,271

 
128,683

Subtotal
 
1,367,184

 
1,385,212

Less: Unearned Income
 
(2,679
)
 
(2,830
)
Allowance for Loan Losses
 
(15,484
)
 
(14,584
)
Loans, Net
 
$
1,349,021

 
$
1,367,798

 


12

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

The following table presents the activity in the allowance for loan losses by portfolio class for the three months ending March 31, 2014 and 2013:
March 31, 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
 
1,322

 
(1,057
)
 
(16
)
 
—

 
48

 
7

 
46

 
350

Recoveries
 
69

 
703

 
—

 
—

 
47

 
4

 
—

 
823

Loans Charged-off
 
—

 
(111
)
 
—

 
(30
)
 
(97
)
 
(35
)
 
—

 
(273
)
Ending Balance
 
$
5,374

 
$
7,870

 
$
930

 
$
209

 
$
186

 
$
257

 
$
658

 
$
15,484

March 31, 2013
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
4,555

 
$
8,931

 
$
989

 
$
141

 
$
214

 
$
186

 
$
504

 
$
15,520

Provision for Loan Losses
 
195

 
6

 
(223
)
 
41

 
(7
)
 
113

 
225

 
350

Recoveries
 
3

 
51

 
—

 
—

 
55

 
2

 
—

 
111

Loans Charged-off
 
—

 
(109
)
 
—

 
(64
)
 
(73
)
 
(1
)
 
—

 
(247
)
Ending Balance
 
$
4,753

 
$
8,879

 
$
766

 
$
118

 
$
189

 
$
300

 
$
729

 
$
15,734


In determining the adequacy of the allowance for loan loss, general allocations are made for other pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss. General allocations of the allowance are primarily made based on a three-year historical average for loan losses for these portfolios, judgmentally adjusted for current economic factors and portfolio trends. 
 
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.
 

13

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(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 March 31, 2014 and December 31, 2013:
March 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
 
$
3,995

 
$
1,536

 
$
2,459

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Collectively Evaluated for Impairment
 
11,482

 
3,838

 
5,404

 
930

 
209

 
186

 
257

 
658

Acquired with Deteriorated Credit Quality
 
7

 
—

 
7

 
—

 
—

 
—

 
—

 
—

Total Ending Allowance Balance
 
$
15,484

 
$
5,374

 
$
7,870

 
$
930

 
$
209

 
$
186

 
$
257

 
$
658


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
11,406

 
$
6,380

 
$
5,026

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans Collectively Evaluated for Impairment
 
1,347,214

 
336,856

 
575,305

 
176,860

 
81,527

 
46,798

 
129,868

 
—

Loans Acquired with Deteriorated Credit Quality
 
13,869

 
1,636

 
10,337

 
—

 
—

 
130

 
1,766

 
—

Total Ending Loans Balance(1)
 
$
1,372,489

 
$
344,872

 
$
590,668

 
$
176,860

 
$
81,527

 
$
46,928

 
$
131,634

 
$
—


(1)Total recorded investment in loans includes $5,305 in accrued interest.
December 31, 2013
 
Total
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
Allowance for Loan Losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending Allowance Balance Attributable to Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually Evaluated for Impairment
 
$
3,095

 
$
45

 
$
3,050

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Collectively Evaluated for Impairment
 
11,481

 
3,938

 
5,277

 
946

 
239

 
188

 
281

 
612

Acquired with Deteriorated Credit Quality
 
8

 
—

 
8

 
—

 
—

 
—

 
—

 
—

Total Ending Allowance Balance
 
$
14,584

 
$
3,983

 
$
8,335

 
$
946

 
$
239

 
$
188

 
$
281

 
$
612


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
8,458

 
$
2,114

 
$
6,344

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans Collectively Evaluated for Impairment
 
1,367,591

 
347,808

 
566,389

 
195,171

 
81,812

 
49,131

 
127,280

 
—

Loans Acquired with Deteriorated Credit Quality
 
14,753

 
1,981

 
10,871

 
—

 
—

 
134

 
1,767

 
—

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

 
$
351,903

 
$
583,604

 
$
195,171

 
$
81,812

 
$
49,265

 
$
129,047

 
$
—

 
(1)Total recorded investment in loans includes $5,590 in accrued interest.
 

14

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2014 and December 31, 2013:
March 31, 2014
 
Unpaid Principal Balance(1)
 
 Recorded Investment
 
Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
2,095

 
$
2,025

 
$
—

Commercial Real Estate Loans
 
2,342

 
1,800

 
—

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
4,437

 
3,825

 
—

With An Allowance Recorded:
 
 

 
 

 


Commercial and Industrial Loans and Leases
 
4,348

 
4,357

 
1,536

Commercial Real Estate Loans
 
3,946

 
3,790

 
2,466

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
8,294

 
8,147

 
4,002

Total
 
$
12,731

 
$
11,972

 
$
4,002

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
982

 
$
559

 
$
—

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
32

 
$
7

 
$
7


(1) Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.

December 31, 2013
 
Unpaid Principal Balance(1)
 
 Recorded Investment
 
Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
2,163

 
$
2,072

 
$
—

Commercial Real Estate Loans
 
4,710

 
2,383

 
—

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
6,873

 
4,455

 
—

With An Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
45

 
45

 
45

Commercial Real Estate Loans
 
4,428

 
4,417

 
3,058

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
4,473

 
4,462

 
3,103

Total
 
$
11,346

 
$
8,917

 
$
3,103

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
987

 
$
451

 
$
—

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
33

 
$
8

 
$
8


(1) Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.
 

15

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

The following table presents loans individually evaluated for impairment by class of loans for the three month period ended March 31, 2014 and 2013:
March 31, 2014
 
Average Recorded Investment
 
Interest Income Recognized
 
Cash Basis Recognized
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
2,135

 
$
30

 
$
33

Commercial Real Estate Loans
 
2,433

 
3

 
2

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
4,568

 
33

 
35

With An Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
4,371

 
1

 
1

Commercial Real Estate Loans
 
4,243

 
4

 
4

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
8,614

 
5

 
5

Total
 
$
13,182

 
$
38

 
$
40

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
1,244

 
$
2

 
$
2

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
33

 
$
—

 
$
1


 
March 31, 2013
 
Average Recorded Investment
 
Interest Income Recognized
 
Cash Basis Recognized
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
110

 
$
—

 
$
1

Commercial Real Estate Loans
 
2,170

 
—

 
—

Agricultural Loans
 
2,422

 
48

 
16

Subtotal
 
4,702

 
48

 
17

With An Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
2,533

 
1

 
1

Commercial Real Estate Loans
 
5,809

 
6

 
5

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
8,342

 
7

 
6

Total
 
$
13,044

 
$
55

 
$
23

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
57

 
$
—

 
$
1

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
112

 
$
1

 
$
1

 

16

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan. Uncollected accrued interest for each class of loans is reversed against income at the time a loan is placed on non-accrual. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. All classes of loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans are typically charged-off at 180 days past due, or earlier if deemed uncollectible. Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection.
 
The following table presents the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual by class of loans as of March 31, 2014 and December 31, 2013:
 
 
Non-Accrual
 
Loans Past Due 90 Days
or More & Still Accruing
 
 
2014
 
2013
 
2014
 
2013
Commercial and Industrial Loans and Leases
 
$
4,331

 
$
31

 
$
16

 
$
—

Commercial Real Estate Loans
 
5,348

 
6,658

 
—

 
8

Agricultural Loans
 
—

 
—

 
—

 
—

Home Equity Loans
 
139

 
114

 
—

 
—

Consumer Loans
 
318

 
236

 
—

 
—

Residential Mortgage Loans
 
1,640

 
1,339

 
—

 
—

Total
 
$
11,776

 
$
8,378

 
$
16

 
$
8

Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
1,562

 
$
1,705

 
$
—

 
$
—


The following table presents the aging of the recorded investment in past due loans by class of loans as of March 31, 2014 and December 31, 2013:
March 31, 2014
 
Total
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days or More Past Due
 
Total Past Due
 
Loans Not Past Due
Commercial and Industrial Loans and Leases
 
$
344,872

 
$
93

 
$
111

 
$
64

 
$
268

 
$
344,604

Commercial Real Estate Loans
 
590,668

 
619

 
347

 
1,331

 
2,297

 
588,371

Agricultural Loans
 
176,860

 
73

 
5

 
—

 
78

 
176,782

Home Equity Loans
 
81,527

 
269

 
132

 
138

 
539

 
80,988

Consumer Loans
 
46,928

 
103

 
36

 
190

 
329

 
46,599

Residential Mortgage Loans
 
131,634

 
1,631

 
37

 
1,423

 
3,091

 
128,543

Total(1)
 
$
1,372,489

 
$
2,788

 
$
668

 
$
3,146

 
$
6,602

 
$
1,365,887

Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
13,869

 
$
—

 
$
—

 
$
996

 
$
996

 
$
12,873


(1)Total recorded investment in loans includes $5,305 in accrued interest.
 

17

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

December 31, 2013
 
Total
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days or More Past Due