GABC-2015.3.31-10Q
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, 2015
 
Commission File Number 001-15877
 
German American Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Indiana
 
35-1547518
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
711 Main Street, Jasper, Indiana 47546
(Address of Principal Executive Offices and Zip Code)
 
Registrant’s telephone number, including area code: (812) 482-1314
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
YES   x      NO ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
YES   x      NO ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): 
YES   ¨      NO x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at May 1, 2015
Common Shares, no par value
 
13,253,951


CAUTION REGARDING FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
 
Information included in or incorporated by reference in this Quarterly Report on Form 10-Q, our other filings with the Securities and Exchange Commission (the “SEC”) and our press releases or other public statements, contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the discussions of our forward-looking statements and associated risks in our annual report on Form 10-K for the year ended December 31, 2014, in Item 1, “Business – Forward-Looking Statements and Associated Risks” and our discussion of risk factors in Item 1A, “Risk Factors” of that annual report on Form 10-K, as updated from time to time in our subsequent SEC filings, including by Item 2 of Part I of this Report (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) at the conclusion of that Item 2 under the heading “Forward-Looking Statements and Associated Risks.”

2

*****
 
INDEX
 
PART I.            FINANCIAL INFORMATION
 
 
 
Item 1.
Financial Statements
 
 
 
 
Consolidated Balance Sheets – March 31, 2015 and December 31, 2014
 
 
 
 
Consolidated Statements of Income – Three Months Ended March 31, 2015 and 2014
 
 
 
 
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2015 and 2014
 
 
 
 
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2015 and 2014
 
 
 
 
Notes to Consolidated Financial Statements – March 31, 2015
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4. 
Controls and Procedures
 
 
 
PART II.           OTHER INFORMATION
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
 
SIGNATURES
 
 
 
INDEX OF EXHIBITS

3

PART  I.         FINANCIAL INFORMATION
Item 1.           Financial Statements
GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, dollars in thousands except share and per share data)
 
 
March 31,
2015
 
December 31,
2014
ASSETS
 
 

 
 

Cash and Due from Banks
 
$
34,277

 
$
33,481

Federal Funds Sold and Other Short-term Investments
 
26,590

 
8,965

Cash and Cash Equivalents
 
60,867

 
42,446

 
 
 
 
 
Interest-bearing Time Deposits with Banks
 
100

 
100

Securities Available-for-Sale, at Fair Value
 
619,578

 
630,995

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

 
184

 
 
 
 
 
Loans Held-for-Sale, at Fair Value
 
6,290

 
6,311

 
 
 
 
 
Loans
 
1,450,884

 
1,451,990

Less: Unearned Income
 
(3,871
)
 
(4,008
)
Allowance for Loan Losses
 
(15,169
)
 
(14,929
)
Loans, Net
 
1,431,844

 
1,433,053

 
 
 
 
 
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost
 
7,200

 
7,040

Premises, Furniture and Equipment, Net
 
39,370

 
39,930

Other Real Estate
 
324

 
356

Goodwill
 
20,536

 
20,536

Intangible Assets
 
1,829

 
2,074

Company Owned Life Insurance
 
32,254

 
32,043

Accrued Interest Receivable and Other Assets
 
19,936

 
22,031

TOTAL ASSETS
 
$
2,240,223

 
$
2,237,099

 
 
 
 
 
LIABILITIES
 
 

 
 

Non-interest-bearing Demand Deposits
 
$
426,373

 
$
428,016

Interest-bearing Demand, Savings, and Money Market Accounts
 
1,009,368

 
1,018,320

Time Deposits
 
364,658

 
333,425

Total Deposits
 
1,800,399

 
1,779,761

 
 
 
 
 
FHLB Advances and Other Borrowings
 
178,825

 
206,064

Accrued Interest Payable and Other Liabilities
 
23,391

 
22,450

TOTAL LIABILITIES
 
2,002,615

 
2,008,275

 
 
 
 
 
SHAREHOLDERS’ EQUITY
 
 

 
 

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

 
—

Common Stock, no par value, $1 stated value; 30,000,000 shares authorized
 
13,251

 
13,216

Additional Paid-in Capital
 
108,852

 
108,660

Retained Earnings
 
109,118

 
104,058

Accumulated Other Comprehensive Income
 
6,387

 
2,890

TOTAL SHAREHOLDERS’ EQUITY
 
237,608

 
228,824

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
2,240,223

 
$
2,237,099

End of period shares issued and outstanding
 
13,251,470

 
13,215,800





See accompanying notes to consolidated financial statements.

4

GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands except per share data)
 

Three Months Ended 
 March 31,
 

2015

2014
INTEREST INCOME

 


 

Interest and Fees on Loans

$
16,299


$
15,944

Interest on Federal Funds Sold and Other Short-term Investments

3


3

Interest and Dividends on Securities:

 


 

Taxable

2,435


2,759

Non-taxable

1,263


975

TOTAL INTEREST INCOME

20,000


19,681








INTEREST EXPENSE

 


 

Interest on Deposits

993


1,036

Interest on FHLB Advances and Other Borrowings

458


449

TOTAL INTEREST EXPENSE

1,451


1,485








NET INTEREST INCOME

18,549


18,196

Provision for Loan Losses

250


350

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

18,299


17,846








NON-INTEREST INCOME

 


 

Trust and Investment Product Fees

984


922

Service Charges on Deposit Accounts

1,137


1,061

Insurance Revenues

2,545


2,556

Company Owned Life Insurance

205


201

Interchange Fee Income

483


447

Other Operating Income

576


390

Net Gains on Sales of Loans

749


476

Net Gains on Securities

463


228

TOTAL NON-INTEREST INCOME

7,142


6,281








NON-INTEREST EXPENSE

 


 

Salaries and Employee Benefits

8,825


8,424

Occupancy Expense

1,226


1,316

Furniture and Equipment Expense

479


509

FDIC Premiums

282


275

Data Processing Fees

837


1,010

Professional Fees

644


692

Advertising and Promotion

443


478

Intangible Amortization

245


348

Other Operating Expenses

1,852


2,038

TOTAL NON-INTEREST EXPENSE

14,833


15,090








Income before Income Taxes

10,608


9,037

Income Tax Expense

3,302


2,732

NET INCOME

$
7,306


$
6,305








Basic Earnings Per Share

$
0.55


$
0.48

Diluted Earnings Per Share

$
0.55


$
0.48








Dividends Per Share

$
0.17


$
0.16

 


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,
 
 
2015
 
2014
 
 
 
 
 
NET INCOME
 
$
7,306

 
$
6,305

 
 
 
 
 
Other Comprehensive Income:
 
 

 
 

Unrealized Gains on Securities
 
 

 
 

Unrealized Holding Gain Arising During the Period
 
5,868

 
3,733

Reclassification Adjustment for Gains Included in Net Income
 
(463
)
 
(228
)
Tax Effect
 
(1,908
)
 
(1,241
)
Net of Tax
 
3,497

 
2,264

 
 
 
 
 
Total Other Comprehensive Income
 
3,497

 
2,264

 
 
 
 
 
COMPREHENSIVE INCOME
 
$
10,803

 
$
8,569

 

 
 



 



























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,
 
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net Income
 
$
7,306

 
$
6,305

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

 
 

Net Amortization on Securities
 
565

 
479

Depreciation and Amortization
 
1,121

 
1,216

Loans Originated for Sale
 
(32,640
)
 
(22,414
)
Proceeds from Sales of Loans Held-for-Sale
 
33,260

 
22,255

Provision for Loan Losses
 
250

 
350

Gain on Sale of Loans, net
 
(749
)
 
(476
)
Gain on Securities, net
 
(463
)
 
(228
)
Loss on Sales of Other Real Estate and Repossessed Assets
 
8

 
2

Loss on Disposition and Impairment of Premises and Equipment
 
—

 
1

Increase in Cash Surrender Value of Company Owned Life Insurance
 
(211
)
 
(211
)
Equity Based Compensation
 
234

 
158

Change in Assets and Liabilities:
 
 

 
 

Interest Receivable and Other Assets
 
2,245

 
606

Interest Payable and Other Liabilities
 
(967
)
 
1,079

Net Cash from Operating Activities
 
9,959

 
9,122

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from Maturities, Calls, Redemptions of Securities Available-for-Sale
 
18,811

 
18,315

Proceeds from Sales of Securities Available-for-Sale
 
9,808

 
254

Purchase of Securities Available-for-Sale
 
(11,899
)
 
(25,776
)
Proceeds from Maturities of Securities Held-to-Maturity
 
89

 
84

Purchase of Federal Home Loan Bank Stock
 
(160
)
 
—

Loans Made to Customers, net of Payments Received
 
832

 
18,240

Proceeds from Sales of Other Real Estate
 
151

 
444

Property and Equipment Expenditures
 
(283
)
 
(396
)
Net Cash from Investing Activities
 
17,349

 
11,165

 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Change in Deposits
 
20,642

 
(44,369
)
Change in Short-term Borrowings
 
(27,212
)
 
19,240

Advances in Long-term Debt
 
—

 
1,500

Repayments of Long-term Debt
 
(64
)
 
(1,557
)
Issuance of Common Stock
 
(7
)
 
25

Dividends Paid
 
(2,246
)
 
(2,108
)
Net Cash from Financing Activities
 
(8,887
)
 
(27,269
)
 
 
 
 
 
Net Change in Cash and Cash Equivalents
 
18,421

 
(6,982
)
Cash and Cash Equivalents at Beginning of Year
 
42,446

 
60,132

Cash and Cash Equivalents at End of Year
 
$
60,867

 
$
53,150

 
 
 
 
 
Cash Paid During the Year for
 
 

 
 

Interest
 
$
1,552

 
$
1,588

Income Taxes
 
—

 
—

 
 
 
 
 
Supplemental Non Cash Disclosures
 
 

 
 

Loans Transferred to Other Real Estate
 
$
127

 
$
187

Securities Transferred to Accounts Receivable
 
—

 
3,323


See accompanying notes to consolidated financial statements.

7

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)


NOTE 1 – Basis of Presentation
 
German American Bancorp, Inc. operates primarily in the banking industry. The accounting and reporting policies of German American Bancorp, Inc. and its subsidiaries (hereinafter collectively referred to as the "Company") conform to U.S. generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included in the accompanying unaudited consolidated financial statements, and all such adjustments are of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. Certain items included in the prior period financial statements were reclassified to conform to the current presentation. There was no effect on net income or total shareholder’s equity based on these reclassifications.

NOTE 2 – Per Share Data
 
The computations of Basic Earnings per Share and Diluted Earnings per Share are as follows:
 
 
Three Months Ended 
 March 31,
 
 
2015
 
2014
Basic Earnings per Share:
 
 

 
 

Net Income
 
$
7,306

 
$
6,305

Weighted Average Shares Outstanding
 
13,221,455

 
13,179,188

Basic Earnings per Share
 
$
0.55

 
$
0.48

 
 
 
 
 
Diluted Earnings per Share:
 
 

 
 

Net Income
 
$
7,306

 
$
6,305

 
 
 
 
 
Weighted Average Shares Outstanding
 
13,221,455

 
13,179,188

Potentially Dilutive Shares, Net
 
16,038

 
24,513

Diluted Weighted Average Shares Outstanding
 
13,237,493

 
13,203,701

Diluted Earnings per Share
 
$
0.55

 
$
0.48

 
For the three months ended March 31, 2015 and 2014, there were no anti-dilutive shares.
 

8

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 3 – Securities 

The amortized cost, unrealized gross gains and losses recognized in accumulated other comprehensive income (loss), and fair value of Securities Available-for-Sale at March 31, 2015 and December 31, 2014, were as follows:
Securities Available-for-Sale: 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 Fair
Value
 
 
 

 
 

 
 

 
 

March 31, 2015
 
 

 
 

 
 

 
 

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

 
$
—

 
$
(80
)
 
$
19,920

Obligations of State and Political Subdivisions
 
151,288

 
7,546

 
(34
)
 
158,800

Mortgage-backed Securities - Residential
 
437,920

 
5,015

 
(2,430
)
 
440,505

Equity Securities
 
353

 
—

 
—

 
353

Total
 
$
609,561

 
$
12,561

 
$
(2,544
)
 
$
619,578

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 

 
 

 
 

 
 

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

 
$
—

 
$
(439
)
 
$
19,561

Obligations of State and Political Subdivisions
 
147,321

 
6,515

 
(59
)
 
153,777

Mortgage-backed Securities - Residential
 
458,709

 
3,615

 
(5,020
)
 
457,304

Equity Securities
 
353

 
—

 
—

 
353

Total
 
$
626,383

 
$
10,130

 
$
(5,518
)
 
$
630,995

 
Equity securities that do not have readily determinable fair values are included in the above totals, are carried at historical cost and are evaluated for impairment on a periodic basis. All mortgage-backed securities in the above table are residential mortgage-backed securities and guaranteed by government sponsored entities.
 
The carrying amount, unrecognized gains and losses and fair value of Securities Held-to-Maturity at March 31, 2015 and December 31, 2014, were as follows:
Securities Held-to-Maturity:
 
Carrying
Amount
 
Gross
Unrecognized
Gains
 
Gross
Unrecognized
Losses
 
Fair
Value
 
 
 

 
 

 
 

 
 

March 31, 2015
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
95

 
$
—

 
$
—

 
$
95

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
184

 
$
2

 
$
—

 
$
186


The amortized cost and fair value of Securities at March 31, 2015 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay certain obligations with or without call or prepayment penalties. Mortgage-backed and Equity Securities are not due at a single maturity date and are shown separately.
Securities Available-for-Sale:
 
Amortized
Cost
 
Fair
Value
 
 
 
 
 
Due in one year or less
 
$
4,692

 
$
4,740

Due after one year through five years
 
16,972

 
17,096

Due after five years through ten years
 
74,720

 
78,267

Due after ten years
 
74,904

 
78,617

Mortgage-backed Securities - Residential
 
437,920

 
440,505

Equity Securities
 
353

 
353

Total
 
$
609,561

 
$
619,578

 

9

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 3 - Securities (continued)

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

 
$
—

Due after one year through five years
 
95

 
95

Due after five years through ten years
 
—

 
—

Due after ten years
 
—

 
—

Total
 
$
95

 
$
95

 
Proceeds from the Sales of Securities are summarized below:
 
 
Three Months
Ended
 
Three Months
Ended
 
 
March 31, 2015
 
March 31, 2014
 
 
 
 
 
Proceeds from Sales
 
$
9,808

 
$
254

Gross Gains on Sales
 
463

 
228

Income Taxes on Gross Gains
 
162

 
80

 
Below is a summary of securities with unrealized losses as of March 31, 2015 and December 31, 2014, presented by length of time the securities have been in a continuous unrealized loss position:
 
 
Less than 12 Months
 
12 Months or More
 
Total
March 31, 2015
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and Agency Securities
 
$
—

 
$
—

 
$
19,920

 
$
(80
)
 
$
19,920

 
$
(80
)
Obligations of State and Political Subdivisions
 
3,392

 
(31
)
 
357

 
(3
)
 
3,749

 
(34
)
Mortgage-backed Securities - Residential
 
39,548

 
(98
)
 
156,304

 
(2,332
)
 
195,852

 
(2,430
)
Equity Securities
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
42,940

 
$
(129
)
 
$
176,581

 
$
(2,415
)
 
$
219,521

 
$
(2,544
)

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

 
$
—

 
$
19,561

 
$
(439
)
 
$
19,561

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

 
(25
)
 
4,298

 
(34
)
 
8,063

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

 
(191
)
 
209,679

 
(4,829
)
 
236,285

 
(5,020
)
Equity Securities
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
30,371

 
$
(216
)
 
$
233,538

 
$
(5,302
)
 
$
263,909

 
$
(5,518
)
 
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.
 

10

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)

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 $19.9 million at March 31, 2015 and $23.1 million at December 31, 2014. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions with approved, reputable, independent counterparties with substantially matching terms. The agreements are considered stand alone derivatives and changes in the fair value of derivatives are reported in earnings as non-interest income. 
 
Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Company’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. There are provisions in the agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, the Company minimizes credit risk through credit approvals, limits, and monitoring procedures.
 
The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of:
 
 
March 31, 2015
 
December 31, 2014
 
 
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
Included in Other Assets:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
19,901

 
$
853

 
$
23,104

 
$
507

 
 
 
 
 
 
 
 
 
Included in Other Liabilities:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
19,901

 
$
889

 
$
23,104

 
$
508

 
The following tables present the effect of derivative instruments on the Consolidated Statements of Income for the periods presented:
 
 
Three Months Ended 
 March 31,
 
 
 
2015
 
2014
 
Interest Rate Swaps:
 
 

 
 

 
Included in Interest Income / (Expense)
 
$
—

 
$
—

 
Included in Other Income / (Expense)
 
58

 
(38
)
 


11

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)

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

 
 

Commercial and Industrial Loans and Leases
 
$
388,249

 
$
380,079

Commercial Real Estate Loans
 
581,394

 
583,086

Agricultural Loans
 
212,735

 
216,774

Retail:
 
 

 
 

Home Equity Loans
 
86,155

 
86,234

Consumer Loans
 
45,952

 
48,613

Residential Mortgage Loans
 
136,399

 
137,204

Subtotal
 
1,450,884

 
1,451,990

Less: Unearned Income
 
(3,871
)
 
(4,008
)
Allowance for Loan Losses
 
(15,169
)
 
(14,929
)
Loans, Net
 
$
1,431,844

 
$
1,433,053

 
The following table presents the activity in the allowance for loan losses by portfolio class for the three months ended March 31, 2015 and 2014:
March 31, 2015
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
4,627

 
$
7,273

 
$
1,123

 
$
246

 
$
354

 
$
622

 
$
684

 
$
14,929

Provision for Loan Losses
 
101

 
(52
)
 
19

 
72

 
35

 
88

 
(13
)
 
250

Recoveries
 
41

 
8

 
—

 
—

 
100

 
2

 
—

 
151

Loans Charged-off
 
(22
)
 
—

 
—

 
—

 
(100
)
 
(39
)
 
—

 
(161
)
Ending Balance
 
$
4,747

 
$
7,229

 
$
1,142

 
$
318

 
$
389

 
$
673

 
$
671

 
$
15,169

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

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


12

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

Loan impairment is reported when full repayment under the terms of the loan is not expected. This methodology is used for all loans, including loans acquired with deteriorated credit quality. For purchased loans, the assessment is made at the time of acquisition as well as over the life of loan. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
 
The following 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, 2015 and December 31, 2014:
March 31, 2015
 
Total
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
Allowance for Loan Losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending Allowance Balance Attributable to Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually Evaluated for Impairment
 
$
1,569

 
$
129

 
$
1,440

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Collectively Evaluated for Impairment
 
13,546

 
4,618

 
5,779

 
1,142

 
318

 
389

 
629

 
671

Acquired with Deteriorated Credit Quality
 
54

 
—

 
10

 
—

 
—

 
—

 
44

 
—

Total Ending Allowance Balance
 
$
15,169

 
$
4,747

 
$
7,229

 
$
1,142

 
$
318

 
$
389

 
$
673

 
$
671


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
6,108

 
$
2,165

 
$
3,943

 
$
—

 
$
—

 
$
—

 
$
—

 
n/m(2)

Loans Collectively Evaluated for Impairment
 
1,442,756

 
386,665

 
572,723

 
215,560

 
86,484

 
46,073

 
135,251

 
n/m(2)

Loans Acquired with Deteriorated Credit Quality
 
7,966

 
396

 
6,070

 
—

 
—

 
—

 
1,500

 
n/m(2)

Total Ending Loans Balance(1)
 
$
1,456,830

 
$
389,226

 
$
582,736

 
$
215,560

 
$
86,484

 
$
46,073

 
$
136,751

 
n/m(2)


(1)Total recorded investment in loans includes $5,946 in accrued interest.
(2)n/m = not meaningful

13

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

December 31, 2014
 
Total
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
Allowance for Loan Losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending Allowance Balance Attributable to Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually Evaluated for Impairment
 
$
1,532

 
$
87

 
$
1,445

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Collectively Evaluated for Impairment
 
13,343

 
4,540

 
5,818

 
1,123

 
246

 
354

 
578

 
684

Acquired with Deteriorated Credit Quality
 
54

 
—

 
10

 
—

 
—

 
—

 
44

 
—

Total Ending Allowance Balance
 
$
14,929

 
$
4,627

 
$
7,273

 
$
1,123

 
$
246

 
$
354

 
$
622

 
$
684


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
6,044

 
$
1,964

 
$
4,080

 
$
—

 
$
—

 
$
—

 
$
—

 
n/m(2)

Loans Collectively Evaluated for Impairment
 
1,443,363

 
378,533

 
573,961

 
219,640

 
86,570

 
48,614

 
136,045

 
n/m(2)

Loans Acquired with Deteriorated Credit Quality
 
8,361

 
354

 
6,385

 
—

 
—

 
118

 
1,504

 
n/m(2)

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

 
$
380,851

 
$
584,426

 
$
219,640

 
$
86,570

 
$
48,732

 
$
137,549

 
n/m(2)

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

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

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
288

 
$
263

 
$
—

Commercial Real Estate Loans
 
1,660

 
1,282

 
—

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
1,948

 
1,545

 
—

With An Allowance Recorded:
 
 

 
 

 


Commercial and Industrial Loans and Leases
 
1,897

 
1,902

 
129

Commercial Real Estate Loans
 
3,613

 
2,948

 
1,450

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
5,510

 
4,850

 
1,579

Total
 
$
7,458

 
$
6,395

 
$
1,579

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
190

 
$
90

 
$
—

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
747

 
$
197

 
$
10


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


14

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

December 31, 2014
 
Unpaid Principal Balance(1)
 
 Recorded Investment
 
Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
1,887

 
$
1,877

 
$
—

Commercial Real Estate Loans
 
1,944

 
1,447

 
—

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
3,831

 
3,324

 
—

With An Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
84

 
87

 
87

Commercial Real Estate Loans
 
3,653

 
2,975

 
1,455

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
3,737

 
3,062

 
1,542

Total
 
$
7,568

 
$
6,386

 
$
1,542

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
289

 
$
133

 
$
—

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
759

 
$
209

 
$
10


(1) Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.
 
The following tables present loans individually evaluated for impairment by class of loans for the three month period ended March 31, 2015 and 2014:
March 31, 2015
 
Average Recorded Investment
 
Interest Income Recognized
 
Cash Basis Recognized
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
324

 
$
3

 
$
3

Commercial Real Estate Loans
 
1,484

 
11

 
11

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
1,808

 
14

 
14

With An Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
1,934

 
23

 
25

Commercial Real Estate Loans
 
3,033

 
4

 
2

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
4,967

 
27

 
27

Total
 
$
6,775

 
$
41

 
$
41

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
204

 
$
—

 
$
—

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)
 
$
298

 
$
—

 
$
—



15

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

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

 
 
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, 2015 and December 31, 2014:
 
 
Non-Accrual
 
Loans Past Due 90 Days
or More & Still Accruing
 
 
2015
 
2014
 
2015
 
2014
Commercial and Industrial Loans and Leases
 
$
449

 
$
161

 
$
58

 
$
68

Commercial Real Estate Loans
 
3,233

 
3,460

 
—

 
—

Agricultural Loans
 
—

 
—

 
76

 
75

Home Equity Loans
 
302

 
268

 
—

 
—

Consumer Loans
 
58

 
196

 
—

 
—

Residential Mortgage Loans
 
1,901

 
1,885

 
—

 
—

Total
 
$
5,943

 
$
5,970

 
$
134

 
$
143

Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
977

 
$
1,154

 
$
—

 
$
—



16

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

The following tables present the aging of the recorded investment in past due loans by class of loans as of March 31, 2015 and December 31, 2014:
March 31, 2015
 
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
 
$
389,226

 
$
528

 
$
—

 
$
431

 
$
959

 
$
388,267

Commercial Real Estate Loans
 
582,736

 
757

 
118

 
611

 
1,486

 
581,250

Agricultural Loans
 
215,560

 
401

 
—

 
76

 
477

 
215,083

Home Equity Loans
 
86,484

 
228

 
42

 
302

 
572

 
85,912

Consumer Loans
 
46,073

 
190

 
45

 
56

 
291

 
45,782

Residential Mortgage Loans
 
136,751

 
2,765

 
141

 
1,742

 
4,648

 
132,103

Total(1)
 
$
1,456,830

 
$
4,869

 
$
346

 
$
3,218

 
$
8,433

 
$
1,448,397

Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
7,966

 
$
—

 
$
—

 
$
613

 
$