SEC Document
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, 2016
 
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, 2016
Common Shares, no par value
 
15,253,503


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, 2015, in Item 1, “Business – Forward-Looking Statements and Associated Risks” and our discussion of risk factors in Item 1A, “Risk Factors” of that Annual Report on Form 10-K, as updated from time to time in our subsequent SEC filings, including by Item 2 of Part I of this Report (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) at the conclusion of that Item 2 under the heading “Forward-Looking Statements and Associated Risks.”

2

*****
 
INDEX
 
PART I.            FINANCIAL INFORMATION
 
 
 
Item 1.
Unaudited Financial Statements
 
 
 
 
Consolidated Balance Sheets – March 31, 2016 and December 31, 2015
 
 
 
 
Consolidated Statements of Income – Three Months Ended March 31, 2016 and 2015
 
 
 
 
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2016 and 2015
 
 
 
 
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2016 and 2015
 
 
 
 
Notes to Consolidated Financial Statements – March 31, 2016
 
 
 
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,
2016
 
December 31,
2015
ASSETS
 
 

 
 

Cash and Due from Banks
 
$
34,734

 
$
36,062

Federal Funds Sold and Other Short-term Investments
 
14,312

 
15,947

Cash and Cash Equivalents
 
49,046

 
52,009

 
 
 
 
 
Interest-bearing Time Deposits with Banks
 
1,992

 
—

Securities Available-for-Sale, at Fair Value
 
715,611

 
637,840

Securities Held-to-Maturity, at Cost (Fair value of $0 and $95 on March 31, 2016 and December 31, 2015, respectively)
 
—

 
95

 
 
 
 
 
Loans Held-for-Sale, at Fair Value
 
8,700

 
10,762

 
 
 
 
 
Loans
 
1,918,638

 
1,568,075

Less: Unearned Income
 
(3,690
)
 
(3,728
)
Allowance for Loan Losses
 
(15,161
)
 
(14,438
)
Loans, Net
 
1,899,787

 
1,549,909

 
 
 
 
 
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost
 
13,048

 
8,571

Premises, Furniture and Equipment, Net
 
47,617

 
37,817

Other Real Estate
 
343

 
169

Goodwill
 
53,671

 
20,536

Intangible Assets
 
3,688

 
1,283

Company Owned Life Insurance
 
45,809

 
32,732

Accrued Interest Receivable and Other Assets
 
27,415

 
21,978

TOTAL ASSETS
 
$
2,866,727

 
$
2,373,701

 
 
 
 
 
LIABILITIES
 
 

 
 

Non-interest-bearing Demand Deposits
 
$
507,567

 
$
465,357

Interest-bearing Demand, Savings, and Money Market Accounts
 
1,310,089

 
1,054,983

Time Deposits
 
422,958

 
306,036

Total Deposits
 
2,240,614

 
1,826,376

 
 
 
 
 
FHLB Advances and Other Borrowings
 
278,698

 
273,323

Accrued Interest Payable and Other Liabilities
 
25,777

 
21,654

TOTAL LIABILITIES
 
2,545,089

 
2,121,353

 
 
 
 
 
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
 
15,254

 
13,279

Additional Paid-in Capital
 
170,676

 
110,145

Retained Earnings
 
127,867

 
125,112

Accumulated Other Comprehensive Income
 
7,841

 
3,812

TOTAL SHAREHOLDERS’ EQUITY
 
321,638

 
252,348

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
2,866,727

 
$
2,373,701

End of period shares issued and outstanding
 
15,253,503

 
13,278,824





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,
 

2016

2015
INTEREST INCOME

 


 

Interest and Fees on Loans

$
18,664


$
16,299

Interest on Federal Funds Sold and Other Short-term Investments

17


3

Interest and Dividends on Securities:

 


 

Taxable

2,277


2,435

Non-taxable

1,722


1,263

TOTAL INTEREST INCOME

22,680


20,000








INTEREST EXPENSE

 


 

Interest on Deposits

1,155


993

Interest on FHLB Advances and Other Borrowings

741


458

TOTAL INTEREST EXPENSE

1,896


1,451








NET INTEREST INCOME

20,784


18,549

Provision for Loan Losses

850


250

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

19,934


18,299








NON-INTEREST INCOME

 


 

Trust and Investment Product Fees

1,021


984

Service Charges on Deposit Accounts

1,233


1,137

Insurance Revenues

2,727


2,545

Company Owned Life Insurance

215


205

Interchange Fee Income

537


483

Other Operating Income

764


576

Net Gains on Sales of Loans

720


749

Net Gains on Securities

—


463

TOTAL NON-INTEREST INCOME

7,217


7,142








NON-INTEREST EXPENSE

 


 

Salaries and Employee Benefits

11,601


8,825

Occupancy Expense

1,379


1,226

Furniture and Equipment Expense

508


479

FDIC Premiums

328


282

Data Processing Fees

2,165


837

Professional Fees

1,318


644

Advertising and Promotion

544


443

Intangible Amortization

208


245

Other Operating Expenses

2,189


1,852

TOTAL NON-INTEREST EXPENSE

20,240


14,833








Income before Income Taxes

6,911


10,608

Income Tax Expense

1,765


3,302

NET INCOME

$
5,146


$
7,306








Basic Earnings per Share

$
0.37


$
0.55

Diluted Earnings per Share

$
0.37


$
0.55








Dividends per Share

$
0.18


$
0.17

 


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,
 
 
2016
 
2015
 
 
 
 
 
NET INCOME
 
$
5,146

 
$
7,306

 
 
 
 
 
Other Comprehensive Income (Loss):
 
 

 
 

Unrealized Gains (Losses) on Securities
 
 

 
 

Unrealized Holding Gain (Loss) Arising During the Period
 
6,209

 
5,868

Reclassification Adjustment for Losses (Gains) Included in Net Income
 
—

 
(463
)
Tax Effect
 
(2,180
)
 
(1,908
)
Net of Tax
 
4,029

 
3,497

 
 
 
 
 
Total Other Comprehensive Income (Loss)
 
4,029

 
3,497

 
 
 
 
 
COMPREHENSIVE INCOME
 
$
9,175

 
$
10,803

 

 
 




 
 
 
 
 


























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,
 
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net Income
 
$
5,146

 
$
7,306

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

 
 

Net Amortization on Securities
 
823

 
565

Depreciation and Amortization
 
1,048

 
1,121

Loans Originated for Sale
 
(21,731
)
 
(32,640
)
Proceeds from Sales of Loans Held-for-Sale
 
24,700

 
33,260

Provision for Loan Losses
 
850

 
250

Gain on Sale of Loans, net
 
(720
)
 
(749
)
Gain on Securities, net
 
—

 
(463
)
Loss on Sales of Other Real Estate and Repossessed Assets
 
—

 
8

Loss on Disposition and Donation of Premises and Equipment
 
2

 
—

Increase in Cash Surrender Value of Company Owned Life Insurance
 
(235
)
 
(211
)
Equity Based Compensation
 
261

 
234

Change in Assets and Liabilities:
 
 

 
 

Interest Receivable and Other Assets
 
1,462

 
2,245

Interest Payable and Other Liabilities
 
(407
)
 
(967
)
Net Cash from Operating Activities
 
11,199

 
9,959

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from Maturity of Other Short-term Investments
 
(1,000
)
 
—

Proceeds from Maturities, Calls, Redemptions of Securities Available-for-Sale
 
20,743

 
18,811

Proceeds from Sales of Securities Available-for-Sale
 
62,975

 
9,808

Purchase of Securities Available-for-Sale
 
(23,706
)
 
(11,899
)
Proceeds from Maturities of Securities Held-to-Maturity
 
95

 
89

Purchase of Federal Home Loan Bank Stock
 
(1,350
)
 
(160
)
Purchase of Loans
 
(4,263
)
 
—

Loans Made to Customers, net of Payments Received
 
(29,023
)
 
832

Proceeds from Sales of Other Real Estate
 
717

 
151

Property and Equipment Expenditures
 
(459
)
 
(283
)
Acquisition of River Valley Bancorp
 
(793
)
 
—

Net Cash from Investing Activities
 
23,936

 
17,349

 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Change in Deposits
 
8,826

 
20,642

Change in Short-term Borrowings
 
(29,463
)
 
(27,212
)
Repayments of Long-term Debt
 
(15,070
)
 
(64
)
Issuance of Common Stock
 
—

 
(7
)
Dividends Paid
 
(2,391
)
 
(2,246
)
Net Cash from Financing Activities
 
(38,098
)
 
(8,887
)
 
 
 
 
 
Net Change in Cash and Cash Equivalents
 
(2,963
)
 
18,421

Cash and Cash Equivalents at Beginning of Year
 
52,009

 
42,446

Cash and Cash Equivalents at End of Period
 
$
49,046

 
$
60,867

 
 
 
 
 
Cash Paid During the Year for
 
 

 
 

Interest
 
$
1,736

 
$
1,552

Income Taxes
 
1,503

 
—

 
 
 
 
 
Supplemental Non Cash Disclosures (See Note 12 for Business Combination)
 
 

 
 

Loans Transferred to Other Real Estate
 
$
9

 
$
127



See accompanying notes to consolidated financial statements.

7

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(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, 2015. 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 shareholders' 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,
 
 
2016
 
2015
Basic Earnings per Share:
 
 

 
 

Net Income
 
$
5,146

 
$
7,306

Weighted Average Shares Outstanding
 
13,924,856

 
13,221,455

Basic Earnings per Share
 
$
0.37

 
$
0.55

 
 
 
 
 
Diluted Earnings per Share:
 
 

 
 

Net Income
 
$
5,146

 
$
7,306

 
 
 
 
 
Weighted Average Shares Outstanding
 
13,924,856

 
13,221,455

Potentially Dilutive Shares, Net
 
4,077

 
16,038

Diluted Weighted Average Shares Outstanding
 
13,928,933

 
13,237,493

Diluted Earnings per Share
 
$
0.37

 
$
0.55

 
For the three months ended March 31, 2016 and 2015, there were no anti-dilutive shares.
 
 
 
 
 

8

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(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, 2016 and December 31, 2015, were as follows:
Securities Available-for-Sale: 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 Fair
Value
 
 
 

 
 

 
 

 
 

March 31, 2016
 
 

 
 

 
 

 
 

U.S. Treasury and Agency Securities
 
$
11,001

 
$
8

 
$
—

 
$
11,009

Obligations of State and Political Subdivisions
 
227,294

 
9,295

 
(306
)
 
236,283

Mortgage-backed Securities - Residential
 
464,714

 
4,606

 
(1,354
)
 
467,966

Equity Securities
 
353

 
—

 
—

 
353

Total
 
$
703,362

 
$
13,909

 
$
(1,660
)
 
$
715,611

 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

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

 
$
—

 
$
(102
)
 
$
9,898

Obligations of State and Political Subdivisions
 
195,360

 
8,286

 
(18
)
 
203,628

Mortgage-backed Securities - Residential
 
426,087

 
2,114

 
(4,240
)
 
423,961

Equity Securities
 
353

 
—

 
—

 
353

Total
 
$
631,800

 
$
10,400

 
$
(4,360
)
 
$
637,840

 
   
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, 2016 and December 31, 2015, were as follows:
Securities Held-to-Maturity:
 
Carrying
Amount
 
Gross
Unrecognized
Gains
 
Gross
Unrecognized
Losses
 
Fair
Value
 
 
 

 
 

 
 

 
 

March 31, 2016
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
95

 
$
—

 
$
—

 
$
95

   
The amortized cost and fair value of securities at March 31, 2016 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 in the table below.
Securities Available-for-Sale:
 
Amortized
Cost
 
Fair
Value
 
 
 
 
 
Due in one year or less
 
$
5,790

 
$
5,840

Due after one year through five years
 
22,502

 
23,022

Due after five years through ten years
 
72,541

 
76,500

Due after ten years
 
137,462

 
141,930

Mortgage-backed Securities - Residential
 
464,714

 
467,966

Equity Securities
 
353

 
353

Total
 
$
703,362

 
$
715,611

  

9

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(unaudited, dollars in thousands except share and per share data)

NOTE 3 - Securities (continued)

Proceeds from the Sales of Securities are summarized below:
 
 
Three Months Ended
 
Three Months Ended
 
 
March 31, 2016
 
March 31, 2015
 
 
 
 
 
Proceeds from Sales
 
$
62,975

 
$
9,808

Gross Gains on Sales
 
—

 
463

Income Taxes on Gross Gains
 
—

 
162

 
 
 
 
 
The carrying value of securities pledged to secure repurchase agreements, public and trust deposits, and for other purposes as required by law was $186,726 and $154,628 as of March 31, 2016 and December 31, 2015, respectively.

Below is a summary of securities with unrealized losses as of March 31, 2016 and December 31, 2015, 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, 2016
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and Agency Securities
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Obligations of State and Political Subdivisions
 
33,380

 
(299
)
 
417

 
(7
)
 
33,797

 
(306
)
Mortgage-backed Securities - Residential
 
57,048

 
(182
)
 
80,937

 
(1,172
)
 
137,985

 
(1,354
)
Equity Securities
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
90,428

 
$
(481
)
 
$
81,354

 
$
(1,179
)
 
$
171,782

 
$
(1,660
)

 
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2015
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and Agency Securities
 
$
—

 
$
—

 
$
9,898

 
$
(102
)
 
$
9,898

 
$
(102
)
Obligations of State and Political Subdivisions
 
1,891

 
(15
)
 
356

 
(3
)
 
2,247

 
(18
)
Mortgage-backed Securities - Residential
 
150,427

 
(1,173
)
 
129,040

 
(3,067
)
 
279,467

 
(4,240
)
Equity Securities
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
152,318

 
$
(1,188
)
 
$
139,294

 
$
(3,172
)
 
$
291,612

 
$
(4,360
)
 
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 does not 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 $44.0 million at March 31, 2016 and $36.8 million at December 31, 2015. 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.  

10

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(unaudited, dollars in thousands except share and per share data)

NOTE 4 - Derivatives (continued)

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, 2016
 
December 31, 2015
 
 
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
Included in Other Assets:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
44,048

 
$
2,739

 
$
36,781

 
$
1,201

 
 
 
 
 
 
 
 
 
Included in Other Liabilities:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
44,048

 
$
2,905

 
$
36,781

 
$
1,232

 
The following tables present the effect of derivative instruments on the Consolidated Statements of Income for the periods presented:
 
 
Three Months Ended 
 March 31,
 
 
2016
 
2015
Interest Rate Swaps:
 
 

 
 

Included in Other Income / (Expense)
 
$
54

 
$
58



11

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(unaudited, dollars in thousands except share and per share data)

NOTE 5 – Loans
 
Loans were comprised of the following classifications at March 31, 2016 and December 31, 2015: 
 
 
March 31,
2016
 
December 31,
2015
Commercial:
 
 

 
 

Commercial and Industrial Loans and Leases
 
$
448,569

 
$
418,154

Commercial Real Estate Loans
 
812,565

 
618,788

Agricultural Loans
 
275,938

 
246,886

Retail:
 
 

 
 

Home Equity Loans
 
119,006

 
97,902

Consumer Loans
 
54,999

 
50,029

Residential Mortgage Loans
 
207,561

 
136,316

Subtotal
 
1,918,638

 
1,568,075

Less: Unearned Income
 
(3,690
)
 
(3,728
)
Allowance for Loan Losses
 
(15,161
)
 
(14,438
)
Loans, Net
 
$
1,899,787

 
$
1,549,909

 
The table above includes loans acquired during 2016 totaling $316,564 which is net of purchase discount on the acquired loans of $10,572.

The following table presents the activity in the allowance for loan losses by portfolio class for the three months ended March 31, 2016 and 2015:
March 31, 2016
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
4,242

 
$
6,342

 
$
2,115

 
$
383

 
$
230

 
$
414

 
$
712

 
$
14,438

Provision for Loan Losses
 
105

 
120

 
414

 
31

 
27

 
155

 
(2
)
 
850

Recoveries
 
4

 
1

 
—

 
1

 
45

 
5

 
—

 
56

Loans Charged-off
 
(5
)
 
—

 
—

 
(63
)
 
(72
)
 
(43
)
 
—

 
(183
)
Ending Balance
 
$
4,346

 
$
6,463

 
$
2,529

 
$
352

 
$
230

 
$
531

 
$
710

 
$
15,161


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


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.  When comparing to March 31, 2015, the overall allowance for loan and lease losses was increased in the agricultural sector as a result of qualitative considerations for current economic conditions and trends.

12

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(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, 2016 and December 31, 2015:
March 31, 2016
 
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
 
$
1,168

 
$
76

 
$
1,092

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Collectively Evaluated for Impairment
 
13,993

 
4,270

 
5,371

 
2,529

 
352

 
230

 
531

 
710

Acquired with Deteriorated Credit Quality
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Ending Allowance Balance
 
$
15,161

 
$
4,346

 
$
6,463

 
$
2,529

 
$
352

 
$
230

 
$
531

 
$
710


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
2,942

 
$
230

 
$
2,593

 
$
119

 
$
—

 
$
—

 
$
—

 
n/m(2)

Loans Collectively Evaluated for Impairment
 
1,909,011

 
448,482

 
801,411

 
278,961

 
119,369

 
55,122

 
205,666

 
n/m(2)

Loans Acquired with Deteriorated Credit Quality
 
15,351

 
1,115

 
10,552

 
1,086

 
—

 
52

 
2,546

 
n/m(2)

Total Ending Loans Balance(1)
 
$
1,927,304

 
$
449,827

 
$
814,556

 
$
280,166

 
$
119,369

 
$
55,174

 
$
208,212

 
n/m(2)


(1)Total recorded investment in loans includes $8,666 in accrued interest.
(2)n/m = not meaningful

13

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

December 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
 
$
1,202

 
$
106

 
$
1,096

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Collectively Evaluated for Impairment
 
13,236

 
4,136

 
5,246

 
2,115

 
383

 
230

 
414

 
712

Acquired with Deteriorated Credit Quality
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Ending Allowance Balance
 
$
14,438

 
$
4,242

 
$
6,342

 
$
2,115

 
$
383

 
$
230

 
$
414

 
$
712


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
4,435

 
$
1,578

 
$
2,845

 
$
12

 
$
—

 
$
—

 
$
—

 
n/m(2)

Loans Collectively Evaluated for Impairment
 
1,562,037

 
416,273

 
611,955

 
249,687

 
98,167

 
50,169

 
135,786

 
n/m(2)

Loans Acquired with Deteriorated Credit Quality
 
7,555

 
1,325

 
5,363

 
—

 
—

 
—

 
867

 
n/m(2)

Total Ending Loans Balance(1)
 
$
1,574,027

 
$
419,176

 
$
620,163

 
$
249,699

 
$
98,167

 
$
50,169

 
$
136,653

 
n/m(2)

 
(1)Total recorded investment in loans includes $5,952 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, 2016 and December 31, 2015:
March 31, 2016
 
Unpaid Principal Balance(1)
 
 Recorded Investment
 
Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
327

 
$
196

 
$
—

Commercial Real Estate Loans
 
4,486

 
2,564

 
—

Agricultural Loans
 
972

 
1,003

 
—

Subtotal
 
5,785

 
3,763

 
—

With An Allowance Recorded:
 
 

 
 

 


Commercial and Industrial Loans and Leases
 
88

 
88

 
76

Commercial Real Estate Loans
 
2,345

 
2,218

 
1,092

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
2,433

 
2,306

 
1,168

Total
 
$
8,218

 
$
6,069

 
$
1,168

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
4,967

 
$
3,127

 
$
—

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

 
$
—

 
$
—


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



14

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

December 31, 2015
 
Unpaid Principal Balance(1)
 
 Recorded Investment
 
Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
161

 
$
161

 
$
—

Commercial Real Estate Loans
 
1,292

 
768

 
—

Agricultural Loans
 
12

 
12

 
—

Subtotal
 
1,465

 
941

 
—

With An Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
1,403

 
1,417

 
106

Commercial Real Estate Loans
 
2,207

 
2,077

 
1,096

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
3,610

 
3,494

 
1,202

Total
 
$
5,075

 
$
4,435

 
$
1,202

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
528

 
$
—

 
$
—

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

 
$
—

 
$
—


(1) Unpaid Principal Balance is the remaining contractual payments gross 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, 2016 and 2015:
March 31, 2016
 
Average Recorded Investment
 
Interest Income Recognized
 
Cash Basis Recognized
With No Related Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
$
865

 
$
23

 
$
11

Commercial Real Estate Loans
 
3,190

 
18

 
3

Agricultural Loans
 
1,004

 
1

 
1

Subtotal
 
5,059

 
42

 
15

With An Allowance Recorded:
 
 

 
 

 
 

Commercial and Industrial Loans and Leases
 
128

 
—

 
—

Commercial Real Estate Loans
 
2,218

 
1

 
—

Agricultural Loans
 
—

 
—

 
—

Subtotal
 
2,346

 
1

 
—

Total
 
$
7,405

 
$
43

 
$
15

 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)
 
$
3,199

 
$
8

 
$
1

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

 
$
—

 
$
—



15

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Loans (continued)

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

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 tables present 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, 2016 and December 31, 2015:
 
 
Non-Accrual
 
Loans Past Due 90 Days
or More & Still Accruing
 
 
2016
 
2015
 
2016
 
2015
Commercial and Industrial Loans and Leases
 
$
189

 
$
134

 
$
—

 
$
98

Commercial Real Estate Loans
 
3,369

 
2,047

 
58

 
48

Agricultural Loans
 
808

 
—

 
—

 
—

Home Equity Loans
 
135

 
204

 
19

 
—

Consumer Loans
 
173

 
90

 
—

 
—

Residential Mortgage Loans
 
1,918

 
668

 
91

 
—

Total
 
$
6,592

 
$
3,143

 
$
168

 
$
146

Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
2,132

 
$
68

 
$
—

 
$
—


16

GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(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, 2016 and December 31, 2015:
March 31, 2016
 
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
 
$
449,827

 
$
555

 
$
80

 
$
25

 
$
660

 
$
449,167

Commercial Real Estate Loans
 
814,556

 
1,758

 
664

 
1,457

 
3,879

 
810,677

Agricultural Loans
 
280,166

 
1,227

 
387

 
840

 
2,454

 
277,712

Home Equity Loans
 
119,369

 
335

 
79

 
134

 
548

 
118,821

Consumer Loans
 
55,174

 
150

 
196

 
178

 
524

 
54,650

Residential Mortgage Loans
 
208,212

 
4,259

 
636

 
1,062

 
5,957

 
202,255

Total(1)
 
$
1,927,304

 
$
8,284

 
$
2,042

 
$
3,696

 
$
14,022

 
$
1,913,282

Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)
 
$
15,351

 
$
392

 
$
568

 
$
1,459

 
$
2,419

 
$
12,932