[Glossary of Terms and Acronyms](index=3&type=section&id=Glossary%20of%20Terms%20and%20Acronyms) This section defines key terms and acronyms used in the report, clarifying company references and listing financial and regulatory terms [Summary of Terms and Acronyms](index=3&type=section&id=Glossary%20of%20Terms%20and%20Acronyms_summary) This section provides definitions for key terms and acronyms used throughout the report, clarifying references to 'Company,' 'parent company,' and 'Bank,' and listing various financial and regulatory terms such as Basel III, CECL, FDIC, and LIBOR - The report defines 'Company' as German American Bancorp, Inc. and its consolidated subsidiaries, 'parent company' or 'holding company' as German American Bancorp, Inc. only, and 'Bank' as German American Bank[10](index=10&type=chunk)[18](index=18&type=chunk) - Key financial and regulatory acronyms include AOCI (Accumulated other comprehensive income), ASU (Accounting Standards Update), Basel III (Regulatory capital reforms), BHC Act (Bank Holding Company Act), BSA (Bank Secrecy Act), CECL (Current expected credit losses), CET1 (Common Equity Tier 1 Capital), CFPB (Consumer Financial Protection Bureau), CRA (Community Reinvestment Act), DFI (Indiana Department of Financial Institutions), DIF (Deposit Insurance Fund), Dodd-Frank Act, ERISA (Employee Retirement Income and Security Act), FASB (Financial Accounting Standards Board), FDIC (Federal Deposit Insurance Corporation), FHLB (Federal Home Loan Bank), FRB (Board of Governors of the Federal Reserve System), GAAP (Generally Accepted Accounting Principles), GLB Act (Gramm-Leach-Bliley Financial Modernization Act), LIBOR (London Interbank Offered Rate), MBS (Mortgage-backed securities), NPV (Net portfolio value), OCC (Office of the Comptroller of the Currency), OFAC (U.S. Treasury Department Office of Foreign Assets Control), OTTI (Other-than-temporary impairment), PCAOB (Public Company Accounting Oversight Board), SEC (Securities and Exchange Commission), Tax Act (Tax Cuts and Jobs Act), and USA Patriot Act[12](index=12&type=chunk)[13](index=13&type=chunk) [PART I](index=7&type=section&id=PART%20I) [Item 1. Business.](index=7&type=section&id=Item%201.%20Business.) German American Bancorp, Inc. is a financial holding company operating primarily in southern Indiana and Kentucky through its banking subsidiary, an investment brokerage, and an insurance agency. The company expanded significantly through acquisitions in 2018 and 2019, becoming a financial holding company in September 2019 to broaden its permissible activities. It operates in a highly competitive and regulated environment, subject to extensive oversight by federal and state authorities, including capital requirements and consumer protection laws - German American Bancorp, Inc. (GABC) is a financial holding company based in Jasper, Indiana, operating **75 banking offices** across 20 southern Indiana counties, eight Kentucky counties, and one Tennessee county through German American Bank. It also owns German American Investment Services, Inc. and German American Insurance, Inc.[16](index=16&type=chunk)[21](index=21&type=chunk) - The Company elected to be a 'financial holding company' effective **September 24, 2019**, allowing it to engage in broader financial activities without prior FRB approval, including operating GABC Risk Management, Inc. as a pooled captive insurance company[17](index=17&type=chunk)[41](index=41&type=chunk) Acquisition Summary | Acquisition Date | Acquired Entity | Assets (approx.) | Loans (approx.) | Deposits (approx.) | Consideration (approx.) | |:-----------------|:----------------|:-----------------|:-----------------|:-------------------|:------------------------| | July 1, 2019 | Citizens First Corporation | $456.0 million | $364.6 million | $370.8 million | 1.7 million shares + $15.5 million cash | | Oct 15, 2018 | First Security, Inc. | $553.2 million | $390.1 million | $424.4 million | 2.0 million shares + $31.2 million cash | | May 18, 2018 | Five First Financial Bancorp Branches | N/A | $116.3 million | $175.7 million | $7.4 million premium on deposits | - The Company operates in a highly competitive environment, facing competition from various financial institutions and non-depository intermediaries, many with greater resources[34](index=34&type=chunk) - The Company and its subsidiaries are subject to extensive regulation and supervision by the FRB, DFI, and FDIC, including capital requirements (Basel III, Prompt Corrective Action), restrictions on dividends, and compliance with laws like the Dodd-Frank Act, CRA, GLB Act, BSA, USA Patriot Act, and OFAC rules[38](index=38&type=chunk)[41](index=41&type=chunk)[45](index=45&type=chunk)[53](index=53&type=chunk)[61](index=61&type=chunk)[65](index=65&type=chunk)[70](index=70&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[75](index=75&type=chunk) Regulatory Capital Ratios (as of Dec 31, 2019) | Capital Ratio | Consolidated | Bank | Minimum for Capital Adequacy | Well-Capitalized Guidelines | |:--------------|:-------------|:-----|:-----------------------------|:----------------------------| | Total Capital (to Risk Weighted Assets) | 14.28% | 12.82% | 8.00% | 10.00% | | Tier 1 (Core) Capital (to Risk Weighted Assets) | 12.67% | 12.35% | 6.00% | 8.00% | | Common Equity Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets) | 12.23% | 12.35% | 4.50% | 6.50% | | Tier 1 Capital (to Average Assets) | 10.53% | 10.27% | 4.00% | 5.00% | - The Bank was classified as **'well-capitalized'** at December 31, 2019, exceeding all minimum regulatory capital requirements[57](index=57&type=chunk)[234](index=234&type=chunk) - The Company expects to continue evaluating expansion opportunities through new offices and acquisitions[28](index=28&type=chunk) - The Company employed approximately **817 full-time equivalent employees** as of February 20, 2020[36](index=36&type=chunk) [General Business Overview](index=7&type=section&id=General) [Subsidiaries](index=7&type=section&id=Subsidiaries) [Business Developments](index=7&type=section&id=Business%20Developments) [Office Locations](index=9&type=section&id=Office%20Locations) [Competition](index=10&type=section&id=Competition) [Employees](index=10&type=section&id=Employees) [Regulation and Supervision](index=10&type=section&id=Regulation%20and%20Supervision) [Overview of Regulation](index=10&type=section&id=Overview) [Capital Requirements](index=11&type=section&id=Capital%20Requirements) [Prompt Corrective Action Classifications](index=12&type=section&id=Prompt%20Corrective%20Action%20Classifications) [Restrictions on Bank Dividends and Parent Company Transactions](index=13&type=section&id=Restrictions%20on%20Bank%20Dividends%20or%20Loans%20to%2C%20or%20other%20Transactions%20with%2C%20the%20Parent%20Company%2C%20and%20on%20Parent%20Company%20Dividends) [Other Aspects of the Dodd-Frank Act](index=13&type=section&id=Other%20Aspects%20of%20the%20Dodd-Frank%20Act) [Certain Other Laws and Regulations](index=14&type=section&id=Certain%20Other%20Laws%20and%20Regulations) [Federal Deposit Insurance Premiums and Assessments](index=15&type=section&id=Federal%20Deposit%20Insurance%20Premiums%20and%20Assessments) [Internet Address and SEC Report Availability](index=15&type=section&id=Internet%20Address%3B%20Internet%20Availability%20of%20SEC%20Reports) [Forward-Looking Statements and Associated Risks](index=16&type=section&id=Forward-Looking%20Statements%20and%20Associated%20Risks) [Item 1A. Risk Factors.](index=17&type=section&id=Item%201A.%20Risk%20Factors.) The Company faces significant risks including a highly regulated environment, potential adverse effects from changes in laws (e.g., Dodd-Frank Act, capital requirements), economic weakness in its geographic markets, and the possibility of loan losses exceeding estimates. Operational risks such as cyber-attacks and dependence on key personnel and third-party vendors are also critical. Expansion through acquisitions carries integration and financial risks, and the common stock price is subject to significant fluctuations - The Company operates in a highly regulated environment, and changes in federal and state laws (e.g., Dodd-Frank Act, capital requirements) could adversely affect its operations, increase compliance costs, and limit growth or capital distributions[90](index=90&type=chunk)[91](index=91&type=chunk)[93](index=93&type=chunk) - Economic weakness in the Company's primary geographic markets (southern Indiana and Kentucky) could negatively impact loan demand, repayment ability, collateral values, and increase delinquencies and credit losses[98](index=98&type=chunk) - The allowance for loan losses is inherently subjective and may not be adequate to cover actual losses, especially with the upcoming implementation of the CECL accounting standard, which is estimated to increase the allowance by **$12 million to $20 million** upon adoption in Q1 2020[100](index=100&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) - Interest rate fluctuations significantly impact net interest income; increases in deposit rates faster than loan rates, or vice versa, could adversely affect earnings. Uncertainty surrounding LIBOR's future after 2021 also poses a risk[105](index=105&type=chunk)[106](index=106&type=chunk) - Operational risks include fraud, transaction processing errors, system breaches, cyber-attacks, and reliance on third-party vendors, which could lead to financial loss, regulatory action, and reputational damage[120](index=120&type=chunk)[121](index=121&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) - Acquisitions pose risks such as exposure to unknown liabilities, asset quality issues, integration difficulties, loss of key personnel/customers, and potential dilution of tangible book value or EPS[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - The Company's common stock price is subject to significant fluctuations due to various factors, including operating results, market conditions, industry trends, regulatory changes, and M&A activities[134](index=134&type=chunk)[135](index=135&type=chunk) [Risks Related to the Financial Services Industry](index=17&type=section&id=Risks%20Related%20to%20the%20Financial%20Services%20Industry) [Risks Related to Our Business and Financial Strategies](index=18&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Financial%20Strategies) [Risks Related to Our Operations](index=21&type=section&id=Risks%20Related%20to%20Our%20Operations) [Risks Relating to Expansion of Our Businesses by Acquisition](index=22&type=section&id=Risks%20Relating%20to%20Expansion%20of%20Our%20Businesses%20by%20Acquisition) [Risks Related to Our Common Stock](index=23&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) [Item 1B. Unresolved Staff Comments.](index=24&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) There are no unresolved staff comments from the SEC - The Company has no unresolved staff comments from the Securities and Exchange Commission[136](index=136&type=chunk) [Item 2. Properties.](index=24&type=section&id=Item%202.%20Properties.) The Company's executive offices are located in Jasper, Indiana, within the main office building of German American Bank. The Company operates from 78 other locations across Southern Indiana, Kentucky, and Tennessee, with the majority being owned properties - The Company's executive offices are located at 711 Main Street, Jasper, Indiana, in the main office building of German American Bank, which has approximately **23,600 square feet** of office space[137](index=137&type=chunk) - The Company and its subsidiaries operate from **59 other locations in Southern Indiana, 18 in Kentucky, and one in Tennessee**, totaling **78 locations**. Of these, **56 are owned** by the Company and **23 are leased**[137](index=137&type=chunk) [Item 3. Legal Proceedings.](index=24&type=section&id=Item%203.%20Legal%20Proceedings.) The Company is not currently involved in any material legal proceedings beyond routine litigation incidental to its business operations - There are no material pending legal proceedings against the Company or its subsidiaries, other than routine litigation incidental to business operations[138](index=138&type=chunk) [Item 4. Mine Safety Disclosures.](index=24&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[139](index=139&type=chunk) [PART II](index=25&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.](index=25&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) German American Bancorp, Inc.'s common stock trades on the Nasdaq Global Select Market under the symbol GABC. As of February 20, 2020, there were approximately 3,865 shareholders of record. The Company's stock performance is compared against the Russell 2000, Russell Microcap, and an Indiana Bank Peer Group. The Board of Directors approved a new plan to repurchase up to one million shares of common stock in January 2020, replacing a prior program. The Company also maintains equity compensation plans for employees and directors - German American Bancorp, Inc. common stock is traded on the Nasdaq Global Select Market under the symbol **GABC**[141](index=141&type=chunk) - As of February 20, 2020, there were approximately **3,865 shareholders of record**[141](index=141&type=chunk) - The Company's stock performance is benchmarked against the Russell 2000 Stock Index, Russell Microcap Stock Index, and a custom Indiana Bank Peer Group[143](index=143&type=chunk) Stock Repurchase Program Activity (Q4 2019) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |:-------|:-------------------------------|:-----------------------------|:--------------------------------------------------------------------------|:-----------------------------------------------------------------------------| | Oct 2019 | — | — | — | 409,184 | | Nov 2019 | — | — | — | 409,184 | | Dec 2019 | — | — | — | 409,184 | - On January 27, 2020, the Board of Directors terminated the 2001 repurchase program and approved a new plan to repurchase up to **one million shares** of outstanding common stock, with no expiration date[147](index=147&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2019) | Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants or Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans | |:--------------|:------------------------------------------------------------------------------------------|:--------------------------------------------------------------------------|:---------------------------------------------------------------------------------------------| | Approved by security holders | — | — | 1,734,824 | | Not approved by security holders | — | — | — | | Total | — | — | 1,734,824 | [Market for Common Stock](index=25&type=section&id=Market%20for%20Common%20Stock) [Stock Performance Graph](index=25&type=section&id=Stock%20Performance%20Graph) [Stock Repurchase Program Information](index=26&type=section&id=Stock%20Repurchase%20Program%20Information) [Equity Compensation Plan Information](index=26&type=section&id=Equity%20Compensation%20Plan%20Information) [Item 6. Selected Financial Data.](index=27&type=section&id=Item%206.%20Selected%20Financial%20Data.) This section presents a five-year summary of selected financial data for German American Bancorp, Inc., highlighting key trends in income, balance sheet items, per share data, and performance ratios. The comparability of year-to-year data is affected by significant merger and acquisition activities, including the acquisitions of River Valley Bancorp (2016), First Financial Bancorp branches (2018), First Security, Inc. (2018), and Citizens First Corporation (2019) - Year-to-year financial information comparability is affected by acquisition accounting treatment for mergers and acquisitions, including River Valley Bancorp (2016), First Financial Bancorp branches (2018), First Security, Inc. (2018), and Citizens First Corporation (2019)[150](index=150&type=chunk) Summary of Operations (Dollars in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---| | Interest Income | $176,474 | $133,749 | $111,030 | $103,365 | $81,620 | | Interest Expense | $31,249 | $19,139 | $11,121 | $8,461 | $6,068 | | Net Interest Income | $145,225 | $114,610 | $99,909 | $94,904 | $75,552 | | Provision for Loan Losses | $5,325 | $2,070 | $1,750 | $1,200 | $— | | Non-interest Income | $45,501 | $37,070 | $31,854 | $32,013 | $27,444 | | Non-interest Expense | $114,162 | $93,553 | $77,803 | $76,587 | $61,326 | | Income before Income Taxes | $71,239 | $56,057 | $52,210 | $49,130 | $41,670 | | Income Tax Expense | $12,017 | $9,528 | $11,534 | $13,946 | $11,606 | | Net Income | $59,222 | $46,529 | $40,676 | $35,184 | $30,064 | Year-end Balances (Dollars in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---|\n| Total Assets | $4,397,672 | $3,929,090 | $3,144,360 | $2,955,994 | $2,373,701 | | Total Loans, Net of Unearned Income | $3,077,091 | $2,728,059 | $2,141,638 | $1,989,955 | $1,564,347 | | Total Deposits | $3,430,021 | $3,072,632 | $2,484,052 | $2,349,551 | $1,826,376 | | Total Long-term Debt | $181,950 | $126,635 | $141,717 | $120,560 | $95,606 | | Total Shareholders' Equity | $573,820 | $458,640 | $364,571 | $330,267 | $252,348 | Per Share Data | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---| | Net Income (1) | $2.29 | $1.99 | $1.77 | $1.57 | $1.51 | | Cash Dividends | $0.68 | $0.60 | $0.52 | $0.48 | $0.45 | | Book Value at Year-end | $21.51 | $18.37 | $15.90 | $14.42 | $12.67 | | Tangible Book Value Per Share (2) | $16.49 | $13.81 | $13.45 | $11.94 | $11.57 | Selected Performance Ratios | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---| | Return on Assets | 1.43% | 1.38% | 1.35% | 1.24% | 1.33% | | Return on Equity | 11.41% | 12.07% | 11.59% | 10.94% | 12.47% | | Equity to Assets | 13.05% | 11.67% | 11.59% | 11.17% | 10.63% | | Dividend Payout | 29.64% | 30.25% | 29.11% | 30.21% | 29.97% | | Net Charge-offs (Recoveries) to Average Loans | 0.17% | 0.08% | 0.04% | 0.04% | 0.03% | | Allowance for Loan Losses to Loans | 0.53% | 0.58% | 0.73% | 0.74% | 0.92% | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=29&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management's Discussion and Analysis provides a detailed review of the Company's financial performance and condition for 2017-2019, emphasizing the impact of significant merger and acquisition activities. Net income increased substantially in 2019 and 2018, driven by M&A and lower tax rates. Key areas of discussion include net interest income, provision for loan losses, non-interest income and expense, capital resources, and liquidity and interest rate risk management. Critical accounting policies, particularly the allowance for loan losses and securities valuation, are also highlighted - Net income for 2019 increased by **$12,693,000 (15% per share)** to **$59,222,000 ($2.29 per share)** from 2018. Net income for 2018 increased by **$5,853,000 (12% per share)** to **$46,529,000 ($1.99 per share)** from 2017[160](index=160&type=chunk) - Net income in 2018 was positively impacted by lower federal income tax rates from the Tax Cuts and Jobs Act of 2017, contributing approximately **$0.26 per share**[161](index=161&type=chunk) - Merger and acquisition activities significantly impacted net income, with acquisition-related expenses of **$3,360,000 ($0.10 per share after tax)** in 2019 and **$4,592,000 ($0.15 per share after tax)** in 2018[162](index=162&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) - Net interest income, the largest source of earnings, increased by **$30,615,000 (27%)** in 2019 and **$14,701,000 (15%)** in 2018, primarily due to higher average earning assets from M&A and improved net interest margin[190](index=190&type=chunk)[193](index=193&type=chunk) Net Interest Margin and Cost of Funds | Metric | 2019 | 2018 | 2017 | |:---|:---|:---|:---| | Tax Equivalent Net Interest Margin | 3.92% | 3.75% | 3.76% | | Tax Equivalent Yield on Earning Assets | 4.75% | 4.36% | 4.16% | | Cost of Funds (as % of average earning assets) | 0.83% | 0.61% | 0.40% | - Accretion of loan discounts and recoveries on acquired loans significantly boosted net interest margin, contributing approximately **30 basis points** in 2019 and **8 basis points** in 2018[192](index=192&type=chunk)[195](index=195&type=chunk) - Provision for loan losses increased to **$5,325,000** in 2019 (**0.18% of average loans**) from **$2,070,000** in 2018 (**0.09% of average loans**), mainly due to higher net charge-offs, particularly on two commercial lending relationships[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) Non-interest Income (Dollars in thousands) | Category | 2019 | 2018 | 2017 | % Change 2019 | % Change 2018 | |:---|:---|:---|:---|:---|:---| | Trust and Investment Product Fees | $7,278 | $6,680 | $5,272 | 9% | 27% | | Service Charges on Deposit Accounts | $8,718 | $7,044 | $6,178 | 24% | 14% | | Insurance Revenues | $8,940 | $8,330 | $7,979 | 7% | 4% | | Company Owned Life Insurance | $2,005 | $1,243 | $1,341 | 61% | (7)% | | Interchange Fee Income | $9,450 | $7,278 | $4,567 | 30% | 59% | | Net Gains on Sales of Loans | $4,633 | $3,004 | $3,280 | 54% | (8)% | | Net Gains on Securities | $1,248 | $706 | $596 | 77% | 18% | Non-interest Expense (Dollars in thousands) | Category | 2019 | 2018 | 2017 | % Change 2019 | % Change 2018 | |:---|:---|:---|:---|:---|:---| | Salaries and Employee Benefits | $63,885 | $51,306 | $46,642 | 25% | 10% | | Occupancy, Furniture and Equipment Expense | $13,776 | $10,877 | $9,230 | 27% | 18% | | FDIC Premiums | $533 | $1,033 | $954 | (48)% | 8% | | Data Processing Fees | $7,927 | $6,942 | $4,276 | 14% | 62% | | Professional Fees | $4,674 | $5,362 | $2,817 | (13)% | 90% | | Advertising and Promotion | $4,230 | $3,492 | $3,543 | 21% | (1)% | | Intangible Amortization | $3,721 | $1,752 | $942 | 112% | 86% | | Other Operating Expenses | $15,416 | $12,789 | $9,399 | 21% | 36% | - Total loans increased by **$350.2 million (13%)** in 2019, primarily due to the Citizens First acquisition, and by **$586.7 million** in 2018, driven by the First Security and branch acquisitions[239](index=239&type=chunk)[240](index=240&type=chunk) - The loan portfolio remains diversified, with commercial real estate loans being the largest concentration at **49% of the total portfolio** at year-end 2019[241](index=241&type=chunk)[243](index=243&type=chunk) - The investment portfolio, primarily consisting of mortgage-backed securities (**60%**) and municipal obligations (**35%**), increased by **$25.5 million (3%)** in 2019 and **$86.5 million (11%)** in 2018[246](index=246&type=chunk) - Core deposits increased by **$444.1 million (18%)** in 2019 and **$245.1 million (11%)** in 2018, significantly influenced by acquisition activities[255](index=255&type=chunk) - Non-performing assets totaled **$14.4 million (0.33% of total assets)** at year-end 2019, an increase from prior periods primarily due to M&A transactions[283](index=283&type=chunk) [Introduction](index=29&type=section&id=INTRODUCTION) [Management Overview](index=29&type=section&id=MANAGEMENT%20OVERVIEW) [Critical Accounting Policies and Estimates](index=30&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) The Company's financial reporting relies on critical accounting policies and estimates, particularly for the allowance for loan losses, securities valuation, income tax expense, and goodwill/intangible asset valuation. These areas involve significant management judgment and are susceptible to change, with the upcoming CECL model expected to materially impact the allowance for loan losses - Critical accounting policies and estimates include the allowance for loan losses, valuation of securities available for sale, income tax expense, and valuation of goodwill and other intangible assets[168](index=168&type=chunk) - The allowance for loan losses is a subjective estimate based on expected future cash flows, collateral values, past loss experience, portfolio characteristics, and economic conditions. The CECL model, effective **January 1, 2020**, is expected to increase the allowance for credit losses by approximately **$12 million to $20 million**, primarily for the acquired loan portfolio[171](index=171&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) - Securities available-for-sale are carried at fair value, with unrealized gains/losses in AOCI. Declines in fair value are assessed for other-than-temporary impairment, which could impact earnings[179](index=179&type=chunk) - Income tax expense involves estimates for deferred tax asset valuation allowances and loss contingencies from tax examinations[180](index=180&type=chunk)[181](index=181&type=chunk) - Goodwill and intangible assets are tested for impairment annually. Goodwill has an indefinite useful life, while other intangible assets (core deposit, customer relationships) are amortized over **6-10 years**[182](index=182&type=chunk)[183](index=183&type=chunk) [Allowance for Loan Losses](index=30&type=section&id=Allowance%20for%20Loan%20Losses) [Securities Valuation](index=32&type=section&id=Securities%20Valuation) [Income Tax Expense](index=32&type=section&id=Income%20Tax%20Expense) [Goodwill and Other Intangible Assets](index=32&type=section&id=Goodwill%20and%20Other%20Intangible%20Assets) [Results of Operations](index=32&type=section&id=RESULTS%20OF%20OPERATIONS) The Company experienced significant growth in net income in 2019 and 2018, driven by increased net interest income from M&A activities and improved margins, partially offset by higher loan loss provisions and non-interest expenses. Non-interest income saw strong growth across various categories, while non-interest expenses rose due to M&A-related operating costs and amortization. The effective tax rate remained lower than the statutory rate due to tax-exempt income and credits Net Income and EPS | Year | Net Income (in thousands) | Net Income Per Share | |:-----|:--------------------------|:---------------------| | 2019 | $59,222 | $2.29 | | 2018 | $46,529 | $1.99 | | 2017 | $40,676 | $1.77 | - Net interest income increased by **$30,615,000 (27%)** in 2019 and **$14,701,000 (15%)** in 2018, primarily due to higher average earning assets from M&A and improved tax-equivalent net interest margin (**3.92% in 2019 vs. 3.75% in 2018**)[190](index=190&type=chunk)[191](index=191&type=chunk)[193](index=193&type=chunk) - Provision for loan losses increased to **$5,325,000** in 2019 from **$2,070,000** in 2018, mainly due to increased net charge-offs of **$4,870,000 (0.17% of average loans)** in 2019, up from **$1,941,000 (0.08%)** in 2018[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) - Non-interest income increased by **$8,431,000 (23%)** in 2019 and **$5,216,000 (16%)** in 2018, driven by growth in trust and investment product fees, service charges on deposit accounts, insurance revenues, company-owned life insurance, interchange fees, and net gains on loan and securities sales[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - Non-interest expense increased by **$20,609,000 (22%)** in 2019 and **$15,750,000 (20%)** in 2018, largely due to operating expenses from branch and bank acquisitions, including higher salaries and benefits, occupancy costs, data processing fees, and intangible amortization[217](index=217&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk)[221](index=221&type=chunk)[224](index=224&type=chunk)[225](index=225&type=chunk) - The effective tax rate was **16.9%** in 2019, **17.0%** in 2018, and **22.1%** in 2017, lower than the statutory rate due to tax-exempt investment income, affordable housing tax credits, and income from subsidiaries in states with no income tax[226](index=226&type=chunk) [Net Income](index=32&type=section&id=NET%20INCOME) [Net Interest Income](index=33&type=section&id=NET%20INTEREST%20INCOME) [Provision for Loan Losses](index=35&type=section&id=PROVISION%20FOR%20LOAN%20LOSSES) [Non-Interest Income](index=37&type=section&id=NON-INTEREST%20INCOME) [Non-Interest Expense](index=38&type=section&id=NON-INTEREST%20EXPENSE) [Provision for Income Taxes](index=40&type=section&id=PROVISION%20FOR%20INCOME%20TAXES) [Capital Resources](index=40&type=section&id=CAPITAL%20RESOURCES) The Company's shareholders' equity significantly increased in 2019, driven by common share issuance for acquisitions and growth in retained earnings and AOCI. The Company and its subsidiary bank consistently maintain capital ratios well above regulatory minimums, qualifying as 'well-capitalized' under Basel III guidelines. A new stock repurchase plan was approved in January 2020 - Shareholders' equity increased by **$115.2 million** to **$573.8 million** at December 31, 2019, from **$458.6 million** at year-end 2018[230](index=230&type=chunk) - The increase in shareholders' equity was attributed to the issuance of approximately **1.7 million common shares** for the Citizens First acquisition (**$50.0 million**), a **$41.7 million** increase in retained earnings, and a **$22.2 million** increase in accumulated other comprehensive income[230](index=230&type=chunk) - Shareholders' equity represented **13.0% of total assets** at December 31, 2019, up from **11.7%** at December 31, 2018[230](index=230&type=chunk) - The Company and its subsidiary bank consistently maintained capital levels well in excess of minimum regulatory requirements under Basel III, qualifying as **'well-capitalized'** at December 31, 2019[234](index=234&type=chunk)[235](index=235&type=chunk) - On January 27, 2020, the Board approved a new plan to repurchase up to **one million shares** of common stock, replacing a prior program[231](index=231&type=chunk) [Uses of Funds](index=41&type=section&id=USES%20OF%20FUNDS) The Company's primary uses of funds include loan growth and investments. Total loans increased significantly in 2019 and 2018, largely driven by acquisitions, with commercial real estate loans remaining the largest segment. The investment portfolio also grew, primarily in mortgage-backed securities and municipal obligations, serving as a key source for funding loan growth and liquidity - Total loans increased by **$350.2 million (13%)** at December 31, 2019, compared to December 31, 2018, primarily due to the Citizens First acquisition (**$320.3 million**)[239](index=239&type=chunk) - Total loans increased by **$586.7 million** at December 31, 2018, compared to year-end 2017, largely due to the First Security acquisition (**$374.5 million**) and the branch acquisition (**$106.0 million**)[240](index=240&type=chunk) Loan Portfolio Composition (Dollars in thousands) | Loan Category | 2019 | % of Total Loans | 2018 | % of Total Loans | 2017 | % of Total Loans | |:---|:---|:---|:---|:---|:---|:---|\n| Commercial and Industrial Loans and Leases | $589,758 | 19% | $543,761 | 20% | $486,668 | 23% | | Commercial Real Estate Loans | $1,495,862 | 49% | $1,208,646 | 44% | $926,729 | 43% | | Agricultural Loans | $384,526 | 12% | $365,208 | 13% | $333,227 | 16% | | Home Equity and Consumer Loans | $306,972 | 10% | $285,534 | 11% | $219,662 | 10% | | Residential Mortgage Loans | $304,855 | 10% | $328,592 | 12% | $178,733 | 8% | | **Total Loans** | **$3,081,973** | **100%** | **$2,731,741** | **100%** | **$2,145,019** | **100%** | - The amortized cost of the investment securities portfolio increased by **$25.5 million (3%)** in 2019 and **$86.5 million (11%)** in 2018[246](index=246&type=chunk) - At December 31, 2019, mortgage-related securities constituted **60% ($526.9 million)** and obligations of state and political subdivisions **35% ($307.9 million)** of the total securities portfolio[246](index=246&type=chunk) Contractual Obligations (Dollars in thousands) | Obligation Category | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | |:---|:---|:---|:---|:---|:---| | Long-term Borrowings | $179,355 | $40,573 | $58,000 | $25,000 | $55,782 | | Time Deposits | $631,396 | $473,080 | $130,960 | $27,139 | $217 | | Finance Lease Obligations | $6,406 | $487 | $1,013 | $1,056 | $3,850 | | Operating Lease Commitments | $7,762 | $1,713 | $2,738 | $1,937 | $1,374 | | Postretirement Benefit Payments | $1,292 | $96 | $224 | $246 | $726 | | **Total Contractual Obligations** | **$826,211** | **$515,949** | **$192,935** | **$55,378** | **$61,949** | [Loans](index=41&type=section&id=LOANS) [Investments](index=43&type=section&id=INVESTMENTS) [Sources of Funds](index=44&type=section&id=SOURCES%20OF%20FUNDS) The Company's primary funding source is core customer deposits, which saw significant growth in 2019 and 2018, largely due to acquisition activities. Other funding sources include large denomination certificates of deposit, brokered deposits, FHLB advances, and other borrowings. The parent company primarily relies on dividends from its bank subsidiary and has also raised funds through subordinated notes and a revolving line of credit - The Company's primary funding source is core customer deposits, which increased by **$444.1 million (18%)** in 2019 and **$245.1 million (11%)** in 2018, significantly driven by acquisition activity[253](index=253&type=chunk)[255](index=255&type=chunk) - Demand, savings, and money market deposits provided a growing source of funding, increasing **16%** in 2019 and **12%** in 2018, totaling **$2.623 billion** in 2019[258](index=258&type=chunk) - Certificates of deposits of **$100,000 or more** and brokered deposits increased by **$133.2 million (53%)** in 2019 and **$76.5 million (43%)** in 2018, comprising **11%** of average total funding sources in 2019[260](index=260&type=chunk) - Average FHLB advances and other borrowings increased by **$21.9 million (9%)** in 2019 and **$24.4 million (10%)** in 2018, representing approximately **8%** of average total funding sources in 2019[261](index=261&type=chunk) - The parent company issued **$40.0 million** in **4.50% Fixed-to-Floating Rate Subordinated Notes due 2029** in June 2019, using proceeds for the Citizens First acquisition and to repay a **$25.0 million** term loan[265](index=265&type=chunk)[266](index=266&type=chunk) - The parent company also assumed junior subordinated debentures totaling approximately **$15.4 million** from prior acquisitions (American Community Bancorp, River Valley Bancorp, Citizens First), which qualify as Tier 1 capital[270](index=270&type=chunk)[271](index=271&type=chunk) [Core Deposits](index=44&type=section&id=CORE%20DEPOSITS) [Other Funding Sources](index=46&type=section&id=OTHER%20FUNDING%20SOURCES) [Parent Company Funding Sources](index=46&type=section&id=PARENT%20COMPANY%20FUNDING%20SOURCES) [Risk Management](index=47&type=section&id=RISK%20MANAGEMENT) The Company employs a comprehensive risk management program to address credit, liquidity, and interest rate risks. This includes a structured loan review process, quarterly evaluation of the allowance for loan losses, and monitoring of non-performing assets. Liquidity is managed by matching funding sources with obligations, while interest rate risk is assessed through simulation modeling of net interest income and net portfolio value under various scenarios - The Company manages credit, liquidity, and interest rate risks through various procedures, including a Corporate Credit Risk Management Committee and a comprehensive risk-grading and loan review program[274](index=274&type=chunk)[275](index=275&type=chunk)[276](index=276&type=chunk) - The allowance for loan losses is determined quarterly, comprising specific, general, and unallocated reserves, based on past experience, portfolio characteristics, economic conditions, and collateral values[277](index=277&type=chunk)[278](index=278&type=chunk) Allowance for Loan Losses (Dollars in thousands) | Metric | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\n| Balance at End of Period | $16,278 | $15,823 | $15,694 | | Net Charge-offs (Recoveries) to Average Loans Outstanding | 0.17% | 0.08% | 0.04% | | Allowance for Loan Losses to Total Loans at Year-end | 0.53% | 0.58% | 0.73% | - Non-performing assets totaled **$14.4 million (0.33% of total assets)** at December 31, 2019, an increase from **$13.5 million (0.34%)** in 2018 and **$11.9 million (0.38%)** in 2017, primarily due to M&A transactions[283](index=283&type=chunk) Non-performing Assets (Dollars in thousands) | Category | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\n| Non-accrual Loans | $13,802 | $12,579 | $11,091 | | Past Due Loans (90 days or more) | $190 | $633 | $719 | | Total Non-performing Loans | $13,992 | $13,212 | $11,810 | | Other Real Estate | $425 | $286 | $54 | | **Total Non-performing Assets** | **$14,417** | **$13,498** | **$11,864** | | Non-performing Loans to Total Loans | 0.45% | 0.48% | 0.55% | | Allowance for Loan Losses to Non-performing Loans | 116.34% | 119.76% | 132.89% | - Liquidity management ensures a dependable funding base by matching sources with anticipated borrowings and withdrawals. Interest rate risk is monitored through computer-assisted simulation modeling of net interest income and net portfolio value, aiming to limit risk within a one-year interval[290](index=290&type=chunk)[293](index=293&type=chunk) [Lending and Loan Administration](index=47&type=section&id=LENDING%20AND%20LOAN%20ADMINISTRATION) [Non-Performing Assets](index=49&type=section&id=NON-PERFORMING%20ASSETS) [Liquidity and Interest Rate Risk Management](index=51&type=section&id=LIQUIDITY%20AND%20INTEREST%20RATE%20RISK%20MANAGEMENT) [Off-Balance Sheet Arrangements](index=53&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) The Company has no off-balance sheet arrangements other than stand-by letters of credit - The Company has no off-balance sheet arrangements other than stand-by letters of credit[294](index=294&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk.](index=54&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The Company's market risk exposure, primarily liquidity and interest rate risk, is regularly reviewed. Liquidity depends on core deposits and other funding sources. Interest rate risk is assessed using computer simulation modeling for net interest income and net portfolio value (NPV) under various rate scenarios. While derivatives are used, they are not a major part of the risk management strategy. The models indicate potential impacts on net interest income and NPV from sudden interest rate changes - The Company's primary market risks are liquidity risk and interest rate risk, reviewed regularly by the Asset/Liability Committee and Boards of Directors[296](index=296&type=chunk) - Liquidity for the parent company relies on dividends from its subsidiary bank, while the Bank's funding comes from core deposits, securities maturities, loan repayments, federal funds purchased, repurchase agreements, and FHLB borrowings[297](index=297&type=chunk) - Interest rate risk is monitored using computer simulation modeling to estimate the impact on net interest income and net portfolio value (NPV) under various interest rate scenarios[298](index=298&type=chunk) Net Interest Income Sensitivity (as of Dec 31, 2019) | Changes in Rates | Amount (in thousands) | % Change | |:---|:---|:---| | +2% | $149,380 | (1.07)% | | +1% | $147,770 | (2.14)% | | Base | $151,003 | — | | -1% | $149,977 | (0.68)% | | -2% | $144,290 | (4.45)% | Net Portfolio Value Sensitivity (as of Dec 31, 2019) | Changes in Rates | Amount (in thousands) | % Change | NPV Ratio | Change (b.p.) | |:---|:---|:---|:---|:---| | +2% | $517,023 | (3.23)% | 12.70% | 14 | | +1% | $530,601 | (0.69)% | 12.74% | 18 | | Base | $534,289 | — | 12.56% | — | | -1% | $510,601 | (4.43)% | 11.80% | (76) | | -2% | $435,726 | (18.45)% | 9.96% | (260) | [Item 8. Financial Statements and Supplementary Data.](index=56&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents the audited consolidated financial statements of German American Bancorp, Inc. for the years ended December 31, 2019, 2018, and 2017, including balance sheets, statements of income, comprehensive income, changes in shareholders' equity, and cash flows. It also includes the Report of Independent Registered Public Accounting Firm, highlighting critical audit matters such as the allowance for loan losses and accounting for acquisitions. Extensive notes to the financial statements provide detailed disclosures on significant accounting policies, securities, derivatives, loans, deposits, borrowings, shareholders' equity, employee benefit plans, income taxes, revenue recognition, leases, commitments, fair value measurements, segment information, parent company financials, business combinations, and quarterly data - Crowe LLP, the independent registered public accounting firm, issued an unqualified opinion on the Company's consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2019[311](index=311&type=chunk) - Critical audit matters included the evaluation of the allowance for loan losses due to subjective judgments in migration analysis and qualitative factors, and the accounting for acquisitions, specifically the valuation of loans and core deposit intangibles[318](index=318&type=chunk)[319](index=319&type=chunk)[321](index=321&type=chunk) Consolidated Balance Sheets (Dollars in thousands) | Asset/Liability | Dec 31, 2019 | Dec 31, 2018 | |:---|:---|:---| | Total Assets | $4,397,672 | $3,929,090 | | Total Loans, Net | $3,060,813 | $2,712,236 | | Total Deposits | $3,430,021 | $3,072,632 | | Total Liabilities | $3,823,852 | $3,470,450 | | Total Shareholders' Equity | $573,820 | $458,640 | Consolidated Statements of Income (Dollars in thousands) | Metric | 2019 | 2018 | 2017 | |:---|:---|:---|:---| | Total Interest Income | $176,474 | $133,749 | $111,030 | | Total Interest Expense | $31,249 | $19,139 | $11,121 | | Net Interest Income | $145,225 | $114,610 | $99,909 | | Provision for Loan Losses | $5,325 | $2,070 | $1,750 | | Total Non-interest Income | $45,501 | $37,070 | $31,854 | | Total Non-interest Expense | $114,162 | $93,553 | $77,803 | | Income before Income Taxes | $71,239 | $56,057 | $52,210 | | Income Tax Expense | $12,017 | $9,528 | $11,534 | | Net Income | $59,222 | $46,529 | $40,676 | | Basic Earnings per Share | $2.29 | $1.99 | $1.77 | | Diluted Earnings per Share | $2.29 | $1.99 | $1.77 | Consolidated Statements of Cash Flows (Dollars in thousands) | Cash Flow Activity | 2019 | 2018 | 2017 | |:---|:---|:---|:---| | Net Cash from Operating Activities | $65,229 | $62,331 | $54,875 | | Net Cash from Investing Activities | $30,662 | $(38,798) | $(189,280) | | Net Cash from Financing Activities | $(88,557) | $2,658 | $139,948 | | Net Change in Cash and Cash Equivalents | $7,334 | $26,191 | $5,543 | | Cash and Cash Equivalents at End of Year | $103,884 | $96,550 | $70,359 | - The Company adopted ASU No. 2016-02 (Leases) on **January 1, 2019**, recording a right-of-use asset and corresponding lease liability of **$9,034** for operating leases[378](index=378&type=chunk)[379](index=379&type=chunk) - The CECL model (ASU No. 2016-13) will be effective for the Company in **Q1 2020**, with an estimated one-time cumulative effect adjustment increasing the allowance for loan losses by **$12 million to $20 million**[383](index=383&type=chunk)[386](index=386&type=chunk) - The Company's allowance for loan losses totaled **$16.3 million** at December 31, 2019, representing **0.53% of total loans**, a decrease from **0.58%** in 2018 due to acquisition accounting where acquired loans are recorded at fair value[205](index=205&type=chunk)[280](index=280&type=chunk) - The Company executed interest rate swaps with a notional amount of **$102.4 million** at December 31, 2019, which are simultaneously hedged with third parties to minimize net risk exposure[395](index=395&type=chunk) - At December 31, 2019, the Bank had **$76.0 million** in retained earnings available for dividend payments to the parent company without prior regulatory approval[453](index=453&type=chunk) - The Company's net deferred tax liability was **$10,044** at December 31, 2019, compared to **$1,693** at December 31, 2018[481](index=481&type=chunk) - The Company had no unrecognized tax benefits as of December 31, 2019, 2018, and 2017[486](index=486&type=chunk) - The Citizens First acquisition (July 1, 2019) involved **$65.6 million** in total consideration, resulting in **$17.1 million of goodwill** and **$4.5 million of intangible assets**. The First Security acquisition (October 15, 2018) involved **$96.1 million** in total consideration, resulting in **$43.2 million of goodwill** and **$6.1 million of intangible assets**[536](index=536&type=chunk)[537](index=537&type=chunk)[544](index=544&type=chunk)[546](index=546&type=chunk) [Report of Independent Registered Public Accounting Firm](index=56&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) [Critical Audit Matters](index=57&type=section&id=Critical%20Audit%20Matters) [Consolidated Balance Sheets](index=59&type=section&id=Consolidated%20Balance%20Sheets) [Consolidated Statements of Income](index=61&type=section&id=Consolidated%20Statements%20of%20Income) [Consolidated Statements of Comprehensive Income](index=63&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) [Consolidated Statements of Changes in Shareholders' Equity](index=65&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) [Consolidated Statements of Cash Flows](index=67&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) [Notes to the Consolidated Financial Statements](index=69&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) [NOTE 1 – Summary of Significant Accounting Policies](index=69&type=section&id=NOTE%201%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) [NOTE 2 – Securities](index=75&type=section&id=NOTE%202%20%E2%80%93%20Securities) [NOTE 3 – Derivatives](index=77&type=section&id=NOTE%203%20%E2%80%93%20Derivatives) [NOTE 4 – Loans](index=78&type=section&id=NOTE%204%20%E2%80%93%20Loans) [NOTE 5 – Premises, Furniture, and Equipment](index=92&type=section&id=NOTE%205%20%E2%80%93%20Premises%2C%20Furniture%2C%20and%20Equipment) [NOTE 6 – Deposits](index=92&type=section&id=NOTE%206%20%E2%80%93%20Deposits) [NOTE 7 – FHLB Advances and Other Borrowings](index=94&type=section&id=NOTE%207%20%E2%80%93%20FHLB%20Advances%20and%20Other%20Borrowings) [NOTE 8 - Shareholders' Equity](index=98&type=section&id=NOTE%208%20-%20Shareholders'%20Equity) [NOTE 9 – Employee Benefit Plans](index=104&type=section&id=NOTE%209%20%E2%80%93%20Employee%20Benefit%20Plans) [NOTE 10 – Income Taxes](index=107&type=section&id=NOTE%2010%20%E2%80%93%20Income%20Taxes) [NOTE 11 - Revenue Recognition](index=109&type=section&id=NOTE%2011%20-%20Revenue%20Recognition) [NOTE 12 – Per Share Data](index=111&type=section&id=NOTE%2012%20%E2%80%93%20Per%20Share%20Data) [NOTE 13 - Leases](index=111&type=section&id=NOTE%2013%20-%20Leases) [NOTE 14 – Commitments and Off-balance Sheet Items](index=112&type=section&id=NOTE%2014%20%E2%80%93%20Commitments%20and%20Off-balance%20Sheet%20Items) [NOTE 15 - Fair Value](index=114&type=section&id=NOTE%2015%20-%20Fair%20Value) [NOTE 16 – Segment Information](index=121&type=section&id=NOTE%2016%20%E2%80%93%20Segment%20Information) [NOTE 17 - Parent Company Financial Statements](index=123&type=section&id=NOTE%2017%20-%20Parent%20Company%20Financial%20Statements) [NOTE 18 - Business Combinations, Goodwill and Intangible Assets](index=125&type=section&id=NOTE%2018%20-%20Business%20Combinations%2C%20Goodwill%20and%20Intangible%20Assets) [NOTE 19 – Other Comprehensive Income (Loss)](index=134&type=section&id=NOTE%2019%20%E2%80%93%20Other%20Comprehensive%20Income%20(Loss)) [NOTE 20 – Quarterly Financial Data (Unaudited)](index=135&type=section&id=NOTE%2020%20%E2%80%93%20Quarterly%20Financial%20Data%20(Unaudited)) [NOTE 21 - Subsequent Events](index=137&type=section&id=NOTE%2021%20-%20Subsequent%20Events) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.](index=138&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) There have been no changes in or disagreements with accountants on accounting and financial disclosure matters - There have been no changes in or disagreements with accountants on accounting and financial disclosure matters[570](index=570&type=chunk) [Item 9A. Controls and Procedures.](index=138&type=section&id=Item%209A.%20Controls%20and%20Procedures.) As of December 31, 2019, the Company's management, including its principal executive and financial officers, concluded that its disclosure controls and procedures were effective. There were no material changes in internal control over financial reporting during the fourth fiscal quarter of 2019 - As of December 31, 2019, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective[571](index=571&type=chunk) - There were no changes in the Company's internal control over financial reporting during the fourth fiscal quarter of 2019 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[572](index=572&type=chunk) - Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2019, based on COSO criteria, and concluded it was effective[574](index=574&type=chunk) [Item 9B. Other Information.](index=138&type=section&id=Item%209B.%20Other%20Information.) This item is not applicable to the Company - This item is not applicable to the Company[576](index=576&type=chunk) [PART III](index=139&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance.](index=139&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) Information regarding the Company's directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement - Information responsive to this item is incorporated by reference from the Company's Proxy Statement for the Annual Meeting of Shareholders to be held in May 2020[578](index=578&type=chunk) [Item 11. Executive Compensation.](index=139&type=section&id=Item%2011.%20Executive%20Compensation.) Information relating to executive compensation is incorporated by reference from the 2020 Proxy Statement - Information relating to compensation of the Company's executive officers and directors is incorporated by reference from the 'Executive and Director Compensation' section of the 2020 Proxy Statement[579](index=579&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.](index=139&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) Information on equity compensation plans is provided in Item 5 of this report, while details on security ownership of beneficial owners and management are incorporated by reference from the 2020 Proxy Statement - Information relating to equity compensation plans is set forth under 'Equity Compensation Plan Information' in Part II, Item 5 of this Report[580](index=580&type=chunk) - Information relating to security ownership of certain beneficial owners and the directors and executive officers is incorporated by reference from the 'Ownership of Our Common Shares by Our Directors and Executive Officers' and 'Principal Owners of Common Shares' sections of the 2020 Proxy Statement[580](index=580&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence.](index=139&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Proxy Statement - Information responsive to this item is incorporated by reference from the 'Election of Directors' and 'Transactions with Related Persons' sections of the 2020 Proxy Statement[581](index=581&type=chunk) [Item 14. Principal Accounting Fees and Services.](index=139&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services.) Information on principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement - Information responsive to this item is incorporated by reference from the 'Principal Accountant Fees and Services' section of the 2020 Proxy Statement[582](index=582&type=chunk) [PART IV](index=140&type=section&id=PART%20IV) [Item 15. Exhibits, Financial Statement Schedules.](index=140&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules.) This section lists all financial statements included in Item 8 of the report and provides a comprehensive list of exhibits filed with the report or incorporated by reference. It also includes important disclaimers regarding the nature and purpose of representations and warranties within these exhibits - This section includes a list of all financial statements and supplementary data found in Item 8 of the report[584](index=584&type=chunk) - A comprehensive list of exhibits, including agreements, bylaws, plans, and certifications, is provided, with indications of whether they are filed with the report or incorporated by reference[585](index=585&type=chunk)[589](index=589&type=chunk) - Exhibits containing agreements are included for informational purposes regarding their terms, and representations/warranties within them are for the benefit of the parties, not necessarily categorical statements of fact, and may be qualified by disclosures not reflected in the agreement[590](index=590&type=chunk)[591](index=591&type=chunk)[593](index=593&type=chunk) [Item 16. Form 10-K Summary.](index=145&type=section&id=Item%2016.%20Form%2010-K%20Summary.) This item is not applicable to the Company - This item is not applicable to the Company[592](index=592&type=chunk) [Signatures](index=146&type=section&id=SIGNATURES) The report is duly signed on behalf of German American Bancorp, Inc. by its Chairman and Chief Executive Officer, Mark A. Schroeder, and other directors and executive officers, including the Executive Vice President and Chief Financial Officer, Bradley M. Rust, as of March 2, 2020 - The report is signed by Mark A. Schroeder, Chairman and Chief Executive Officer, and Bradley M. Rust, Executive Vice President and Chief Financial Officer, along with other directors, on March 2, 2020[595](index=595&type=chunk)[596](index=596&type=chunk)[597](index=597&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Unaudited Financial Statements](index=4&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) The unaudited consolidated financial statements for the period ended September 30, 2019, detail the company's financial position and performance [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20%E2%80%93%20September%2030%2C%202019%20and%20December%2031%2C%202018) Consolidated Balance Sheets – September 30, 2019 and December 31, 2018 | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | **Assets** | | | | | | Total Assets | $4,355,882 | $3,929,090 | $426,792 | 10.86% | | Loans, Net | $3,041,038 | $2,712,236 | $328,802 | 12.12% | | Goodwill | $120,835 | $103,681 | $17,154 | 16.54% | | **Liabilities** | | | | | | Total Deposits | $3,431,286 | $3,072,632 | $358,654 | 11.67% | | Total Liabilities | $3,792,955 | $3,470,450 | $322,505 | 9.30% | | **Shareholders' Equity** | | | | | | Total Shareholders' Equity | $562,927 | $458,640 | $104,287 | 22.74% | [Consolidated Statements of Income (Three Months)](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20%E2%80%93%20Three%20Months%20Ended%20September%2030%2C%202019%20and%202018) Consolidated Statements of Income – Three Months Ended September 30, 2019 and 2018 | Metric | Q3 2019 (in thousands) | Q3 2018 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $46,911 | $33,475 | $13,436 | 40.14% | | Total Interest Expense | $8,333 | $4,927 | $3,406 | 69.13% | | Net Interest Income | $38,578 | $28,548 | $10,030 | 35.13% | | Provision for Loan Losses | $2,800 | $500 | $2,300 | 460.00% | | Total Non-Interest Income | $12,056 | $8,963 | $3,093 | 34.51% | | Total Non-Interest Expense | $31,961 | $21,576 | $10,385 | 48.13% | | Net Income | $13,064 | $12,639 | $425 | 3.36% | | Basic Earnings per Share | $0.49 | $0.55 | $(0.06) | -10.91% | | Diluted Earnings per Share | $0.49 | $0.55 | $(0.06) | -10.91% | [Consolidated Statements of Income (Nine Months)](index=8&type=section&id=Consolidated%20Statements%20of%20Income%20%E2%80%93%20Nine%20Months%20Ended%20September%2030%2C%202019%20and%202018) Consolidated Statements of Income – Nine Months Ended September 30, 2019 and 2018 | Metric | 9M 2019 (in thousands) | 9M 2018 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $129,136 | $94,153 | $34,983 | 37.16% | | Total Interest Expense | $23,326 | $12,526 | $10,800 | 86.22% | | Net Interest Income | $105,810 | $81,627 | $24,183 | 29.63% | | Provision for Loan Losses | $3,725 | $2,070 | $1,655 | 79.95% | | Total Non-Interest Income | $34,223 | $27,337 | $6,886 | 25.19% | | Total Non-Interest Expense | $84,338 | $63,739 | $20,599 | 32.32% | | Net Income | $43,402 | $35,549 | $7,853 | 22.09% | | Basic Earnings per Share | $1.70 | $1.55 | $0.15 | 9.68% | | Diluted Earnings per Share | $1.70 | $1.55 | $0.15 | 9.68% | [Consolidated Statements of Comprehensive Income](index=10&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%E2%80%93%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202019%20and%202018) Comprehensive Income – Three Months Ended September 30 | Metric | Q3 2019 (in thousands) | Q3 2018 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income | $13,064 | $12,639 | $425 | 3.36% | | Total Other Comprehensive Income (Loss) | $4,649 | $(3,921) | $8,570 | -218.57% | | Comprehensive Income | $17,713 | $8,718 | $8,995 | 103.19% | Comprehensive Income – Nine Months Ended September 30 | Metric | 9M 2019 (in thousands) | 9M 2018 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income | $43,402 | $35,549 | $7,853 | 22.09% | | Total Other Comprehensive Income (Loss) | $22,954 | $(14,640) | $37,594 | -256.79% | | Comprehensive Income | $66,356 | $20,909 | $45,447 | 217.36% | [Consolidated Statements of Changes in Shareholders' Equity](index=12&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20-%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202019%20and%202018) Changes in Shareholders' Equity | Metric | Dec 31, 2018 (in thousands) | Sep 30, 2019 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Total Shareholders' Equity | $458,640 | $562,927 | $104,287 | | Common Stock (shares) | 24,967,458 | 26,662,078 | 1,694,620 | | Retained Earnings | $211,424 | $241,801 | $30,377 | | Accumulated Other Comprehensive Income (Loss) | $(7,098) | $15,856 | $22,954 | - The increase in shareholders' equity was primarily driven by the issuance of **1,663,954 common shares** for the acquisition of Citizens First Corporation, contributing **$50,024 thousand**, along with net income and other comprehensive income[23](index=23&type=chunk) [Consolidated Statements of Cash Flows](index=14&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Nine%20Months%20Ended%20September%2030%2C%202019%20and%202018) Cash Flow Activity – Nine Months Ended September 30 | Cash Flow Activity | 9M 2019 (in thousands) | 9M 2018 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $45,788 | $42,458 | $3,330 | | Net Cash from Investing Activities | $62,575 | $(70,005) | $132,580 | | Net Cash from Financing Activities | $(115,779) | $22,772 | $(138,551) | | Net Change in Cash and Cash Equivalents | $(7,416) | $(4,775) | $(2,641) | | Cash and Cash Equivalents at End of Period | $89,134 | $65,584 | $23,550 | - Investing activities shifted from a net outflow of **$70.0 million** in 9M 2018 to a net inflow of **$62.6 million** in 9M 2019, largely due to proceeds from maturities and sales of securities, and the acquisition of Citizens First Corporation[28](index=28&type=chunk) - Financing activities saw a significant shift from a net inflow of **$22.8 million** in 9M 2018 to a net outflow of **$115.8 million** in 9M 2019, primarily due to changes in deposits and short-term borrowings, and increased dividends paid[28](index=28&type=chunk) [Notes to Consolidated Financial Statements](index=17&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%E2%80%93%20September%2030%2C%202019) [NOTE 1 – Basis of Presentation](index=17&type=section&id=NOTE%201%20%E2%80%93%20Basis%20of%20Presentation) - The Company operates primarily in the banking industry, with financial statements conforming to **U.S. GAAP**[34](index=34&type=chunk) - Certain prior period items were reclassified without affecting net income or total shareholders' equity[34](index=34&type=chunk) [NOTE 2 - Revenue Recognition](index=17&type=section&id=NOTE%202%20-%20Revenue%20Recognition) - The Company adopted **ASU 2014-09 (Topic 606)** on January 1, 2018, which did not materially impact revenue recognition for financial instruments[35](index=35&type=chunk) - Reclassification of certain debit card related costs from contra-revenue to expenses had an immaterial impact[35](index=35&type=chunk) - Revenue streams accounted for under Topic 606 include service charges on deposit accounts, interchange fee income, trust and investment product fees, and insurance revenues[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) Non-interest Income by Topic 606 Scope | Non-interest Income (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | In-Scope of Topic 606 | $9,291 | $7,549 | $27,186 | $22,755 | | Out-of-Scope of Topic 606 | $2,765 | $1,414 | $7,037 | $4,582 | | Total Non-interest Income | $12,056 | $8,963 | $34,223 | $27,337 | [NOTE 3 – Per Share Data](index=19&type=section&id=NOTE%203%20%E2%80%93%20Per%20Share%20Data) Earnings Per Share | Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Basic Earnings per Share | $0.49 | $0.55 | $1.70 | $1.55 | | Diluted Earnings per Share | $0.49 | $0.55 | $1.70 | $1.55 | | Weighted Average Shares Outstanding (Basic & Diluted) Q3 | 26,643,064 | 22,968,047 | N/A | N/A | | Weighted Average Shares Outstanding (Basic & Diluted) 9M | N/A | N/A | 25,541,843 | 22,958,977 | - No anti-dilutive shares were present for the three and nine months ended September 30, 2019 and 2018[44](index=44&type=chunk)[45](index=45&type=chunk) [NOTE 4 – Securities](index=20&type=section&id=NOTE%204%20%E2%80%93%20Securities) Securities Available-for-Sale | Securities Available-for-Sale (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Amortized Cost | $828,810 | $821,254 | | Gross Unrealized Gains | $22,821 | $5,436 | | Gross Unrealized Losses | $(2,186) | $(14,079) | | Fair Value | $849,445 | $812,611 | - The Company does not consider securities with unrealized losses to be **other-than-temporarily impaired**, as it does not intend to sell them and the decline is largely due to changes in market interest rates[52](index=52&type=chunk) - All MBS/CMO - Residential are guaranteed by government-sponsored entities and are investment grade[52](index=52&type=chunk) Proceeds from Sales of Securities | Proceeds from Sales of Securities (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Proceeds from Sales | $53,025 | $5,404 | $75,299 | $22,919 | | Gross Gains on Sales | $313 | $90 | $984 | $434 | [NOTE 5 – Derivatives](index=22&type=section&id=NOTE%205%20%E2%80%93%20Derivatives) - The Company uses interest rate swaps with commercial banking customers for risk management, simultaneously hedging these with offsetting swaps with third parties to **minimize net risk exposure**[54](index=54&type=chunk) Derivative Instruments | Derivative Instruments (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Notional Amount (Interest Rate Swaps) | $97,263 | $85,587 | | Fair Value (Included in Other Assets) | $3,985 | $1,713 | | Fair Value (Included in Other Liabilities) | $4,353 | $1,734 | Effect on Income Statement | Effect on Income Statement (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Interest Rate Swaps (Other Operating Income) | $314 | $17 | $108 | $133 | [NOTE 6 – Loans](index=23&type=section&id=NOTE%206%20%E2%80%93%20Loans) Loan Classification | Loan Classification (in thousands) | Sep 30, 2019 | Dec 31, 2018 | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Commercial & Industrial Loans and Leases | $579,152 | $543,761 | $35,391 | 6.51% | | Commercial Real Estate Loans | $1,477,204 | $1,208,646 | $268,558 | 22.22% | | Agricultural Loans | $386,685 | $365,208 | $21,477 | 5.88% | | Home Equity Loans | $222,606 | $207,987 | $14,619 | 7.03% | | Consumer Loans | $82,421 | $77,547 | $4,874 | 6.28% | | Residential Mortgage Loans | $312,674 | $328,592 | $(15,918) | -4.84% | | Total Loans | $3,060,742 | $2,731,741 | $329,001 | 12.04% | Allowance for Loan Losses Activity | Allowance for Loan Losses Activity (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Beginning Balance | $16,239 | $15,637 | $15,823 | $15,694 | | Provision for Loan Losses | $2,800 | $500 | $3,725 | $2,070 | | Recoveries | $114 | $182 | $404 | $396 | | Loans Charged-off | $(3,284) | $(268) | $(4,083) | $(2,109) | | Ending Balance | $15,869 | $16,051 | $15,869 | $16,051 | - The Company categorizes loans into risk categories (Special Mention, Substandard, Doubtful, Pass) based on borrower ability to service debt, financial information, payment history, and economic trends[86](index=86&type=chunk)[89](index=89&type=chunk) - Loans with outstanding balances greater than **$250 thousand** are individually analyzed[86](index=86&type=chunk)[89](index=89&type=chunk) Non-Accrual Loans | Non-Accrual Loans (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Commercial and Industrial Loans and Leases | $6,229 | $2,430 | | Commercial Real Estate Loans | $3,695 | $6,833 | | Agricultural Loans | $2,226 | $1,449 | | Home Equity Loans | $78 | $88 | | Consumer Loans | $80 | $162 | | Residential Mortgage Loans | $1,204 | $1,617 | | Total Non-Accrual Loans | $13,512 | $12,579 | - Troubled Debt Restructurings (TDRs) totaled **$117 thousand** at September 30, 2019, all performing, with no new TDRs or payment defaults within twelve months following modification during the reported periods[79](index=79&type=chunk)[82](index=82&type=chunk)[84](index=84&type=chunk) [NOTE 7 – Repurchase Agreements](index=36&type=section&id=NOTE%207%20%E2%80%93%20Repurchase%20Agreements%20Accounted%20for%20as%20Secured%20Borrowings) Repurchase Agreements | Repurchase Agreements (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Repurchase Agreements | $34,123 | $45,274 | - Repurchase agreements are short-term borrowings, secured by mortgage-backed securities, with the Company monitoring collateral value to mitigate risk by requiring additional collateral if fair value declines[99](index=99&type=chunk) [NOTE 8 – Segment Information](index=36&type=section&id=NOTE%208%20%E2%80%93%20Segment%20Information) - The Company operates through three primary segments: **core banking**, **trust and investment advisory services**, and **insurance operations**[100](index=100&type=chunk)[101](index=101&type=chunk) Segment Profit (Loss) | Segment Profit (Loss) (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Core Banking | $13,538 | $12,462 | $43,105 | $34,702 | | Trust and Investment Advisory Services | $406 | $298 | $993 | $952 | | Insurance | $145 | $147 | $1,382 | $1,116 | | Other (Holding Company & Eliminations) | $(1,025) | $(268) | $(2,078) | $(1,221) | | Consolidated Totals | $13,064 | $12,639 | $43,402 | $35,549 | [NOTE 9 – Stock Repurchase Plan](index=38&type=section&id=NOTE%209%20%E2%80%93%20Stock%20Repurchase%20Plan) - The Board of Directors approved a stock repurchase program on April 26, 2001, for up to **911,631 common shares**[108](index=108&type=chunk) - As of September 30, 2019, **502,447 shares** have been purchased, with no shares purchased during the three or nine months ended September 30, 2019 and 2018[108](index=108&type=chunk) [NOTE 10 – Equity Plans and Equity Based Compensation](index=38&type=section&id=NOTE%2010%20%E2%80%93%20Equity%20Plans%20and%20Equity%20Based%20Compensation) - The Company maintains two equity incentive plans: the 2009 LTI Plan (no new grants) and the **2019 LTI Plan** (effective May 16, 2019, authorizing 1,000,000 shares)[109](index=109&type=chunk) - As of September 30, 2019, **994,534 shares** are reserved for future grants under the 2019 LTI Plan[109](index=109&type=chunk) - No stock options were granted or expensed during the reported periods, as all previously granted options were fully vested prior to 2007[110](index=110&type=chunk) Restricted Stock Grants | Restricted Stock Grants | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Shares Granted | 5,466 | 180 | 31,329 | 35,490 | | Total Unvested Restricted Stock (Sep 30) | 76,011 | N/A | 76,011 | N/A | | Total Unvested Restricted Stock (Dec 31) | N/A | 44,682 | N/A | 44,682 | Equity Based Compensation Expense | Equity Based Compensation Expense (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Restricted Stock Expense | $311 | $303 | $972 | $952 | | Cash Entitlement Expense | $167 | $155 | $509 | $495 | | Employee Stock Purchase Plan Expense | $30 | $39 | $30 | $39 | - The **2019 Employee Stock Purchase Plan (ESPP)** replaced the 2009 ESPP, effective October 1, 2019, reserving 750,000 common shares for employee purchases at 95% of fair market value[116](index=116&type=chunk) [NOTE 11 – Fair Value](index=41&type=section&id=NOTE%2011%20%E2%80%93%20Fair%20Value) - Fair value measurements are categorized into **Level 1** (quoted prices), **Level 2** (observable inputs), and **Level 3** (unobservable inputs)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - The Company held **$4.0 million** in Level 3 securities (non-rated Obligations of State and Political Subdivisions) at September 30, 2019[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - Fair values for impaired collateral-dependent loans and other real estate are generally based on **Level 3 inputs** from appraisals[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) Recurring Fair Value Measurements | Recurring Fair Value Measurements (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | **Sep 30, 2019** | | | | | | Total Securities | $0 | $845,415 | $4,030 | $849,445 | | Loans Held-for-Sale | $0 | $19,156 | $0 | $19,156 | | Derivative Assets | $0 | $3,985 | $0 | $3,985 | | Derivative Liabilities | $0 | $4,353 | $0 | $4,353 | | **Dec 31, 2018** | | | | | | Total Securities | $0 | $807,620 | $4,991 | $812,611 | | Loans Held-for-Sale | $0 | $4,263 | $0 | $4,263 | | Derivative Assets | $0 | $1,713 | $0 | $1,713 | | Derivative Liabilities | $0 | $1,734 | $0 | $1,734 | Non-Recurring Fair Value Measurements (Impaired Loans) | Non-Recurring Fair Value Measurements (Impaired Loans, in thousands) | Level 3 (Sep 30, 2019) | Level 3 (Dec 31, 2018) | | :--- | :--- | :--- | | Commercial and Industrial Loans | $2,688 | $2,210 | | Commercial Real Estate Loans | $488 | $2,528 | - Impaired loans measured using collateral fair value resulted in an increase to the provision for loan losses of **$1,510 thousand** for Q3 2019 and **$1,237 thousand** for 9M 2019[132](index=132&type=chunk) [NOTE 12 - Other Comprehensive Income (Loss)](index=47&type=section&id=NOTE%2012%20-%20Other%20Comprehensive%20Income%20(Loss)) Accumulated Other Comprehensive Income (Loss) - Q3 2019 | Accumulated Other Comprehensive Income (Loss) (in thousands) | Sep 30, 2019 | Jul 1, 2019 | Change (Q3) | | :--- | :--- | :--- | :--- | | Beginning Balance | $11,207 | N/A | N/A | | Net Current Period Other Comprehensive Income (Loss) | $4,649 | N/A | N/A | | Ending Balance | $15,856 | N/A | N/A | Accumulated Other Comprehensive Income (Loss) - 9M 2019 | Accumulated Other Comprehensive Income (Loss) (in thousands) | Sep 30, 2019 | Jan 1, 2019 | Change (9M) | | :--- | :--- | :--- | :--- | | Beginning Balance | $(7,098) | N/A | N/A | | Net Current Period Other Comprehensive Income (Loss) | $22,954 | N/A | N/A | | Ending Balance | $15,856 | N/A | N/A | - The significant increase in accumulated other comprehensive income (loss) from **$(7,098) thousand** at January 1, 2019, to **$15,856 thousand** at September 30, 2019, was primarily driven by unrealized gains on available-for-sale securities[142](index=142&type=chunk) [NOTE 13 - Recently Adopted and Newly Issued Accounting Pronouncements](index=50&type=section&id=NOTE%2013%20-%20Recently%20Adopted%20and%20Newly%20Issued%20Accounting%20Pronouncements) - The Company adopted **ASU No. 2016-02, Leases (Topic 842)**, on January 1, 2019, recognizing a right-of-use asset and corresponding lease liability of **$9,034 thousand** for operating leases[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - The Company is preparing for the adoption of **ASU No. 2016-13 (CECL model)**, effective for fiscal years beginning after December 15, 2019, and expects a one-time cumulative adjustment to the allowance for loan losses[151](index=151&type=chunk)[154](index=154&type=chunk) - The Company early adopted **ASU No. 2017-08** in 2017, which shortens the amortization period for certain purchased callable debt securities held at a premium, with no material impact[155](index=155&type=chunk) [NOTE 14 – Leases](index=52&type=section&id=NOTE%2014%20%E2%80%93%20Leases) - Upon adoption of **ASC 842** on January 1, 2019, the Company recognized a right-of-use asset of **$9,034 thousand** and a lease liability of **$9,034 thousand** for operating leases[158](index=158&type=chunk) Lease Cost | Lease Cost (in thousands) | Q3 2019 | 9M 2019 | | :--- | :--- | :--- | | Finance Lease Cost (Amortization) | $83 | $187 | | Finance Lease Cost (Interest) | $188 | $379 | | Operating Lease Cost | $514 | $1,234 | | Short-term Lease Cost | $15 | $45 | | Total Lease Cost | $800 | $1,845 | Lease Metrics (Sep 30, 2019) | Lease Metrics (Sep 30, 2019) | Value | | :--- | :--- | | Weighted Average Remaining Lease Term (Finance) | 12 years | | Weighted Average Remaining Lease Term (Operating) | 8 years | | Weighted Average Discount Rate (Finance) | 11.49% | | Weighted Average Discount Rate (Operating) | 3.39% | [NOTE 15 - Business Combinations](index=54&type=section&id=NOTE%2015%20-%20Business%20Combinations) - Effective July 1, 2019, the Company acquired **Citizens First Corporation**, which had total assets of approximately **$456.0 million** and equity of **$49.8 million**[165](index=165&type=chunk) - The acquisition was accounted for using the acquisition method, with the Company expensing approximately **$3.1 million** in direct acquisition costs and recording **$17.0 million** in goodwill and **$4.5 million** in intangible assets[165](index=165&type=chunk)[166](index=166&type=chunk) Citizens First Acquisition | Citizens First Acquisition (in thousands) | Amount | | :--- | :--- | | Fair Value of Total Consideration Transferred | $65,628 | | Total Identifiable Net Assets Acquired | $48,592 | | Goodwill | $17,036 | | Shares Issued to Former Shareholders | 1,664,000 | | Cash Consideration Paid | $15,500 | - This acquisition aligns with the Company's strategy to expand its regional presence in central and western Kentucky[170](index=170&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes the company's financial condition and results of operations for the three and nine months ended September 30, 2019 [Management Overview](index=57&type=section&id=MANAGEMENT%20OVERVIEW) - German American Bancorp, Inc. is a NASDAQ-traded financial holding company operating **75 banking offices** across southern Indiana, Kentucky, and Tennessee[173](index=173&type=chunk) - The Company elected to be a **'financial holding company'** effective September 24, 2019, allowing it to engage in broader financial activities[174](index=174&type=chunk) Key Performance Metrics | Metric | Q3 2019 (in thousands) | Q3 2018 (in thousands) | 9M 2019 (in thousands) | 9M 2018 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Income | $13,064 | $12,639 | $43,402 | $35,549 | | Basic EPS | $0.49 | $0.55 | $1.70 | $1.55 | - Recent acquisitions include five First Financial Bancorp branches (May 2018), First Security, Inc. (October 2018), and **Citizens First Corporation (July 2019)**, significantly expanding the Company's assets, loans, and deposits[179](index=179&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Critical Accounting Policies and Estimates](index=58&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) - The Company's financial statements rely on critical accounting policies and estimates, including the allowance for loan losses, valuation of securities, income tax expense, and valuation of goodwill[183](index=183&type=chunk) [Allowance for Loan Losses](index=58&type=section&id=Allowance%20for%20Loan%20Losses) - The allowance for loan losses (ALL) is a subjective estimate covering probable incurred credit losses, determined quarterly based on specific and general allocations and management judgment[184](index=184&type=chunk)[185](index=185&type=chunk) - Specific reserves are considered for impaired commercial and agricultural loans, while general allocations are made for substandard loans using migration analysis and for homogeneous portfolios based on historical averages[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) - A minor unallocated component of the ALL accounts for inherent losses not fully reflected in other allocations[190](index=190&type=chunk) [Securities Valuation](index=59&type=section&id=Securities%20Valuation) - Available-for-sale securities are carried at fair value, with unrealized gains/losses in accumulated other comprehensive income[191](index=191&type=chunk) Securities Available-for-Sale (Sep 30, 2019) | Securities Available-for-Sale (in thousands) | Sep 30, 2019 | | :--- | :--- | | Gross Unrealized Gains | $22,821 | | Gross Unrealized Losses | $2,186 | [Income Tax Expense](index=59&type=section&id=Income%20Tax%20Expense) - Income tax expense involves estimates for valuation allowances on deferred tax assets and loss contingencies from tax examinations[192](index=192&type=chunk)[193](index=193&type=chunk) [Goodwill and Other Intangible Assets](index=59&type=section&id=Goodwill%20and%20Other%20Intangible%20Assets) - Goodwill from business combinations is tested for impairment annually and is not amortized[194](index=194&type=chunk) - Other intangible assets, such as core deposit and acquired customer relationships, are amortized over their estimated useful lives, ranging from **6 to 10 years**[195](index=195&type=chunk) [Results of Operations](index=60&type=section&id=RESULTS%20OF%20OPERATIONS) [Net Income](index=60&type=section&id=Net%20Income) Net Income - Q3 | Metric | Q3 2019 (in thousands) | Q3 2018 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income | $13,064 | $12,639 | $425 | 3.36% | | Basic EPS | $0.49 | $0.55 | $(0.06) | -10.91% | Net Income - 9M | Metric | 9M 2019 (in thousands) | 9M 2018 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income | $43,402 | $35,549 | $7,853 | 22.09% | | Basic EPS | $1.70 | $1.55 | $0.15 | 9.68% | - Q3 2019 net income included **$2,258 thousand** ($1,696 thousand after-tax, or **$0.06 per share**) in acquisition-related expenses[196](index=196&type=chunk) - 9M 2019 net income included **$3,225 thousand** ($2,494 thousand after-tax, or **$0.10 per share**) in acquisition-related expenses[197](index=197&type=chunk) [Net Interest Income](index=60&type=section&id=Net%20Interest%20Income) Net Interest Income - Q3 | Metric (Tax-Equivalent, in thousands) | Q3 2019 | Q3 2018 | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $39,310 | $29,240 | $10,070 | 34.44% | | Net Interest Margin | 3.93% | 3.76% | 0.17% | 4.52% | | Yield on Earning Assets | 4.76% | 4.39% | 0.37% | 8.43% | | Cost of Funds | 0.83% | 0.63% | 0.20% | 31.75% | Net Interest Income - 9M | Metric (Tax-Equivalent, in thousands) | 9M 2019 | 9M 2018 | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $107,963 | $83,643 | $24,320 | 29.08% | | Net Interest Margin | 3.89% | 3.72% | 0.17% | 4.57% | | Yield on Earning Assets | 4.73% | 4.28% | 0.45% | 10.51% | | Cost of Funds | 0.84% | 0.56% | 0.28% | 50.00% | - Increased net interest income and margin were primarily driven by **higher average earning assets** due to acquisitions and organic loan growth[204](index=204&type=chunk)[205](index=205&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk) - Accretion of loan discounts on acquired loans contributed approximately **20 basis points** to net interest margin in Q3 2019 and **16 basis points** in 9M 2019[205](index=205&type=chunk)[212](index=212&type=chunk) [Provision for Loan Losses](index=65&type=section&id=Provision%20for%20Loan%20Losses) Provision and Net Charge-offs | Metric (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Provision for Loan Losses | $2,800 | $500 | $3,725 | $2,070 | | Provision for Loan Losses (annualized % of average loans) | 36 bps | 9 bps | 17 bps | 12 bps | | Net Charge-offs (in thousands) | $3,170 | $86 | $3,679 | $1,713 | | Net Charge-offs (annualized % of average loans) | 41 bps | 1 bps | 17 bps | 10 bps | - The higher provision for loan losses in 2019 was primarily due to **increased net charge-offs**, including a partial charge-off on a single commercial lending relationship in Q3 2019[216](index=216&type=chunk)[217](index=217&type=chunk) [Non-interest Income](index=65&type=section&id=Non-interest%20Income) Non-interest Income - Q3 | Non-interest Income (in thousands) | Q3 2019 | Q3 2018 | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Trust and Investment Product Fees | $1,885 | $1,585 | $300 | 19% | | Service Charges on Deposit Accounts | $2,395 | $1,858 | $537 | 29% | | Insurance Revenues | $1,883 | $1,827 | $56 | 3% | | Company Owned Life Insurance | $364 | $251 | $113 | 45% | | Interchange Fee Income | $2,538 | $1,847 | $691 | 37% | | Other Operating Income | $1,029 | $639 | $390 | 61% | | Net Gains on Sales of Loans | $1,649 | $866 | $783 | 90% | | Net Gains on Securities | $313 | $90 | $223 | 248% | | Total Non-interest Income | $12,056 | $8,963 | $3,093 | 35% | Non-interest Income - 9M | Non-interest Income (in thousands) | 9M 2019 | 9M 2018 | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Trust and Investment Product Fees | $5,365 | $5,035 | $330 | 7% | | Service Charges on Deposit Accounts | $6,319 | $4,972 | $1,347 | 27% | | Insurance Revenues | $7,017 | $6,453 | $564 | 9% | | Company Owned Life Insurance | $1,552 | $823 | $729 | 89% | | Interchange Fee Income | $6,965 | $5,043 | $1,922 | 38% | | Other Operating Income | $2,361 | $2,156 | $205 | 10% | | Net Gains on Sales of Loans | $3,660 | $2,421 | $1,239 | 51% | | Net Gains on Securities | $984 | $434 | $550 | 127% | | Total Non-interest Income | $34,223 | $27,337 | $6,886 | 25% | - Increases in service charges on deposit accounts and interchange fees were largely driven by **acquisitions** and increased card utilization[221](index=221&type=chunk)[222](index=222&type=chunk)[227](index=227&type=chunk)[230](index=230&type=chunk) - Net gains on sales of loans increased significantly due to **higher loan sales volume** ($60.1 million in Q3 2019 vs $37.6 million in Q3 2018)[224](index=224&type=chunk)[231](index=231&type=chunk) - Company owned life insurance revenue increased due to **$554 thousand in death benefits** received in Q1 2019 and contributions from acquisitions[229](index=229&type=chunk) [Non-interest Expense](index=67&type=section&id=Non-interest%20Expense) Non-interest Expense - Q3 | Non-interest Expense (in thousands) | Q3 2019 | Q3 2018 | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Salaries and Employee Benefits | $17,579 | $12,134 | $5,445 | 45% | | Occupancy, Furniture and Equipment Expense | $3,751 | $2,738 | $1,013 | 37% | | FDIC Premiums | $0 | $324 | $(324) | -100% | | Data Processing Fees | $2,860 | $1,309 | $1,551 | 118% | | Professional Fees | $1,324 | $793 | $531 | 67% | | Advertising and Promotion | $1,054 | $851 | $203 | 24% | | Intangible Amortization | $1,064 | $430 | $634 | 147% | | Other Operating Expenses | $4,329 | $2,997 | $1,332 | 44% | | Total Non-interest Expense | $31,961 | $21,576 | $10,385 | 48% | Non-interest Expense - 9M | Non-interest Expense (in thousands) | 9M 2019 | 9M 2018 | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Salaries and Employee Benefits | $46,740 | $36,279 | $10,461 | 29% | | Occupancy, Furniture and Equipment Expense | $10,182 | $7,674 | $2,508 | 33% | | FDIC Premiums | $533 | $799 | $(266) | -33% | | Data Processing Fees | $6,246 | $3,834 | $2,412 | 63% | | Professional Fees | $3,825 | $3,025 | $800 | 26% | | Advertising and Promotion | $2,860 | $2,409 | $451 | 19% | | Intangible Amortization | $2,709 | $942 | $1,767 | 188% | | Other Operating Expenses | $11,243 | $8,777 | $2,466 | 28% | | Total Non-interest Expense | $84,338 | $63,739 | $20,599 | 32% | - The significant increase in non-interest expenses was primarily driven by the inclusion of operating expenses and acquisition-related costs from **bank and branch acquisitions**[233](index=233&type=chunk)[241](index=241&type=chunk) - **FDIC premiums declined** due to credits received as the deposit insurance fund's reserve ratio exceeded targeted levels[236](index=236&type=chunk)[244](index=244&type=chunk) - **Intangible amortization increased substantially** due to the acquisitions completed in 2018 and 2019[239](index=239&type=chunk)[247](index=247&type=chunk) [Income Taxes](index=69&type=section&id=Income%20Taxes) Effective Income Tax Rate | Effective Income Tax Rate | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Effective Tax Rate | 17.7% | 18.1% | 16.5% | 17.6% | - The effective tax rate was lower than the blended statutory rate due to **tax-exempt investment income**, income tax credits, and income from subsidiaries in states without state or local income tax[249](index=249&type=chunk) [Financial Condition](index=69&type=section&id=FINANCIAL%20CONDITION) [Total Assets and Loans](index=69&type=section&id=Total%20Assets%20and%20Loans) Assets and Loans Growth | Metric (in thousands) | Sep 30, 2019 | Dec 31, 2018 | Change (in thousands) | Annualized % Change | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $4,356,000 | $3,929,000 | $427,000 | 14% | | Total Loans | $3,060,742 | $2,731,741 | $329,001 | 16% | - The increase in total assets and loans was largely driven by the **acquisition of Citizens First**, which contributed approximately **$337.5 million** in outstanding loans[250](index=250&type=chunk)[251](index=251&type=chunk) [Allowance for Loan Losses](index=69&type=section&id=Allowance%20for%20Loan%20Losses) Allowance for Loan Loss Metrics | Metric (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Allowance for Loan Loss | $15,869 | $15,823 | | ALL to Period-End Loans | 0.52% | 0.58% | | Net Discount on Acquired Loans | $22,900 | $19,500 | - The allowance for loan losses ratio to period-end loans decreased due to loan growth from the Citizens First acquisition, where acquired loans are recorded at **fair value**[252](index=252&type=chunk) [Non-performing Assets](index=70&type=section&id=Non-performing%20Assets) Non-performing Assets | Non-performing Assets (in thousands) | Sep 30, 2019 | Dec 31, 2018 | Change (in thousands) | | :--- | :--- | :--- | :--- | | Non-accrual Loans | $13,512 | $12,579 | $933 | | Past Due Loans (90 days or more) | $0 | $633 | $(633) | | Total Non-performing Loans | $13,512 | $13,212 | $300 | | Other Real Estate | $625 | $286 | $339 | | Total Non-performing Assets | $14,137 | $13,498 | $639 | | Non-performing Loans to Total Loans | 0.44% | 0.48% | -0.04% | | Allowance for Loan Loss to Non-performing Loans | 117.44% | 119.76% | -2.32% | - Non-performing assets and loans increased slightly in absolute terms but **decreased as a percentage of total assets and loans**, respectively, indicating improved asset quality relative to growth[253](index=253&type=chunk) [Deposits](index=70&type=section&id=Deposits) Deposit Balances | Deposit Balances (in thousands) | Sep 30, 2019 | Dec 31, 2018 | Change (in thousands) | Annualized % Change | | :--- | :--- | :--- | :--- | :--- | | Total Deposits | $3,431,286 | $3,072,632 | $358,654 | 16% | | Non-interest-bearing Demand Deposits | $827,259 | $715,972 | $111,287 | 15.54% | | Interest-bearing Demand, Savings, & Money Market Accounts | $1,910,395 | $1,768,177 | $142,218 | 8.04% | | Time Deposits < $100,000 | $323,746 | $249,309 | $74,437 | 29.86% | | Time Deposits of $100,000 or more | $369,886 | $339,174 | $30,712 | 9.05% | - Total deposits increased significantly, primarily driven by the acquisition of Citizens First, which contributed approximately **$358.6 million** in deposits[255](index=255&type=chunk) [Capital Resources](index=71&type=section&id=Capital%20Resources) Capital Metrics | Metric (in thousands) | Sep 30, 2019 | Dec 31, 2018 | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Shareholders' Equity | $562,900 | $458,600 | $104,300 | 22.74% | | Shareholders' Equity to Total Assets | 12.9% | 11.7% | 1.2% | 10.26% | | Goodwill and Other Intangible Assets | $133,800 | $113,600 | $20,200 | 17.78% | - The increase in shareholders' equity was largely due to the issuance of **1.7 million common shares** for the Citizens First acquisition, an increase in retained earnings, and an increase in accumulated other comprehensive income[257](index=257&type=chunk) Regulatory Capital Ratios | Regulatory Capital Ratios | Sep 30, 2019 | Dec 31, 2018 | Minimum for Capital Adequacy | Well-Capitalized Guidelines | | :--- | :--- | :--- | :--- | :--- | | Consolidated Total Capital | 14.10% | 12.36% | 8.00% | N/A | | Consolidated Tier 1 Capital | 12.48% | 11.85% | 6.00% | N/A | | Consolidated Common Tier 1 Capital | 12.03% | 11.48% | 4.50% | N/A | | Consolidated Tier 1 Capital (to Average Assets) | 10.24% | 9.75% | 4.00% | N/A | | Bank Total Capital | 13.06% | 12.37% | 8.00% | 10.00% | | Bank Tier 1 Capital | 12.60% | 11.86% | 6.00% | 8.00% | | Bank Common Tier 1 Capital | 12.60% | 11.86% | 4.50% | 6.50% | | Bank Tier 1 Capital (to Average Assets) | 10.35% | 9.78% | 4.00% | 5.00% | - The Company and its subsidiary bank maintained capital levels **well in excess of minimum requirements** and met 'well-capitalized' thresholds under the Basel III framework[259](index=259&type=chunk) - The Company elected to **opt-out** of including additional components of Accumulated Other Comprehensive Income (AOCI) in regulatory capital[261](index=261&type=chunk) [Liquidity](index=72&type=section&id=Liquidity) Cash Flow Activity (9M 2019) | Cash Flow Activity (9M 2019, in thousands) | Amount | | :--- | :--- | | Net Cash from Operating Activities | $45,800 | | Net Cash from Investing Activities | $62,600 | | Net Cash from Financing Activities | $(115,800) | | Net Change in Cash and Cash Equivalents | $(7,400) | | Cash and Cash Equivalents at End of Period | $89,100 | - The parent company's liquidity is primarily derived from dividends from its bank subsidiary and borrowings, with **$27.9 million** in cash and cash equivalents available at September 30, 2019[263](index=263&type=chunk) - On June 25, 2019, the Company issued **$40.0 million** in 4.50% Fixed-to-Floating Rate Subordinated Notes due 2029, intended to qualify as **Tier 2 capital**[264](index=264&type=chunk)[265](index=265&type=chunk)[267](index=267&type=chunk) [Forward-Looking Statements and Associated Risks](index=73&type=section&id=FORWARD-LOOKING%20STATEMENTS%20AND%20ASSOCIATED%20RISKS) - The Company's forward-looking statements are based on assumptions and subject to risks and uncertainties that could cause actual results to differ materially[269](index=269&type=chunk)[271](index=271&type=chunk) - Key risks include interest rate changes, competitive conditions, M&A success, economic deterioration, technological changes, and regulatory actions[271](index=271&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their creation date[270](index=270&type=chunk)[273](index=273&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=74&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company discloses its exposure to market risks, primarily liquidity and interest rate risk, and its management strategies - The Company's market risk exposure, including liquidity and interest rate risk, is regularly reviewed by the **Asset/Liability Committee** and Boards of Directors[274](index=274&type=chunk) - Interest rate risk is monitored using computer simulation modeling to estimate impacts on net interest income (NII) and net portfolio value (NPV)[276](index=276&type=chunk)[277](index=277&type=chunk)[281](index=281&type=chunk) Net Interest Income Sensitivity | Changes in Rates | Net Interest Income (in thousands) | % Change | | :--- | :--- | :--- | | +2% | $149,938 | (0.84)% | | +1% | $151,043 | (0.11)% | | Base | $151,211 | — | | -1% | $149,630 | (1.05)% | | -2% | $143,543 | (5.07)% | Net Portfolio Value Sensitivity | Changes in Rates | Net Portfolio Value (in thousands) | % Change | NPV Ratio | Change (b.p.) | | :--- | :--- | :--- | :--- | :--- | | +2% | $502,963 | (3.27)% | 12.43% | 13 | | +1% | $517,654 | (0.44)% | 12.50% | 20 | | Base | $519,941 | — | 12.30% | — | | -1% | $497,140 | (4.39)% | 11.56% | (74) | | -2% | $440,173 | (15.34)% | 10.09% | (221) | [Item 4. Controls and Procedures](index=75&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirms the effectiveness of disclosure controls and procedures as of the end of the reporting period - As of September 30, 2019, the Company's disclosure controls and procedures were evaluated and **deemed effective** by its principal executive and financial officers[287](index=287&type=chunk) - **No material changes** to the Company's internal control over financial reporting occurred during the third fiscal quarter of 2019[288](index=288&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material legal proceedings outside the ordinary course of business - No material legal proceedings are pending against the Company, beyond litigation incidental to ordinary business[290](index=290&type=chunk) [Item 1A. Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors are reported for the period - No material changes to risk factors have occurred since the Annual Report on Form 10-K for December 31, 2018[291](index=291&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company details its equity security repurchases for the three months ended September 30, 2019 - **No shares were purchased** under the Company's stock repurchase program during the three months ended September 30, 2019[293](index=293&type=chunk) - As of September 30, 2019, **409,184 shares** remained available for repurchase under the program, which has no expiration date[293](index=293&type=chunk) [Item 3. Defaults Upon Senior Securities](index=60&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities occurred during the reporting period - No defaults upon senior securities were reported[294](index=294&type=chunk) [Item 4. Mine Safety Disclosures](index=60&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - This disclosure item is not applicable to the Company[295](index=295&type=chunk) [Item 5. Other Information](index=60&type=section&id=Item%205.%20Other%20Information) No other material information is reported for the period - No other information was reported[296](index=296&type=chunk) [Item 6. Exhibits](index=61&type=section&id=Item%206.%20Exhibits) A comprehensive list of exhibits filed with the Form 10-Q is provided - The report includes various exhibits such as purchase and reorganization agreements, articles of incorporation, bylaws, loan agreements, subordinated note agreements, and **Sarbanes-Oxley Act certifications**[299](index=299&type=chunk)[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk) - Long-term debt instruments exceeding **10% of consolidated total assets** are not registered, and copies will be furnished upon request to the SEC[300](index=300&type=chunk)

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 June 30, 2019 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 ...

PART I. FINANCIAL INFORMATION [Item 1. Unaudited Financial Statements](index=4&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) This section presents the unaudited consolidated financial statements of German American Bancorp, Inc. for Q1 2019, including balance sheets, income statements, and cash flows [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets slightly decreased to $3.896 billion, while shareholders' equity increased to $479.2 million, driven by net income and comprehensive income Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$3,895,524** | **$3,929,090** | | Cash and Cash Equivalents | $59,528 | $96,550 | | Loans, Net | $2,692,589 | $2,712,236 | | Securities Available-for-Sale | $824,597 | $812,611 | | **Total Liabilities** | **$3,416,337** | **$3,470,450** | | Total Deposits | $3,065,170 | $3,072,632 | | FHLB Advances and Other Borrowings | $317,480 | $376,409 | | **Total Shareholders' Equity** | **$479,187** | **$458,640** | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q1 2019 increased 27.5% to $15.1 million, with diluted EPS rising to $0.60, driven by higher net interest income Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Interest Income | $33,591 | $25,610 | | Provision for Loan Losses | $675 | $350 | | Non-interest Income | $11,658 | $9,492 | | Non-interest Expense | $26,759 | $20,455 | | **Net Income** | **$15,067** | **$11,813** | | **Diluted Earnings per Share** | **$0.60** | **$0.51** | | Dividends per Share | $0.17 | $0.15 | [Consolidated Statements of Comprehensive Income](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for Q1 2019 significantly increased to $24.5 million, primarily due to a positive swing in other comprehensive income from unrealized gains on securities Comprehensive Income (in thousands) | Component | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Income | $15,067 | $11,813 | | Other Comprehensive Income (Loss) | $9,414 | $(9,218) | | **Comprehensive Income** | **$24,481** | **$2,595** | [Consolidated Statements of Changes in Shareholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Shareholders' equity increased to $479.2 million, primarily driven by net income and other comprehensive income, partially offset by dividends paid - Key drivers for the change in shareholders' equity in Q1 2019 were: - Net Income: **+$15,067 thousand**[19](index=19&type=chunk) - Other Comprehensive Income: **+$9,414 thousand**[19](index=19&type=chunk) - Cash Dividends Paid: **-$4,245 thousand**[19](index=19&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents decreased by $37.0 million in Q1 2019, with net cash used in financing activities significantly impacting the overall change Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $15,343 | $13,739 | | Net Cash from Investing Activities | $18,032 | $(22,793) | | Net Cash from Financing Activities | $(70,397) | $(21,095) | | **Net Change in Cash and Cash Equivalents** | **$(37,022)** | **$(30,149)** | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section details accounting policies, financial statement line items, and the adoption of new accounting standards, including a pending business combination - The Company adopted ASU 2014-09 (Topic 606) on revenue recognition, which did not materially change the method of recognizing revenue for its primary streams[25](index=25&type=chunk) - The Company adopted the new lease accounting standard (Topic 842) on January 1, 2019, recognizing a right-of-use asset and corresponding lease liability of **$9.034 million**[122](index=122&type=chunk) - On February 21, 2019, the Company agreed to acquire Citizens First Corporation, a bank holding company with approximately **$476 million in assets**, for **$68.2 million**, expected to close in Q3 2019[136](index=136&type=chunk)[137](index=137&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2019 financial performance, highlighting increased diluted EPS, growth in net interest and non-interest income, and the impact of recent and pending acquisitions [Management Overview](index=42&type=section&id=Management%20Overview) Q1 2019 net income increased to $15.1 million, or $0.60 diluted EPS, significantly influenced by 2018 acquisitions and a pending Q3 2019 acquisition - Net income for Q1 2019 increased to **$15.1 million**, or **$0.60 per diluted share**, an **18% improvement** on a per-share basis compared to Q1 2018[145](index=145&type=chunk) - The company's growth strategy includes completed 2018 acquisitions and the pending acquisition of Citizens First Corporation[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Q1 2019 results show strong growth, with net interest income up 31% to $34.3 million and non-interest income up 23% to $11.7 million, despite a 31% rise in non-interest expense Net Interest Income and Margin (Tax-equivalent) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Interest Income | $34,299 thousand | $26,261 thousand | | Net Interest Margin | 3.88% | 3.66% | - The increase in net interest margin was positively impacted by higher loan yields and **16 basis points** from accretion of loan discounts on acquired loans[171](index=171&type=chunk) Non-interest Income Breakdown (in thousands) | Category | Q1 2019 | Q1 2018 | % Change | | :--- | :--- | :--- | :--- | | Interchange Fee Income | $2,095 | $1,482 | 41% | | Insurance Revenues | $3,205 | $2,930 | 9% | | Service Charges | $1,900 | $1,471 | 29% | | **Total Non-interest Income** | **$11,658** | **$9,492** | **23%** | - Non-interest expense increased by **31% YoY**, largely due to operating expenses from 2018 acquisitions and **$544,000** in acquisition-related expenses in Q1 2019[182](index=182&type=chunk) [Financial Condition](index=49&type=section&id=Financial%20Condition) Total assets slightly decreased to $3.90 billion, with minor declines in loans and deposits, while non-performing assets improved to $13.1 million Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Commercial and Industrial | $555,967 | $543,761 | | Commercial Real Estate | $1,212,090 | $1,208,646 | | Agricultural | $347,999 | $365,208 | | Retail (Home Equity & Consumer) | $281,724 | $285,534 | | Residential Mortgage | $314,634 | $328,592 | | **Total Loans** | **$2,712,414** | **$2,731,741** | Non-performing Assets (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Non-accrual Loans | $12,036 | $12,579 | | Total Non-performing Loans | $12,429 | $13,212 | | **Total Non-performing Assets** | **$13,114** | **$13,498** | | Non-performing Loans to Total Loans | 0.46% | 0.48% | - The allowance for loan losses was **0.60%** of period-end loans at March 31, 2019, with a net discount on acquired loans of **$18.2 million**[194](index=194&type=chunk) [Capital Resources](index=52&type=section&id=Capital%20Resources) Shareholders' equity increased to $479.2 million, with the company and its subsidiary bank remaining well-capitalized under Basel III regulations Regulatory Capital Ratios (Consolidated) | Ratio | March 31, 2019 | Minimum for Adequacy | | :--- | :--- | :--- | | Total Capital (to Risk Weighted Assets) | 12.80% | 8.00% | | Tier 1 (Core) Capital (to Risk Weighted Assets) | 12.27% | 6.00% | | Common Equity Tier 1 (CET 1) Capital Ratio | 11.90% | 4.50% | | Tier 1 Capital (to Average Assets) | 9.97% | 4.00% | - The company's capital levels remained well in excess of minimum requirements, with the subsidiary bank meeting the 'well-capitalized' guidelines[201](index=201&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages liquidity and interest rate risk through NII and NPV simulation modeling, projecting impacts from various rate changes - The company monitors interest rate risk by modeling the potential impact on Net Interest Income (NII) and Net Portfolio Value (NPV) under various rate scenarios[214](index=214&type=chunk) Net Interest Income Sensitivity (as of March 31, 2019) | Rate Change | % Change in NII | | :--- | :--- | | +200 bps | (2.79)% | | +100 bps | (1.32)% | | -100 bps | (1.31)% | | -200 bps | (7.05)% | Net Portfolio Value Sensitivity (as of March 31, 2019) | Rate Change | % Change in NPV | | :--- | :--- | | +200 bps | (8.74)% | | +100 bps | (3.92)% | | -100 bps | (2.30)% | | -200 bps | (11.25)% | [Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during Q1 2019 - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[225](index=225&type=chunk) - No changes occurred in Q1 2019 that materially affected the company's internal control over financial reporting[226](index=226&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings beyond those incidental to its ordinary course of business - There are no material pending legal proceedings against the company outside of ordinary business litigation[228](index=228&type=chunk) [Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors have occurred since the company's Annual Report on Form 10-K for December 31, 2018 - No material changes to risk factors have occurred since the last Annual Report on Form 10-K[229](index=229&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any common shares in Q1 2019, with 409,184 shares remaining available under the existing repurchase program - No shares were repurchased during the first quarter of 2019[231](index=231&type=chunk) - As of March 31, 2019, **409,184 shares** were still available for purchase under the publicly announced stock repurchase program[231](index=231&type=chunk) [Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with or incorporated by reference into the Form 10-Q, including various agreements and certifications

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 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 incorporation or organization) (I.R.S. Employer Identification No.) 711 Main Street, Box 810, Jasper, Indiana 47546 (Address of Prin ...