German American(GABC) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Financial Statements 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 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 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 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 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] - Other Comprehensive Income: +$9,414 thousand[19] - Cash Dividends Paid: -$4,245 thousand[19] Consolidated Statements of Cash Flows 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 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] - 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] - 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][137] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - The company's growth strategy includes completed 2018 acquisitions and the pending acquisition of Citizens First Corporation[146][147][148] Results of Operations 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] 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] Financial Condition 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] Capital Resources 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] Quantitative and Qualitative Disclosures About Market Risk 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] 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 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] - No changes occurred in Q1 2019 that materially affected the company's internal control over financial reporting[226] PART II. OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - As of March 31, 2019, 409,184 shares were still available for purchase under the publicly announced stock repurchase program[231] Exhibits This section lists exhibits filed with or incorporated by reference into the Form 10-Q, including various agreements and certifications