German American(GABC) - 2025 Q1 - Quarterly Results

Q1 2025 Financial & Operational Highlights German American Bancorp reported Q1 2025 earnings significantly impacted by Heartland merger costs, while underlying performance showed positive trends and strategic integration progressed smoothly Q1 2025 Earnings Summary Q1 2025 GAAP net income decreased to $10.5 million ($0.30 EPS) due to $5.9 million merger expenses and a $16.2 million CECL provision, while adjusted net income remained stable at $27.3 million ($0.79 EPS) Q1 2025 Earnings Performance (GAAP vs. Adjusted) | Metric | Q1 2025 (GAAP) | Q4 2024 (GAAP) | Q1 2025 (Adjusted) | Q4 2024 (Adjusted) | | :--- | :--- | :--- | :--- | :--- | | Net Income | $10.5 million | $23.2 million | $27.3 million | $23.4 million | | EPS | $0.30 | $0.78 | $0.79 | $0.79 | - First-quarter earnings were significantly impacted by one-time merger and acquisition costs of $5.9 million and a 'Day 2' CECL provision of $16.2 million related to the Heartland acquisition, resulting in a total after-tax impact of $16.8 million[1] - Despite merger-related impacts, the quarter showed positive underlying performance, including net interest margin expansion, strong organic loan and deposit growth, and controlled operating expenses[1] Strategic Developments and Outlook The company successfully closed the Heartland BancCorp acquisition and completed system conversion, with management expressing confidence in future profitability and shareholder value, supported by a declared $0.29 per share dividend - The Board of Directors declared a regular quarterly cash dividend of $0.29 per share, payable on May 20, 2025[8] - The company was ranked second in the nation on the Forbes "America's Best Banks 2025" list, reflecting its financial strength and stability[9] - CEO D. Neil Dauby highlighted the smooth conversion of Heartland's operating systems post-quarter end and expressed confidence in future growth and profitability driven by the newly combined team[10] Financial Condition Analysis (Balance Sheet) The balance sheet reflects significant growth driven by the Heartland acquisition, impacting total assets, loans, and deposits, while maintaining strong capital adequacy Heartland Acquisition Details German American completed the Heartland BancCorp acquisition on February 1, 2025, adding approximately $1.94 billion in assets, $1.58 billion in loans, and $1.73 billion in deposits, settled with 7.74 million shares and $23.1 million cash Heartland Financials at Acquisition | Metric | Value (approx.) | | :--- | :--- | | Total Assets | $1.94 billion | | Total Loans | $1.58 billion | | Total Deposits | $1.73 billion | - The acquisition was settled with approximately 7.74 million shares of GABC common stock and $23.1 million in cash[12] Loan Portfolio Total loans increased by $1.52 billion to $5.65 billion due to the Heartland acquisition, with 4% organic growth and diversified composition, while asset quality remained strong with non-performing loans at 0.33% End of Period Loan Balances (in thousands) | Loan Category | 3/31/2025 | 12/31/2024 | 3/31/2024 | | :--- | :--- | :--- | :--- | | Commercial & Industrial | $812,073 | $671,038 | $646,162 | | Commercial Real Estate | $3,055,074 | $2,224,872 | $2,148,808 | | Agricultural Loans | $455,678 | $431,037 | $400,733 | | Residential Mortgage Loans | $788,222 | $357,448 | $361,236 | | Total Loans | $5,654,944 | $4,133,267 | $3,978,919 | - Excluding acquired loans, organic loan growth was 4% from March 31, 2024, to March 31, 2025. On a linked-quarter basis, organic commercial real estate loans grew 10% annualized[3][16] - The allowance for credit losses increased to 1.33% of period-end loans, up from 1.08% at year-end 2024, mainly due to a $32.1 million addition related to the Heartland portfolio[19][20] Asset Quality Metrics | Metric | 3/31/2025 | 12/31/2024 | 3/31/2024 | | :--- | :--- | :--- | :--- | | Non-Performing Assets to Total Assets | 0.22% | 0.18% | 0.16% | | Non-Performing Loans to Total Loans | 0.33% | 0.27% | 0.25% | Deposits Total deposits increased by $1.77 billion to $7.10 billion primarily due to the Heartland acquisition, with non-interest-bearing demand deposits growing organically by $21 million (6% annualized) and remaining 27% of total deposits End of Period Deposit Balances (in thousands) | Deposit Category | 3/31/2025 | 12/31/2024 | 3/31/2024 | | :--- | :--- | :--- | :--- | | Non-interest-bearing Demand | $1,889,673 | $1,399,270 | $1,463,933 | | IB Demand, Savings, and MMDA | $3,788,889 | $3,013,204 | $2,918,459 | | Time Deposits | $1,419,323 | $916,601 | $836,955 | | Total Deposits | $7,097,885 | $5,329,075 | $5,219,347 | - The Heartland acquisition contributed $1.755 billion in deposits as of March 31, 2025[24] - Excluding acquisition-related deposits, non-interest bearing demand deposits increased by $21 million, or 6% on an annualized basis, compared to Q4 2024[4][5] Capital Adequacy As of March 31, 2025, the company and its subsidiary bank maintained capital levels significantly above minimum requirements, with the bank classified as 'well-capitalized' Capital Ratios | Ratio | 3/31/2025 | 12/31/2024 | 3/31/2024 | | :--- | :--- | :--- | :--- | | Consolidated | | | | | CET 1 Capital Ratio | 12.73% | 15.02% | 14.27% | | Tier 1 Capital Ratio | 13.26% | 15.72% | 14.97% | | Total Capital Ratio | 15.23% | 17.15% | 16.57% | | Bank | | | | | CET 1 Capital Ratio | 12.56% | 14.23% | 13.73% | Results of Operations Analysis (Income Statement) The income statement analysis highlights significant increases in net interest income and non-interest expense, largely driven by the Heartland acquisition, alongside a substantial credit loss provision Net Interest Income & Margin Q1 2025 net interest income increased 30% to $66.6 million, driven by higher earning assets and a significant net interest margin expansion to 3.96%, with 24 basis points from loan discount accretion Net Interest Margin Analysis | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income (tax-equivalent) | $67.9M | $52.2M | $46.6M | | Net Interest Margin (NIM) | 3.96% | 3.54% | 3.35% | | NIM Contribution from Accretion | 24 bps | 4 bps | 3 bps | - The increase in net interest income was primarily due to a higher level of earning assets from the Heartland acquisition and the expansion of the net interest margin[36] - Excluding accretion, the NIM improvement was driven by higher yields on earning assets and a lower cost of deposits, partly due to the Federal Reserve's rate actions in late 2024[39] Provision for Credit Losses and Net Charge-offs Q1 2025 provision for credit losses surged to $15.3 million, primarily due to a $16.2 million 'Day 2' CECL provision from the Heartland acquisition, while net charge-offs remained minimal at 4 basis points - The Q1 2025 provision for credit losses of $15.3 million included a $16.2 million provision for the Day 2 CECL addition related to the Heartland acquisition[40] - Net charge-offs were very low, totaling only 4 basis points of average loans for the quarter[3][41] Non-Interest Income Non-interest income increased 5% to $14.8 million from Q4 2024 due to Heartland's operations, but declined 6% year-over-year as expected, following the mid-2024 sale of the GAI business Non-Interest Income Breakdown (in thousands) | Category | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Wealth Management Fees | $3,836 | $3,687 | $3,366 | | Service Charges on Deposit Accounts | $3,486 | $3,344 | $2,902 | | Interchange Fee Income | $4,421 | $4,244 | $4,087 | | Insurance Revenues | $0 | $0 | $2,878 | | Total Non-interest Income | $14,840 | $14,114 | $15,822 | - The increase in non-interest income compared to Q4 2024 was predominantly driven by the Heartland acquisition[6][42] - The year-over-year decline was due to the sale of the German American Insurance (GAI) assets in the second quarter of 2024, which resulted in no insurance revenue in Q1 2025[43][48] Non-Interest Expense Non-interest expense rose 47% to $52.8 million from Q4 2024, driven by $5.9 million in non-recurring Heartland acquisition costs and the inclusion of Heartland's ongoing operating expenses Non-Interest Expense Breakdown (in thousands) | Category | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Salaries and Employee Benefits | $28,040 | $20,404 | $21,178 | | Data Processing Fees | $5,495 | $3,257 | $2,811 | | Professional Fees | $4,184 | $1,178 | $1,595 | | Intangible Amortization | $2,070 | $438 | $578 | | Total Non-interest Expense | $52,782 | $35,839 | $36,738 | - Q1 2025 non-interest expense included approximately $5.9 million of non-recurring acquisition-related expenses for the Heartland merger[52] - Excluding one-time costs, the primary driver of the expense increase was the addition of Heartland's operating costs, including salaries, occupancy, and data processing[52][54][56][57] Financial Statements & Reconciliations This section presents the unaudited consolidated financial statements and reconciliations of non-GAAP financial measures, offering a comprehensive view of the company's financial position and performance Consolidated Financial Statements The report provides unaudited consolidated financial statements, including Balance Sheets and Statements of Income, along with key performance and asset quality ratios for periods ending March 31, 2025, December 31, 2024, and March 31, 2024 - The release contains the Consolidated Balance Sheets as of March 31, 2025, December 31, 2024, and March 31, 2024[70] - The release contains the Consolidated Statements of Income for the three months ended March 31, 2025, December 31, 2024, and March 31, 2024[73] - A summary of key earnings performance, asset quality, and balance sheet ratios is provided[76] Non-GAAP Financial Measures Reconciliation Non-GAAP financial measures are provided to exclude the 'Day 2' CECL provision, non-recurring Heartland merger expenses, and divested GAI business results, enhancing comparability for investors - Non-GAAP measures are used to exclude the impact of the Heartland merger's CECL Day 2 provision, non-recurring merger expenses, and the results of the sold GAI insurance business to improve comparability[80] Non-GAAP Reconciliation - Net Income and EPS (Q1 2025) | (in thousands, except per share) | As Reported (GAAP) | Adjustments | As Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Net Income | $10,517 | +$16,770 | $27,287 | | Earnings Per Share | $0.30 | +$0.49 | $0.79 | Non-GAAP Reconciliation - Efficiency Ratio (Q1 2025) | Metric | As Reported (GAAP) | As Adjusted (Non-GAAP) | | :--- | :--- | :--- | | Efficiency Ratio | 61.30% | 54.13% |