German American(US:GABC)2025-05-12 20:49Part I Financial Information This section presents the core unaudited financial statements for the quarter ended March 31, 2025, compared against prior periods Unaudited Financial Statements This section presents the core unaudited financial statements for the quarter ended March 31, 2025, compared against prior periods, reflecting significant growth driven by the Heartland BancCorp acquisition Consolidated Balance Sheet Highlights (in billions) | Account | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $8.420 | $6.296 | +$2.124 | | Loans, Net | $5.571 | $4.080 | +$1.491 | | Total Deposits | $7.098 | $5.329 | +$1.769 | | Total Shareholders' Equity | $1.046 | $0.715 | +$0.331 | Consolidated Income Statement Highlights (in millions, except per share data) | Account | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $66.572 | $44.994 | +$21.578 | | Provision for Credit Losses | $15.300 | $0.900 | +$14.400 | | Non-interest Income | $14.840 | $15.822 | -$0.982 | | Non-interest Expense | $52.782 | $36.738 | +$16.044 | | Net Income | $10.517 | $19.022 | -$8.505 | | Diluted EPS | $0.30 | $0.64 | -$0.34 | - Net income for Q1 2025 was $10.5 million, or $0.30 per share, a 53% per-share decline from Q1 2024, primarily due to costs associated with the Heartland acquisition168186 - The quarter's results included significant one-time items: $5.9 million in acquisition-related expenses and a $16.2 million Day 2 provision for credit losses under CECL for the Heartland portfolio170187 - The company completed the sale of its insurance subsidiary, German American Insurance, Inc. (GAI), on June 1, 2024, for $40.0 million, resulting in no insurance revenue in Q1 202533167 Business Combinations (Heartland Acquisition) This section details the acquisition of Heartland BancCorp, including its financial impact and the accounting treatment of goodwill and intangible assets - On February 1, 2025, the Company acquired Heartland BancCorp, which added approximately $1.94 billion in assets, $1.58 billion in loans, and $1.73 billion in deposits146147 - The acquisition was accounted for using the acquisition method, resulting in the recognition of $197.5 million in goodwill and $40.1 million in core deposit intangible assets150 Heartland Acquisition Consideration and Net Assets (in millions) | Item | Value | | :--- | :--- | | Consideration | | | Cash | $23.102 | | Equity Instruments | $320.007 | | Total Consideration | $343.109 | | Assets/Liabilities | | | Total Identifiable Net Assets Acquired | $145.627 | | Goodwill | $197.482 | Loan Portfolio and Credit Quality This section analyzes the composition and credit quality of the loan portfolio, including changes in the Allowance for Credit Losses and non-accrual loans Loan Portfolio Composition (in millions) | Loan Type | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial and Industrial | $732.328 | $591.785 | | Commercial Real Estate | $3,055.074 | $2,224.872 | | Agricultural | $455.678 | $431.037 | | Residential Mortgage | $788.222 | $357.448 | | Other Retail | $543.897 | $448.872 | | Total Loans | $5,654.944 | $4,133.267 | - The Allowance for Credit Losses (ACL) increased from $44.4 million at year-end 2024 to $75.2 million at March 31, 2025. The increase includes a $15.9 million ACL for acquired Heartland PCD loans and a $16.2 million Day 2 CECL provision for the Heartland portfolio57 - Effective March 31, 2025, the Company changed its ACL estimation method for most loan segments from a static pool to a discounted cash flow model, resulting in a $1.7 million decrease to the allowance58 - Total non-accrual loans increased to $17.9 million as of March 31, 2025, up from $10.9 million at December 31, 20247374 Securities Portfolio This section details the company's securities portfolio, including fair values and unrealized gains or losses Securities Available-for-Sale (in millions) | Security Type | Fair Value (Mar 31, 2025) | Fair Value (Dec 31, 2024) | | :--- | :--- | :--- | | U.S. Treasury | $144.667 | $110.864 | | Obligations of State and Political Subdivisions | $458.834 | $463.169 | | MBS/CMO | $709.425 | $702.179 | | US Gov't Sponsored Entities & Agencies | $249.758 | $241.075 | | Total | $1,562.684 | $1,517.287 | - As of March 31, 2025, the securities portfolio had gross unrealized losses of $267.8 million, primarily concentrated in securities held for 12 months or more. These losses are considered temporary and related to market interest rate fluctuations, with no allowance for credit losses deemed necessary4143 Segment Information This section outlines the financial performance of the company's core banking and wealth management segments following the divestiture of its insurance business - Following the sale of its insurance assets on June 1, 2024, the Company's operations now consist of two primary segments: core banking and wealth management services. As a result, no insurance revenue was recorded in Q1 202595 Segment Profit (Loss) Before Taxes - Q1 2025 (in millions) | Segment | Profit (Loss) Before Taxes | | :--- | :--- | | Core Banking | $16.811 | | Wealth Management Services | $1.410 | | Insurance | $0 | | Other / Eliminations | ($4.891) | | Consolidated Total | $13.330 | Management's Discussion and Analysis (MD&A) Management discusses the significant impact of the Heartland BancCorp acquisition on the first quarter 2025 results, including adjusted net income and the sale of the insurance business Results of Operations Net interest income increased 48% to $66.6 million, with the tax-equivalent net interest margin expanding 61 basis points to 3.96%, significantly boosted by 24 basis points from purchase accounting accretion on acquired loans - Tax-equivalent net interest margin was 3.96% in Q1 2025, up from 3.35% in Q1 2024. Accretion of discounts on acquired loans contributed 24 basis points to the Q1 2025 margin189 - The provision for credit losses of $15.3 million in Q1 2025 was primarily driven by the $16.2 million Day 2 CECL addition for the Heartland acquisition192 - Non-interest income fell by $1.0 million, or 6%, mainly because of a $2.9 million decline in insurance revenues following the sale of GAI, which was partially offset by growth in other fee income categories from the Heartland acquisition196197200 - Non-interest expense increased by $16.0 million, or 44%, driven by Heartland's operating costs and approximately $5.9 million in non-recurring acquisition-related expenses203 Financial Condition As of March 31, 2025, total assets reached $8.42 billion, a $2.12 billion increase from year-end 2024, driven by the Heartland acquisition, with corresponding growth in loans and deposits Key Balance Sheet Changes (in billions) | Account | March 31, 2025 | Dec 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $8.42 | $6.30 | +$2.12 | | Total Loans | $5.65 | $4.13 | +$1.52 | | Total Deposits | $7.10 | $5.33 | +$1.77 | - The allowance for credit losses increased to $75.2 million, representing 1.33% of period-end loans. This includes a $32.1 million addition related to the Heartland loan portfolio219220 - Non-performing assets rose to $18.6 million (0.22% of total assets), up from $11.1 million (0.18% of total assets) at year-end 2024, with the Heartland acquisition contributing $5.4 million to the total222 Capital Resources and Liquidity Shareholders' equity increased by $331.0 million to $1.046 billion, primarily due to the issuance of 7.7 million shares valued at $320.0 million for the Heartland acquisition, with all regulatory capital ratios remaining well above 'well-capitalized' minimums - Shareholders' equity increased to $1.046 billion, largely due to issuing approximately 7.7 million shares valued at $320.0 million to complete the Heartland acquisition226227 Regulatory Capital Ratios | Ratio | 3/31/2025 | 12/31/2024 | Well-Capitalized Guideline | | :--- | :--- | :--- | :--- | | Consolidated | | | | | Total Capital | 15.01% | 17.15% | N/A | | Tier 1 Capital | 13.26% | 15.72% | N/A | | CET 1 Capital | 12.73% | 15.02% | N/A | | Bank | | | | | Total Capital | 13.47% | 15.02% | 10.00% | | Tier 1 Capital | 12.56% | 14.23% | 8.00% | - The company has significant available liquidity, including borrowing capacity of approximately $389 million at the FHLB and $649 million at the Federal Reserve Bank as of March 31, 2025236 Use of Non-GAAP Financial Measures The company presents several non-GAAP financial measures to provide a clearer view of its core operational performance, excluding the CECL Day 2 provision, non-recurring merger expenses, and divested insurance business results Non-GAAP Reconciliation: Net Income and EPS (Q1 2025, in millions) | Item | Amount | | :--- | :--- | | Net Income, as reported | $10.517 | | Plus: CECL Day 2 non-PCD provision (after-tax) | $12.150 | | Plus: Non-recurring merger-related expenses (after-tax) | $4.620 | | Adjusted Net Income | $27.287 | | EPS, as reported | $0.30 | | EPS, as adjusted | $0.79 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are liquidity and interest rate risk, monitored via simulation modeling, with net interest income projected to be slightly asset-sensitive Net Interest Income Sensitivity (as of March 31, 2025) | Rate Change Scenario | % Change in Net Interest Income (12-month) | | :--- | :--- | | +200 bps | +0.73% | | +100 bps | +0.47% | | -100 bps | -1.35% | | -200 bps | -3.10% | Net Portfolio Value (NPV) Sensitivity (as of March 31, 2025) | Rate Change Scenario | % Change in NPV | | :--- | :--- | | +200 bps | -8.17% | | +100 bps | -3.69% | | -100 bps | +2.62% | | -200 bps | +3.71% | Controls and Procedures Based on management's evaluation, the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the first quarter - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2025259 - No changes in internal control over financial reporting occurred during the first quarter of 2025 that materially affected, or are reasonably likely to materially affect, internal controls260 Part II Other Information This section consolidates several required disclosures, including legal proceedings, risk factors, stock repurchases, and Rule 10b5-1 trading arrangements Other Disclosures This section consolidates several required disclosures, including legal proceedings, risk factors, stock repurchases, and Rule 10b5-1 trading arrangements - The company is not a party to any material legal proceedings outside of routine litigation incidental to its business262 - There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024263 - No shares were repurchased during the quarter under the previously announced 1,000,000 share repurchase plan265 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the first quarter of 2025272