Glossary of Terms and Acronyms Provides definitions for key terms and abbreviations used throughout the report PART I. FINANCIAL INFORMATION Presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and operating results Item 1. Unaudited Financial Statements This chapter presents German American Bancorp, Inc.'s unaudited consolidated financial statements as of September 30, 2023, covering balance sheets, income, comprehensive income, equity changes, cash flows, and detailed notes on key accounting areas Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and shareholders' equity as of September 30, 2023, and December 31, 2022 Consolidated Balance Sheet Key Data (As of September 30, 2023, and December 31, 2022) | Metric | September 30, 2023 (Thousands of USD) | December 31, 2022 (Thousands of USD) | | :----------------------------------- | :------------------------------------ | :----------------------------------- | | Assets | | | | Cash and cash equivalents | 132,419 | 119,079 | | Securities available for sale, at fair value | 1,476,956 | 1,761,669 | | Loans, net | 3,842,904 | 3,740,766 | | Total assets | 6,005,666 | 6,155,991 | | Liabilities | | | | Total deposits | 5,135,871 | 5,350,051 | | FHLB advances and other borrowings | 286,193 | 203,806 | | Total liabilities | 5,467,274 | 5,597,598 | | Shareholders' Equity | | | | Total shareholders' equity | 538,392 | 558,393 | Consolidated Statements of Income – Three Months Ended September 30, 2023 and 2022 Details the company's financial performance for the three months ended September 30, 2023, and 2022, including interest income, expenses, and net income Consolidated Statements of Income Key Data (Three Months Ended September 30, 2023, and 2022) | Metric (Thousands of USD) | September 30, 2023 | September 30, 2022 | | :--------------------------------- | :----------------- | :----------------- | | Total interest income | 65,642 | 56,524 | | Total interest expense | 18,083 | 4,826 | | Net interest income | 47,559 | 51,698 | | Provision for credit losses | 900 | 350 | | Net interest income (after provision for credit losses) | 46,659 | 51,348 | | Total non-interest income | 14,804 | 14,097 | | Total non-interest expense | 35,421 | 34,716 | | Income tax expense | 4,591 | 6,133 | | Net income | 21,451 | 24,596 | | Basic earnings per share | 0.73 | 0.83 | | Diluted earnings per share | 0.73 | 0.83 | Consolidated Statements of Income – Nine Months Ended September 30, 2023 and 2022 Details the company's financial performance for the nine months ended September 30, 2023, and 2022, including interest income, expenses, and net income Consolidated Statements of Income Key Data (Nine Months Ended September 30, 2023, and 2022) | Metric (Thousands of USD) | September 30, 2023 | September 30, 2022 | | :--------------------------------- | :----------------- | :----------------- | | Total interest income | 189,645 | 158,065 | | Total interest expense | 44,819 | 9,862 | | Net interest income | 144,826 | 148,203 | | Provision for credit losses | 2,550 | 5,850 | | Net interest income (after provision for credit losses) | 142,276 | 142,353 | | Total non-interest income | 44,667 | 45,465 | | Total non-interest expense | 108,763 | 118,577 | | Income tax expense | 13,799 | 11,831 | | Net income | 64,381 | 57,410 | | Basic earnings per share | 2.18 | 1.95 | | Diluted earnings per share | 2.18 | 1.95 | Consolidated Statements of Comprehensive Income (Loss) Presents the company's comprehensive income (loss) for the three and nine months ended September 30, 2023, and 2022, including net income and other comprehensive income (loss) Consolidated Statements of Comprehensive Income (Loss) Key Data (Three and Nine Months Ended September 30, 2023, and 2022) | Metric (Thousands of USD) | Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | | :--------------------------------- | :------------------------------------ | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Net income | 21,451 | 24,596 | 64,381 | 57,410 | | Total other comprehensive income (loss) | (78,761) | (97,963) | (64,175) | (324,542) | | Total comprehensive income (loss) | (57,310) | (73,367) | 206 | (267,132) | Consolidated Statements of Changes in Shareholders' Equity Outlines the changes in the company's shareholders' equity for the period ended September 30, 2023, reflecting net income, other comprehensive income (loss), dividends, and stock awards Changes in Shareholders' Equity (As of September 30, 2023) | Metric (Thousands of USD) | Balance January 1, 2023 | Net Income | Other Comprehensive Income (Loss) | Cash Dividends | Net Restricted Stock Awards | Balance September 30, 2023 | | :------------------------ | :---------------------- | :--------- | :-------------------------------- | :------------- | :-------------------------- | :------------------------- | | Common stock | 29,493 | — | — | — | 82 | 29,575 | | Additional paid-in capital | 387,171 | — | — | — | 1,784 | 388,955 | | Retained earnings | 405,167 | 64,381 | — | (22,073) | — | 447,475 | | Accumulated other comprehensive income (loss) | (263,438) | — | (64,175) | — | — | (327,613) | | Total Shareholders' Equity | 558,393 | 64,381 | (64,175) | (22,073) | 1,866 | 538,392 | Consolidated Statements of Cash Flows Summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2023, and 2022 Consolidated Statements of Cash Flows Key Data (Nine Months Ended September 30, 2023, and 2022) | Cash Flow Activity (Thousands of USD) | September 30, 2023 | September 30, 2022 | | :------------------------------------ | :----------------- | :----------------- | | Net cash provided by operating activities | 77,657 | 82,492 | | Net cash provided by investing activities | 89,638 | 84,088 | | Net cash used in financing activities | (153,955) | (190,424) | | Net change in cash and cash equivalents | 13,340 | (23,844) | | Cash and cash equivalents at end of period | 132,419 | 373,046 | Notes to Consolidated Financial Statements Provides detailed explanations and disclosures regarding the company's accounting policies, financial instruments, and other significant financial information - The company has ceased originating LIBOR-based loans and plans to convert existing LIBOR-indexed loans primarily to SOFR or other indices37 - The company adopted ASU 2022-02 on January 1, 2023, which eliminated the recognition and measurement guidance for troubled debt restructurings and established new criteria for loan modifications to borrowers experiencing financial difficulty, with no material impact on consolidated financial statements38 - As of September 30, 2023, available-for-sale securities had an amortized cost of $1,891,435 thousand, a fair value of $1,476,956 thousand, and total gross unrealized losses of $414,489 thousand47 - As of September 30, 2023, total loans were $3,893,573 thousand, with commercial real estate loans representing the largest portion at $2,076,962 thousand61 - As of September 30, 2023, the total allowance for credit losses was $44,646 thousand, a slight increase from $44,168 thousand as of December 31, 20226264 - The company operates in three primary segments: core banking, wealth management services, and insurance business, with core banking being the main revenue source103104 - The company's Board of Directors approved a stock repurchase program on January 31, 2022, authorizing the repurchase of up to 1,000,000 shares of common stock, but no shares have been repurchased to date111 - As of September 30, 2023, unrecognized compensation cost related to restricted stock awards and cash equity totaled $3,805 thousand118 - As of September 30, 2023, the company held $82 thousand in Level 3 available-for-sale securities (non-rated state and political subdivision obligations) and $943 thousand in Level 3 available-for-sale securities (non-rated MBS/CMO)125 - As of September 30, 2023, the company's total lease liabilities were $8,297 thousand, comprising $2,699 thousand for finance lease liabilities and $5,598 thousand for operating lease liabilities160162 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This chapter analyzes German American Bancorp, Inc.'s financial condition and operating results as of September 30, 2023, noting a Q3 net income decrease due to lower earning assets and net interest margin, while year-to-date net income increased due to higher 2022 acquisition costs MANAGEMENT OVERVIEW Provides an executive summary of the company's financial performance, highlighting key trends in net income and earnings per share Net Income and Earnings Per Share (As of September 30, 2023, and 2022) | Metric | Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | | :----- | :------------------------------------ | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Net income | $21,451 thousand | $24,596 thousand | $64,381 thousand | $57,410 thousand | | EPS | $0.73 | $0.83 | $2.18 | $1.95 | - Net income for Q3 2023 decreased by 12% (per share), primarily due to reduced average earning assets and a lower net interest margin168 - Net income for the first nine months of 2023 increased by 12% (per share), mainly because the first nine months of 2022 were significantly impacted by CUB acquisition-related costs169 - The company completed the acquisition of CUB on January 1, 2022, issuing approximately 2.9 million shares of common stock and paying approximately $50.8 million in cash170 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Discusses the significant accounting policies and estimates that require management's judgment and can materially affect the financial statements - Critical accounting policies and estimates include the allowance for credit losses, valuation of available-for-sale securities, income tax expense, and valuation of goodwill and other intangible assets172173 - The determination of the allowance for credit losses is subjective, involving significant estimates of future cash flows, loan loss rates, economic conditions, and reasonable and supportable forecasts175 - As of September 30, 2023, the available-for-sale securities portfolio had total gross unrealized gains of approximately $10 thousand and total gross unrealized losses of approximately $414,489 thousand183 - Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually, with the company selecting December 31 as its annual impairment testing date187 RESULTS OF OPERATIONS Analyzes the company's operating performance, including net interest income, credit loss provisions, non-interest income, and non-interest expenses - Net interest income (tax-equivalent) for Q3 2023 was $47,559 thousand, an 8% year-over-year decrease, primarily due to reduced average earning assets and a slight decline in net interest margin191192 - Net interest income (tax-equivalent) for the first nine months of 2023 was $144,826 thousand, a 2% year-over-year decrease, mainly due to reduced average earning assets, partially offset by improved net interest margin from rising market interest rates197 - The provision for credit losses for Q3 2023 was $900 thousand, higher than $350 thousand in the same period of 2022199 - The provision for credit losses for the first nine months of 2023 was $2,550 thousand, lower than $5,850 thousand in the same period of 2022, which included a $6,300 thousand initial CECL increase related to the CUB acquisition200 - Total non-interest income for Q3 2023 was $14,804 thousand, a 5% year-over-year increase, driven by growth in wealth management fees and bank card interchange fees204 - Total non-interest income for the first nine months of 2023 was $44,667 thousand, a 2% year-over-year decrease, primarily due to lower insurance income and company-owned life insurance income, partially offset by increased wealth management fees and bank card interchange fees208209210213214 - Total non-interest expense for Q3 2023 was $35,421 thousand, a 2% year-over-year increase, mainly due to higher salaries and employee benefits and increased FDIC premiums217218219 - Total non-interest expense for the first nine months of 2023 was $108,763 thousand, an 8% year-over-year decrease, primarily because the same period in 2022 included approximately $12,276 thousand in non-recurring acquisition-related expenses221 - The company's effective income tax rates for Q3 2023 and the first nine months were 17.6% and 17.7%, respectively, lower than the statutory rate due to tax-exempt investment income and tax credits228 FINANCIAL CONDITION Evaluates the company's balance sheet, including assets, liabilities, and equity, and discusses changes in key financial components - As of September 30, 2023, total assets were $6.006 billion, a decrease of $150.3 million from year-end 2022, primarily due to a reduction in the securities portfolio driven by deposit declines, partially offset by loan growth229 - As of September 30, 2023, available-for-sale securities decreased by $284.7 million, primarily used to offset deposit declines and support loan growth231 - As of September 30, 2023, total loans increased by $104.9 million (an annualized 4% growth), driven by commercial real estate and retail loan growth232 Loan Portfolio Composition (As of September 30, 2023) | Loan Type | Percentage | | :------------------------- | :--------- | | Commercial real estate loans | 53% | | Commercial and industrial loans | 17% | | Agricultural loans | 10% | - As of September 30, 2023, the total allowance for credit losses was $44.6 million, representing 1.15% of period-end loans, slightly down from 1.17% at year-end 2022234 - As of September 30, 2023, total non-performing assets decreased to $12.4 million from $14.3 million at year-end 2022, representing 0.21% of total assets236 - As of September 30, 2023, total deposits decreased by $214.2 million (4%), primarily influenced by competitive deposit pricing and customers seeking higher-yielding opportunities237239 - As of September 30, 2023, total borrowings increased by $82.4 million (40%), utilized to fund loan growth and deposit outflows241 - As of September 30, 2023, shareholders' equity decreased by $20 million to $538.4 million, mainly due to a $64.2 million reduction in accumulated other comprehensive income (loss) from the decline in fair value of available-for-sale securities, partially offset by a $42.3 million increase in net income242 - As of September 30, 2023, the company and its subsidiary bank maintained capital levels well above regulatory requirements, meeting the "well-capitalized" standard246 - As of September 30, 2023, cash and cash equivalents increased by $13.3 million to $132.4 million248 FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS Highlights the inherent uncertainties and risks associated with forward-looking statements, including market conditions, regulatory changes, and economic factors - Forward-looking statements are based on assumptions and are subject to risks and uncertainties such as interest rate changes, adverse economic conditions, impacts from recent bank failures, changes in competitive conditions, technological changes, cyberattacks, litigation liabilities, Federal Reserve actions, LIBOR replacement, CECL standard impacts, increased FDIC premiums, and regulatory actions253254 - The company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of the statement252 Item 3. Quantitative and Qualitative Disclosures About Market Risk Discloses the company's exposure to market risks, primarily liquidity and interest rate risks, and assesses their potential impact on net interest income and net portfolio value using simulation models - The company's primary market risks are liquidity risk and interest rate risk, which are regularly reviewed by the Asset/Liability Committee and the Board of Directors257 - The company uses computer simulation models to assess the potential impact of interest rate changes on net interest income and net portfolio value (NPV)259 Interest Rate Sensitivity Analysis: Net Interest Income (As of September 30, 2023) | Rate Change | Amount (Thousands of USD) | Percentage Change | | :---------- | :------------------------ | :---------------- | | +2% | 197,287 | (0.32)% | | +1% | 197,692 | (0.12)% | | Baseline | 197,930 | — | | -1% | 195,745 | (1.10)% | | -2% | 191,533 | (3.23)% | Interest Rate Sensitivity Analysis: Net Portfolio Value (As of September 30, 2023) | Rate Change | Net Portfolio Value (Thousands of USD) | Percentage Change | NPV Ratio | Change (Basis Points) | | :---------- | :------------------------------------- | :---------------- | :-------- | :-------------------- | | +2% | 582,710 | (15.19)% | 11.11% | (117) | | +1% | 633,282 | (7.83)% | 11.69% | (59) | | Baseline | 687,079 | — | 12.28% | — | | -1% | 735,299 | 7.02% | 12.72% | 44 | | -2% | 775,055 | 12.80% | 12.98% | 70 | Item 4. Controls and Procedures Management assessed and confirmed the effectiveness of the company's disclosure controls and procedures as of September 30, 2023, noting inherent limitations but no significant changes to internal controls during the quarter - As of September 30, 2023, the company's disclosure controls and procedures were assessed as effective in ensuring timely reporting of material information to management269 - Internal control systems have inherent limitations, including the possibility of human error and circumvention, thus providing only reasonable assurance269 - No significant changes occurred in the company's internal control over financial reporting during the third fiscal quarter of 2023270 PART II. OTHER INFORMATION Presents additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The company currently has no pending legal proceedings beyond routine litigation incidental to its ordinary course of business - The company and its subsidiaries currently have no pending legal proceedings other than routine litigation incidental to their ordinary course of business272 Item 1A. Risk Factors This chapter updates the company's risk factors, emphasizing the potential adverse impact of recent bank failures on financial services liquidity and competition, and new regulatory requirements that may increase operating costs and reduce profitability - Recent bank failures (e.g., Silicon Valley Bank, Signature Bank, and First Republic Bank) have led to widespread uncertainty in the financial services industry and raised concerns about the adequacy of liquidity in the banking sector274 - Market uncertainty and external factors may unpredictably affect the competitive landscape for bank deposits, and rising interest rates have increased the cost of liquidity acquisition274 - Recent events in the financial services industry are expected to lead to new regulatory requirements, increasing the company's operating costs and reducing profitability, including potential increases in FDIC insurance premiums275 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This chapter discloses that the company did not repurchase any common stock during the third quarter of 2023, despite a board-approved plan from January 31, 2022, authorizing the repurchase of up to 1 million shares - The company did not repurchase any shares of common stock during the third quarter of 2023278 - The company's Board of Directors approved a stock repurchase program on January 31, 2022, authorizing the repurchase of up to 1,000,000 shares of common stock, representing approximately 3% of outstanding shares at that time, but the company is not obligated to purchase shares, and the plan may be terminated at any time278 Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities as of the end of this reporting period - The company has no defaults upon senior securities279 Item 4. Mine Safety Disclosures This section is not applicable - Mine safety disclosures are not applicable280 Item 5. Other Information This chapter discloses that for the three months ended September 30, 2023, the company had no information required to be disclosed in a Form 8-K report, no changes in director nomination procedures, and no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No information required to be disclosed in a Form 8-K report282 - No changes in director nomination procedures284 - During the third quarter of 2023, no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements285 Item 6. Exhibits This chapter lists the exhibits filed with this report or incorporated by reference, including articles of incorporation, stock certificate specimens, indentures, executive compensation arrangements, and XBRL documents - Exhibits include articles of incorporation, stock certificate specimens, indentures, executive compensation arrangements, and XBRL documents287
German American(GABC) - 2023 Q3 - Quarterly Report