German American(GABC) - 2024 Q1 - Quarterly Results

First Quarter 2024 Earnings Highlights German American Bancorp's Q1 2024 performance saw a decline in net income due to margin compression, despite strong loan growth and expense control Performance Summary Q1 2024 net income of $19.0 million ($0.64/share) declined due to net interest margin compression, despite strong loan growth and controlled expenses Quarterly Earnings Comparison | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Income (in millions) | $19.0 | $21.5 | $20.8 | | Earnings Per Share (EPS) ($) | $0.64 | $0.73 | $0.71 | - Positive performance factors in Q1 2024 included strong commercial real estate and retail loan growth, growth in non-public fund deposits, solid credit metrics, and controlled operating expenses[2] - Net interest margin compressed by 8 basis points to 3.35% on a linked-quarter basis, as the 12 basis point increase in funding costs outpaced the 4 basis point increase in earning asset yield[3] - The Board of Directors declared a quarterly cash dividend of $0.27 per share, an 8% increase over the 2023 rate[6] Financial Condition The company's financial position reflects stable assets, diversified loan growth, strong asset quality, and robust capital adequacy Assets Total assets were $6.112 billion at March 31, 2024, slightly down linked-quarter but up year-over-year due to loan growth Total Assets Comparison | Date | Total Assets (in billions) | | :--- | :--- | | March 31, 2024 | $6.112 | | December 31, 2023 | $6.152 | | March 31, 2023 | $5.997 | - The available-for-sale securities portfolio declined as cash flows were used to fund loan growth, with approximately $190.0 million in projected cash flows over the next twelve months[9] Loans Total loans remained stable linked-quarter at $3.98 billion but grew 6% year-over-year, with diversified portfolio composition End of Period Loan Balances (in thousands) | Loan Type | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--- | :--- | :--- | :--- | | Commercial & Industrial | $646,162 | $661,529 | $667,306 | | Commercial Real Estate | $2,148,808 | $2,121,835 | $2,000,237 | | Agricultural Loans | $400,733 | $423,803 | $378,587 | | Consumer Loans | $421,980 | $407,889 | $376,398 | | Residential Mortgage | $361,236 | $362,844 | $350,338 | | Total Loans | $3,978,919 | $3,977,900 | $3,772,866 | - The loan portfolio is heavily concentrated in commercial real estate (54%), with limited office real estate exposure at approximately 4% of the total portfolio[11] Asset Quality Asset quality remained strong with low non-performing assets (0.16%) and stable allowance for credit losses (1.10% of loans) Non-performing Assets (in thousands) | Metric | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--- | :--- | :--- | :--- | | Total Non-Performing Loans | $9,983 | $9,191 | $14,593 | | Total Non-Performing Assets | $9,983 | $9,191 | $14,593 | Key Asset Quality Ratios | Ratio | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--- | :--- | :--- | :--- | | NPA to Total Assets (%) | 0.16% | 0.15% | 0.24% | | NPL to Total Loans (%) | 0.25% | 0.23% | 0.39% | | Allowance for Credit Losses to Loans (%) | 1.10% | 1.10% | 1.18% | Deposits Total deposits declined linked-quarter by $33.6 million due to seasonal outflows, but grew year-over-year by $64.5 million End of Period Deposit Balances (in thousands) | Deposit Type | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--- | :--- | :--- | :--- | | Non-interest-bearing Demand | $1,463,933 | $1,493,160 | $1,601,206 | | IB Demand, Savings, MMDA | $2,918,459 | $2,992,761 | $3,039,393 | | Time Deposits | $836,955 | $767,042 | $514,296 | | Total Deposits | $5,219,347 | $5,252,963 | $5,154,895 | - The linked-quarter decline in deposits was largely due to seasonal outflows of public entity funds, with non-interest bearing deposits stable at 28% of total deposits[15] Capital Adequacy The company and its subsidiary maintained capital levels well in excess of minimum regulatory requirements for well-capitalized status Capital Ratios | Ratio (Consolidated) | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--- | :--- | :--- | :--- | | Total Capital (to RWA) (%) | 16.57% | 16.50% | 15.89% | | Tier 1 (Core) Capital (to RWA) (%) | 14.97% | 14.97% | 14.32% | | Common Tier 1 (CET 1) (to RWA) (%) | 14.27% | 14.26% | 13.60% | | Tier 1 Capital (to Avg Assets) (%) | 12.01% | 11.75% | 11.08% | Results of Operations The company's Q1 2024 operations saw a decline in net income driven by net interest margin compression, partially offset by non-interest income growth Net Income Q1 2024 net income was $19.0 million ($0.64/share), representing a decline from both prior quarters Quarterly Net Income Comparison | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Income (in thousands) | $19,022 | $21,507 | $20,807 | | Diluted EPS ($) | $0.64 | $0.73 | $0.71 | Net Interest Income and Margin Net interest income decreased to $45.0 million in Q1 2024, with net interest margin compressing to 3.35% due to higher funding costs Net Interest Margin and Income (Tax-equivalent) | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Interest Income (in millions) | $46.6 | $47.2 | $50.7 | | Net Interest Margin (%) | 3.35% | 3.43% | 3.69% | | Cost of Funds (%) | 1.67% | 1.55% | 0.84% | - The decline in net interest margin was largely driven by an increase in the cost of funds, which accelerated in Q1 2024 due to highly competitive deposit pricing and customers seeking higher yields[20][21] - Accretion of discounts on acquired loans contributed approximately 3 basis points to the net interest margin in Q1 2024[22] Provision for Credit Losses A provision for credit losses of $900,000 was recorded in Q1 2024, with net charge-offs stable at 9 basis points - The company recorded a provision for credit losses of $900,000 in Q1 2024, compared with no provision in Q4 2023 and $1,100,000 in Q1 2023[23] - Net charge-offs were $911,000, or an annualized 9 basis points of average loans, during Q1 2024, comparable to prior quarters[24] Non-interest Income Non-interest income increased to $15.8 million in Q1 2024, driven by wealth management fees and loan sales gains Non-interest Income Breakdown (in thousands) | Income Source | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Wealth Management Fees | $3,366 | $3,198 | $2,644 | | Insurance Revenues | $2,878 | $2,266 | $3,135 | | Interchange Fee Income | $4,087 | $4,371 | $4,199 | | Net Gains on Sales of Loans | $751 | $532 | $587 | | Total Non-interest Income | $15,822 | $15,594 | $14,967 | - Wealth management fees increased 27% YoY, largely due to increased assets under management[27] - Insurance revenues increased 27% from Q4 2023 due to seasonal contingency revenue ($391,000), but declined 8% YoY due to lower contingency revenue compared to Q1 2023 ($945,000)[28] Non-interest Expense Non-interest expense totaled $36.7 million in Q1 2024, increasing linked-quarter but decreasing year-over-year Non-interest Expense Breakdown (in thousands) | Expense Category | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Salaries and Employee Benefits | $21,178 | $20,948 | $21,846 | | Occupancy, Furniture and Equipment | $3,804 | $3,513 | $3,820 | | Professional Fees | $1,595 | $1,170 | $1,562 | | Total Non-interest Expense | $36,738 | $35,734 | $37,616 | - Salaries and benefits declined 3% YoY due to a lower number of full-time equivalent employees and lower incentive compensation[33] - Professional fees increased 36% linked-quarter, attributable to costs for year-end financial reporting, annual meeting preparations, and talent recruiting[35] Company Overview and Forward-Looking Statements This section provides an overview of German American Bancorp and important cautionary notes regarding forward-looking statements About German American German American Bancorp, Inc. is a financial holding company operating 74 banking offices and various financial subsidiaries - German American Bancorp, Inc. (GABC) operates 74 banking offices in 20 southern Indiana counties and 14 Kentucky counties through its subsidiary, German American Bank[36] - The company also owns German American Investment Services, Inc. (an investment brokerage) and German American Insurance, Inc. (a property and casualty insurance agency)[36] Cautionary Note Regarding Forward-Looking Statements This section cautions that forward-looking statements are subject to risks, including interest rate changes, economic conditions, and cybersecurity threats - The press release contains forward-looking statements subject to risks and uncertainties as defined by the Private Securities Litigation Reform Act of 1995[37] - Key risk factors that could affect results include changes in interest rates, unfavorable economic conditions, soundness of other financial institutions, changes in liquidity, and potential cyber-attacks[37] Consolidated Financial Statements This section presents the company's consolidated balance sheets, statements of income, and key performance and asset quality ratios Consolidated Balance Sheets The consolidated balance sheet details the company's financial position, including assets, liabilities, and equity, as of March 31, 2024 Consolidated Balance Sheets (unaudited, in thousands) | | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | TOTAL ASSETS | $6,111,929 | $6,152,198 | $5,996,919 | | Net Loans | $3,928,156 | $3,927,317 | $3,724,557 | | Total Deposits | $5,219,347 | $5,252,963 | $5,154,895 | | TOTAL LIABILITIES | $5,456,675 | $5,488,640 | $5,391,588 | | SHAREHOLDERS' EQUITY | $655,254 | $663,558 | $605,331 | Consolidated Statements of Income The consolidated statement of income presents the company's revenues and expenses, resulting in a Q1 2024 net income of $19.0 million Consolidated Statements of Income (unaudited, in thousands) | | Three Months Ended | | | | :--- | :--- | :--- | :--- | | | March 31, 2024 | December 31, 2023 | March 31, 2023 | | NET INTEREST INCOME | $44,994 | $45,607 | $49,009 | | Provision for Credit Losses | $900 | $— | $1,100 | | TOTAL NON-INTEREST INCOME | $15,822 | $15,594 | $14,967 | | TOTAL NON-INTEREST EXPENSE | $36,738 | $35,734 | $37,616 | | NET INCOME | $19,022 | $21,507 | $20,807 | | DILUTED EARNINGS PER SHARE | $0.64 | $0.73 | $0.71 | Key Performance and Asset Quality Ratios Key performance ratios, including Return on Average Assets (1.25%), declined, while asset quality ratios remained strong and stable Selected Performance and Asset Quality Ratios | Ratio | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Annualized Return on Average Assets (%) | 1.25% | 1.43% | 1.37% | | Annualized Return on Average Equity (%) | 11.58% | 15.45% | 14.39% | | Net Interest Margin (%) | 3.35% | 3.43% | 3.69% | | Efficiency Ratio (%) | 57.92% | 55.87% | 56.08% | | Annualized Net Charge-offs to Avg Loans (%) | 0.09% | 0.09% | 0.10% | | NPA to Period End Assets (%) | 0.16% | 0.15% | 0.24% |