Company Quick10K Filing
Quick10K
German American Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$31.59 25 $789
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-02-21 Enter Agreement, Regulation FD, Exhibits, Enter Agreement
8-K 2019-01-30 Regulation FD, Exhibits
8-K 2019-01-28 Earnings, Other Events, Exhibits
8-K 2019-01-03 Officers, Exhibits
8-K 2018-12-17 Officers
8-K 2018-11-06 Regulation FD, Exhibits
8-K 2018-10-29 Earnings, Officers, Other Events, Exhibits
8-K 2018-10-11 Enter Agreement, Off-BS Arrangement, Regulation FD, Other Events, Exhibits
8-K 2018-09-20 Other Events
8-K 2018-09-07 Other Events
8-K 2018-07-30 Earnings, Other Events, Exhibits
8-K 2018-07-30 Regulation FD, Exhibits
8-K 2018-06-29 Officers, Exhibits
8-K 2018-06-11 Regulation FD, Exhibits
8-K 2018-05-22 Enter Agreement, Regulation FD, Exhibits, Enter Agreement
8-K 2018-05-18 Shareholder Vote
8-K 2018-04-30 Earnings, Other Events, Exhibits
8-K 2018-02-26 Officers
8-K 2018-02-12 Enter Agreement, Regulation FD, Exhibits
8-K 2018-01-31 Regulation FD, Exhibits
8-K 2018-01-29 Earnings, Other Events, Exhibits
COF Capital One Financial
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SBSI Southside Bancshares
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FBMS First Bancshares
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TCFC Community Financial
GABC 2018-09-30
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Revenue Recognition
Note 3 - per Share Data
Note 4 - Securities
Note 5 - Derivatives
Note 6 - Loans
Note 7 - Repurchase Agreements Accounted for As Secured Borrowings
Note 8 - Segment Information
Note 9 - Stock Repurchase Plan
Note 10 - Equity Plans and Equity Based Compensation
Note 11 - Fair Value
Note 12 - Other Comprehensive Income (Loss)
Note 13 - Newly Issued Accounting Pronouncements
Note 14 - Business Combinations
Note 15 - Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exhibit311-q32018.htm
EX-31.2 exhibit312-q32018.htm
EX-32.1 exhibit321-q32018.htm
EX-32.2 exhibit322-q32018.htm

German American Bancorp Earnings 2018-09-30

GABC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 gabc-2018930x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 2018
 
Commission File Number 001-15877
 
German American Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Indiana
 
35-1547518
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
711 Main Street, Jasper, Indiana 47546
(Address of Principal Executive Offices and Zip Code)
 
Registrant’s telephone number, including area code: (812) 482-1314
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
YES   x      NO ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 
YES   x      NO ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company:
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): 
YES   ¨      NO x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at November 1, 2018
Common Shares, no par value
 
24,959,106



CAUTION REGARDING FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
 
Information included in or incorporated by reference in this Quarterly Report on Form 10-Q, our other filings with the Securities and Exchange Commission (the “SEC”) and our press releases or other public statements, contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the discussions of our forward-looking statements and associated risks in our Annual Report on Form 10-K for the year ended December 31, 2017, in Item 1, “Business – Forward-Looking Statements and Associated Risks” and our discussion of risk factors in Item 1A, “Risk Factors” of that Annual Report on Form 10-K, as updated from time to time in our subsequent SEC filings, including by Item 2 of Part I of this Report (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) at the conclusion of that Item 2 under the heading “Forward-Looking Statements and Associated Risks.”

2


*****
 
INDEX
 
PART I.            FINANCIAL INFORMATION
 
 
 
Item 1.
Unaudited Financial Statements
 
 
 
 
Consolidated Balance Sheets – September 30, 2018 and December 31, 2017
 
 
 
 
Consolidated Statements of Income – Three Months Ended September 30, 2018 and 2017
 
 
 
 
Consolidated Statements of Income – Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Notes to Consolidated Financial Statements – September 30, 2018
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4. 
Controls and Procedures
 
 
 
PART II.           OTHER INFORMATION
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
 
SIGNATURES

3


PART  I.         FINANCIAL INFORMATION
Item 1.           Financial Statements
GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, dollars in thousands except share and per share data)
 
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 

 
 

Cash and Due from Banks
 
$
50,980

 
$
58,233

Federal Funds Sold and Other Short-term Investments
 
14,604

 
12,126

Cash and Cash Equivalents
 
65,584

 
70,359

 
 
 
 
 
Securities Available-for-Sale, at Fair Value
 
739,627

 
740,641

Other Investments
 
353

 
353

 
 
 
 
 
Loans Held-for-Sale, at Fair Value
 
9,178

 
6,719

 
 
 
 
 
Loans
 
2,340,173

 
2,145,019

Less: Unearned Income
 
(3,548
)
 
(3,381
)
Allowance for Loan Losses
 
(16,051
)
 
(15,694
)
Loans, Net
 
2,320,574

 
2,125,944

 
 
 
 
 
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost
 
13,048

 
13,048

Premises, Furniture and Equipment, Net
 
69,267

 
54,246

Other Real Estate
 
100

 
54

Goodwill
 
60,913

 
54,058

Intangible Assets
 
4,635

 
2,102

Company Owned Life Insurance
 
46,918

 
46,385

Accrued Interest Receivable and Other Assets
 
33,572

 
30,451

TOTAL ASSETS
 
$
3,363,769

 
$
3,144,360

 
 
 
 
 
LIABILITIES
 
 

 
 

Non-interest-bearing Demand Deposits
 
$
634,421

 
$
606,134

Interest-bearing Demand, Savings, and Money Market Accounts
 
1,605,818

 
1,490,033

Time Deposits
 
400,608

 
387,885

Total Deposits
 
2,640,847

 
2,484,052

 
 
 
 
 
FHLB Advances and Other Borrowings
 
327,039

 
275,216

Accrued Interest Payable and Other Liabilities
 
19,760

 
20,521

TOTAL LIABILITIES
 
2,987,646

 
2,779,789

 
 
 
 
 
SHAREHOLDERS’ EQUITY
 
 

 
 

Preferred Stock, no par value; 500,000 shares authorized, no shares issued
 

 

Common Stock, no par value, $1 stated value; 45,000,000 shares authorized
 
22,968

 
22,934

Additional Paid-in Capital
 
166,227

 
165,288

Retained Earnings
 
204,188

 
178,969

Accumulated Other Comprehensive Loss
 
(17,260
)
 
(2,620
)
TOTAL SHAREHOLDERS’ EQUITY
 
376,123

 
364,571

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
3,363,769

 
$
3,144,360

End of period shares issued and outstanding
 
22,968,078

 
22,934,403






See accompanying notes to consolidated financial statements.

4


GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands except per share data)
 

Three Months Ended 
September 30,
 

2018

2017
INTEREST INCOME

 


 

Interest and Fees on Loans

$
28,148


$
23,182

Interest on Federal Funds Sold and Other Short-term Investments

101


46

Interest and Dividends on Securities:

 


 

Taxable

2,970


2,688

Non-taxable

2,256


2,070

TOTAL INTEREST INCOME

33,475


27,986








INTEREST EXPENSE

 


 

Interest on Deposits

3,535


1,959

Interest on FHLB Advances and Other Borrowings

1,392


1,110

TOTAL INTEREST EXPENSE

4,927


3,069








NET INTEREST INCOME

28,548


24,917

Provision for Loan Losses

500


250

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

28,048


24,667








NON-INTEREST INCOME

 


 

Trust and Investment Product Fees

1,585


1,301

Service Charges on Deposit Accounts

1,858


1,608

Insurance Revenues

1,827


1,728

Company Owned Life Insurance

251


317

Interchange Fee Income

1,847


1,186

Other Operating Income

639


608

Net Gains on Sales of Loans

866


952

Net Gains on Securities

90


575

TOTAL NON-INTEREST INCOME

8,963


8,275








NON-INTEREST EXPENSE

 


 

Salaries and Employee Benefits

12,134


11,570

Occupancy Expense

1,967


1,694

Furniture and Equipment Expense

771


678

FDIC Premiums

324


241

Data Processing Fees

1,309


1,067

Professional Fees

793


551

Advertising and Promotion

851


1,315

Intangible Amortization

430


230

Other Operating Expenses

2,997


2,425

TOTAL NON-INTEREST EXPENSE

21,576


19,771








Income before Income Taxes

15,435


13,171

Income Tax Expense

2,796


3,511

NET INCOME

$
12,639


$
9,660








Basic Earnings per Share

$
0.55


$
0.42

Diluted Earnings per Share

$
0.55


$
0.42








Dividends per Share

$
0.15


$
0.13

 

See accompanying notes to consolidated financial statements.

5


GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands except per share data)
 
 
Nine Months Ended
September 30,
 
 
2018
 
2017
INTEREST INCOME
 
 

 
 

Interest and Fees on Loans
 
$
78,406

 
$
68,046

Interest on Federal Funds Sold and Other Short-term Investments
 
211

 
100

Interest and Dividends on Securities:
 


 


Taxable
 
8,930

 
8,109

Non-taxable
 
6,606

 
6,165

TOTAL INTEREST INCOME
 
94,153

 
82,420

 
 
 
 
 
INTEREST EXPENSE
 
 

 
 

Interest on Deposits
 
8,666

 
5,028

Interest on FHLB Advances and Other Borrowings
 
3,860

 
2,937

TOTAL INTEREST EXPENSE
 
12,526

 
7,965

 
 
 
 
 
NET INTEREST INCOME
 
81,627

 
74,455

Provision for Loan Losses
 
2,070

 
1,100

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
 
79,557

 
73,355

 
 
 
 
 
NON-INTEREST INCOME
 
 

 
 

Trust and Investment Product Fees
 
5,035

 
3,894

Service Charges on Deposit Accounts
 
4,972

 
4,570

Insurance Revenues
 
6,453

 
6,112

Company Owned Life Insurance
 
823

 
1,051

Interchange Fee Income
 
5,043

 
3,365

Other Operating Income
 
2,156

 
2,095

Net Gains on Sales of Loans
 
2,421

 
2,598

Net Gains on Securities
 
434

 
575

TOTAL NON-INTEREST INCOME
 
27,337

 
24,260

 
 
 
 
 
NON-INTEREST EXPENSE
 
 

 
 

Salaries and Employee Benefits
 
36,279

 
34,474

Occupancy Expense
 
5,522

 
4,813

Furniture and Equipment Expense
 
2,152

 
1,965

FDIC Premiums
 
799

 
712

Data Processing Fees
 
3,834

 
3,122

Professional Fees
 
3,025

 
2,267

Advertising and Promotion
 
2,409

 
2,723

Intangible Amortization
 
942

 
725

Other Operating Expenses
 
8,777

 
7,002

TOTAL NON-INTEREST EXPENSE
 
63,739

 
57,803

 
 
 
 
 
Income before Income Taxes
 
43,155

 
39,812

Income Tax Expense
 
7,606

 
10,757

NET INCOME
 
$
35,549

 
$
29,055

 
 
 
 
 
Basic Earnings per Share
 
$
1.55

 
$
1.27

Diluted Earnings per Share
 
$
1.55

 
$
1.27

 
 
 
 
 
Dividends per Share
 
$
0.45

 
$
0.39



See accompanying notes to consolidated financial statements.

6


GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, dollars in thousands)
 
 
 
Three Months Ended
September 30,
 
 
2018
 
2017
 
 
 
 
 
NET INCOME
 
$
12,639

 
$
9,660

 
 
 
 
 
Other Comprehensive Income (Loss):
 
 

 
 

Unrealized Gains (Losses) on Securities:
 
 

 
 

Unrealized Holding Gain (Loss)Arising During the Period
 
(4,889
)
 
(1,450
)
Reclassification Adjustment for Gains Included in Net Income
 
(90
)
 
(575
)
Tax Effect
 
1,058

 
714

Net of Tax
 
(3,921
)
 
(1,311
)
 
 
 
 
 
Total Other Comprehensive Income (Loss)
 
(3,921
)
 
(1,311
)
 
 
 
 
 
COMPREHENSIVE INCOME
 
$
8,718

 
$
8,349

 

 
 




 
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
 
 
 
 
NET INCOME
 
$
35,549

 
$
29,055

 
 
 
 
 
Other Comprehensive Income (Loss):
 
 

 
 

Unrealized Gains (Losses) on Securities:
 
 

 
 

Unrealized Holding Gain (Loss) Arising During the Period
 
(18,181
)
 
14,862

Reclassification Adjustment for Gains Included in Net Income
 
(434
)
 
(575
)
Tax Effect
 
3,975

 
(5,034
)
Net of Tax
 
(14,640
)
 
9,253

 
 
 
 
 
Total Other Comprehensive Income (Loss)
 
(14,640
)
 
9,253

 
 
 
 
 
COMPREHENSIVE INCOME
 
$
20,909

 
$
38,308










See accompanying notes to consolidated financial statements.

7


GERMAN AMERICAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
 
 
Nine Months Ended 
September 30,
 
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net Income
 
$
35,549

 
$
29,055

Adjustments to Reconcile Net Income to Net Cash from Operating Activities:
 
 

 
 

Net Amortization on Securities
 
2,698

 
2,591

Depreciation and Amortization
 
4,226

 
3,496

Loans Originated for Sale
 
(101,867
)
 
(95,278
)
Proceeds from Sales of Loans Held-for-Sale
 
101,802

 
104,639

Provision for Loan Losses
 
2,070

 
1,100

Gain on Sale of Loans, net
 
(2,421
)
 
(2,598
)
Gain on Securities, net
 
(434
)
 
(575
)
Gain on Sales of Other Real Estate and Repossessed Assets
 
(13
)
 
(8
)
Loss (Gain) on Disposition and Donation of Premises and Equipment
 
(36
)
 
873

Increase in Cash Surrender Value of Company Owned Life Insurance
 
(784
)
 
(1,089
)
Equity Based Compensation
 
835

 
941

Change in Assets and Liabilities:
 
 

 
 

Interest Receivable and Other Assets
 
(2,314
)
 
(1,985
)
Interest Payable and Other Liabilities
 
3,147

 
2,656

Net Cash from Operating Activities
 
42,458

 
43,818

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from Maturity of Securities Available-for-Sale
 
58,926

 
61,763

Proceeds from Sales of Securities Available-for-Sale
 
22,919

 
48,343

Purchase of Securities Available-for-Sale
 
(101,712
)
 
(129,760
)
Purchase of Loans
 

 
(211
)
Proceeds from Sales of Loans
 
6,000

 

Loans Made to Customers, net of Payments Received
 
(85,183
)
 
(97,976
)
Proceeds from Sales of Other Real Estate
 
54

 
912

Property and Equipment Expenditures
 
(12,692
)
 
(7,277
)
Proceeds from Sales of Property and Equipment
 
40

 
2

Proceeds from Life Insurance
 
251

 

Cash from Acquisition of Bank Branches
 
41,392

 

Net Cash from Investing Activities
 
(70,005
)
 
(124,204
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Change in Deposits
 
(18,804
)
 
75,211

Change in Short-term Borrowings
 
86,890

 
(20,354
)
Advances in Long-term Debt
 
35,000

 
75,000

Repayments of Long-term Debt
 
(70,122
)
 
(50,834
)
Issuance (Retirement) of Common Stock
 
138

 
(29
)
Dividends Paid
 
(10,330
)
 
(8,862
)
Net Cash from Financing Activities
 
22,772

 
70,132

 
 
 
 
 
Net Change in Cash and Cash Equivalents
 
(4,775
)
 
(10,254
)
Cash and Cash Equivalents at Beginning of Year
 
70,359

 
64,816

Cash and Cash Equivalents at End of Period
 
$
65,584

 
$
54,562

 
 
 
 
 
Cash Paid During the Period for
 
 

 
 

Interest
 
$
12,432

 
$
7,823

Income Taxes
 
3,710

 
10,661

 
 
 
 
 
Supplemental Non Cash Disclosures
 
 

 
 

Loans Transferred to Other Real Estate
 
$
87

 
$
1,230

Reclassification of Land to Other Assets
 

 
330


See accompanying notes to consolidated financial statements.

8


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited, dollars in thousands except share and per share data)

  
NOTE 1 – Basis of Presentation
 
German American Bancorp, Inc. operates primarily in the banking industry. The accounting and reporting policies of German American Bancorp, Inc. and its subsidiaries (hereinafter collectively referred to as the "Company") conform to U.S. generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included in the accompanying unaudited consolidated financial statements, and all such adjustments are of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. Certain items included in the prior period financial statements were reclassified to conform to the current presentation. There was no effect on net income or total shareholders' equity based on these reclassifications.

NOTE 2 - Revenue Recognition

In May 2014, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). On January 1, 2018, the Company adopted ASU 2014-09 and all subsequent amendments to the ASU that modified Topic 606. Topic 606 creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets. Since the guidance does not apply to revenue associated with financial instruments, the new guidance did not have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The majority of the Company's revenues are from financial instruments and are not within the scope of Topic 606. The Company completed its overall assessment of revenue streams and related contracts, including service charges on deposit accounts, interchange income, and trust and investment brokerage fees. Based on the assessment, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue streams. The Company also completed its evaluation of certain costs related to these revenue streams to determine whether certain revenue streams should be reported gross versus net of certain expenses. Based on its evaluation, the Company determined that the classification of certain debit card related costs should change and now be reported as expenses versus contra-revenue. This reclassification change resulted in an immaterial impact to both revenue and expense. The Company adopted ASU 2014-09 and its related amendments utilizing the modified retrospective approach. Since there was no net income impact upon adoption of this guidance, a cumulative adjustment to retained earnings was not deemed necessary. Consistent with the modified retrospective approach, the Company did not adjust prior period amounts for the debit card costs noted above.

A description of the Company's revenue streams accounted for under Topic 606 follows:

Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as stop payment charges and statement rendering, are recognized at the time the transaction is executed (the point in time the Company fills the customer's request). Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs.

Interchange Fee Income: The Company earns interchange fees from debit/credit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Trust and Investment Product Fees: The Company earns trust and investment brokerage fees from its contracts with trust and brokerage customers to manage assets for investment and/or to transact their accounts. These fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on the market value of assets under management at month-end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed (trade date).

Insurance Revenues: The Company earns insurance revenue from commissions derived from the sale of personal and corporate property and casualty insurance products. These commissions are primarily earned over time as the Company provides the contracted insurance product to customers.


9


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited, dollars in thousands except share and per share data)

NOTE 2 - Revenue Recognition (continued)

The following tables present non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2018 and 2017. Trust and investment product fees are included in the trust and investment advisory services segment while insurance revenues are included in the insurance segment. All other revenue streams are primarily included in the banking segment.
 
 
Three Months Ended
 
 
September 30,
Non-interest Income
 
2018
 
2017
   In-Scope of Topic 606:
 
 
 
 
      Trust and Investment Product Fees
 
$
1,585

 
$
1,301

      Service Charges on Deposit Accounts
 
1,858

 
1,608

      Insurance Revenues
 
1,827

 
1,728

      Interchange Fee Income
 
1,847

 
1,186

      Other Operating Income
 
432

 
383

   Non-interest Income (in-scope of Topic 606)
 
7,549

 
6,206

   Non-interest Income (out-of-scope of Topic 606)
 
1,414

 
2,069

Total Non-interest Income
 
$
8,963

 
$
8,275


 
 
Nine Months Ended
 
 
September 30,
Non-interest Income
 
2018
 
2017
   In-Scope of Topic 606:
 
 
 
 
      Trust and Investment Product Fees
 
$
5,035

 
$
3,894

      Service Charges on Deposit Accounts
 
4,972

 
4,570

      Insurance Revenues
 
6,453

 
6,112

      Interchange Fee Income
 
5,043

 
3,365

      Other Operating Income
 
1,252

 
1,114

   Non-interest Income (in-scope of Topic 606)
 
22,755

 
19,055

   Non-interest Income (out-of-scope of Topic 606)
 
4,582

 
5,205

Total Non-interest Income
 
$
27,337

 
$
24,260




10


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited, dollars in thousands except share and per share data)

NOTE 3 – Per Share Data
 
The computation of Basic Earnings per Share and Diluted Earnings per Share are as follows:
 
 
Three Months Ended 
September 30,
 
 
2018
 
2017
Basic Earnings per Share:
 
 

 
 

Net Income
 
$
12,639

 
$
9,660

Weighted Average Shares Outstanding
 
22,968,047

 
22,929,864

Basic Earnings per Share
 
$
0.55

 
$
0.42

 
 
 
 
 
Diluted Earnings per Share:
 
 

 
 

Net Income
 
$
12,639

 
$
9,660

 
 
 
 
 
Weighted Average Shares Outstanding
 
22,968,047

 
22,929,864

Potentially Dilutive Shares, Net
 

 

Diluted Weighted Average Shares Outstanding
 
22,968,047

 
22,929,864

Diluted Earnings per Share
 
$
0.55

 
$
0.42

         
For the three months ended September 30, 2018 and 2017, there were no anti-dilutive shares.

 
 
Nine Months Ended 
September 30,
 
 
2018
 
2017
Basic Earnings per Share:
 
 

 
 

Net Income
 
$
35,549

 
$
29,055

Weighted Average Shares Outstanding
 
22,958,977

 
22,922,724

Basic Earnings per Share
 
$
1.55

 
$
1.27

 
 
 
 
 
Diluted Earnings per Share:
 
 

 
 

Net Income
 
$
35,549

 
$
29,055

 
 
 
 
 
Weighted Average Shares Outstanding
 
22,958,977

 
22,922,724

Potentially Dilutive Shares, Net
 

 

Diluted Weighted Average Shares Outstanding
 
22,958,977

 
22,922,724

Diluted Earnings per Share
 
$
1.55

 
$
1.27


For the nine months ended September 30, 2018 and 2017, there were no anti-dilutive shares.


11


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited, dollars in thousands except share and per share data)

NOTE 4 – Securities 

The amortized cost, unrealized gross gains and losses recognized in accumulated other comprehensive income (loss), and fair value of Securities Available-for-Sale at September 30, 2018 and December 31, 2017, were as follows:
Securities Available-for-Sale: 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 Fair
Value
 
 
 

 
 

 
 

 
 

September 30, 2018
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
284,991

 
$
2,473

 
$
(3,425
)
 
$
284,039

MBS/CMO - Residential
 
476,252

 
38

 
(20,702
)
 
455,588

Total
 
$
761,243

 
$
2,511

 
$
(24,127
)
 
$
739,627

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

 
 

Obligations of State and Political Subdivisions
 
$
267,437

 
$
6,733

 
$
(861
)
 
$
273,309

MBS/CMO - Residential
 
476,205

 
416

 
(9,289
)
 
467,332

Total
 
$
743,642

 
$
7,149

 
$
(10,150
)
 
$
740,641

 
   
All mortgage-backed securities in the above table (identified above and throughout this Note 4 as "MBS/CMO - Residential") are residential mortgage-backed securities and guaranteed by government sponsored entities.

The Company's equity securities are listed as Investment Securities on the Consolidated Balance Sheets and consist of one non-controlling investment in a single banking organization at September 30, 2018 and December 31, 2017. The original investment totaled $1,350 and other-than-temporary impairment was previously recorded totaling $997. Under ASU 2016-01 (Financial Instruments - Overall), equity securities are required to be measured at fair value with changes in fair value recognized in net income. No fair value adjustments were recognized during 2018.

The amortized cost and fair value of securities at September 30, 2018 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay certain obligations with or without call or prepayment penalties. Mortgage-backed Securities are not due at a single maturity date and are shown separately in the table below.
Securities Available-for-Sale:
 
Amortized
Cost
 
Fair
Value
 
 
 
 
 
Due in one year or less
 
$
1,765

 
$
1,772

Due after one year through five years
 
21,474

 
21,838

Due after five years through ten years
 
80,362

 
81,129

Due after ten years
 
181,390

 
179,300

MBS/CMO - Residential
 
476,252

 
455,588

Total
 
$
761,243

 
$
739,627

  

Proceeds from the Sales of Securities are summarized below:
 
 
Three Months Ended
 
Three Months Ended
 
 
September 30, 2018
 
September 30, 2017
 
 
 
 
 
Proceeds from Sales
 
$
5,404

 
$
48,343

Gross Gains on Sales
 
90

 
575

Income Taxes on Gross Gains
 
19

 
201


12


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited, dollars in thousands except share and per share data)

NOTE 4 - Securities (continued)

 
 
Nine Months Ended
 
Nine Months Ended
 
 
September 30, 2018
 
September 30, 2017
 
 
 
 
 
Proceeds from Sales
 
$
22,919

 
$
48,343

Gross Gains on Sales
 
434

 
575

Income Taxes on Gross Gains
 
92

 
201

    
The carrying value of securities pledged to secure repurchase agreements, public and trust deposits, and for other purposes as required by law was $208,959 and $165,404 as of September 30, 2018 and December 31, 2017, respectively.

Below is a summary of securities with unrealized losses as of September 30, 2018 and December 31, 2017, presented by length of time the securities have been in a continuous unrealized loss position:
 
 
Less than 12 Months
 
12 Months or More
 
Total
September 30, 2018
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of State and Political Subdivisions
 
$
109,010

 
$
(2,085
)
 
$
27,524

 
$
(1,340
)
 
$
136,534

 
$
(3,425
)
MBS/CMO - Residential
 
174,305

 
(4,989
)
 
278,806

 
(15,713
)
 
453,111

 
(20,702
)
Total
 
$
283,315

 
$
(7,074
)
 
$
306,330

 
$
(17,053
)
 
$
589,645

 
$
(24,127
)
 
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2017
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of State and Political Subdivisions
 
$
33,230

 
$
(237
)
 
$
24,161

 
$
(624
)
 
$
57,391

 
$
(861
)
MBS/CMO - Residential
 
172,354

 
(2,048
)
 
250,520

 
(7,241
)
 
422,874

 
(9,289
)
Total
 
$
205,584

 
$
(2,285
)
 
$
274,681

 
$
(7,865
)
 
$
480,265

 
$
(10,150
)

Securities are written down to fair value when a decline in fair value is not considered temporary. In estimating other-than-temporary losses, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.  The Company does not intend to sell or expect to be required to sell these securities, and the decline in fair value is largely due to changes in market interest rates. Therefore, the Company does not consider these securities to be other-than-temporarily impaired. All mortgage-backed securities and collateralized mortgage obligations (MBS/CMO - Residential) in the Company’s portfolio are guaranteed by government sponsored entities, are investment grade, and are performing as expected.
 
NOTE 5 – Derivatives

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of these interest rate swaps and the offsetting counterparty derivative instruments were $86.2 million at September 30, 2018 and $87.8 million at December 31, 2017. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions with approved, reputable, independent counterparties with substantially matching terms. The agreements are considered stand alone derivatives and changes in the fair value of derivatives are reported in earnings as non-interest income.  

Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Company’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. There are provisions in the agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, the Company minimizes credit risk through credit approvals, limits, and monitoring procedures.


13


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited, dollars in thousands except share and per share data)

NOTE 5 - Derivatives (continued)

The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of:
 
 
September 30, 2018
 
December 31, 2017
 
 
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
Included in Other Assets:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
86,180

 
$
3,490

 
$
87,788

 
$
1,564

 
 
 
 
 
 
 
 
 
Included in Other Liabilities:
 
 

 
 

 
 

 
 

Interest Rate Swaps
 
$
86,180

 
$
3,425

 
$
87,788

 
$
1,633


The following table presents the effect of derivative instruments on the Consolidated Statements of Income for the periods presented:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Interest Rate Swaps:
 
 

 
 

 
 
 
 
Included in Other Operating Income
 
$
17

 
$
101

 
$
133

 
$
449


NOTE 6 – Loans
 
Loans were comprised of the following classifications at September 30, 2018 and December 31, 2017: 
 
 
September 30,
2018
 
December 31,
2017
Commercial:
 
 

 
 

Commercial and Industrial Loans and Leases
 
$
527,938

 
$
486,668

Commercial Real Estate Loans
 
985,915

 
926,729

Agricultural Loans
 
358,543

 
333,227

Retail:
 
 

 
 

Home Equity Loans
 
175,008

 
152,187

Consumer Loans
 
72,853

 
67,475

Residential Mortgage Loans
 
219,916

 
178,733

Subtotal
 
2,340,173

 
2,145,019

Less: Unearned Income
 
(3,548
)
 
(3,381
)
Allowance for Loan Losses
 
(16,051
)
 
(15,694
)
Loans, Net
 
$
2,320,574

 
$
2,125,944


As further described in Note 14, during 2018 the Company acquired loans with a fair value of $117,604 as part of a branch acquisition. This was made up of loans with an acquired balance of $120,484, net of $2,880 of fair value discounts at date of acquisition. At September 30, 2018, the remaining carrying amount of such loans totaled $112,873, which is included in the September 30, 2018 table above. This amount is made up of loans with a remaining balance of $115,523 net of remaining fair value discounts of $2,650. No loans with deteriorated credit quality were acquired as part of the branch acquisition described in Note 14.


14


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)

The following tables present the activity in the allowance for loan losses by portfolio class for the three months ended September 30, 2018 and 2017:
September 30, 2018
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural
Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
3,563

 
$
4,958

 
$
5,578

 
$
366

 
$
347

 
$
366

 
$
459

 
$
15,637

Provision for Loan Losses
 
(444
)
 
138

 
618

 
(80
)
 
195

 
67

 
6

 
500

Recoveries
 
69

 
7

 
20

 
1

 
82

 
3

 

 
182

Loans Charged-off
 

 
(9
)
 

 
(10
)
 
(238
)
 
(11
)
 

 
(268
)
Ending Balance
 
$
3,188

 
$
5,094

 
$
6,216

 
$
277

 
$
386

 
$
425

 
$
465

 
$
16,051


September 30, 2017
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural
Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
3,672

 
$
5,316

 
$
4,829

 
$
300

 
$
254

 
$
353

 
$
596

 
$
15,320

Provision for Loan Losses
 
204

 
(81
)
 
(10
)
 
37

 
135

 
56

 
(91
)
 
250

Recoveries
 
1

 
4

 
9

 
6

 
78

 
3

 

 
101

Loans Charged-off
 
(140
)
 
(6
)
 

 

 
(204
)
 

 

 
(350
)
Ending Balance
 
$
3,737

 
$
5,233

 
$
4,828

 
$
343

 
$
263

 
$
412

 
$
505

 
$
15,321


The following tables present the activity in the allowance for loan losses by portfolio class for the nine months ended September 30, 2018 and 2017:
September 30, 2018
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural
Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
4,735

 
$
4,591

 
$
4,894

 
$
330

 
$
298

 
$
343

 
$
503

 
$
15,694

Provision for Loan Losses
 
(121
)
 
498

 
1,302

 
(38
)
 
399

 
68

 
(38
)
 
2,070

Recoveries
 
74

 
18

 
20

 
11

 
239

 
34

 

 
396

Loans Charged-off
 
(1,500
)
 
(13
)
 

 
(26
)
 
(550
)
 
(20
)
 

 
(2,109
)
Ending Balance
 
$
3,188

 
$
5,094

 
$
6,216

 
$
277

 
$
386

 
$
425

 
$
465

 
$
16,051


September 30, 2017
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural
Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
 
Total
Beginning Balance
 
$
3,725

 
$
5,452

 
$
4,094

 
$
283

 
$
235

 
$
329

 
$
690

 
$
14,808

Provision for Loan Losses
 
151

 
(62
)
 
725

 
70

 
307

 
94

 
(185
)
 
1,100

Recoveries
 
10

 
43

 
9

 
8

 
205

 
38

 

 
313

Loans Charged-off
 
(149
)
 
(200
)
 

 
(18
)
 
(484
)
 
(49
)
 

 
(900
)
Ending Balance
 
$
3,737

 
$
5,233

 
$
4,828

 
$
343

 
$
263

 
$
412

 
$
505

 
$
15,321


In determining the adequacy of the allowance for loan loss, general allocations are made for pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss. General allocations of the allowance are primarily made based on historical averages for loan losses for these portfolios, judgmentally adjusted for current economic factors and portfolio trends.


15


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)

Loan impairment is reported when full repayment under the terms of the loan is not expected. This methodology is used for all loans, including loans acquired with deteriorated credit quality if such loans perform worse than what was expected at the time of acquisition. For purchased loans, the assessment is made at the time of acquisition as well as over the life of the loan. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Specific allocations on impaired loans are determined by comparing the loan balance to the present value of expected cash flows or expected collateral proceeds. Allocations are also applied to categories of loans not considered individually impaired but for which the rate of loss is expected to be greater than historical averages, including non-performing consumer or residential real estate loans. Such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of September 30, 2018 and December 31, 2017:
September 30, 2018
 
Total
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
Allowance for Loan Losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending Allowance Balance Attributable to Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually Evaluated for Impairment
 
$
1,594

 
$
208

 
$
1,386

 
$

 
$

 
$

 
$

 
$

Collectively Evaluated for Impairment
 
14,422

 
2,980

 
3,678

 
6,216

 
277

 
386

 
420

 
465

Acquired with Deteriorated Credit Quality
 
35

 

 
30

 

 

 

 
5

 

Total Ending Allowance Balance
 
$
16,051

 
$
3,188

 
$
5,094

 
$
6,216

 
$
277

 
$
386

 
$
425

 
$
465


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
9,394

 
$
3,521

 
$
5,873

 
$

 
$

 
$

 
$

 
n/m(2)

Loans Collectively Evaluated for Impairment
 
2,334,284

 
524,754

 
978,124

 
362,982

 
175,800

 
73,050

 
219,574

 
n/m(2)

Loans Acquired with Deteriorated Credit Quality
 
7,599

 
1,189

 
4,578

 
972

 

 

 
860

 
n/m(2)

Total Ending Loans Balance(1)
 
$
2,351,277

 
$
529,464

 
$
988,575

 
$
363,954

 
$
175,800

 
$
73,050

 
$
220,434

 
n/m(2)

 
 
(1)Total recorded investment in loans includes $11,104 in accrued interest.
(2)n/m = not meaningful

16


GERMAN AMERICAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)

December 31, 2017
 
Total
 
Commercial and Industrial
Loans and Leases
 
Commercial Real Estate Loans
 
Agricultural Loans
 
Home Equity Loans
 
Consumer Loans
 
Residential Mortgage Loans
 
Unallocated
Allowance for Loan Losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending Allowance Balance Attributable to Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually Evaluated for Impairment
 
$
2,228

 
$
1,399

 
$
829

 
$

 
$

 
$

 
$

 
$

Collectively Evaluated for Impairment
 
13,455

 
3,333

 
3,759

 
4,894

 
330

 
298

 
338

 
503

Acquired with Deteriorated Credit Quality
 
11

 
3

 
3

 

 

 

 
5

 

Total Ending Allowance Balance
 
$
15,694

 
$
4,735

 
$
4,591

 
$
4,894

 
$
330

 
$
298

 
$
343

 
$
503


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans Individually Evaluated for Impairment
 
$
11,633

 
$
5,918

 
$
5,552

 
$
163

 
$

 
$

 
$

 
n/m(2)

Loans Collectively Evaluated for Impairment
 
2,133,752

 
481,152

 
917,036

 
336,849

 
152,757

 
67,647

 
178,311

 
n/m(2)

Loans Acquired with Deteriorated Credit Quality